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I urge banks to put in the necessary efforts. Insofar as we are concerned, I think we have developed, in a limited way, such ability and will, as in the past, share with the banking community our analyses so that banks can continually adjust their operations to meet changing market and regulatory needs. Technology risk The third set of forces arises out of banks’ increasing use of, or rather reliance on, technology. We have seen a spate of fake bank websites and attempted email scams over the past year: indeed, the rate of discovery of such cases relevant to Hong Kong has averaged about 1.4 per month over the past 13 months. It should be pointed out that we have no report of any customer in Hong Kong having been taken in by these attempts at fraud. Nevertheless, the proliferation of fake websites indicates that careful precautions and constant vigilance are necessary. And a further area of technology-related crime - ATM skimming fraud - has had its victims, both in Hong Kong and overseas. Increased security and heightened customer awareness, we believe, have helped defeat this form of crime: there have been no new cases in Hong Kong for seven months. Even so, the elementary, “low-tech” nature of these frauds demonstrates also that there are many dimensions of the banks’ vulnerability to technology. In addition to protection against technology-related crime, the IT framework of banks also requires business continuity planning (or BCP). | In taking these initiatives, the Eurosystem has maintained a clear separation between monetary policy and financial stability operations. This clear separation has ensured that we kept fulfilling our primary mandate to safeguard price stability. My sense is that we have been successful. In the Euro area, at no time during the crisis have inflation expectations significantly deviated from our price stability objective. This was most crucial, when headline inflation stayed in negative territory, the output gap was strongly negative and the risks of deflation about to materialize. II. Financial stability cannot be achieved irrespective of fiscal conditions 11. Recent developments in Europe have proven that disorder in public finances could lead to disorder in financial systems. This did not come as a surprise. Central banks have 2 BIS Review 113/2010 long been concerned with fiscal positions in Euro area countries. Indeed, we, at the Banque de France, as well as many ECB members, have regularly called upon policy makers to pay due attention to debt dynamics. 12. Delay in addressing long-lasting fiscal imbalances is primarily responsible for the situation, but the financial crisis has exacerbated the problems. The first trigger was the mechanism of automatic stabilizers that resulted in rapidly declining fiscal receipts due to the synchronized recession. Secondly the imbalances have been aggravated by greater public spending via unprecedented fiscal stimuli plans and large public financial commitments, in particular via capital injection into the banking sector and debt guarantees schemes. | 0 |
18.05.2022 Welcoming remarks Pathways to Gender Equality in Central Banks Margarita Delgado Deputy Governor Dear ladies and gentlemen, I feel very honored to participate in the opening of this conference co-organized with the International Economic Association, Banco de la República and Banco de España. The development of initiatives, such as this one that gives visibility to issues related to gender diversity, are key to finding solutions to the waste of talent that involves not taking this diversity into account, consequently putting economic growth at risk and depriving economies of opportunities to develop. Ensuring diversity and, in particular, gender balance, must be a priority in our organizations and, with this commitment, we work at the Banco de España, where we have made significant progress in recent years. By the end of 2021, 51% of our total staff were females, and it is noteworthy that, in one decade (since 2012), that proportion has increased in nearly 10 percentage points. More than 4 years ago, in April 2018, Banco de España joined Bank Al Maghrib, the central bank of Morocco, to organize the first international meeting between international central banks with the aim of studying and fostering female leadership in central banks. | Also, all the participants would benefit from getting a view from the Academia on the implications for the Economics of the lack of diversity. Gender, of course, is one important aspect of diversity, but this webinar also brings together studies from authors affiliated to institutions all over the world. This geographical diversity would enrich the discussion and expand the menu of possible action points. The conclusions we may reach over the course of these two days will certainly boost the actions to be carried out by our institutions which should be expected to lead by example 1 not only within the financial sector but also, as a public administration, fulfilling our duty to serve public interest. Banco de España has already committed different internal actions. Among others we have created a group of D&I Ambassadors, representing all the business areas together with HR -of which I am proud to be the Sponsor-. This group has the purpose of enhancing diversity and inclusion consciousness and helping to step up specific measures across the organization. | 1 |
If public investments, which, sooner or later, may still need to be made, can be financed at a historically low cost, this would seem like a good opportunity to implement them. Ultimately, fiscal policy aims to increase the well-being of citizens. The development of deficits and public debt may be the means to achieve this, but it is not obvious from an economic point of view that it should be seen as an end in itself. A comparison with monetary policy can be made here: the target is formulated in terms of the outcome, that is, mainly how well the inflation target has been achieved, rather than the means, that is, the monetary policy tools. I think it would be useful if we were to start thinking more along these lines in fiscal policy as well.14 The conclusion of this reasoning is not that public borrowing is never problematic. For example, if the policy becomes too extensive or if it is not sufficiently explained and followed up, investors may nevertheless begin to fear that the government will not be able to manage its debt and may therefore demand a higher risk compensation for lending. This, in turn, may make the commitments even more difficult to meet – there is a risk that we will find ourselves in a bad equilibrium, expressed in economic terms. | Over recent months, inflation has proved more persistent and become more broad-based than had initially been expected. Consequently, we have witnessed a turnaround in monetary policy at a global level as central banks have begun to tighten their policies. The SNB, too, has tightened its monetary policy and has lifted its policy rate back into positive territory. With the transition to a positive rate environment, the SNB has had to adopt a new approach to implementing its monetary policy in the money market. Our new approach features two elements: reserve tiering, also referred to as tiered remuneration of reserves, and reserve absorption by way of open market operations. 1 This new approach takes into account the structural changes that have occurred in the money market since we were last in a positive rate environment. In particular, under these changed conditions, the new approach allows us to pursue our objective of keeping secured short-term Swiss franc money market rates close to the SNB policy rate. Tonight’s event offers an excellent and timely opportunity to discuss our new approach in detail. After reviewing the rationale for adopting the new implementation approach, we will give you an overview of how the new approach has played out so far. Why did the SNB return to a positive policy rate? Let me start by giving you an overview of why the SNB has tightened its monetary policy. Until recently, consumer price inflation had been both low and relatively stable for roughly three decades. | 0 |
Moreover, if it was permanent, then part of the “dividend” from this reduced macroeconomic volatility should be a greater willingness to take on risk. As it happens, the academic literature has so far failed to provide a conclusive answer on the relative contributions of the various explanations 3 . But what matters is how market participants responded to these benign conditions. They are faced with what is, in essence, a complex signal-extraction problem. But whereas many such problems in economics involve learning about first moments of a distribution, this involves making inferences about higher moments. The longer such a period of low volatility lasts, the more reasonable it is to assume that it is permanent. But as tail events are necessarily rarely observed, there is always going to be a danger of underestimating tail risks. Certainly it appears from measures of volatility implied from options prices for US equities (VIX) and treasuries (MOVE) that the perceived risks in financial markets had shrunk to extremely low levels by 2006; see Fig. 5. There are two ways of rationalising this. One possibility is straightforward extrapolation into the future of the benign experience of the preceding few years. An alternative and complementary explanation is excessive faith in the 2 The Great Moderation appears to have started rather earlier, in the mid-1980s, in the United States. | That is consistent with an influence of 5 With four lags of each variable on the right-hand side and a full set of time and country fixed effect dummies for sixteen countries over the period 1975-2007, the F-statistic for the exclusion of house prices in the equation for the current account is 8.2, while the F-statistic for the exclusion of the current account in the house price equation is 4.2. 6 BIS Review 101/2009 the imbalances on asset prices. But equally the results could just indicate that both variables are affected by the state of the business cycle. What went wrong? While the macroeconomic environment may have provided fertile ground for the credit/asset price boom to develop, to explain both the extent of the growth in credit and the magnitude of the subsequent crisis one needs to dig down into what was happening inside financial markets. And when one does that, one finds a variety of incentive distortions and information problems that appear to have played a central role. Distorted incentives Banks are vulnerable institutions because they make long-term loans with uncertain returns that are financed predominantly by short-term debt instruments and callable deposits. If creditors think that the borrowers will be unable to repay the loans, then there is every incentive for them to run. That is why banks are required to hold a buffer of capital and reserves large enough to absorb losses in most feasible states of nature. | 1 |
We were unable to take in the complexity of the financial system and the contagion that this entailed. Although it was extremely difficult to make forecasts, the Riksbank did not stop making them. However, the forecasts were unusually uncertain and we were prepared to revise them significantly, which is what subsequently happened. The forecast for GDP was revised so much that we ended up far outside the uncertainty bands that surrounded the forecast before the crisis (see Figure 1). At a later stage, we also underestimated the strength of the recovery. 4 For a more detailed discussion of the role of assessments in relation to alternative scenarios see the speech “Flexible inflation targeting in theory and practice” that Stefan Ingves held on 12 May 2011. BIS central bankers’ speeches 5 Figure 1 GDP and forecasts for GDP at different times Annual percentage change, seasonally-adjusted data 8 8 6 6 4 4 2 2 0 0 90% 75% -2 -2 50% Outcome -4 -4 September 2008 September 2009 September 2010 -6 -6 April 2011 -8 -8 06 07 08 09 10 11 12 13 Note: All forecasts entail a degree of uncertainty but to preserve the graphic profile only uncertainty bands for the September 2008 forecast are shown. Sources: Statistics Sweden and the Riksbank. | In such a situation, it is a case of using all the means at your disposal to ensure that you stay on the road and do not fall into the ditch. What the road looks like 50 meters further ahead is highly uncertain and, in effect, less important. Once you are back relatively safely on the road your speed will be very low and you will be able to look ahead and try to return to more normal driving. In the upturn: patterns had been broken, parallels with previous crises Thanks to resolute action on the part of central banks and other authorities the crisis entered a less acute phase. However, the financial markets were still not functioning effectively and support measures were still needed. But, a total collapse had been avoided and it was possible to see signs of a normalisation on some financial markets. Nevertheless, the situation was highly uncertain. It was also difficult to assess the real economy. Did the major falls in GDP in Sweden and abroad mean that potential GDP had declined? In many countries the households had experienced substantial falls in house prices. To what extent would the need of the households to strengthen their balance sheets mean that consumption would decline and that the ability of monetary policy to stimulate the economy would be weakened?5 It was clear that the economic patterns that prevailed before the financial crisis had largely been broken. | 1 |
In parallel, there has also been an increase in the variety of goods and services exported, with intermediate goods and services accounting for a growing proportion. Since 2007 the number of Spanish goods-exporting companies has increased by more than 40%. And this despite the difficulties the international environment has undergone and the competition from the emerging economies. Moreover, the contribution of SMEs to this process is beginning to be significant. A further reflection of the internationalisation of the Spanish economy in the past two decades has been its growing share in international direct investment flows, not only through foreign capital inflows, but also through investment by Spanish firms abroad. Spain has become a net issuer of direct investment, running counter to the historical pattern. Large Spanish companies initially directed their foreign investment towards Latin America, diversifying subsequently towards the European Union. Currently, these two areas account for 50% and 30%, respectively, of total Spanish foreign direct investment in the rest of the world. Direct investment flows into Spain, after having been interrupted at the height of the euro area financial market tensions in 2012, are regaining their pre-crisis levels. The gains in competitiveness and the reforms undertaken have no doubt increased the attractiveness of our economy to investors. The headway made in the internationalisation of the economy against a particularly difficult background underscores the competitive capacity of part of the Spanish productive system. | Unlike covered bonds, the latter are backed by packages or specific groups of foreign trade financing operations. These new bonds may contribute to reducing exporting firms’ financial costs and to increasing the total volume of financing. Along with providing financing, banks also extend coverage for export risks, relating for instance to the recipient country’s economic or political situation, so-called “country risk”; the risk that products may be damaged in transit or withheld at borders; collection difficulties in the event of non-payment, associated with different jurisdictional frameworks; and greater uncertainty in the relationship between the supplier and acquiring company. Banks have used various instruments to extend guarantees on international trade flows. The classic instrument is, of course, the documentary credit. The importer’s bank guarantees the exporter’s bank that payment will be made once it has been confirmed, through presentation of the pertinent documentation, that the transaction has been correctly completed. In this way, exporters notably reduce their risks. Naturally, the demand for coverage of credit risk is higher for trade flows with countries with which there are fewer historical ties and with those trade partners for which greater risk is perceived. Accordingly, this may prove important in the opening-up of new markets and in flows to emerging economies. As regards the medium and long term, the nature and functioning of transactions differ from those for short-term transactions. The financial services provided by banks for longer-dated terms are, essentially, financing and the extension of guarantees and bonds needed to participate in international tender procedures. | 1 |
They are largest in managerial, professional and skilled occupations and lowest, or even negative, in elementary, personal service and sales and customer occupations (Chart 13). This is the mirror-image of gender, where pay gaps were largest among the lowest-paid occupations. By sector, pay gaps are largest in the professional and finance sectors (Chart 14). In other words, ethnicity pay gaps are largest among the highest-paid. 16 All speeches are available online at www.bankofengland.co.uk/speeches 16 Chart 13: Median ethnicity pay gap by occupation, sample average Ethnicity pay gap, per cent London 20 Other 15 10 5 0 ‐5 ‐10 Managers Professional Associate Administrative Skilled trades professionals Ethnic minority minority ethnic Personal service Sales and customer Process and plants Elementary White white Source: ONS Labour Force Survey and Bank of England calculations. Note: A positive ethnicity pay gap in this chart indicates that ethnic minorities earn less than their white counterparts, whereas a negative ethnicity pay gap indicates that ethnic minorities earn more than their white counterparts. | 17 All speeches are available online at www.bankofengland.co.uk/speeches 17 Chart 14: Median ethnicity pay gap by sector, sample average Ethnicity pay gap, per cent London 20 Other 15 10 5 0 ‐5 ‐10 ‐15 Agriculture Industry Construction Trade and transport ICT Ethnic minority minority ethnic Finance Real Estate Professional Public sector Other White white Source: ONS Labour Force Survey and Bank of England calculations. Note: A positive ethnicity pay gap in this chart indicates that ethnic minorities earn less than their white counterparts, whereas a negative ethnicity pay gap indicates that ethnic minorities earn more than their white counterparts. If we look at ethnic minority workers at a more granular level, some interesting cohort effects emerge. There is a very wide dispersion of pay among different ethnic minority cohorts, with some having negative and others positive pay gaps compared with their white counterparts (Chart 15). Median hourly pay is highest for those of Chinese ethnicity, at just over £ or around 15% higher than for whites. There are also negative pay gaps, though smaller ones, for workers from a mixed/multiple ethnic and Indian background. At the other end of the spectrum, there are significantly positive pay gaps for other ethnic minority cohorts, including black and Afro-Caribbean workers. The largest pay gaps are for workers from a Pakistani and Bangladeshi background, which average 13% and 20%, respectively (Chart 15). | 1 |
Today, our mission is still to promote the good of the people of the United Kingdom, but now we do that by maintaining monetary and financial stability. Let me explain what that means. Maintaining monetary stability means two things. First, providing banknotes that you can use and trust. We have over 3 billion notes currently in use, and they are used in 44% of all transactions. Second, it means maintaining low and stable inflation. Maintaining financial stability means three things. First, making sure that when you put your money in a bank it is safe. Second, it means that if a bank fails, the costs fall on the bank’s investors and senior management, not ordinary people with deposits in banks. And finally it means making sure that if you take out an insurance contract, it will pay out if whatever you are insuring against happens. The work that the Bank does in all of these areas can ultimately be summed up very simply: we maintain confidence in money. This confidence is not, though an end in itself; it is a means to an end. Confidence in money provides the foundations for prosperity. Without it, companies would struggle to provide the goods and services we all use every day; you would face difficulties in knowing how to invest for your futures, be it financing studies or buying a house. Maintaining this confidence is the best contribution the Bank of England can make to the good of the people of the United Kingdom. | Bank of England Future Forum 2017 Opening remarks given by Mark Carney Governor, Bank of England St. George’s Hall, Liverpool 16 November 2017 1 All speeches are available online at www.bankofengland.co.uk/speeches Good afternoon. Welcome to the Bank of England’s Future Forum to everyone here in beautiful St George’s Hall, and to those viewing on our webcast. My colleagues and I are delighted to be here in Merseyside. It’s been three decades since I first visited. Back then, I discovered my favourite band the Lightning Seeds, who would later pen England’s football anthem. We’ll learn next year whether the Three Lions can end what’s become fifty years of hurt. 1987 was the Life of Riley for local football. Everton and Liverpool were top of the tables, with the Toffees beating the Reds to win the Championship – sadly their most recent of their 9 titles. How things change. It’s not pure and simple all the time. Just like footballing fortunes, economic conditions in Liverpool have waxed and waned. The de-industrialisation of the 1970s and 80s affected the region particularly badly, with unemployment ultimately rising to above 20%. With the 1990s came revival and regeneration, with particular emphasis on the city’s rich cultural and economic history – a heritage rightly celebrated when city centre riverfront was designated a World Heritage Site in 2004 and when Liverpool became European Capital for Culture in 2008. | 1 |
To assess the importance of these risks for the industry, I will now outline the latest developments in lending and private sector indebtedness. I will follow by outlining the situation of the banking industry, and will conclude with a more forward-looking analysis of its resilience and the challenges it faces in the current environment. Recent developments in lending and private sector indebtedness After recording strong growth in 2020, in Spain bank lending to the resident private sector fell slightly in 2021. By sector, lending to non-financial corporations (NFCs) and sole proprietors declined, offsetting the more expansionary behaviour of lending to households, especially loans for house purchase. This pattern intensified in 2022 Q1, when lending overall contracted (-0.5% year-on-year) while loans for house purchase accelerated somewhat (to 1.4%). 3 Overall, thanks to the recovery in turnover and more moderate growth in debt in 2021, the financial situation of the business sector has improved, although on average it is still more vulnerable than before the pandemic. Thus, average debt and debt burden ratios fell in 2021. The percentage of highly-indebted firms1 also decreased across the board, down to almost pre-pandemic levels both in the sectors moderately affected and largely unaffected by the health crisis, although it was still 7 pp higher than in 2019 in those severely affected. In the case of households, favourable labour market and income developments are also contributing to the recovery in their economic and financial situation. | Under a scenario consistent with the Banco de España’s March 2022 projections, the exercise included in the Financial Stability Report estimated that firms’ interest expenses as a percentage of gross operating surplus would begin to increase from 2023 onwards to stand, by the end of 2024, 1 pp above 2021 levels. In any event, the subsequent upward revision to market expectations of future interest rates means that the estimated share of firms’ interest expenses as a percentage of gross operating surplus is likely to rise by a further 1.8 pp by end-2024, increasing by a total of 2.8 pp on their 2021 level.16 16 Given that business income may be expected to fall under this scenario, the increase in the weight of interest expenses should be considered to be the lower bound of the total impact of the rise in interest rates. Meanwhile, every additional 100 bp increase in short and long-term interest rates above the levels currently priced in to market expectations is likely to add an additional 1.7 pp to the weight of interest expenses in 2024. 12 For households, moderate interest rate rises would have a relatively small impact on their debt repayment capacity, partly because of the increase seen in recent years in the proportion of fixed-rate mortgages, which accounted for 24.9% of the outstanding amount at December 2021. | 1 |
To keep things simple, we can assume that the labour and capital shares are constant in the longer run and concentrate on how the return to capital is affected by changes in total factor productivity (the overall efficiency with which labour and capital are utilised in production). A higher return to capital should imply a higher rate of increase in corporate earnings. Conversely, an accelerating growth of corporate earnings should show up as a rising return to capital at the macro level. 5 BIS Review 137/1999 Conclusions From what I have said this evening it is possible to draw two conclusions that at first sight may seem to be somewhat contradictory. On the one hand we have noted that stock market values are historically high and that in the past this has normally been followed by some form of correction. On the other hand, there may be some grounds for arguing that changes have occurred in expected stock market returns and/or the economy’s potential growth rate which could justify a stock market valuation above the historical level. In the United States there are at least signs that point in this direction. For Sweden, however, figures at macro level have not yet been discerned that would confirm such a change. But these two conclusions are not necessarily contradictory. Present stock market prices could mirror a combination of “irrational exuberance” and a change in the fundamental picture of the global economy. The impact of the new information technology may be leading to higher productivity growth. | It is also conceivable that stock market investment is now considered to be somewhat less risky than before, in which case the expected return may have become somewhat lower. But the stock market reaction to these new signs may have been rather hasty. Experience has shown that financial markets are sometimes liable to overshoot when adjusting upwards or downwards. My intention today, however, is not to opt for a particular view. I am more interested in initiating a discussion and would like to take this opportunity of asking the share investors who are present here: Which conclusion do you find most valid? An increase of 3 percentage points in the growth of total factor productivity above the long-term trend leads to an upward shift in the real return to capital from 6.0% initially to 6.2% (1.031x6) after one year, 7.0% (1.035x6) after five years and 8.1% (1.0310x6) after ten years, that is, an increase of about 2 percentage points after ten years. BIS Review 137/1999 6 | 1 |
Since short-term finance is typically cheaper than long-term finance, profit-maximising intermediaries have an incentive to finance their illiquid long-term loans by potentially footloose short-term debt, relying on their ability to roll that debt over when it matures, or to find similar alternative funding sources. Moreover, the recent episode was also marked by increased reliance on short-term wholesale funding, which proved more prone to flight than traditional retail deposits. Now suppose that the returns on the bank’s loans turn out less than expected or the value of its securities falls. That could be the result of a macroeconomic shock or just reflect a correction to initially over-optimistic expectations. Then the bank’s net worth also falls, reducing the buffer available to cover any further unexpected losses, potentially raising the costs of unsecured debt. Moreover, the collateral available to back secured debt also shrinks. Suppose the bank initially held assets worth fifteen times the value of its equity and assume that it wishes to restore that degree of leverage (in practice, a deterioration in macroeconomic conditions might also lead to lower desired leverage). Then the bank is faced with either reducing its assets or increasing its equity. If it pursues the former strategy, then it would need to reduce its assets by fifteen times the amount by which its capital has fallen. Moreover, by depressing the prices of those assets, such a fire sale also impairs the balance sheets of other banks, amplifying the effect of the shock. | The debit card should be positioned as a cost-effective payment card to make it more affordable for small merchants to accept card payments. The expansion of the POS network would allow for wider acceptance of the debit card to be used more pervasively, to displace the use of cash, thus bringing about cost savings for the country in the long run. To correct the distortions and promote competition in the domestic payment card market, a Payment Card Reform is certainly timely to stem the indiscriminate increases in interchange fees and correct the price signals with the view to widen the POS network especially in non-traditional industries and rural areas. 2. Development and sharing of infrastructure investment To be successful, e-payment solutions must not only be affordable, their expansion must also be sustainable in the long term. Sustainability entails the ability to leverage on an enlarged network which enables market players to build critical mass and achieve the desired economies of scale. In this regard, the importance of collective industry efforts to develop and share infrastructure cannot be emphasised enough. Infrastructure development is very expensive and the banking industry ought to share the required investments. Infrastructure should not be used as a competitive tool but rather as an enabler that would promote modernisation of the payment system. Besides minimising cost and lowering the entry barrier for new players, collective infrastructure development and sharing of infrastructure costs would allow market players to compete directly on product offerings and quality of services, thus providing better value to consumers. | 0 |
Second, crises typically reduce potential supply growth, for example by disrupting the supply of credit to productive firms. A failure to take financial instability into account creates an unduly optimistic view of where the Taylor frontier lies, especially when it is based on data drawn from a period of stability. Relative to a Taylor frontier that reflects only aggregate demand and cost shocks, the addition of financial instability shocks generates what I call the Minsky-Taylor frontier, shown in Chart 5. This reflects the influence of misperceptions, financial cycles and the search for yield. On the Minsky-Taylor curve, for a given degree of inflation variability, output is more volatile in the long run than on the simple Taylor curve. Ignoring financial instability might mean choosing a policy reaction function that is believed to imply a trade-off at point O in Chart 5. In fact, the true trade-off is given by point P. Once that is understood then the optimal policy reaction function might well change and correspond to a trade-off at point Q. 22 The examples I have given suggest the possibility that there is a trade-off between meeting the inflation target in the short run and reducing the risk of a financial crisis in the long run. To shed light on whether that possibility warrants a change to the way we implement inflation targeting, I want now to conduct a counter-factual thought experiment and ask whether monetary policy before 2007 might have moderated the crisis if it had not simply pursued a target for inflation. | Evidence of the persistence of misperceptions can be seen in the imbalances in the world, and especially the European, economies. I do not mean to imply that when economic agents make these mistakes they are behaving irrationally. Rather that in a world of intrinsic uncertainty it is far from obvious how to make decisions. The assumption of rational expectations is very helpful for economists when trying to understand the implications of their own models – it is a discipline to prevent the drawing of arbitrary conclusions. In practice, however, households are on their own in a highly uncertain and complex world where they are learning from experience. When it comes to decisions about how much to spend and how much to save, expectations of future incomes are crucial. In the absence of a complete set of markets for future consumption goods – and labour – there is no mechanism to ensure that decisions today, and so the implied plans for tomorrow, will be consistent with the possibilities available in the future. If revisions to expectations of future incomes are uncorrelated across households, then aggregate spending will be relatively stable. The problem comes when many households have similarly over-optimistic views about the future. Aggregate spending and borrowing can then be unsustainably high and lead to an inevitable correction at an unpredictable date when reality dawns. Financial markets both reflect and propagate that common degree of optimism. Sentiment and animal spirits can change very quickly. | 1 |
It was observed that countries where weight was given to low inflation recorded favourable economic developments. Theoretical works published some years later showed that expected and rules-based policy could stabilise the economy provided price and wage rigidity existed. Some examples are: Fischer (1977): “Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule”, Journal of Political Economy, 85, No. 1, pages 191-206), Taylor (1980): “Aggregate Dynamics and Staggered Contracts”, Journal of Political Economy, 88, No 1, pages 1-24 and Calvo (1983): “Staggered Prices in a Utility-Maximizing Framework”, Journal of Monetary Economics, 12, No. 3, pages 983-998. Only when these articles were published was the theoretical basis in place for keeping promises while at the same time allowing monetary policy to contribute to stabilising the economy. 25 See reference in footnote 13. 26 See Eitrheim, Øyvind (2005) in Eitrheim and Qvigstad (Eds. ): “Tilbakeblikk på norsk pengehistorie. Konferanse 7. juni 2005 på Bogstad gård (Norwegian monetary history in retrospect. Conference, 7 June 2005, Oslo)”, Occasional Papers No. 37, Norges Bank. 27 Bahr, Henrik (1962): “Høyesteretts dom i gullklausulsaken (The Supreme Court ruling in the gold clause case)”, Lov og Rett: norsk juridisk tidsskrift, booklet No. 5, pages 193-211. 28 Two government-guaranteed banks had also issued bonds. BIS Review 136/2008 7 Since the beginning of the 1980s, there has been a broad consensus that monetary policy must be geared towards price stability. This paradigm shift also reached Norway, but not until the end of the 1980s. | 36 The inflation target was finally formalised in a new regulation on monetary policy in 2001, a good eleven years after New Zealand, nine years after the United Kingdom and eight years after Sweden. The mandate for Norges Bank states that monetary policy shall, in addition to securing price stability, contribute to stabilising output and employment. It is possible to give weight to cyclical fluctuations in interest rate setting, and to new information, as long as there is confidence that inflation remains near the target. The central bank’s announced interest rate strategy ahead will be adjusted as new information emerges. This stands in contrast to the parity system, which was more rigid. The authorities cannot systematically allow policy to be more expansionary than announced to bring down unemployment. As Kydland and Prescott demonstrated, this would lead to 33 Another difference is that under parity policy the authorities stabilised the price of gold and not the price of a basket of representative goods – the consumer price index. Today, stabilisation of the consumer price index would be described as price level targeting. Inflation targeting, on the other hand, implies stabilisation of changes in the consumer price index. There is also a difference in that there is no longer any redemption obligation. Confidence is not based on gold reserves, but more generally on responsible economic policy as a basis for achieving the inflation target through the active use of the interest rate. | 1 |
8 Further, the longer interest rates remain high, the greater the likelihood of additional upward adjustments to banks’ funding costs and of a deterioration in credit risk quality. With regard to financing, the gradual reduction in, and increased cost of, Eurosystem liquidity facilities and the developments seen in deposits (with depositors seeking better remunerated financial instruments and having used up part of the savings buffers built up during the pandemic) may accelerate the increase in banks’ cost of funding. The continuation and/or heightening of the recent tensions in the global banking sector could also contribute to this increase. As for the future increase in credit risk, our estimates show that a market interest rate increase of 400 bp, somewhat larger than the gain of approximately 365 bp seen in the 3month EURIBOR, could push up non-financial corporations’ median gross debt burden ratio by between 2.9 pp and 6.8 pp9 and the share of corporate debt held by firms under high financial pressure10 by between 6.5 pp and 8.9 pp. In the case of households, it is estimated that a 400 bp rise in the 12-month EURIBOR (slightly less than the 410 bp increase seen since the beginning of 2022) would raise the percentage of indebted households with a high net interest burden11 by 3.5 pp. This increase would tend to be stronger for lower-income indebted households, which are also those most affected by the rise in inflation. | One of the strengths of the ESRB is its ability to harness data and conduct analysis across all EU Member States. In its work on the leverage ratio, the ESRB collected new empirical evidence showing banking sector leverage has been pro-cyclical at an aggregate level in almost all Member States. Average risk weights tend to fall in credit booms and rise in downturns. Working with EBA data, the ESRB found that systemically important banks in Europe typically have lower risk weights and leverage ratios than other types of banks. Taken together, theory and evidence demonstrate the importance of a dynamic leverage ratio to a robust macroprudential framework. Another way that the ESRB has led in identifying best practice and influencing the international agenda has been to take a macroprudential perspective on how elements of the financial system can support long-term prosperity. For example, in its examination of Solvency II, the ESRB has considered how long-term investors like insurers can bring diversity and stability to the system. In my view, more can be done to ensure that Solvency II creates the right framework for long-term investment. The ESRB can provide a constructive and objective macroprudential perspective as an input to Parliament’s review in 2018 of aspects of the operation of Solvency II. Openness puts a premium on shared understanding of risks. The ESRB plays a vital role for the EU, enhancing members’ assessment of new and evolving risks. The structure of the financial system has changed significantly since the crisis. | 0 |
Of course the last ten years have, thankfully, not seen any further liquidity crises, but this progress was tested with the preparatory and contingency work conducted around the EU Referendum in June 2016 – where our approach helped firms plan with confidence. 21 17 As well as opening up the SMF, the Bank has expanded access to Settlement Accounts for its Real Time Gross Settlement system (which allows account holders to settle payments real time in sterling central bank money) from 21 in 2006 to 201 today. These now include to new entrants in payments – non-bank payment services providers. We are currently renewing our RTGS system, and a core feature of the new system will be the ability to interface with new and innovative payment systems, designed to encourage a more diverse and resilient financial system. 18 Before widening access to new classes of institution, the Bank considered three key criteria to ensure usage of the facilities remained appropriate; whether they were systemically important, whether they were exposed to sterling liquidity risk, and whether they were appropriately prudentially regulated. 19 The 2017/18 SMF Annual Report can be found at https://www.bankofengland.co.uk/-/media/boe/files/sterling-monetaryframework/annual-report-2017-18.pdf. 20 The IEO report on the Bank’s approach to providing sterling liquidity, together with the Bank’s response, can be found at https://www.bankofengland.co.uk/news/2018/january/ieo-evaluation-of-the-boe-approach-to-providing-sterling-liquidity. 21 See Shafik, M. (2016), “Small is Beautiful but Big is Necessary”, speech at the Bloomberg Markets “Most Influential” Summit, available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2016/small-is-beautiful-but-big-is-necessary.pdf. | But the moves are still small relative to those we saw ahead of the Referendum. On a day-to-day basis, we continue to use our balance sheet in support of monetary policy and financial stability. Our regular market operations will continue to keep market rates anchored to Bank Rate, and we will continue the programme of gilt reinvestments that maintains the stock of APF purchases at its target level for as long as the MPC choose to maintain it there. And our monthly Indexed Long-Term Repo liquidity facility continues to see regular usage, with £ allocated in September’s operation. Looking further ahead, the TFS is now closed to new drawings, and will gradually unwind in the coming years as banks repay their loans. In June the MPC gave updated guidance that it will not reduce the stock of asset purchases until Bank Rate reaches around 1.5%, and any decision on what happens then will of course be a decision for the MPC of the time and will depend on the economic circumstances prevailing at 28 the time. As and when our balance sheet shrinks, it is likely that its size will return to being determined by the level of SMF participants’ demand for reserves (as well as the amount of banknotes in circulation), rather than by the quantity supplied. | 1 |
We are still dealing with this legacy: for instance, Swiss franc loans, even though accounting for a much lower share of total credit than in neighbouring countries, proved troublesome in the wake of the recent CHF appreciation. Second, implementing the unorthodox measures has also proven very difficult from the communication perspective. These measures proved difficult to explain to the public at large, which saw them as preventing improvements in welfare, and also to the commercial banks themselves, which – as I said earlier – were protesting against what they saw as an uncalled for injunction into their activity. On top of that, we had a tough time explaining our policies even to the ECB. Fortunately, President Trichet understood why we had to take the unusual monetary policy approach, acknowledging that the standard policy consensus was not enough to deal with the challenges a small open economy had to face amid a flood of capital. Third, the exit from these measures has not been easy. While the post-crisis environment provided an opportunity to gradually normalize the reserve requirements levels (thus supplying an additional counter-cyclical tool), they remain high by European standards. However, despite all these obstacles, I think the resort to unconventional policy instruments had 3 major advantages. BIS central bankers’ speeches 3 I would name first the fact that they certainly managed to limit the size of the disequilibria. | However, for the saving glut to result in growing imbalances, net savings have to be more and more asymmetrically distributed across nations. In addition, for more than a decade now, capital has been continuously flowing “uphill”, i.e. from poor to rich countries with current accounts surpluses in emerging economies mirrored in growing deficits in the US. This is one of the most salient and puzzling features of modern economic history and has attracted a lot of attention. Some explanations focus on the domestic drivers of private saving behaviours in both emerging and advanced economies. Cyclical factors, such as productivity shocks, or fiscal policies, have likely played a role (Bussière et al. 2010, and Henriksen and Lambert, 2009) But this can only be part of the story. It may well be that saving / investment imbalances are endogenous to the system itself.. According to the “Bretton Woods II” approach (Dooley et al. 2003, 2008, 2009), the pattern of capital flows results from a mutually beneficial equilibrium between two groups of countries. On the one hand, emerging economies which follow an export-led development strategy and seek to prevent appreciation of their real exchange rates by constant foreign exchange intervention (together with capital controls). As a consequence, they accept to accumulate increasing stocks of liquid assets denominated in dollars. On the other hand, the US is happy to get both reserve inflows to finance their deficits and cheap imports to fuel their demand for consumption goods. | 0 |
Then I will look at monetary and financial conditions and the SNB’s monetary policy. In the third quarter of 2012, global economic growth remained weak, while the volume of international foreign trade actually declined. A mild recession persisted in the euro area, and Japan recorded strongly negative growth figures. In the US, growth was supported by private consumption as well as the improvement in residential construction investment. The situation varied in the emerging economies. In some countries, there was scarcely any improvement in economic momentum, while in others – such as China – a supportive economic policy led to some consolidation. BIS central bankers’ speeches 1 We still expect that the global economy as a whole will gradually recover. However, we have adjusted our forecast for 2013 slightly down from the last monetary policy assessment. This revision mainly affects the short-term outlook for the euro area. We expect that the euro area will only emerge from the recession during the course of 2013. In the US, the moderate recovery is likely to continue, partly as a result of the favourable developments in residential construction. In the emerging economies, growth should continue to gain momentum. The downside risks for the global economy remain high. The crisis in the euro area continues to weigh on the economic outlook. In September, the ECB initiated a new securities purchasing programme, Outright Monetary Transactions. | Although this announcement substantially reduced the probability of extreme events and led to an easing in the financial and credit markets, the economic situation in the monetary union remains vulnerable and the level of uncertainty is still considerable. A further source of uncertainty are the upcoming fiscal decisions in the US. Swiss economic outlook In Switzerland, real GDP in the third quarter increased again following a downturn, due to a temporary recovery in exports. For the fourth quarter, however, we again expect significant weakening in growth. Consequently, economic growth for this year is likely to come to around 1.0%, as forecast to date. For 2013, we expect growth of 1.0–1.5%. While the gradual revival in the global economy is having a supportive effect, the strength of the Swiss franc will hold back export momentum and corporate investment expenditure. Domestic demand is also likely to be restrained over the next few quarters. In view of the modest pace of growth, production capacity in Switzerland will probably remain underutilised in 2013. The rate of unemployment is likely to rise further. Given the fragility of global conditions, the downside risks also remain high for Switzerland. Monetary and financial conditions I will now turn to monetary and financial conditions, which are almost unchanged as compared to the situation in summer 2012. Interest rates in the Swiss franc money market continue to fluctuate around zero. Since mid-June, the three-month Libor has fallen from some 9 basis points to only 1 basis point. Interest rates in the repo market are predominantly negative. | 1 |
Jean-Pierre Danthine: Resilience of Swiss banks from a financial stability perspective Introductory remarks by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Berne, 12 December 2013. * * * In my remarks, I would like to look at the situation at Swiss banks from a financial stability perspective, taking the big banks first and then moving on to a discussion of domestically focused banks. To close, I will say a few words on the subject of banknotes. Big banks: strengthening resilience Since the last media news conference in June, the two Swiss big banks have improved their capital situation further. This applies particularly to their risk-weighted capital ratios, where, in an international comparison, they are above the average for large global banks. Credit Suisse, for example, has already met the requirement of 13% loss-absorbing capital to risk-weighted assets, which comes into force in 2019. According to its published plans, UBS should be able to meet this target by the end of 2014. As regards total capital – which, in addition to loss-absorbing capital, also comprises low-trigger contingent capital instruments – the big banks have also made great progress; however, they have not yet achieved the ratios that will apply from 2019. Unweighted capital ratios – leverage ratios – generate a different picture. | It aims to help people find out more about the notes and coins they use every day. On this occasion, though, there’s something new. The highlight today is the brand new ten euro note. It’s the first time it has been on public display since it was unveiled to the media just two days ago at the ECB in Frankfurt. That means you’ll be one of the first to see this new note before it starts circulating on 23 September this year. The new ten euro is part of what we call the Europa series of banknotes. It’s named after the figure from Greek mythology whose portrait is included in the hologram and the watermark on the notes. Take a closer look at those two security features in the exhibition, as well as the distinctive emerald number, which changes colour from green to deep blue when you tilt the note. They’re all examples of how we have used advanced technologies to make the notes even more secure. The security features will keep us well ahead of counterfeiters – and justify the confidence that the people of the euro area have in their money. There’s a lot more to be seen in this exhibition, which I hope you will all find as interesting and entertaining as I did. So without further ado, allow me to declare it open. BIS central bankers’ speeches 1 | 0 |
But that retreat from globalisation would also have a cost in inefficiency and restraints on the flows of capital between countries. We should not forget that the last decade of free financial markets has been a time of great progress across the developing world in Asia, Eastern Europe and South America. But the process of building up national controls is already underway in many countries including even the UK which has long been one of the most open economies for capital and ownership. It will continue unless we can convince each other that much better structures for cooperation and coordination are in place. That is an acute problem within the EU where the single market is based on a common passport. But dealing with the European problem is not the main priority since most of the biggest banks in the world are based elsewhere. I don’t think we should give up on this international agenda. The package of economic measures that were rolled out late last year – from coordinated cuts in interest rates, to provision of dollar liquidity and measures to support banks – showed the power and possibility of coordinated action. The programme of work on the regulatory implications of the crisis which has been coordinated by the FSF and will go in April to the G20 Summit demonstrates a wide accord on the main regulatory issues. But we need more progress on implementation as well as policy. | BIS Review 21/2009 15 Chart 6 : All hands to the pump Bank of England Stabilisation Equity & Efficiency Regulation FSA HM Treasury Chart 7 : Stylised Value at Risk Chart 8: The Great calculations, pre and post crisis historical context 20 VaR Pre Crisis 18 VaR Post Crisis Stability Density 0.60 150 years of data 10 years of data 16 in 0.50 14 0.40 12 10 0.30 8 6 0.20 4 0.10 2 0 1 16 2 3 4 5 6 Banks 7 8 9 0.00 -15 -10 -5 0 5 Annual GDP Growth (%) 10 15 BIS Review 21/2009 | 1 |
6 BIS central bankers’ speeches Chart: Household debt burden and interest burden In Norway, house prices and household debt have reached historically high levels. The rapid growth in incomes has been a primary driving force. The high household debt burden in Norway represents a risk of financial instability in the longer term. Households can be a source of both direct and indirect losses for banks. Banks’ loan losses will depend on households’ capacity to pay interest and principal, and to the value of the underlying collateral, which is primarily in the form of dwellings in Norway. Banks are also exposed to the economic repercussion effects that may occur in the event of a fall in household consumption. In the short run, the risk of disturbances is probably small because interest rates are low and the vast majority of households have job and income security. Chart: Household financial wealth by debt burden Household saving has been high in recent years, but households with the highest debt have the lowest financial wealth. In 2009, only about ten percent of financial assets were held by households with a high debt burden – that is to say those with debt that was more than five times their disposable income. These households also accounted for around one third of total household debt. Chart: High population growth and low residential construction rate In recent years, pressures in the housing market have been amplified by high population growth. | Structural macroprudential objectives motivate regulatory tools such as additional capital requirements for systemically important banks (“SIFI surcharges”), which aim to reduce the probability that a large institution fails, and resolution and recovery planning, which seeks to limit the damage in the event of failure. The second set of macroprudential objectives are cyclical objectives, focusing on the build-up of risks during credit and asset price booms and the consequent pull-back in financial intermediation during periods of stress. Cyclical macroprudential goals motivate regulatory and supervisory tools that “lean against the wind” in good times and “lean into the wind” during stress, such as the countercyclical capital buffer, the design of stress test scenarios, and time-varying loan-to-value restrictions, which are imposed in some countries. The macroprudential objectives of the SCAP reflected both structural and cyclical concerns. The primary goal was to ensure that large banks had sufficient capital to withstand an even-worsethan-expected economic downturn and still be able to lend—a structural perspective. Each of the 19 banks was required to raise additional capital if the stress tests indicated a shortfall relative to the supervisory target. However, the SCAP’s objectives also embodied cyclical concerns, namely, to provide confidence that banks could continue current lending (“leaning into the wind”) and thus reduce the likelihood of a worse-than-expected economic outcome. In the paper, we identified six elements that we argued made the SCAP a successful macroprudential exercise: comprehensiveness; consistency; multiple, independent estimates; diverse perspectives; transparency of process and results; and clear and predictable goals and actions. | 0 |
of Hedge Funds Assets under Management Source: HFRI Graph 2 All Hedge Fund Assets Flows and Returns 50'000 50% 40'000 40% 30'000 30% 20'000 20% 10'000 10% 0 0% -10'000 -10% -20'000 -20% -30'000 -30% -40'000 -40% -50'000 -50% Mar-94 Mar-95 Mar-96 Asset Flows (LHS) Mar-97 Mar-98 Mar-99 Mar-00 MSCI World $ Return (YoY, RHS) Mar-01 Mar-02 Mar-03 Mar-04 All Hedge Funds Return (YoY,RHS) Source: CSFB-Tremont 6 BIS Review 8/2005 Graph 3 Crude Oil Price and Futures Contract Volume (NYMEX) 60 300'000 50 250'000 40 200'000 30 150'000 20 100'000 10 50'000 0 0 1996 1997 1998 1999 2000 2001 Non-Commercial Long Contracts (rhs) WTI Crude Oil $ Barrel) (lhs) 2002 2003 2004 2005 Non-Commercial Short Contracts (rhs) Graph 4 Gold Price and Futures Contract Volume (CMX) 300'000 550 250'000 500 200'000 450 150'000 400 100'000 350 50'000 300 0 250 1996 1997 1998 1999 2000 Non-Commercial Long Contracts (lhs) Gold Spot $ Ounce) (rhs) BIS Review 8/2005 2001 2002 2003 2004 2005 Non-Commercial Short Contracts (lhs) 7 | I would once again like to thank the EU Delegation for enabling the implementation of this project with the hope for further support in providing subsequent project for the implementation of the recommendations, and thank the other guests for their presence. 2 BIS central bankers’ speeches | 0 |
In my opinion, it seems that is the case, although a number of opinions highlighting potential problems should not be ignored. In favour of the ECB are its strong expertise in the financial sector, as well as the synergy that exists between banking supervision, on the one hand, and the lender-of-last-resort function and payment system oversight, on the other hand. As the third pillar of the banking union, the single bank resolution mechanism is deemed to ensure a centralised management of banking crises that provides options for dealing with bank failures in an orderly way, with minimal disruptions to the economy. The principles of the resolution should be set out in a single rulebook and they should address the issues of the cost of bank recovery, the fiscal backstop, and the moral hazard problem that may occur. The cost of banks’ recovery or resolution should be borne by shareholders and creditors. Nevertheless, in the case of systemic crises, an explicit fiscal backstop may be required, on the design of which a political consensus will be difficult to achieve. Another challenge to establishing this mechanism relates to the heterogeneous resolution framework at the national level, which calls for significant changes in national insolvency, labour and tax laws. Additionally, if the European Stability Mechanism were enabled to recapitalise banks directly, negative consequences could occur in terms of moral hazard within the single market, as well as unfair competition between participating and non-participating banks in the banking union. | The financial system in the aftermath of the crisis The financial industry is supposed to be the lubricant of the economic engine and ensure its smooth and efficient functioning. To grasp the sheer scale of its task, just imagine the billions of savers and investors whose interests have to be matched by the financial system, each of them having a particular behaviour, often driven by emotions. In doing so, financial institutions use specialized resources to assess and manage risks, including complicated mathematical models. Just think of the many Nobel prizes that were awarded for achievements in this field. The complexity of financial intermediation explains some of the seemingly peculiar features of the financial system as, for instance, the fact that the volume of transactions on the forex market is many times larger than what would be required by the actual exchange of merchandise. BIS central bankers’ speeches 3 The major positive contribution of the financial system is its ability to deal with asymmetric information problems. Adverse selection and moral hazard are issues emerging from asymmetric information. They are a cost to society, as they hamper lending. Financial system expansion has been the natural solution of the society in order to overcome asymmetric information problems. Financial institutions put their capital at risk and derive income from the spread between lending and deposit rates. In doing so, they use specialized resources to assess credit risk and discipline the borrower. | 1 |
As noted above, many of the emergency liquidity facilities rolled out in the crisis were developed in a very short period of time by experts with years of experience in these various markets. All of the new facilities were designed to price the emergency liquidity such that as market stresses eased, their use would decline. This is exactly what happened. Furthermore, the most convincing evidence that the facilities correctly addressed market failures related to liquidity is the fact that none of them lost any money.19 Conclusion The past few years have seen important changes in the role of central bank interactions with financial markets. Some of the main lessons I take away are: published statistics and market prices only tell part of the story of developments in financial markets, at best; beliefs of market participants and the distribution across markets matter, and information on them needs to be collected and analyzed on a frequent basis; active operations in financial markets allow central banks to flexibly respond to unexpected events and understand market functioning issues and changes in market infrastructure. Most importantly, the global financial 18 The Federal Reserve established swap arrangements with the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, the Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, the Sveriges Riksbank, and the Swiss National Bank. | The large banks in particular are concerned that they will end up paying for the bulk of the cost of a DIS from which they and their customers will receive little benefit. They have argued that the cost of insurance will inevitably be passed onto customers in the form of lower interest rates on deposits and higher fees. Competition might well oblige the banks to absorb the cost. Even so, this is a sensitive issue about which those in favour of the DIS have also expressed concern. Of course, it can be argued that the reason why the large banks would bear most of the cost is because they have most of the deposits, from which they derive a significant competitive advantage. Moreover, large banks in general tend to benefit from the perception that they are “too big to fail” or at least “too big to liquidate”. A DIS to which the large banks contribute can therefore be seen as helping to level the playing field for the small banks. These are however rather sterile arguments. The reality is that we have a responsibility to keep the costs of a DIS as low as possible. If the decision is taken to proceed, we will therefore be looking at the size of the premium to see whether it can be brought down from the 10 basis points indicated in our consultation paper. | 0 |
I mean that the central bank must be aware of general changes in the functioning of the economy that may justify adapting its behaviour to be able to carry out the task it has been given in the best possible way – even if this is a very delicate task. It is as yet still fairly uncertain what will be decided regarding the question of the central banks’ independence. Perhaps the main complicating factor is the broadening of the central banks’ tasks and toolboxes, which many people are saying is on the cards. While a large degree of independence is relatively easy to justify with regard to maintaining price stability, the independence is somewhat less self-evident with regard to the central bank’s role in the fields of macroprudential policy and crisis management. Some analysts say that one solution may be that the central bank is allocated different degrees of independence in different roles. The independence should be considerable when it comes to the task of maintaining price stability, but perhaps less when it comes to tasks connected with macroprudential supervision and crisis management. Opinions are divided as to how easy it is to attain this kind of division. There is scarcely any doubt that the problems in drawing up boundaries can be difficult at times. | The reduction in the Eurosystem's monetary asset holdings is expected to be pursued in a predictable and gradual manner, with the first principles being announced in December. This will undoubtedly change the financing environment which borrowers have grown accustomed to. The most immediate impact will be on money markets and government bond yields, which later propagate to the cost of bank and corporate debt. Indeed, euro area sovereign yields have already risen markedly since last year and could increase further when balance sheet normalisation starts. Turning now to Malta, while the transmission of the latest monetary impulses to bank lending and deposit rates appears rather slow, government bond yieldsin Malta have already begun to increase. Such increases and tighter financing conditions abroad will eventually be reflected in a higher cost of funding for domestic banks, and eventually, households and corporates. It is essential to be reminded that on monetary, financial and economic terms Malta is very much integrated with the rest of Europe and that the decisions taken in Frankfurt ripple across the whole euro area, Malta included. 2/5 BIS - Central bankers' speeches The transmission of tighter monetary conditions to the interest rates that banks offer to their customers is necessary for inflation to return to the policy target of 2% in a timely manner. But it is not sufficient. Other policy actors also need to do their part. In particular, fiscal support has to be temporary and targeted, so that it avoids supporting demand for longer than is necessary. | 0 |
Economists and central bankers were remarking on the low level of real interest rates as early as 2005.1 The MPC discussed the factors behind the more recent decline, since the financial crisis, in the February 2014 Inflation Report, in the context of its forward guidance. My colleague David Miles went through some of these arguments in more detail in a speech in February this year. The debate about “secular stagnation” has also focussed a lot of attention on the issue. The only wrinkle here is to distinguish those factors that are good for risky assets from those that are bad – and, in doing so, to say something about distributional effects. I also want to caution against mistaking cause for effect and in particular, when it comes to asset prices, putting central banks at centre stage. Autonomous changes in monetary policy certainly can have an impact on asset prices. But that does not mean they’re the only thing that actually 1 Bernanke (2005). BIS central bankers’ speeches 1 does so. Over time, trends in real asset prices are determined by real (non-monetary) forces: we may occasionally be prominent actors but it’s someone else who’s written the script. | And there will be more to come. We look forward to the launch of the Shenzhen-Hong Kong Stock Connect, and looking further ahead, the Mainland authorities have announced plans to consider implementing the Qualified Domestic Individual Investors scheme (QDII2) on a trial basis. It’s certainly true that individuals on the Mainland have shown a great deal of interest in diversifying their investment holdings. This is an area where we see Hong Kong having a strong competitive advantage, with our strategic location, our expertise in private banking and wealth management business, coupled with our strong client networks on the Mainland. To BIS central bankers’ speeches 1 capitalise on these emerging opportunities, we have been liaising closely with the Mainland authorities on QDII2.The second trend is that not only is Chinese capital “going out”, Chinese companies are also increasingly "going out". Outward direct investments (ODI) by China to the rest of the world amounted to RMB758.5 billion in 2014, a 63% rise over the past five years. And, it’s interesting to note that 16% of these flows are settled in RMB, up from a mere 3.7% in 2011. This “going out” trend has been continuing for some time, but has been given fresh impetus by the greater desire of Chinese enterprises to diversify into other non-RMB asset classes. New policy measures by the Mainland authorities, notably the ‘Belt and Road’ initiative, has also played a key role. | 0 |
ERROR: type should be string, got "https://www.mas.gov.sg/news/speeches/2020/harnessing-the-power-of-finance-for-a-sustainable-future 8/13 14/10/2020 “Harnessing the Power of Finance for a Sustainable Future”- Keynote Speech by Mr Ravi Menon, Managing Director, MAS, at the Finan… A study by UBS estimates that close to 40% of family offices plan to allocate most of their portfolios sustainably in five years’ time. [8] This trend will be bolstered with the transfer of wealth to the millennial generation. An estimated $ trillion is expected to change hands to the next generation by 2030. [9] Several studies suggest that millennials desire to invest in companies with good ESG track records. [10] According to a survey by Morgan Stanley, 90% of millennial high net worth investors want to tailor their investments to their personal values. [11] As a leading wealth management hub in Asia, Singapore can play a strong role in wealth planning solutions that support sustainable development in Asia. MAS launched last year a Green Investments Programme under which we will place $ billion of our funds with asset managers with a strong green focus. The aim is to grow the pool of asset managers that are committed to deepen green finance activities and capabilities in Singapore. We have short-listed several asset managers with a view to appointing the successful applicants early next year. Singapore has also begun anchoring providers of verification, review and rating services." | The only way to avoid that would have been to offer to lend to all banks at a rate that many others – in addition to 2 BIS Review 114/2007 Northern Rock – found attractive to pay. And to do that without drawing attention to Northern Rock’s take-up would have required a truly massive injection of cash into the banking system. That could happen only if there were no penalty rate or if conditions in money markets generally were difficult enough to make the penalty rate attractive to many banks over a prolonged period. Nothing would have been easier than for the Bank of England to lend freely without a penalty rate. Almost every actor in this drama saw advantage in cheap money and plenty of it. The role of the central bank is to ensure that the appropriate incentives are in place to discourage excessive risk-taking and the under-pricing of risk, and in so doing to avoid sowing the seeds of an even greater crisis in future. That we have done in each action we have taken – by maintaining the principle of the penalty rate. Some commentators have taken issue with these concerns about moral hazard, arguing, by analogy, that fire departments put out fires started by people who smoke in bed. I agree that we have fire services to do precisely that. And if a fire starts in the financial system, the central bank will put it out if it threatens to spread. | 0 |
But the primary justification deployed then was the need for a money market instrument, targeted at the banks as customers, to facilitate monetary management rather than the development of the bond market. Nevertheless, we adopted a comprehensive approach to the task. We put together an innovative market making system that virtually guaranteed liquidity by allowing a handful of market makers to go short in any issue of our paper for as long as their overall holdings, with suitable haircuts, are long. This has now been replaced by an even more robust arrangement whereby short positions in particular issues are squared at the end of the day through overnight repos against other issues. We also built a paperless clearing, settlement and custodian system operated by our Central MoneyMarkets Unit (CMU), which also provided similar services to the larger volume of private sector debt. And, at the same time as we introduced our Real Time Gross Settlement payment system at the end of 1996, we moved on to DvP, or delivery versus payment, with real time and end of day capabilities. Meanwhile, the supply of debt has steadily been increasing. Corporate bond issuance has increased by 300 per cent in the last decade or so. We also have an increasing variety of products, including mortgage-backed securities and retail products brought to the market by the Hong Kong Mortgage Corporation. All have been readily absorbed by the latent demand to which I also referred earlier. | Jessica Chew Cheng Lian: Launch of Financial Literacy Month 2022 Opening remarks by Ms Jessica Chew Cheng Lian, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Launch of Financial Literacy Month 2022, Kuala Lumpur, 1 October 2022. *** 1. It is my great pleasure to welcome you to Sasana Kijang for the launch of the Financial Literacy Month 2022. On behalf of the Financial Education Network, I thank you for your presence here to join us in flagging off a month-long roadshow to help people across the country build greater confidence in financial matters. It is especially gratifying for our teams to be able to go on the road again, to meet and talk to people in person after what has been a difficult period for many. 2. This is the third year that the Financial Education Network is holding a financial literacy month. And while we have lined up many activities and programmes over the coming month, I know that no one here believes financial education starts and stops within a month. I was reminded again of this as we are about to share the results of the most recent Financial Capability and Inclusion Demand Side Survey, or the FCI Survey, in short, that was conducted in 2021. This is a survey that we carry out once in every three years to track how the level of financial capability in our society – measured in terms of financial knowledge, behaviour and attitudes – is changing over time. 3. | 0 |
The slow pace of financial integration relative to trade, in my view, is a reflection of three specific factors. BIS Review 95/2006 1 First, trade integration has a much longer history in East Asia, of which the key turning point was the introduction of the ASEAN Free Trade Area in 1992. Therefore, trade integration benefits from an established policy structure and a more simplified policy framework of tariff reductions, compared to that of financial integration. Second, financial integration has essentially been a market-driven process, with the policy supports focusing on removing market impediments and developing financial infrastructure. Therefore, there has been less of a deliberate policy push while the different levels of financial market developments in the region also act as a constraint to rapid integration. And the third factor is that, compared to trade integration, financial integration is complicated by a wider set of rules and regulatory framework, especially on cross-border capital flows, that tends to be more difficult to dismantle quickly. At the same time, the policy approach on capital flows liberalization in East Asia has been more cautious following the Asian financial crisis because of the risk of capital outflows and the weakened external financial positions. This, in my view, is one reason that led to a more cautious approach in liberalizing cross-border capital outflows. Let me now come to the second part of my talk, that is, the prospect for financial integration in the region going forward, and what should be the role of policy. | 4/5 BIS central bankers' speeches 1 BIS’ definition of international claims comprises cross-border claims and local claims of foreign banks’ affiliates in foreign currency. 2 2 Based on a presentation by E Remolona (2017), “Bank flows in EMEAP: Neither a lender nor a borrower be”. See also E Remolona and I Shim (2015), “The rise of regional banking in Asian and the Pacific”, BIS Quarterly Review, September 2015. 3 4 World Bank (2015), “The Global Findex Database 2014: Measuring Financial Inclusion around the World”. 4 5 Asian Development Bank (2017), “Accelerating Financial Inclusion in South-East Asia with Digital Finance”. 5/5 BIS central bankers' speeches | 0 |
Lee Hsien Loong: Prospering in a rising Asia Speech by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the opening dinner of the Conference Board Symposium on Asian Economies and Financial Markets, Singapore, 27 May 2004. * * * Distinguished Guests, Ladies and Gentlemen, Let me first welcome all of you to the Conference Board Symposium on Asian Economies and Financial Markets, held for the first time here in Singapore. Asia’s comeback since the financial crisis Asian economies have come a long way since the financial crisis in 1997. For six years they have had a tumultuous ride, marked by unexpected shocks and painful adjustments. The September 11th attacks were followed by the Bali and Marriot bombings in Indonesia, which shook confidence in the region and brought the harsh realities of Islamist extremist terrorism closer to home. Last year, the Iraq war and the SARS outbreak weakened business sentiments and consumer spending, setting back economic recovery yet again. Prospects for the region have since brightened considerably, on the strength of a synchronised upturn in the G3 economies. The electronics industry, a lynchpin of export-driven Asian economies, is finally picking up robustly after a prolonged slump. Investor confidence has returned, bond spreads have narrowed, and stock markets have outperformed the developed countries, until very recently. The Asian crisis forced governments in the region to tackle weaknesses in their financial and corporate sectors and implement much needed structural reforms. | Weak banks have been recapitalised, bad loans reduced, and prudential regulations strengthened. Government finances have been put on a firmer footing, while balances of payments have moved into surplus. The result is a stronger and leaner Asia, more prepared for storms and more ready to seize opportunities. A major development in recent years is the emergence of China as an economic powerhouse. China’s growth and transformation have been phenomenal. Its buoyant exports, supported by low-cost manufacturing capabilities, and its huge domestic market, have created strong competition as well as immense opportunities for the rest of the world. China’s growth has driven the rapid increase in intra-regional trade, and fuelled economic expansion in the region, if not worldwide. China’s economy is showing signs of overheating, but its government is mindful of the danger and determined to act decisively to rein in credit and investment. This gives them a good chance of achieving a soft landing. Beyond this cyclical issue, China is set to continue growing strongly for the next decade or two. The other Asian giant, India, is becoming a dynamic and prosperous economy. Liberalisation policies and market reforms are freeing up the long moribund Indian economy. State-owned enterprises are being privatised. Ports, airports, telecommunications and financial services have been opened up to competition and foreign participation. As the dead hand of bureaucracy is withdrawn, growth is taking off, especially in the services sector. | 1 |
BIS Review 36/2010 7 depositors would ask themselves why it had been used: if they attached even a small probability to the possibility that the bank was in trouble, it would be rational for them to withdraw their deposits – triggering a run on the bank. Anticipating this reaction, there is a risk that banks would choose not to use the facilities. Further, some market participants might use the information that the facilities were being used to spread malicious rumours in the hope of profiting from the market reaction. Such rumour-spreading would be privately beneficial for the rumour-spreaders, but socially harmful. That is why when designing its discount window lending facilities, the Bank decided only to disclose average usage over a quarter, and then only with a lag. 17 Communication of forecasts is not easy. Probabilities are hard to understand. Yet a forecast is not a number but an estimated probability distribution. 18 And we cannot assume that people obtain information in a neutral form. Indeed for most people information is conveyed to them via the media which may filter out or reinterpret information. This leads to an incentive problem. Instead of simply reporting the information about future prospects made available in the forecasts, there is an incentive to summarise the prospects in a single number or to describe one part of the probability distribution in a way that makes for a good story. That suggests there is merit in trying to communicate directly to the public. | Inflation, as measured by the change in the Consumer Price Index, should be 2% at all times. But because interest rates take time to affect inflation, forecasts of inflation are integral to setting monetary policy. And because the MPC’s forecast is a probability distribution, rather than a single number, it is communicated in a fan chart. That depicts the MPC’s view of the probability of a range of different outcomes. Each forecast covers a three year forecast period, because that is the horizon over which we expect the current stance of monetary policy to have the majority of its effect. Here is an example fan chart (see http://www.bankofengland.co.uk/publications/speeches/2010/speech432.pps). It shows the inflation projection published in the February 2010 Inflation Report. Each fan chart is conditioned on a particular path for the Bank’s policy instruments. This one assumes that Bank Rate will follow the path expected by financial markets. The MPC also publishes another fan chart conditional on a different policy assumption, namely that Bank Rate remains at its current level throughout the forecast. We believe these charts have been helpful in communicating the big picture that the MPC needs to get across. The fan chart works by showing what the Committee believes would happen to inflation if today’s economic circumstances were repeated on 100 occasions. In any given quarter in the future, CPI should lie somewhere in the red shaded area on 90 out of 100 occasions: 10 times in the darkest red band, and 10 times in each pair of lighter red bands. | 1 |
On the other hand, the realization of such projects enables strengthening of the cooperation between the central banks of the region and the central banks of the EU, which is inevitable in the process of integrating the entire region in the EU. Let me finally thank the ECB and the EU for enabling the NBRM to participate in this project. I wish success for all the institutions involved in the project in anticipation of even greater cooperation and I thank our hosts for organizing this event. BIS central bankers’ speeches 1 | Dear participants The productivity and the quality of work are major determinants of life quality, affecting nutrition, health and education, social protection, and fair treatment. Jobs are particularly important for the poor, whose labour is often their only asset and a primary route to poverty eradication. It is for this reason, that we at the central bank recognise skills development as an economic imperative. This is because it increases productivity of economic agents. Chairperson In the aftermath of the recent global financial crisis of 2008, employment has re-emerged as a top priority area across the world. A large and growing young population can be a driver for economic growth and social progress provided they access quality education and health, and are engaged in decent employment, without which, many young people will not be able to escape negative social vices and poverty. In recognition, of the foregoing, the National Budget for 2013 whose theme is; “Delivering Inclusive Development and Social Justice” has for the first time put job creation at the centre of its development agenda by explicitly targeting the creation of 200,000 jobs in 2013. BIS central bankers’ speeches 1 Sectors targeted for these jobs are agriculture, tourism, manufacturing and construction (including infrastructure). Ladies and gentlemen Sustained efforts to bring in private investment coupled with supportive public policies and investment, would contribute to enhancing productive capacities and generating the much needed jobs in our country. | 0 |
Spain seemed to be in a different position with a positive fiscal balance, though this was mainly due to unsustainable high growth in the construction sector. This illustrates the first question, which is how to solve time inconsistency in fiscal policy. It is easier to follow the prescriptions of Keynes in bad times than in good times. This asymmetry may lead to an increase in budget deficits and sovereign debt over time, also referred to as the fiscal bias. As a result, many countries are forced to tighten policy in a period when the real economy would certainly benefit from further stimulus. The crisis caused fiscal balances to deteriorate by 8–10 percentage points of GDP. There is an immense difference between encountering a shock of this magnitude from a positive fiscal balance of 4 per cent and encountering it from a negative fiscal balance of 4 per cent. A similar time inconsistency problem, the inflation bias, has been a much debated issue in monetary policy. The solution has been central bank independence. The results have been fairly good. The question remains, is there a lesson to be learnt in the fields of fiscal policy and banking regulation? This crisis has been very benign to the Norwegian economy. One of the reasons, I believe, is that we had a national banking crisis only 20 years ago. Many of the executives in banks, corporations and government this time, had experienced the previous crisis. Hopefully, they had learned some useful lessons. | A full blown banking crisis started in 1990, peaking with the nationalisation of the three main Norwegian banks in 1992. Unemployment in Norway rose rapidly and reached unprecedented levels. The last two decades have been a golden era in the Norwegian economy. Partly thanks to sound macroeconomic policy and growth-stimulating structural reforms, we have experienced a strong growth record, after many years of meager performance. Due to good luck, we have also experienced very positive terms of trade developments. Increasing prices for our exports, such as petroleum, fish and aluminium, and decreasing prices for important import products like clothing and consumer electronics have made the average Norwegian much better off than he or she was twenty years ago. Norway’s income has nearly tripled over the past 20 years. It is often politically easier to introduce structural reforms during crises. When bad news fills newspapers and television programmes, the electorate is more likely to accept necessary measures. In the long run, reforms prove to be very profitable even though they are painful in the short run. Among the changes in the Norwegian economy from the 1990s on were the removal of subsidies, closing down of government-owned enterprises, deregulation in important markets like housing and electricity, tax reform which increased incentives to work and closed tax evasion loopholes, and the reform of parliamentary budget procedures. Finally, a fiscal rule was put in place, providing a sustainable relationship between the Government Pension Fund and the government budget. | 1 |
I will say something first about the trigger, and then about different resolution tools and strategies. The trigger for resolution Not a few people worry about the trigger for putting a firm into resolution – not too early, not too late. It is obviously important to get that trigger right. To my mind, the best way of thinking about it is that a firm should go into resolution when its time is up – when Recovery strategies are exhausted, and the firm just will not be able to BIS central bankers’ speeches 1 reverse its decline into insolvency or lack of viability. How to frame that thought more precisely? Every country has criteria for authorising/licensing a bank. A sensible trigger for resolution would be when a bank no longer meets the criteria for being authorised and, crucially, when there is no reasonable prospect of its doing so again. That does not give a damaging degree of flexibility to the authorities; it is a demanding test. Some resolution strategies In the banking field, many resolution tools entail separating out a distressed firm into different parts. Separating bad from good assets; and separating essential from non-essential functions. The good and critical functions are sold and transferred to another bank (often known as “Purchase & Assumption”); or to a bridge bank pending such a transfer. The rump goes into administration, run down and disposal. | But I must stress that in no way does any of this dilute the protection assured to insured deposits. It does transfer losses to the surviving parts of the local banking system. But so do other resolution techniques, and liquidation would entail much bigger losses for the Deposit Insurer and thus for other banks. There is much work to be done on planning how to operationalise that kind of resolution strategy, but it is worth doing. The FSB work programme This brings me, briefly, to the FSB work programme for 2012 and into 2013. There will be a preliminary peer review of the extent to which jurisdictions’ resolution regimes comply with the FSB Standard. That will be followed by more exacting examinations, led by the IMF and World Bank, once an Assessment Methodology for the Resolution Key Attributes is complete. Meanwhile, authorities are enjoined to produce assessments of resolvability of Global SIFIs and the obstacles in their way; firm-specific agreements for co-operation amongst home and host resolution agencies and supervisors; and resolution plans by the end of this year. Each of those requires a conception of a high-level resolution strategy for individual firms agreed amongst top officials of home and key host authorities. And the development of those strategies will inform the information that the authorities need from firms. I have sketched in very general terms two broad kinds of resolution strategy, potentially appropriate for different types of global SIFI. | 1 |
However, the European Union holds a trump card as it boasts the world’s largest pool of savings, with the annual surplus of domestic savings over investment regularly exceeding EUR 300 billion. For this reason, we see a critical need to foster equity financing, as it is ideally suited to innovative projects, which entail higher risk-taking. This is also why, on a broader note, we support implementation of the Capital Markets Union [SLIDE 5], which, through a series of technical reforms, will enable Europe’s plentiful savings reserves to be allocated efficiently to companies through market financing. Efforts to strengthen the Capital Markets Union must be conducted in concert with steps to deepen the Banking Union, which remains an absolute priority. These two initiatives are crucial to the continued financial integration of the EU and will ultimately pave the way for investment and innovation to be funded more effectively. That is the diagnosis that I wanted to share: the twin transition to a digital future and a sustainable economy has the potential to weaken not only banks, but also financial stability and the real economy. Yet this is merely a diagnosis, not a prognosis. This same risk could also be a source of beneficial changes. 2. The banking sector: a participant in the digital and green transition 3/6 BIS central bankers' speeches And so I come to what could and should be done to turn these challenges into opportunities. I will talk about three courses of action. | For example, they are making public commitments in different areas that can have a positive impact in terms of mitigating and adapting to climate change, such as their carbon footprint, fossil fuel exit strategies, shareholder engagement and greenhouse gas emissions reductions. The ACPR and France’s securities regulator, the AMF, which have been monitoring these commitments for the last two years, stress that significant headway has been accomplished in a short time, but also warn that progress still needs to be made if banks are to communicate more clearly and transparently about their objectives and especially about the means of action likely to ensure that these collective commitments are kept. Banks could also contribute to the transition to a sustainable economy by playing their part in the emerging green bonds market. This market doubled in size in 2021 to reach EUR 460 billion globally, of which half is denominated in euros [SLIDE 7]. But it still has lots of room to grow, judging by the fact that green bonds made up a mere 0.4% of the total volume of bonds issued during the same year worldwide and 2.6% in Europe. In this setting, the new label will help to support a fast-growing market while also preventing greenwashing risks. 2.3 Central banks are also helping to steer these transformations as they lead by example [SLIDE 8] To conclude, I would like to say a few words about what we at the central bank are doing. I will offer two illustrations for each challenge. | 1 |
After falling by 3.1 percent in 2009, growth in real GDP averaged 2.4 percent in 2010, 1.8 percent in 2011 and 2.2 percent in 2012, a consistent but sluggish pace. This sluggishness has been quite evident in the labor market. After falling by 421,000 per month in 2009, payroll employment grew by 85,000 per month in 2010, 175,000 per month in 2011, and 181,000 in 2012. To put these numbers in perspective, the trend rate of growth of the civilian non-institutional population is around 200,000 per month. The unemployment rate has declined from a peak of 10 percent in October of 2009 to just under 8 percent recently, due largely to the fact that the labor force participation rate has declined by considerably more than would be suggested by underlying demographic trends. Fortunately, long-term unemployment, defined as those unemployed for 15 weeks or longer, has declined from nearly 9 million in the first quarter of 2010 to about 6.6 million in recent months – a decline of 28 percent. The median duration of unemployment has declined from 23 weeks in the second quarter of 2010 to 16 weeks recently. Nonetheless, as of January there were still about 3.2 million fewer jobs than at the end of 2007. The unemployment rate remains elevated, despite a significant decline of the labor force participation rate. And the ratio of employment to population in January was lower than it was at the end of the recession, indicating that employment growth has not kept pace with population growth. | In particular, we may expect that, after three years of robust growth, investments in residential construction will stagnate at a high level. Overall, we project GDP growth of just over 1.5% this year. Previously, we had expected growth to reach about 1%. To a large extent, this correction to our growth forecast is due to seco’s revision of the figures for the first two quarters. For 2006, we forecast economic growth of a little more than 2%. This would take GDP growth to a level above the potential growth path for the Swiss economy. The output gap – i.e. the gap between normal and actual utilisation of resources – will diminish. Monetary development Alongside the figures for the real economy, movements in monetary and credit aggregates also indicate that economic recovery is underway. Since adopting a resolutely expansionary monetary policy three years ago, mortgage lending has grown at an annual rate of over 5%. We continue to monitor developments in the real estate market closely. Since September, other loans have also recorded positive rates of growth with respect to year-back figures. In the past, a development of this kind usually indicated a strengthening in economic recovery. The economy is well supplied with liquidity as a result of the expansionary monetary policy. Although the growth of the broadly-defined monetary aggregate, M3, had fallen to 1% in October 2004, it has since climbed back to over 6%. However, excess liquidity will be gradually reduced as a result of the interest rate increase announced today. | 0 |
Meanwhile, both the ECB and the European Commission introduced new pandemic instruments, which benefitted the domestic economy, though the benefits of some of these, like the Next Generation EU funds, will accrue during 2021. Given this context, the Bank expects economic activity to contract sharply this year, with a gradual recovery starting next year, though this outlook is conditional upon a containment of the spread of the virus and the rollout of a vaccine during 2021. Compared with our August projections, we are revising GDP growth downwards in 2020 and 2021 due to the deterioration of the international economic environment; the renewed containment measures introduced in October; and a more subdued recovery in tourism than previously anticipated. Exports are expected to be the largest contributor to the decline in GDP in 2020. Both domestic and external factors have been severely negative for exports during this year. In particular, foreign demand has declined dramatically while travel disruptions negatively affected services exports. In addition, supply disruptions during the first part of the year have adversely impacted the productive capacity of Maltese exporters. Exports should bounce back next year, but will likely remain constrained by uncertainties related to travel and Brexit. Furthermore, in 2021, foreign demand is expected to recover only partially from the decline experienced in 2020. As restrictions were lifted in May and June, private consumption is expected to have recovered somewhat, partly assisted by the Government’s voucher scheme, though uncertainties about the length of the pandemic are likely to have kept household saving higher than usual. | The literature on growth has been expanding lately, but most work on transition agrees that macroeconomic stability linked with structural reforms is essential to growth (Wyplosz, 1999; Fischer and Sahay, 2000). And it is equally true that most transition economies have responded positively to the combination of the two and after a sharp decline in GDP today have positive growth. We have learned as well that the growth process is much more complex than was anticipated at one time. We know that the future success of reforms depends very much on elements like: institution building, contract enforcement, rule of law, etc. To explain the complexity of growth in transition a little bit I will use two concepts: a) human capital and b) social capital. a) Human capital Let me immediately start by quoting Lucas (1993) on what causes growth: “The main engine of growth is the accumulation of human capital - of knowledge - and the main source of difference in living standards among nations is difference in human capital” (p.270). So, if we want sustained growth we must promote the accumulation of human capital in transition economies. The next question is: How does the accumulation of human capital happen? Obviously, there are many ways in which human capital is accumulated but, to mention just a few: it happens in schools, in other forms of training, particularly on-the-job, in research institutes, etc. | 0 |
Øystein Olsen: Economic perspectives Address by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), to foreign embassy representatives, Oslo, 8 April 2019. * * * Accompanying slides of the speech. Your excellencies, ladies and gentlemen. Firsts of all, I would like to thank you for taking the time to attend this event, which provides me with an opportunity to present Norges Bank’s view of the economic situation and some of the challenges ahead. International economic cooperation is creaking Throughout history, technological innovation and increased trade in goods and services have been important sources of growth and development. The two driving forces have functioned in tandem. Trade barriers have been reduced in recent decades. Faster transport and advanced communications systems have greatly facilitated access to broader markets. Global value chains have emerged, and service providers can be located far from customers. With freeflowing capital, we can invest globally. Chart: World trade has grown markedly Since the 1970s, world trade has grown rapidly. As a percentage of world GDP, international trade has almost doubled. A number of new countries have also increased their share in world trade. A more closely integrated world economy has facilitated specialisation, innovation and better use of local resources. The room for exchanging ideas and knowledge has expanded. Increased competition and innovation have gone hand in hand. Chart: Trade gives Norway opportunities Efficient global trade is particularly advantageous for small open economies, like Norway. Norway has benefitted greatly from the opportunities afforded by trade with other countries. | The new process will be open, transparent and inclusive. There will be greater input from the public and from external experts in the form of a new Advisory Committee with a majority of independent members. That body will recommend a broad theme – for example scientific achievement – before the public are invited to nominate characters within that theme. The Advisory Committee, with input from public focus groups, will narrow down the field to a final shortlist of characters and the Governor will make the final choice from that shortlist. These changes will ensure that the characters on our banknotes are fully representative of the history and diversity of this great nation, while having the necessary public respect and legitimacy. Our polymer notes will combine the best of progress and tradition. They will be more secure from counterfeiting and more resistant to damage while celebrating the history and tradition that is important both to the Bank and the nation as a whole. By consulting widely on the switch to polymer, and by putting in place a new process for selecting banknote characters with much more public input, we have reinforced the commitment to openness and transparency which lies at the heart of the Bank of England’s commitment to accountability. Together, these announcements ensure that our banknotes will remain both a national symbol and a source of national pride. 2 BIS central bankers’ speeches | 0 |
But what fundamentally distinguishes today’s situation from, say, that of 2014–2015 is that regulatory easing was, in fact, just one additional comfort factor in a period of difficult conditions, and not “the last chance” or the only way to stay afloat. Undoubtedly, in the conditions of the epidemic, it helped greatly that Russian banks boast a high level of digitalisation. Almost all services were available online, and of those in demand on a daily almost all were available. Even before the epidemic, most banking customers extensively used remote services, but even those who previously rarely used remote services started using them without great difficulty. In my speech today, I would like to focus on two clusters of issues. The first deals directly with the impact the epidemic had on the banking business, the current situation, and the measures we are taking to ensure that going forward banks are resilient in their operations. The second concerns what comes next, how to develop the banking business with allowance for the long-term repercussions of the pandemic. How does the current situation look? In the last few months, we have seen a gradual recovery in business activity, the financial markets are stabilising, and lending is also recovering. It has to be said that the economy shrunk less than many expected. The recovery may be uneven, but it is proceeding broadly in line with our forecasts. In particular, this can be seen in our monitoring of sectoral financial flows, which we started conducting during the pandemic. | Maximum stability in output could, on the other hand, result in sharp fluctuations in the rate of inflation and erode the credibility of the monetary regime. A point somewhere midway between the two extremes must therefore be found. Consequently we cannot be called "inflation nutters" as Mervyn King, deputy governor of the Bank of England, once said. Let me also stress the importance of central bank independence. In order to be successful with the implementation of an inflation target approach, the central bank needs to be able to act independently of day-to-day party politics and to set interest rates continuously according to the specified inflation target. Otherwise a credibility problem may arise because it would be hard for policymakers to convince the general public of monetary policy's long-term nature. Following the changeover to a flexible exchange rate in 1992, monetary policy in Sweden was directed towards an explicit and quantified inflation target. The decision rule by which our monetary policy is usually guided is in fact quite simple. It states that if the forecast rate of inflation 1-2 years ahead is above 2 per cent, then normally the repo rate should be raised and vice versa. The reason why we chose this target horizon is that an adjustment of the monetary stance takes time to exert its full impact on inflation and the macro economy in general. | 0 |
The reason is that it has proved difficult in practice to lower nominal wages. If inflation is low and nominal wages cannot be lowered, it becomes difficult to adjust real wages among different professions, companies and sectors. This can ultimately bring about both higher unemployment and poorer productivity growth in the economy. These problems can be mitigated if there is some inflation. Another advantage of a target of 2 per cent, which has been particularly apparent in recent years, is that a very low average rate of inflation would make it more difficult for monetary policy to counteract recessions. If inflation on average is very low in a world of low real interest rates, like today, the average nominal interest 8 [21] rate will also be very low. The lower the interest rate is in normal conditions, the less scope there is to lower it before it reaches its lower bound. It will thus become more difficult to counteract future economic downturns with interest rate cuts. Thus, if you do not like negative interest rates, you should not advocate a lower inflation target, as that would involve the repo rate needing to be negative more often and for longer periods. There is a widespread international discussion on whether a target of 2 per cent, which most developed countries have now, really provides sufficient scope to conduct a monetary policy that is as expansionary as it sometimes needs to be. | Further, the value added tax on selected agricultural equipment and spares, was zero rated as incentive to increase agricultural production and productivity. (ii) Tourism sector: – In order to diversify the economy and attain broad based economic growth, Government increased the allocation to the sector to improve access to the Northern Tourism Circuit (infrastructural development in Mbala and Kasaba Bay). Further, Government will embark on the development of a new world class tourism area in Livingstone, and step-up the development of road infrastructure in key national parks namely, Luangwa and Kafue. (iii) Manufacturing: – In order to expand the manufacturing base, Government is promoting the establishment of Multi-Facility Economic Zones (MFEZ) on the Copperbelt (Chambishi), and Lusaka (Lusaka south and east) provinces by providing for fiscal incentives and quality infrastructure development in the budget. Operations at the Chambishi MFEZ have already commenced. Further, the budget reclassified and re-categorised certain manufacturing materials with the aim of lowering customs duty rates. (iv) Mining sector: – In light of the adverse impact of the global economic crisis on the mining sector and with the view of easing these effects, the Zambian Government introduced tax concessions, which included removal of the windfall tax, increasing capital allowance to 100 percent as an investment incentive, and reduction of customs duty on Heavy Fuel Oils. | 0 |
Finally borrowing countries are being increasingly encouraged to develop, in the current less febrile environment, an ongoing dialogue with their major external creditors in the expectation that this would help to identify emerging concerns and possible responses at an earlier stage and to promote a more constructive reaction on the part of those creditors when storms begin to gather. Now, all of these steps are steps which countries themselves can take to reduce the risks of domestic or external macro-economic shocks leading to financial instability, which in turn would be likely to amplify the effects of the initial shock. But with the best will in the world such shocks will no doubt continue to occur. And alongside all this work on what countries can do to help protect themselves, a major review of the terms and conditions of the IMF facilities is taking place, designed to increase the effectiveness of the financial help that the IMF can give to its member countries when they do run into difficulties. This is not an easy issue on which, I know, people hold strong views. We have to try to strike a sensible balance between excessively onerous and excessively liberal conditions attaching to IMF support. On the one hand, if IMF conditions - whether preconditions attaching to quasi-automatic support in the event of sudden capital outflows or adjustment conditions attaching to the Fund’s more traditional facilities - if in either case the conditions were too demanding, countries may be deterred from seeking the Fund’s help. | The Rt Hon Sir Edward George GBE: Towards a safer banking system Speech by The Rt Hon Sir Edward George GBE, Governor of the Bank of England, to the Association of Professional Bankers Sri Lanka 12th Anniversary Convention, on 27 August 2000. * * * Mr Governor, Ladies and Gentlemen, It is an immense pleasure, and a very great honour, to have been invited to address this Annual Convention. The theme of the convention is “Towards a safer banking system”. It is a theme which gladdens my heart. The safety of the banking system is fundamental to financial stability in a broader sense. It is vitally important, of course, to you - as professional commercial bankers. But it is vitally important, too, to us, central bankers, because you simply cannot have monetary or broader economic stability, which is a key part of our responsibilities, without stability of the financial system - they go together like love and marriage! And monetary and financial stability are vitally important, too, to our societies at large and to the individuals that make up our societies - they are absolutely necessary, if not in themselves sufficient, conditions for the economic prosperity to which we all aspire. The question is what can we do - working together - to improve the safety of our banking systems. | 1 |
If the relationship between 4 In practice, so-called inflation-targeting central banks also tend to take into account employment and other aspects of the real economy; hence, their approach is often referred to as “flexible inflation targeting.” 5 More formally, a Taylor Rule can be represented as: FFR = r* + π + a(π-π*) + b[100(Y-Y*)/Y*] where: FFR = federal funds rate r* = neutral real federal funds rate π = rate of inflation π* = target inflation rate Y = output Y* = output at full employment a = weight put on inflation gap b = weight put on output gap 2 BIS central bankers’ speeches monetary policy and the real economy were stable over time, following a relatively simple and unchanging policy rule would likely generate acceptable results. However, if the linkage between monetary policy and the real economy is more variable, as I believe it is, then an approach that is more pragmatic and updates the policy setting in a clear and systematic manner based upon what the FOMC learns over time will be more effective. In particular, a simple policy rule can generate poor macroeconomic outcomes when either the structure of the economy or the transmission mechanism of monetary policy changes in a significant way (whether the change is temporary or permanent). | To some degree, this likely reflects the anchoring exerted by stable inflation expectations. But some of the price pressures can be attributed to other, more temporary, factors: Higher oil and gasoline prices and their pass-through into the costs of other goods and services. Upward pressure on imputed homeowners rents due to increased demand for rental housing. Higher import prices for goods, such as apparel. This reflects many factors including commodity prices pressures and higher wage inflation in countries such as China. Some of these upward pressures on inflation appear to be fading. Oil and gasoline prices have fallen in recent months. Apparel price inflation should gradually ease, given the sharp drop seen in cotton prices. Owners’ equivalent rent should also eventually stabilize as multi-family construction picks up and programs that shift real estate owned by banks to investors so they can be rented gear up. More generally, there are several reasons to think that inflation will remain moderate and close to our objective. First, and most obviously, the economy continues to operate with significant slack. Second, measures of underlying inflation show little upward pressure. In fact, one – the Federal Reserve Bank of New York’s Underlying Inflation Gauge – is turning down. This measure uses a very wide set of variables to forecast the underlying inflation trend (Figure 6). Third, it is hard to be very concerned about inflation risks when the growth rate of nominal labor compensation is so low and stable. | 1 |
Both of them understood, among other issues, the importance of capitalizing the Central Bank to strengthen its equity situation, an agreement that was finalized with the special support by Finance Minister Andrés Velasco, whereby the Bank would be capitalized at a pace of half a percentage point of GDP per year over a period of five years. I was able to maintain the best institutional relationship with Congress. During my administration I had the chance to work with four Senate presidents – senators Andrés Zaldívar, Hernán Larraín, Sergio Romero and Eduardo Frei Ruiz Tagle – and with presidents of the Finance Commission Alejandro Foxley, Carlos Ominami and Camilo Escalona. Our relationship was always cordial and with strict observance of the provisions set forth in our Constitutional Organic legislation. Today we must all feel proud of the place that the Central Bank of Chile now occupies in the international scene. Several measurements rank us today among the best evaluated institutions among central banks around the world in various aspects of our day-to-day operation. This is the fruit of a serious and very patient work that requires dedication and effort. I have also the satisfaction of having helped to complete the process of entry of the Central Bank of Chile as a member of the BIS (the Bank for International Settlements), and of having led a campaign to have smaller countries and those admitted in September 2003 participate in its bimonthly meetings on the global economy. | Firms have developed a wide range of more-or-less polite methods for providing us with feedback on the letters we write to them. But letter writing is an art rather than a science, and evaluating objectively how clear we are does not lend itself easily to traditional forms of quantitative methods. Advances in ML, 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 however, are helping. We recently analysed the letters we write to firms on the key risks they face and our supervisory strategy. We quantified a number of qualitative features of these letters, for example, how blunt we are in our messaging, how personal we are in terms of to whom we address the letter, and the overall sentiment expressed by the letter. We then used an ML model called random forests to detect whether, for example, the PRA writes to firms differently than the prior regulator, the FSA. (We do. )10 On the back of that project, we have built an app that now enables supervisors to analyse their written communications. Supervisors can use the app to analyse any of their draft documents before they are sent to firms. IV. CONCLUSION Advanced analytics, machine learning and AI seem to be everywhere now – from image and voice recognition software to driverless cars and health care. | 0 |
But should we reach a point where the path of inflation is expected to be self-sustaining, but longterm unemployment remains high, there should be no doubt as to how I would decide regarding our policy stance. Monetary policy cannot “run the economy hot” as insurance against labour market risks – that is, the risk that long-term unemployment becomes structural unemployment. This would be neither desirable in view of our primary mandate, nor efficient given the euro area circumstances. It will be up to other policymakers to tackle this issue – as they must. 1 I would like to thank V. Jarvis and E. Lis for their contributions to this speech. I remain solely responsible for the opinions contained herein. 2 See Summers, L. (2014), “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and theZero Lower 8/9 BIS central bankers' speeches Bound”, Keynote Address at the NABE Policy Conference, 24 February 2014. 3 See, e.g., Ball, L. (2014), “Long-Term Damage from the Great Recession in OECD Countries”, NBER Working Paper No. 20185. 4 Participation rates have fallen for the under-25s and remain some way below their pre-crisis levels – in part reflecting higher enrolment rates, as young people exercise their “outside option” of staying in education in the face of less advantageous labour markets. 5 The level expected to prevail in 2015. 6 The picture changes little when hourly wage growth is considered, with annual rates ranging from 1.0% to 1.3% over the course of the recovery. | This is consistent with a lower degree of matching efficiency post-crisis, with the unemployment level still remaining high despite rising labour demand over the duration of the recovery. Hysteresis effects and monetary policy So what is the role of monetary policy as regards hysteresis effects? Though our primary mandate is price stability and not employment, in conditions of weak aggregate demand there is typically a “divine coincidence” between those two variables, since unemployment rises while inflation falls after adverse shocks hit the economy. So, only by reducing labour market slack can we create the conditions for wage and price pressures to emerge and for inflation to return to our preferred aim within our definition of price stability. This is largely what we have seen in the euro area. Since the adoption of the ECB’s credit easing package in June 2014, around five million jobs have been created in the euro area. Model-based evidence indicates that our policy has contributed meaningfully to this increase: the current recovery has, by and large, been driven by monetary policy, with additional temporary support from the fall in oil prices. So, forceful policy action in the face of risks to our price stability mandate has measurably reduced the risks of hysteresis by creating the financial conditions necessary for growth and employment to flourish. What is more, our actions have also defeated a potentially very nasty form of hysteresis, namely a destabilisation of inflation expectations. | 1 |
The adoption of info-communication technologies is changing the global financial landscape. New technologies have broadened the scope and utility of financial products. New delivery channels have emerged. Traditional business models are being challenged. The conventional value chain has been disaggregated. Some players are focussing on specific segments of the value chain, such as processing or distribution, seeking to exploit scale economies. Niche and specialised areas have emerged, that open opportunities for a diverse range of innovative players, often start-ups or smaller players nimble enough to exploit opportunities by adopting new technology. It is difficult to predict who will be the winners and losers in this new landscape. Not all the new ideas or business models will eventually succeed. But technology, automation and the internet will likely be central to the success stories. MAS is keeping a close watch on these developments. As new business models and entities emerged, we have issued policy notes setting out our views on the electronic provision of services in the areas of banking, capital markets, risk management and third-party aggregators. In March 2001 we released formal supervisory guidelines on the use of the internet in banking ( the Internet Banking Technology Risk Management Guidelines), after extensive consultation with the industry in Singapore and abroad, and have been contributing actively to the evolving thinking among regulators on these issues. We are introducing a new consolidated Securities and Futures Act to account for global developments influenced by technology. | That new bridge I mentioned a moment ago is up and running. By the end of this month, all lenders should be ready to offer you products linked to SONIA or another non-LIBOR rate. Six or twelve months ago, that wasn’t universally true. Now it is. But don’t just take my word for that. Ask National Express, which took out one of the first SONIA-linked loans.2 Ask Riverside Group, a housing association, which secured a SONIA credit facility during the height of the Covid crisis in early April. 3 Or ask GlaxoSmithKline, which concluded a multi-currency refinanced credit facility linked to both SONIA and its US equivalent SOFR.4 - Moving away from LIBOR won’t always be easy. But that’s where I come to my third message: which is that you are not in this on your own: for those needing to transition, there is help, and lots of it. The first port of call for most firms should be your own bank, to begin understanding how SONIA can work for your business. But help is also available from many other sources: o The industry wide Risk Free Rate Working Group has produced educational videos and helpful short guides. These are available on the Bank of England5 and FCA websites and will be sent to everyone attending today’s webinar. o The Working Group will also be taking forward a programme of engagement with your sector into the end of this year, to help you with transition. | 0 |
The Guidelines will be released to the industry this month for implementation early next year. This is an important strategic development, both from the public policy and consumer perspectives. Today, medical insurance business accounts for the largest share1 of non-tariff general insurance premiums in the market, with premiums exceeding RM1.3 billion in 2004. The revised Guidelines have retained a significant degree of product flexibility, and enhanced disclosure requirements to promote increased competition while more clearly defined rules governing 1 10,5% of total general gross direct premiums, third (in terms of market share) only to motor and fire business. minimum policy terms and conditions will be put in place to deliver a reasonable level of protection to policyholders. These requirements will also promote more consistent treatment of consumers in the provision of core benefits under medical insurance policies. Where regulatory intervention remains necessary, the Bank will continue to balance the business interests of industry participants with that of consumers, to ensure that the costs of regulation are commensurate with its perceived benefits to consumers. In the long term, however, reliance on regulation and supervisory oversight alone is not a sustainable solution to the market conduct and broader confidence issues that confront the industry. The desired outcome should be one where freedom of action is accompanied by an appropriate degree of moral restraint on the part of the market. | Zeti Akhtar Aziz: Moving towards a more competitive market Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 2005 dialogue session with insurers and takaful operators, Kuala Lumpur, 9 August 2005. * * * The annual Dialogue between Bank Negara Malaysia with insurers and takaful operators is held to discuss issues confronting the insurance and takaful industries, major policy initiatives by Bank Negara Malaysia as well as current economic and financial developments affecting the industry. This year's dialogue is being held on 9 and 10 August and attended by the Chairmen, members of the Board and Chief Executive Officers of insurers, takaful operators and bank holding companies. Themed "Moving Towards a More Competitive Market", the dialogue this year will provide a platform for insurers and takaful operators to discuss strategic issues relating to the challenges of the more competitive and rapidly changing financial landscape. The keynote address delivered by the Governor, Bank Negara Malaysia at the opening of the Dialogue session is attached. The Malaysian economic and financial landscape continues to be dramatically transformed. As this transition process gains momentum, the key issues confronting the insurance and takaful industries today are: defining effective growth strategies in an increasingly borderless world; sustaining confidence in the face of increased demands for greater transparency; responding to the challenges of regulatory and accounting changes; and managing risk in an increasingly complex and volatile environment. | 1 |
No matter how hard times the European Union is going through and no matter how many challenges must be adequately dealt with, an in-depth analysis shows that political, economic and social interests converging towards the continuation of this great project, namely the strengthening of the European Union, are stronger and more motivated than BIS central bankers’ speeches 1 those stemming from rather circumstantial fears, arising out of the difficulties and vulnerabilities brought along by the global crisis. In order to stick to the virtuous direction that I have referred to – or to return to it –, I personally think that in these difficult times for the European Union, we should not forget to put things into perspective. This means that short-term policies must be harmonised with the long-term vision and policies. Romania’s stance is to consistently support EU-wide economic and institutional reforms. We believe that efforts to strengthen governance in the European Union and the euro area should be made without delay, and they should be understood and supported by all Member States. At the same time, particular attention should also be paid to the small- and medium-sized enterprises. In any country of the European Union, small- and medium-sized enterprises generate most of the turnover and provide jobs for most employees. Romania is no exception to this rule. | 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 |
BILD: But it is precisely this policy of cheap money that is not working… Draghi: Wrong – our policy is working, but we must be patient; investor confidence has not yet been fully restored. For two years, the economy in the euro area has been growing month by month, banks are lending and unemployment is steadily falling. Meanwhile, euro area countries are now able to buy more German exports again, which, for German companies, is partly making up for the decline in trade with China. But it is a slow process because the crisis was more severe than anything we’d had since the Second World War. BILD: And when will interest rates rise again? Draghi: It’s quite simple: when the economy is growing more strongly again and inflation rises closer to our objective. Low interest rates today will lead to higher rates tomorrow. BILD: Does the ECB’s policy of cheap money not make it far too easy for euro area countries like Italy and France, for example, to shirk necessary but unpopular reforms? Draghi: No. The majority of governments are acting, albeit too slowly for my personal taste. All of them would be well advised to do more. But that is not primarily dependent on the ECB and its policies. Most countries started to implement reforms when the level of interest rates was already very low. Furthermore, reforms of judicial systems, electoral laws or labour laws, for example, don’t have much to do with interest rates. | I am hopeful that the remaining two years of the project would bring even more wonderful results. I also want to take this opportunity to encourage all related stakeholders to continue their supports for young women and women entrepreneurs so that we may ever move closer to the ideal of a prosperous, harmonious, inclusive and equal society. In closing, I would like to wish Distinguished Guests, Ladies and Gentlemen good luck, good health, and success in every circumstance. Thank you! 3 | 0 |
To date, the global financial market fallout from the Brexit vote has been short-lived, and U.S. financial market conditions remain supportive to economic growth. Nevertheless, I believe that the potential aftershocks pose medium-term downside risks to the global economy, and that these risks need to be monitored. With respect to inflation, I think the outlook has not changed much recently. Headline inflation, as anticipated, has climbed a bit this year as earlier energy price declines have fallen out of the year-over-year inflation calculations. In contrast, core inflation has been broadly stable, with the core PCE deflator rising by 1.6 percent over the past four quarters, moderately below our 2 percent objective. The fact that core inflation has been broadly stable over recent months in the face of the earlier declines in energy and non-energy import prices is notable. It makes me somewhat more confident that overall inflation will return to our 2 percent inflation objective over the medium term as long as the economic growth that I expect actually materializes. If the economy were to grow at the pace I discussed earlier, this would likely translate into sufficient job gains to continue to remove any remaining slack in the labor market – which, by my assessment, is already operating quite close to a level that is consistent with what is achievable on a sustainable basis. This would likely lead to further pressure on labor resources, higher wages and, over time, somewhat higher inflation. | 2 All three of these reasons – evidence that U.S. monetary policy is currently only moderately accommodative, the fact that U.S. financial conditions have been influenced by economic and financial market developments abroad, and risk management considerations – argue, at the moment, for caution in raising U.S. short-term interest rates. So, directionally, the movement in investor expectations towards a flatter path for U.S. short-term interest rates seems broadly appropriate. That said, to my eye, market expectations derived from futures prices – which price in about one 25 basis point rate hike through the end of 2017 – appear to be too complacent. If the incoming information validates my view of the outlook, then I believe that U.S. monetary policy will likely need to move at a faster pace than implied by futures prices towards a more neutral posture as the labor market tightens further and U.S. inflation rises. Moreover, market expectations may be putting insufficient weight on the possibility that the economy could outperform our expectations, that financial conditions could ease, or that the risks to growth from Brexit and other international developments could fade away. If such events were to occur, this might necessitate a faster pace of adjustment. For these reasons, I think it is premature to rule out further monetary policy tightening this year. As I said before, it depends on the data, broadly defined, and, as we all know, that is not something one can predict with any accuracy. | 1 |
The idea that periods of economic stability encourage exuberance in credit markets, thus sowing the seeds of their own destruction, is a key part of Minsky’s theory of recurring financial crises (see e.g. Minsky, 1982). The results here provide some empirical evidence for such a dynamic process. Moreover, to the extent that better policy accounted for the Great Moderation, it provides a second, indirect, channel whereby policy may have contributed to creating the conditions conducive to a subsequent financial bust. But it would clearly be a mistake to conclude that policy should aim to induce fluctuations in the macroeconomy in order to prevent financial market participants becoming too confident about the outlook! The right moral is surely that policy makers need to be most vocal about the risks to BIS Review 111/2010 7 the outlook when things appear to be going well, and to take appropriate restraining action if needed. 3. The instruments of monetary policy Dealing with the fallout from the banking crisis has pushed central banks in the affected jurisdictions into uncharted waters. The top panel of Table 1 summarizes the wide variety of measures adopted by some of the major central banks, while Chart 5 illustrates the associated expansion in the balance sheets of the Federal Reserve, the European Central Bank and the Bank of England. | Vestin, David (2006). “Price-Level versus Inflation Targeting”, Journal of Monetary Economics, 53(7), 1361–1376. White, William R. (2006). “Is Price Stability Enough?”, Bank for International Settlements Working Paper 205. White, William R. (2009). “Should Monetary Policy ‘Lean or Clean’?”, Federal Reserve Bank of Dallas Globalisation and Monetary Policy Institute Working Paper 34. Williams, John C. (2009). “Heeding Daedalus: Optimal Inflation and the Zero Lower Bound”, Brookings Papers on Economic Activity, 2, 1–50. Woodford, Michael (2003). Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press: Princeton, NJ. BIS Review 111/2010 45 | 1 |
This was not the case in Sweden. As there were expectations of continued high inflation and of the Swedish krona being devalued, in other words of the target for the exchange rate being abandoned sooner or later, the wage inflation trend in Sweden was stronger than it was abroad. As the exchange rate was fixed, the competitiveness of Swedish companies weakened and a cost crisis arose. To rectify this, no other solution than to devalue the krona was thought to be available, which meant that the expectations of the krona’s devaluation were met. This in turn meant that the inflation trend could continue, competitiveness gradually weakened again, the exchange rate was once more adjusted downwards, and so on. What is normally referred to as “the nominal anchor” – the benchmark for inflation expectations and thus for price-setting and wage formation – did not function as intended. It was far from obvious that inflation targeting, introduced in 1993, would succeed in achieving what the fixed exchange-rate policy had failed to – to re-establish the anchor for price-setting and wage formation. Today, we know that it did succeed and furthermore did so relatively quickly. If I was to pick out the most important contribution made by inflation targeting, it would be precisely this – providing a nominal anchor for the economy. | Blinder, A S, Goodhart, C, Hildebrand, P, Lipton, D, and Wyplosz, C (2001), How Do Central Banks Talk? Geneva Reports on the World Economy 3, International Center for Monetary and Banking Studies and Centre for Economic Policy Research. Blinder, A S (2007), “Monetary Policy by Committee: Why and How?” European Journal of Political Economy, Vol. 23(1), pp. 106–23. Blinder, A S, Ehrmann, M, Fratzscher, M, De Haan, J D, Jansen, D J (2008), “Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence”, Journal of Economic Literature, Vol. 46(4), pp. 910–945. Chehal, P and Trehan, B (2009), “Talking about Tomorrow’s Monetary Policy Today”, FRBSF Economic Letter, 35. Cruijsen, Carin A B v d, Eijffinger, S C W & Hoogduin, L H (2010), “Optimal Central Bank Transparency", Journal of International Money and Finance, Vol. 29(8), pp. 1482–1507. Demiralp, S, and Jordá, O (2002), “The Announcement Effect: Evidence from Open Market Desk Data”, Economic Policy Review, Federal Reserve Bank of New York, Vol. 8(1), pp. 29–48. Dincer, N N and Eichengreen, B (2014), “Central Bank Transparency and Independence: Updates and New Measures”, International Journal of Central Banking, Vol. 10(1), pp. 189–259. Eggertsson, G and Woodford, M (2003), “The Zero Bound on Interest Rates and Optimal Monetary Policy”, Brookings Papers on Economic Activity, Vol. 2003(1), pp. 139–233. Gaballo, G (2018), “Price Dispersion, Private Uncertainty, and Endogenous Nominal Rigidities”, Review of Economic Studies, Vol. 85(2), pp. 1070–1110. Goodhart, C and Lim, W B (2011), “Interest Rate Forecasts: A Pathology”, International Journal of Central Banking, Vol. 7(2), pp. 135–171. | 0 |
We must adapt to new demands from outside and implement changes where we or others find scope for improvement. Evaluation and constructive debate contribute to making us better at what we do. My introduction on monetary policy here today will in a way deal with evaluation and development. I shall talk about the contents of our Monetary Policy Report – our view of inflation prospects, the decision at the end of October to raise the repo rate by 0.25 percentage points and what interest rate policy we believe will be required over the coming years. The report is one of the best tools for examining how well we do our job. But I will also talk about some changes we have made to better meet the requirements made of us, not least in our role as independent authority. Because if I summarise what has happened in monetary policy since I was here in February, it is not merely a question of the forecasts and interest rate decisions we have published. We have also made changes in the way we communicate, to become clearer and more open. There have been fairly lively discussions of this over the past year. It is good that the Riksbank’s strategy is discussed. But I sometimes think that it has been difficult to distinguish whether the criticism concerns our forecasts not being considered good enough or whether it concerns our changes in communication. | The mandate of the euro area’s central banks is clear on this subject and there is no reason to think that some other stray thoughts would let us deviate from our key goal. It should be stressed that the Governing Council of the European Central Bank is monitoring the economic situation very carefully and will not commit to future decisions in a form that would render the Council a prisoner of their own words. Public discussions include two extraneous arguments, based on which it has been claimed that the hands of the euro area’s central banks are tied and therefore they cannot fulfil their primary goal properly. Firstly, it has been presumed that banks’ situation in Europe is so weak that we cannot abandon the extraordinary monetary policy measures that made money supply easier for banks during the crisis. Secondly, it is claimed that until the fiscal situation of some euro area countries is not firmly under control and the new financial control mechanisms have not been implemented, central banks do not dare to focus on the threat of inflation. I do not wish to underestimate either argument. The situation in global money markets, including Europe, is not entirely risk-free yet and the leaders of Europe’s public financing are struggling to ensure that the amended fiscal framework would help avoid crises in the future. However, upon fulfilling their main goal, the euro area’s central banks are not limited by these concerns to the extent that they could or should ignore the price stability goal. | 0 |
Finally, I will briefly touch upon another important aspect of monetary policy, namely how to make good collective decisions, and the role of the staff in the monetary policy decision process. Communicating future monetary policy intentions Most central banks communicate future policy intentions in one way or another. The majority of central banks communicate indirectly through forecasts based on technical interest rate assumptions, and by giving verbal signals about future interest rate decisions in policy statements and speeches. With such indirect communication, the market participants gain information about the sign of future interest rate decisions, but may have less information about the size. Until November 2005, Norges Bank used technical interest rate assumptions in the inflation forecasts, but also on some occasions commented on whether the Bank intended to follow a different policy than what seemed to be reflected in market interest rates. Thus, the Bank gave signals about the sign of future policy intentions relative to market expectations, but not on the size. 2 From November 2005, Norges Bank started to use endogenous interest rate forecasts in the Monetary Policy Report. Norges Bank was the second central bank with endogenous interest rate assumptions, following the Reserve Bank of New Zealand, who introduced it in 1997. More recently, the Swedish Riksbank and the Czech National Bank have also started to publish interest rate forecasts. 1 Woodford, M. (2005), “Central-Bank Communication and Policy Effectiveness,” paper presented at FRB Kansas City Symposium on “The Greenspan Era: Lessons for the Future,” Jackson Hole, Wyoming, August 25-27, 2005. | These changes can be good or bad for those affected by them. Change therefore leads to risk, the prospect of gain or loss and the risk of loss is something that we must all be aware of. To be aware of risks does not mean eliminating them from our lives, which is certainly impossible, nor does it mean that we should do nothing about risks and accept consequences fatalistically. It means: we must manage risk. To manage risks we must decide what risks to avoid and how we can avoid them; what risks to accept and on what terms to accept them; what new risks to take on and so on. Both theory and practice of risk management have developed enormously in the last two and a half decades. The theory has developed to the point where the risk management is now regarded as a distinct sub-field of the theory of finance and risk management has become a separate subject in the master’s and MBA programs. The subject has attracted a huge amount of intellectual energy not just from finance specialists but also from specialists in physics. The most important factor contributed to this transformation of risk management was, as I mentioned at the beginning, the high level of instability in financial markets. The other factors were rapid developments in information technology, huge increase in trading activity and development of new financial instruments, namely, derivative instruments. | 0 |
Although the structural balance policy was launched in this decade, fiscal efforts to smooth the copper price fluctuations began in the 1980s, with the copper stabilization fund. In fact, throughout most of the 1990s, the structural balance was near 1%. This countercyclical fiscal policy makes the effective fiscal balance highly correlated with the price of copper. Thus, our fiscal policy has been contributing for more than 20 years to stabilizing the Chilean economic cycle. As a result of the application of the rule, a large amount of resources has been saved in sovereign funds when the price of copper has been high. 4 In the period 2007-2008, 22 billion US dollars were placed in these funds, of which 20 billion – the equivalent to 12% of GDP – came from the accumulation of new funds, and the difference was the funds’ net financial gain. This has had significant implications in the current economic scenario. Since last year, particularly as from September, the world has been enduring the worst recession in the last 60 years and our country, despite being in an excellent position to address these shocks, has not been spared its consequences. But today, our fiscal policy has been able to make an important reactivation effort, thanks to the prudence with which the years of high copper prices were managed. The other critical elements in our macroeconomic policies that favor stabilization are monetary and foreign exchange policies. Although they play a somewhat more subtle role than fiscal policy, they are no less important. | Bravo-Ortega and De Gregorio (2005) state that, whenever natural resources draw the scarce human capital away from growth favoring activities, the development of natural resources might reduce growth. Thus, countries with high endowment of human capital can more than offset the negative effect of natural resource abundance on growth. Still, while growth can be slower, abundant natural resources do result in higher income, which is what ultimately matters from the standpoint of the welfare of the population. Finally, it is worth to make the distinction between the abundance of and the dependence on natural resources. This issue has been analyzed in Cerný and Filer (2006), who find that natural resource dependent countries are the ones associated with low economic growth, not natural resource abundant ones. 2 When studying the case of Chile, it can be argued that there is no evidence of the problems that associate natural resource abundance with bad economic performance. On the one hand, we can observe that our country is more and more open to international trade (figure 2). This integration not only brings benefits because of the traditional gains from trade based 1 Another closely related work is Boschini et al. (2003). These authors claim that the natural resource curse depends not only on the quality of institutions but also on the characteristics of the resources. Specifically, whether it is easy to obtain large earnings in a short period of time from having control over the resource. | 1 |
Indeed, as I have said in some of my recent appearances in Parliament, in certain cases it may be appropriate to use some of the European funds to defray the initial or transition costs that certain structural reforms typically entail. One such example in this respect could be the introduction of the so-called “Austrian backpack” scheme, which various institutions (including the IMF) have recommended to combat the duality of the Spanish labour market. However, the introduction of such a scheme entails transition costs, insofar as the costs and payments implicit in the new scheme are not distributed between firms and employees in the same way as in the current scheme. These transition costs, the determination of which requires very detailed prior analysis, could be met, at least in part, by the European funds. 4 Conclusions The macroeconomic setting in which the Draft Budget has been prepared is, as we all know, complicated and uncertain. The outlook for activity and employment outlined in it is subject to significant downside risks. In such a complex situation, budgetary policy must continue 35 countering unfavourable macroeconomic developments. And this, if the downside risks materialise, includes the need to allow the free play of the automatic stabilisers, even though a bigger budget deficit ensues. In parallel, against the current backdrop, discretionary measures must be more focused on the population groups and firms most affected by the adverse effects of the pandemic. | Against this background I shall be discussing the current monetary policy appraisal of the Swedish economy, together with some factors of importance for the final assessment. First, however, I shall briefly outline monetary policy’s line of thought. Forecasts and probabilities Monetary policy’s overriding objective is to safeguard the value of money. The annual rate of inflation, measured as the change in the consumer price index, is to be kept at 2 per cent. As it takes time for the Riksbank’s monetary measures to work in full, our actions have to be based primarily on an assessment of inflation’s future path. The policy horizon - the period in which most of the impact of monetary policy materialises - is around twelve to twenty-four months. The Riksbank’s assessment of future inflation is presented continuously in our Inflation Reports. Since the first Report was presented in October 1993, the content has been developed and the Riksbank has, for example, become increasingly explicit in its assessments. In the first two years the Report contained a more general account of how the inflation indicators and inflationary pressure in the economy were developing. From November 1995 onwards the Riksbank has been attaching numbers to its inflation assessments. In the June 1996 Report the inflation assessment was underpinned for the first time with an overall picture of the cyclical position. A further step was taken in September 1997, when the inflation assessment was supplemented with a path for inflation in the forecast period. | 0 |
The specific interest rate path cannot and must not be looked upon as a guarantee and a path to which we unconditionally have committed ourselves. Should economic developments deviate from the projected path, the interest rate path will also shift. Instead, it can be said that through our communication we commit ourselves to a pattern of behaviour, a response pattern. If interest rate expectations can be influenced, it will in many cases be useful for a central bank to commit itself to a predictable response pattern. This kind of commitment can, if it is perceived as credible, have a positive effect on the 2 BIS Review 10/2007 economy’s functioning and enhance the effectiveness of monetary policy. I will revert to this theme shortly. A relevant question is the extent to which our communication actually influences interest rate expectations. Forward interest rates derived from yields at various maturities will in the absence of term premia and other risk premia normally reflect the market’s short-term interest rate expectations.1 When Inflation Report 3/06 was published in the beginning of November last year, the forward interest rate was on a par with our forecast for the next six months, but considerably lower thereafter. It is now almost three months since the previous Inflation Report was published. Since that time forward rates have increased and approached Norges Bank’s interest rate path. Forward rates somewhat further out are still lower than our forecast. | Page 3/5 Our country has one of the most solid currencies in the world, namely the Swiss franc. No other currency has retained its value so well since the outbreak of the First World War. Nor has any other country kept average inflation lower than Switzerland. But there is another side to this coin. In times of high uncertainty, the Swiss franc tends to appreciate strongly, putting the economy under pressure and jeopardising price stability. We have witnessed this again recently. As a result, the SNB has been faced with the challenge of using its monetary policy to guarantee price stability in Switzerland. With the negative interest rate and our willingness to intervene in the foreign exchange market as necessary, we are able to counteract the attractiveness of Swiss franc investments. Our goal here is always to ensure appropriate monetary conditions in Switzerland. In general, an overvalued Swiss franc can pose a problem for the financial industry too. This is especially true for the important business of wealth management, where returns mainly accrue in foreign currencies, while costs are generally incurred in Swiss francs. We are, of course, also aware of the challenge that the negative interest rate poses to the financial sector. We have therefore reduced the burden it places on the Swiss banking system to the level necessary for the implementation of monetary policy. Once again, I must also stress that the low interest rate environment is a global phenomenon with structural causes. This is unfortunately not something that Switzerland can escape. | 0 |
Such a scheme would have a strong impact on trust and contribute to increased risksharing, insofar as it is designed as a fully fledged mutualised EDIS. Contributions to EDIS taking into account bank-specific risks could limit the risk of permanent crosssubsidisation and would also help deal with the sovereign-bank nexus. This would contribute to reducing the link between national governments and banks and preventing destabilising cross-border flights to safety in the event of difficulties. Moving towards a Capital Markets Union The other key initiative to increase the integration of Europe’s financial markets and to facilitate risk-sharing capacity in EMU is the Capital Markets Union project. The project aims at providing firms with the same funding opportunities, and households with the same saving opportunities, irrespective of the member state in which they are located. 7/11 However, inconsistent regulations, as well as varying market practices and industry standards across EU countries, prove to be key impediments in developing a truly pan-European capital market. As a result, country savings and investments are still highly correlated, a fact known as the Feldstein-Horioka puzzle. This correlation has subsided over time in the case of the European Union but is still sizable, which is more bewildering in the case of the currency union. A departure from perfect capital mobility has important economic implications, as it might be leading to lower aggregate investment, a higher home bias in investment decisions and a lack of portfolio diversification. The Capital Markets Union project has received a stronger push over the last few months. | They also require soundly functioning and well-integrated financial markets capable of diversifying risks across borders and correctly pricing concentration risks. This is why, in my view, the most immediate and significant challenge facing EMU is to reinforce the integration of both banking systems and capital markets. Reinforcing the Banking Union When the euro was launched, there was actually an expectation that many banks would become truly European, providing retail services across the whole euro area. The reality is quite different. 6/11 Cross-border consolidation remains very limited and most firms and households in the euro area remain largely dependent on their domestic banking systems to maintain investment and smooth consumption profiles. Although no formal barriers to foreign banks exist, relevant distortions arise from stillsignificant specificities in banking regulations across countries. Some of the existing savings banks, government-owned banks or regional banks in the EU are protected by national legislations hampering incentives to compete or effectively sheltering them from competition. Moreover, regulation fails to fully acknowledge the benefits generally arising from geographical diversification in a single market. We also need to address the current deadlock on the third pillar of the Banking Union, the European Deposit Insurance Scheme (EDIS). Some experts argue that this third element may not be essential once we have in place a stringent resolution framework with homogeneous bail-in requirements; but in my view, it remains crucial to make EDIS a reality. | 1 |
As expected, the very diverse European national media are playing a key role in the transmission of the information to the various audiences of the ECB. Experience so far shows that the approach works well and that the media have contributed to a homogeneous understanding of the role and tasks of the ECB. 4 As the “porte-parole” of the ECB and its Governing Council, I think we have shown our capacity to communicate in unison with a high level of team spirit in interaction with a highly sophisticated and complex media network dealing with 320 million European citizens speaking 13 languages. It must be underlined that the European Central Bank decided from the very beginning to embark on a bold concept of transparency. On 1st January 1999, at the moment of the start of the euro, the state of the art of central banking was, not to say anything immediately after each decision on monetary policy, let observers and markets guess what had been the reasoning of the central bank and publish five or six weeks afterwards, the reasons why the decision was made in the form of “minutes of the decision-making college”. We decided from the first day of the euro that we would have a significantly higher level of transparency. First, we thought it was necessary to give to the public the economic and monetary diagnosis of the Governing Council, and the reasons why the monetary policy decision was taken, immediately after the meeting. | This quasi real time display of the detailed reasoning of the Governing Council took the form of five to six pages of “introductory remarks”. Second, we considered it to be useful to give additional explanations to the media, to market participants and to the general public in the form of a press conference that would take place immediately after the Governing Council and would be introduced by the “Introductory Statement”. The ECB, in so doing, contributed to a significant change in the state of the art on transparency of central banking. Today central banks are more often giving real time information on their decisions, generally in the form of explanatory communiqués that are published immediately with the decision. We remain nevertheless quasi unique amongst 4 See Berger, H., M. Ehrmann and M. Fratzscher (2006), “Monetary Policy in the Media”, ECB Working Paper No. 679. BIS Review 6/2008 3 major central banks in publishing a detailed analysis in quasi real time and in having a press conference. Why were we so keen to introduce a new and bold concept of transparency? I think we had three main reasons: Firstly we had to consider that we were launching a new currency to which we had to transfer the full legacy of stability, of confidence, of credibility which was the characteristics of the most credible previous national currencies. The Maastricht Treaty had been entirely based upon this benchmarking concept. | 1 |
These include the FXCs in Mexico, South Africa, Scandinavia and Switzerland. Through the membership expansion, the Code will become more global as these FXCs promote the adoption of the Code within their jurisdictions. 7 Second, on embedding the Code and integrating it into the FX market. If done well, we should see market behaviours reflect the good practices set out in the Code. We have seen that the process of issuing the Statements has prompted internal reviews within many firms, where market participants considered how the Code could apply to their business. In issuing our Statement, we have done the same in MAS. It has been a helpful and meaningful exercise to benchmark our internal processes against these good practices. We have also seen a number of training tools being developed by market participants to support learning, and these have enhanced the ecosystem of good practices within the FX market. Another key area where we think the Code has enhanced market behaviour is that a number of market participants have updated client disclosures to provide greater transparency, and to incorporate the principles within the Code. 8 Third, on evolution of the Code. When the Code was launched, the GFXC has stated that the Code will need to evolve over time to promote a robust, liquid and transparent FX market. The Code has become the platform or reference point for discussing issues relating to the FX market. This is a good outcome where emerging issues are identified, debated and addressed within the Code. | In addition, the GFXC hopes to develop a framework that can assist market participants to review or develop their client disclosures, and to identify any challenges to appropriate transparency. 13 Third, to continue to embed and integrate the Code into the FX market. A survey was conducted by the GFXC last year, to assess the industry’s baseline in Code awareness and adoption. We plan to conduct another survey later this year, to see how market participants are embedding the Code and how practices and behaviours have evolved. This survey will be rolled out across the key FX jurisdictions likely through the FXC network. We look forward to your active participation when the survey is rolled out. From the survey findings, we hope to identify ways to deepen adoption and broaden awareness over time and across jurisdictions. 14 These efforts need the support of you as market participants, and we hope that you can do 3/5 BIS central bankers' speeches your part in promoting the good practices set out in the Code, from your respective vantage points and positions within the FX market. Singapore’s approach 15 Last year, I shared that the Singapore Foreign Exchange Market Committee (or SFEMC) has taken on the responsibility to promote and encourage adherence to the Code in Singapore. 16 Given Singapore’s position as the preeminent FX centre within the Asian time zone, it is important for us to continue to take a leading role in adopting the Code. | 1 |
BIS Review 62/2007 5 Changes for more efficient communication Ever since the inflation target was introduced, openness and clarity have been guiding principles for us. We have gradually implemented changes to become more transparent and more efficient in our communication. In February we presented for the first time our own forecast of the development of the policy rate over the coming years, something that our colleagues in Norway and New Zealand have also done. And as I mentioned earlier – a central bank can hardly be much more open and clear with regard to its monetary policy intentions. This increases the opportunities for evaluation and accountability. It has also become easier for us to explain our decisions and forecasts and to outline alternative scenarios for the interest rate. We are better able to live up to the requirements made in our interaction with the general public and the financial markets. There are also other examples of measures taken to increase our openness. Here I am thinking about the publication of minutes from the monetary policy meetings, our monetary policy reports, the many speeches held by Executive Board members every year and the hearings of the Governor by the Riksdag Committee on Finance. Clarity, not just openness – quality, not just quantity But efficient communication is not merely about quantity, it also concerns quality. Publishing a lot of information and doing so very often does not necessarily make the message clearer and the communication more efficient. It is not enough to merely be open. | And I am fairly certain that this is to a great extent due to the fact that we have purposefully worked to attain greater openness and clarity. This provides prerequisites for evaluation, accountability and thus creates legitimacy. All of these factors have contributed to winning confidence in our monetary policy. But the process does not stop here. It is not possible to "rest on one’s laurels” when one works with monetary policy. No, we must keep on adapting to new requirements; we must develop and refine our methods. One expression of this is that we have recently made several changes to become clearer and more efficient in our communication. The fact that we always have these ambitions is something that the general public and our principal, the Riksdag, as well as agents in the financial markets can demand of us. Thank you! BIS Review 62/2007 7 | 1 |
Balance sheet management Within the scope of its mandate, the SNB is also committed to sustainable development in the management of its balance sheet. The SNB differs from other asset managers in several respects. First, we manage foreign exchange reserves. 10 As these reserves perform a monetary policy function, they must remain subordinate to monetary policy goals at all times. These considerations determine the framework of our investment policy. As chart 2 shows, our foreign exchange reserves (represented by the area in blue) have increased substantially since the 2008 global financial crisis. This increase is mainly due to the SNB’s interventions in the foreign exchange market to counter excessive appreciation of the franc and stabilise price developments. The expansion of foreign exchange reserves has also caused an increase – on the liabilities side of the balance sheet – in the volume of sight deposits that banks hold with the SNB (area in red). 9 Cf. the SNB’s Environmental report, which is now called the Sustainability Report. 10 For more information on the specific characteristics of a portfolio composed of foreign exchange reserves (‘policy portfolio’) compared to other portfolios, cf. NGFS (2019), ‘A sustainable and responsible investment guide for central banks’ portfolio management’, October, pp. 7–10. On this subject, cf. also remarks by Matsen, E. (2019), ‘US Senate Democrats’ Special Committee on Climate Crisis’, 17 October, pp. 2–3. Page 7/12 Our reserves could decrease in the future, however. | The diversity and independence of its membership have always inspired ELEC to ask the appropriate questions and formulate coherent opinions, constantly having in mind the European interest. This year’s ELEC conference promises to be equally interesting as it concentrates on “Convergence towards euro enlargement” and I am honoured to be one of the keynote speakers. I salute the close cooperation between government officials in the region with high European officials, as well as with the private sector and prestigious organisations such as ELEC. We should never allow ourselves to lose sight of the fact that these discussions aim to help us on a journey made for the benefit of all. And it is a journey that can only be made through constant and diverse dialogue. Allow me to greet our renowned foreign guests: Baron Bernard Snoy, President of ELEC International, Wim Boonstra, President of ELEC Monetary Commission, Mr. Servaas Deroose, Deputy Director-General, ECFIN, as well as the distinguished speakers and panelists. Ladies and gentlemen, The same as the topics discussed in the previous reunions, “Convergence towards euro enlargement” is highly important and is worth debating at length. Let me start from the fact that euro adoption by the New Member States is a matter of when, not if, because they do not have an opt-out clause. The commitment to join the euro area is undeniable, yet how the complex process of ensuring the prerequisite economic convergence is conducted remains largely at the discretion of the authorities in candidate countries. | 0 |
The preventive measures that were introduced included placing limits on the loan-to-value ratio for luxury mortgage, raising minimum repayment requirements for credit cards and personal loans, and strengthening NPL provisions by fair valuation standards of IAS39. Looking back, these measures have been useful in curtailing excessive leverage and household indebtedness, thus helping to maintain stability in our domestic financial system. Risk-based supervision was a key driving force to strengthen risk management practices of our financial institutions. Financial institutions and central bank laws have been overhauled to keep up with the increased complexity of the financial system. The new Financial Institutions Business Act, enacted last August, empowers the Bank of Thailand with the authority to regulate banks and non-banks under a consolidated supervision regime. Furthermore, risk management and governance practices of financial institutions have also been strengthened. Board of Directors are now held accountable by law for setting the strategic and policy goals of banks, while corporate governance guidance and notifications under the fit-and-proper rule for the appointment of bank management have been put in place. Financial institutions have been positive in embracing these changes, as they contribute to a more open, more accountable, and more transparent financial system. Given the dynamic changes in the financial system, it is important for risk management and supervision to be forward-looking, and recognize margins of error from risk models. Thus, it is sensible to adopt the conservative approach. Here, let me also highlight the importance of “stress-testing” as a risk management and supervisory tool. | In the current crisis, the securitization boom and the easing of monetary policy in the US helped fund the loan growth, while in the case of the Asian financial crisis, it was the large capital inflows in the form of direct borrowing that funded the credit boom. In both cases, however, poor underwriting standard by banks was an important common contributing factor. Looking back, the Asian financial crisis has been an important turning point for policymakers in the region, as the lessons learned from the crisis had led to many important policy reform initiatives, all of which aimed at strengthening the robustness and the risk management discipline of the domestic financial systems, and this brings me to my second point. BIS Review 96/2009 1 In the case of Thailand, after having restored financial stability in the early 2000s, financial reform became a top priority, with emphasis on instilling prudent regulations and strong risk management. We adopted a macro-prudential approach in the early 2000s, in recognition of the systemic linkages between the financial system and the increasingly opened macroeconomic conditions; utilizing our natural institutional advantage as we continue to oversee both monetary policy and financial institutions supervision. Hence, from 2003 to 2006, a series of macro-prudential measures were introduced, aiming at restraining then the rapid growth of credit, especially credit card loans and mortgage loans. | 1 |
In the last quarter of the year, there was a positive contribution of the external sector to annual GDP growth of more than 2 pp. In under two years, external financing requirements might have halved. Further, in December last year, the Spanish inflation rate stood at 1.5%, a substantially lower figure. And since then inflation has continued falling and the difference with the euro area countries, now in our favour, has improved to stand at 0.5 pp last month. Nonetheless, such a rapid adjustment of the external deficit and of inflation, centred predominantly as it is on the contraction of demand, activity and employment, entails very high costs. In social terms, the ranks of the unemployed have swollen to around 3.5 million. 2 BIS Review 43/2009 The productive structure is also being affected through the closure of numerous firms, just as the budgetary position is worsening notably under the pressure of more social benefit disbursements and the contractionary effects on revenue due to the fall-off in activity. Uncurbed, all these factors will bear heavily and adversely on our ability to overcome the crisis. Accordingly, all tiers of government and social agents - central, regional and local government, Parliament and the regional assemblies, employers' associations, trade unions, institutions, etc. - should join forces in identifying the measures and action needed to resume as swiftly as possible a sustained growth path, and implement them with the utmost determination and diligence. | As set out in the Financial Stability Board's (FSB) latest progress reportOpens in a new window in October 2022, much progress has already been made including: agreeing global quantitative targetsOpens in a new window and a methodology for measuring progress towards them, undertaking stocktakes and analyses of existing payment systems and arrangements, and publishing proposals and best practice for achieving progress. And there have already been tangible changes, for example the move by SWIFT and some key systems to ISO 20022Opens in a new window messaging standards, increased operating hours and the launch of interlinking arrangements such as between Thailand's PromptPay and Singapore's PayNow. Now the work is at an inflection point: many of the original roadmap actions have been completed, providing a solid foundation from which to make real changes to the crossborder payments experience. In February 2023 the FSB published a set of priority actions that will be taken forward to meet the cross-border payments targets by 2027. The actions are grouped in three priority focus areasOpens in a new window: Payment system interoperability and extension; Legal, regulatory and supervisory frameworks; and Cross-border data exchange and message standards. We need to work together to make payments faster, cheaper, more accessible, and more transparent. Some of this work needs to continue to be international for example, agreeing approaches to harmonising rules and standards. | 0 |
It would consist of an agreement between firms and workers, under the social dialogue framework, to share the inevitable loss of national income that higher commodity import prices entail. 8 Fiscal policy should also play a key role, avoiding an across-the-board fiscal impulse – which would exacerbate the inflationary pressures – and the use of automatic indexation clauses in expenditure items. Conversely, efforts should focus on supporting lower-income households, who bear the brunt of inflation, and the firms most vulnerable to this new shock. Moreover, any measures should be temporary, so as not to further increase the structural budget deficit. They should also be designed to avoid significant distortions to price signals. But offsetting the adverse effects of the current supply-side shock also calls for ambitious policies to boost productivity growth and potential GDP. In other words, the optimal economic policy response to an adverse supply shock, such as the present one, entails structural reforms (including, naturally, of the energy market) to ease the supply-side tensions. The common European instrument to realise this ambition is the European Union’s NGEU recovery plan. Under NGEU, investment projects must be carefully selected in order to optimally complement, and act as a catalyst for, private investment.9 But they must also be accompanied by structural reforms to support, for example, the reallocation of resources across firms and sectors. At the same time, the sustainability of national public finances must be ensured; this is essential for the smooth functioning of the monetary union. | After reaching record highs in late August, it now more than doubles the average prices observed at the start of the year. In the absence of an integrated energy market, the economic consequences of this energy dispute are affecting European countries unevenly, depending on their different levels of dependence on Russian gas. For example, around 18% of mined energy products (gas and coal) and 9% of oil derivatives consumed in the EU are imported from Russia, compared with 3% and 2.5%, respectively, of those consumed in Spain. However, given the surge in energy prices and European economic integration, economies, like Spain, that depend relatively little on Russian imports, will also be affected. Indeed, according to the Harmonised Index of Consumer Prices (HICP), gas consumption accounts for some 2% of households’ consumption basket in the euro area, and for 1.5% in Spain. Yet beyond the direct impact on inflation of higher gas prices, inflationary pressures are also fuelled by firms’ higher production costs, as natural gas is the main source of energy for the industrial and services sectors (except for transport-related sectors),1 and by the impact of gas prices on electricity price formation in the European markets.2 In addition, the slowdown in economic activity in the hardest hit countries will pass through, via trade flows, to the other economies in the form of lower external demand. | 1 |
Private sector external debt, which accounted for about 80 percent of foreign liabilities, increased by 5 percent to $ billion due to revaluation changes in non-us dollar denominated loans predominantly in the electricity, manufacturing, information and communication as well as real estate sectors. Esteemed invited guests, in terms of flows, overall net foreign liability outflows of $ million 1/3 BIS central bankers' speeches were recorded in 2020 against net inflows of $ million in 2019. This was due to loan repayments to non-affiliates by the mining, manufacturing, electricity as well as wholesale and retail trade sectors, and the reduction in currency holdings by non-residents in domestic deposittaking corporations. However, FDI liability inflows amounted to $ million compared to $ million in 2019. Reduced re-invested earnings and debt repayments, largely by the mining and quarrying sector, accounted for the decline in FDI inflows. Canada continued to be the major source of private sector foreign liabilities. Ladies and gentlemen, the stock of private sector foreign liabilities declined further in the first half of 2021 to $ billion due to loan repayments mostly by the mining and quarrying sector as well as revaluation effects on equity. However, a net inflow of about $ million was recorded against net outflows of $ million a year ago. This was due to the upswing in FDI inflows on account of higher reinvested earnings by the mining, deposit-taking corporation, manufacturing, electricity, as well as information and communication sectors. | Ladies and gentlemen, this year’s survey response rate was 54.0 percent, a slight reduction from the 56.0 percent recorded in the 2020 survey. We were cognisant of the restricted working arrangements induced by covid-19 and extended the survey period to accommodate a larger number of enterprises who took time to respond. I must mention that the data we collect from various enterprises in this exercise is extremely important as it generates information that enables us understand developments in the external sector, which have implications for the formulation of sound monetary, fiscal, trade, and investment policies. This is in addition to taking necessary measures to improve the ease of doing business in Zambia. The 2021 survey summarises the magnitude, type, sources, and direction of the private sector foreign capital for the year 2020 and the first half of 2021, as well as investor perceptions on the investment climate in Zambia. Let me now turn to the highlights of the survey findings, which is the subject of our discussion today. Distinguished ladies and gentlemen, in 2020, the stock of private sector foreign liabilities declined by about 5.0 percent to $ billion. This was due to the fall in the stock of foreign direct investment (FDI) owing to valuation effects on equity mostly held by the mining and quarrying sector. Nonetheless, FDI continued to account for the largest share of the stock of private sector foreign liabilities. | 1 |
At the same time, and particularly taking into account the relatively high level of business confidence in the euro area, private sector domestic demand should increasingly contribute to growth, supported by the accommodative monetary policy stance and the measures adopted to restore the functioning of the financial system. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors. In the Governing Council’s assessment, the risks to this economic outlook are still slightly tilted to the downside, with uncertainty remaining elevated. On the one hand, global trade may continue to grow more rapidly than expected, thereby supporting euro area exports. Moreover, strong business confidence could provide more support to domestic economic activity in the euro area than is currently expected. On the other hand, downside risks relate to the tensions in some segments of the financial markets and their potential spillover to the euro area real economy. Further downside risks relate to renewed increases in oil and other BIS central bankers’ speeches 1 commodity prices, protectionist pressures and the possibility of a disorderly correction of global imbalances. With regard to price developments, euro area annual HICP inflation was 2.2% in December, according to Eurostat’s flash estimate, after 1.9% in November. This was somewhat higher than expected and largely reflects higher energy prices. Looking ahead to the next few months, inflation rates could temporarily increase further. | European Central Bank: Press conference – introductory statement Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 13 January 2011. * * * Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me wish you all a very Happy New Year. I would also like to take this opportunity to welcome Estonia as the seventeenth country to adopt the euro as its currency. Accordingly, Mr Lipstok, the Governor of Eesti Pank, became a member of the Governing Council on 1 January 2011. Following the adoption of the euro by Estonia there are now 331 million citizens using the euro as their currency. We will now report on the outcome of today’s meeting, which was also attended by Commissioner Rehn. Based on its regular economic and monetary analyses, the Governing Council confirmed that the current key ECB interest rates still remain appropriate. It therefore decided to leave them unchanged. Taking into account all the new information and analyses which have become available since our meeting on 2 December 2010, we see evidence of short-term upward pressure on overall inflation, mainly owing to energy prices, but this has not so far affected our assessment that price developments will remain in line with price stability over the policy-relevant horizon. At the same time, very close monitoring is warranted. | 1 |
Simon M Potter: The Federal Reserve’s counterparty framework – past, present and future Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the 2015 Roundtable on Treasury Markets and Debt Management, Federal Reserve Bank of New York, New York City, 19 November 2015. * * * Good evening. I would like to thank the Office of Debt Management for inviting me to speak at this year’s roundtable. This forum provides a valuable opportunity for policymakers, academics, and market participants to discuss issues related to the primary and secondary markets for U.S. Treasury securities. I will focus my remarks tonight on the counterparty framework employed by the Federal Reserve Bank of New York, which directly affects not only our implementation of monetary policy, but also the underwriting and distribution of Treasury debt issuance. I will begin with an overview of the objectives that underpin the framework, continue by describing how those objectives have influenced the historical development of the primary dealer system, and conclude by looking ahead as the private and official sectors adapt to the evolving structure of the Treasury market. | In conclusion, let me stress 4 points: It is hard to anticipate the role that stablecoins and more generally crypto-assets might play in the payment system of the future, especially since the features of these assets look set to change considerably. While it is clear that they offer opportunities to improve our payment systems, they can also bring quite material risks which must be addressed. In that context, it is first and foremost the responsibility of private sector entities to design arrangements which do not bring undue risks to our payment systems. Regulatory and oversight authorities also have an important role to play in order to ensure that risk management requirements to be met are clear, comprehensive, coherent acrossborders and complied with, while preserving the potential for technological innovation offered by stablecoins. Beyond contributing to the adjustment of the regulatory and oversight frameworks to address these risks, central banks may make further contributions, notably by revisiting and possibly adjusting the conditions under which they make central bank money available for settlement purposes. To that end, we should keep an open-minded approach and develop an in-depth understanding of innovations currently spreading across the financial sector, including through experimentations. This is critical for our capacity to help deliver a sound, proper and updated regulatory framework supporting innovation, and adequately mitigate their inherent risks. This is also critical for our capacity to adapt the performance of the different roles we play to fulfil our financial stability mandate and conduct efficient monetary policies. Thank you for your attention. | 0 |
Figure 3: Actual MPR versus Taylor rule (†) 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 -0.5 -0.5 -1.0 -1.0 -1.5 -1.5 2010 2011 Lag 2012 Inflation 2013 GDP 2014 2015 Shock 2016 D(MPR) 2017 2018 Taylor rule (†) Source: Central Bank of Chile. Figure 4: MPR Chile vs US (†) 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 2000 2002 2004 2006 2010 2008 2012 2014 2016 0 2018 CHL: Monetary Policy Rate US: Fed Fund Rate (†) Sources: FRED and Central Bank of Chile. Some key factors supporting the roles of ER as a shock absorber of financial and commodity price shocks A flexible ER regime is not a form of snake oil to alleviate any sort of global ailment. ER volatility can, of course, generate major wealth shifts, and even solvency problems to agents with large balance sheet mismatches—including government. They can induce major losses in competitiveness, which may harm overall activity if winners fail to capture benefits as fast as 6 losers realize costs. Constituencies around fixed prices—including the ER—are very concentrated and powerful. | The figure illustrates this pattern, showing a significant response of the Chilean 3 peso but a non-significant movement in long-term bond prices. The opposite results hold for Mexico.2 Similarly, the response at country-group level also indicates differences when an US MP shock hits other countries' MP rate decomposed into expected MP rate and term premium (see Table 1). Whereas in AEs the adjustment mechanism is mainly through expected MP rate, the transmission in EMEs is via the term premium. ER comes out as more reactive in AEs rather than EMEs, presumably because central banks in EMEs are less prone to conduct sterilized FX interventions, aiming to—partially—stabilize interest rates and the ER simultaneously. Table 1: US MP spillovers (†) 10-Year interest rate Expected interest rate Term premium FX depreciation Advanced economies 2003-2016 Post Nov.08 0.335*** 0.429*** 0.331*** 0.234*** 0.005 0.196*** 7.50*** 10.920*** Emerging economies 2003-2016 Post Nov.08 0.293*** 0.557*** 0.054 0.136** 0.239*** 0.421*** 3.520*** 6.660** (†) The country sample includes 12 EMEs and 12 AEs. The panel regressions use daily data from Jan-03 to Dec-16. The units represent effects in basis points (bp), for a US MP shock of 1 bp. (***) p<1%, (**) p<5%, (*) p<10%. Source: Central Bank of Chile. Of course, a flexible ER also facilitates the reallocation of economic activity between the tradable and non-tradable sectors by speeding up the adjustment of relative prices. | 1 |
4 BIS central bankers’ speeches This is of course an attempt to take the argument to its extreme. Monetary policy has constantly been aimed at bringing inflation back on target and creating conditions for longrun stable growth in the Swedish economy. The reason why the Riksbank has conducted the policy it has conducted is that it has tried to reduce the risk of excessive debt and overly inflated housing prices. Swedish household debt has shown a sharp upward trend over the past 15 years or so and is now very high, both from an historical and an international perspective (see Figure 5). If housing prices were for some reason to fall heavily in a situation with high debt levels, households would find that their earlier calculations no longer held and that their balance sheets did not look the way they expected. This could in turn start a process whereby households try to get rid of some of their debt. | At some point the "insurance premium" becomes too large, but I do not think this can be said to have happened yet. 17 For a comprehensive survey of the valuation of the Swedish housing market, see Sørensen (2013), in which the following conclusion is drawn (p. 71-72): “[A] cautious reading of the evidence gives reason to expect downward pressure on Swedish real house prices in the years to come. And if the Swedish economy were to be hit by a large negative shock, the downward adjustment of house prices could become more rapid than the analysis … would suggest.” 18 See Dagens Industri (2013b). 19 Bernanke (2010) describes the difficulties experienced by the Federal Reserve in determining whether or not the housing market in the United States was over-valued. 20 Similar ideas can be found in, for instance, Blanchard, Dell’Ariccia and Mauro (2013), p. 7: “[G]iven what we have learned about the costs of inaction, higher type I errors (assuming that it is a bubble and acting accordingly, when in fact the increase reflects fundamentals) in exchange for lower type II errors (assuming the increase reflects fundamentals, when in fact it is a bubble) may well be justified.” 8 BIS central bankers’ speeches Are better instruments than the policy rate already available? The third question concerns the access to other tools than the repo rate for managing risk. Those who are critical of using the repo rate claim that there are already other and bettersuited instruments available. | 1 |
Speech 23 September 2021, 5.30 pm Fifth Karl Brunner Distinguished Lecture Introduction of Carmen M. Reinhart Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Zurich, 23 September 2021 © Swiss National Bank, Zurich, 2021 Page 1/4 Ladies and Gentlemen Good evening. My name is Thomas Jordan and I am the Chairman of the Governing Board of the Swiss National Bank. We are very pleased to welcome you all to the fifth edition of the Karl Brunner Distinguished Lecture. We are delighted and honoured that Carmen Reinhart has accepted our invitation to give the lecture. This lecture was planned for September 2020, but had to be postponed by one year due to the pandemic, with the hope of welcoming Carmen and all of you in person here in Zurich. Given the still difficult situation with coronavirus, this has unfortunately not proven possible. Consequently, the fifth Karl Brunner Distinguished Lecture now takes place in a virtual format. The Swiss National Bank established this lecture series in commemoration of the Swiss economist Karl Brunner, who was one of the leading monetary economists of the twentieth century. Our aim is to contribute to the public debate on questions related to our mandate, by inviting prominent academics whose research is relevant to central banking. Carmen Reinhart is one of the most cited economists in the world, with contributions that cover a remarkable variety of topics, including financial crises, exchange rate policies and public debt. | On the domestic front, the speed, forcefulness, adaptability and comprehensiveness of the economic policy response has been key to reducing costs in the short run and preventing even more extreme and adverse scenarios. It will probably also be crucial in containing medium and long-term damage. In addition, it is worth emphasising the complementarity of the monetary policy measures and those adopted both by fiscal and by prudential authorities, which have significantly reinforced each other. An opportunity for multilateralism But beyond domestic policy efforts, this crisis has demonstrated that, in a highly globalised world, internationally coordinated action is of the essence both during the recession and, more importantly, with a view to the recovery. And this is particularly the case in Europe, given our high degree of integration. Although the crisis has affected sectors and countries differently, the economic policy response must be global in nature. First, on the health front, the crisis will not be over until immunity against the virus has been achieved worldwide. In this respect, the support of multilateral institutions is essential to accelerate the pace of vaccine rollouts in low-income countries. Second, on the economic front, we are witnessing sizable divergences in the rate of recovery across economies. In particular, poorer countries face tougher challenges easing lockdown measures and, at the same time, have more limited policy space to support the recovery. A premature tightening of international financial conditions would be particularly harmful for them, putting their recovery at risk and potentially leading to social and geopolitical tensions. | 0 |
It must be noted that this occurs in the context of high inventory buildup towards the end of 2018 and the increased uncertainty surrounding the external scenario. In any case, the other part of investment—construction and other works—has remained dynamic and forward going forward signs are still positive. On one hand, related stock market data point to a favorable development. On the other, the large-scale investment projects that are currently in progress—especially in mining—do not register delays and have been unfolding according to plan. Along the same lines, the various surveys of investment projects have not seen any downward and continue to foresee larger amounts for 2019-2020, compared with the amounts invested in the period 2017-2018 (Figure 8). Turning to concessions, the authorities have announced a significant increase in them as from 2020, in particular in hospitals, roads and airports. Add to this the announced approval of a set of complementary works that will be executed in 2019 and 2020. The information of the Association of Engineering Consulting Firms (AIC) for the first quarter of 2019 shows that detail engineering—which covers projects scheduled for one or two years ahead—shows high annual growth rates. In terms of housing investment, although it began the year with a zero contribution to construction GDP, sales remain high and the outlook reflected in the May Business Perceptions Report is positive. In any case, the Monthly Entrepreneurs Confidence Index (IMCE) for the construction sector posted a decline most recently but is still higher tan its all-time average. | Regarding inflation, the Board estimates that the risks are unbiased. The updating of structural parameters has a significant degree of uncertainty, particularly due to the macroeconomic effects of immigration. On the one hand, it is possible that the absorption of immigrants into the labor force is associated with a productivity fall that is more persistent, causing a lower potential growth in the projection horizon, a narrowing of the activity Page 7 of 18 gap and, therefore, higher inflationary pressures. On the other hand, it can happen that the increase in the labor supply occur with greater intensity, which would push up potential GDP growth, widen the activity gap, and reduce pressures on wages and prices. It should also be considered that the negative balance of external risks has exchange-rate effects that could raise short-term inflation beyond our current estimate (Table 5). Summing up, the evaluation of the macroeconomic scenario and its outlook, which include the updating of the structural parameters and the recent evolution of the economy, pointed to the need to recalibrate the monetary impulse. Consistent with this, we decided to cut 50 basis points off the MPR, taking it to 2.5%, in our Meeting of last Friday. We estimate that, by keeping this rate until we see clear signs of an upturn in inflation, it will be possible to ensure the convergence of inflation to the target, in a scenario where the capacity for long-term growth is strengthened by the immigrants’ contribution. | 1 |
But few would doubt in retrospect that the shift away from manufacturing to a higher value-added service-based economy has been beneficial and that it would anyway have been inevitable eventually. There would have been little advantage in trying to slow the process through actions of monetary or exchange rate policy. In other words, the long-term equilibrium path of the real rate is not necessarily flat. The trend path may, at any particular moment, be up, down or flat, while the actual rate constantly diverges from its equilibrium path because of random events such as unforeseen movements in nominal exchange rates or in cost and price levels at home or abroad, or because of the failure of market adjustment processes to work quickly enough. All of this can be quite aptly illustrated by looking at the path of the Hong Kong dollar's real rate since it was first pegged. The natural trend appeared to be upward, though not smoothly so, for the middle period of about ten years, but there is nothing here which tells us what will, or should, be the path from hereon. Against this background, monetary policy may not be expected to achieve much for competitiveness. But policy makers nevertheless have to choose. Should a fixed or floating rate be preferred? Fix or float? In theory, an advantage of floating is that it may allow for the nominal exchange rate to adjust continuously and precisely so as to keep the real rate at equilibrium - an ideal situation if achievable. | The dosage of the drug may be increased as dependency rises, but eventually a fairly severe anti-dote of austerity may need to be administered to break the growing addiction. It may reasonably be argued, however, that, even if the underlying path of the real exchange rate is determined essentially by structural forces within the economy, monetary policy should be utilised so 1 In fact it is necessary to take into account all one's trading partners and thus arrive at the real trade-weighted or "effective" exchange rate - the REER. For ease of exposition, however, only the term "real exchange rate" is used in this paper. 2 The precise interpretation depends crucially on the set of prices or costs which is used in the calculation, but this aspect is not addressed here. 2 BIS Review 17/2002 far as possible to prevent excessive divergences from trend which may prove damaging to the economy. For example, if a currency is artificially strong for a prolonged period, a particular sector of the economy may become so damaged that it is incapable of recovering when the exchange rate eventually returns to equilibrium. In practice, however, it is extremely difficult to determine, at the time, whether a particular movement in the real rate represents a divergence from the equilibrium path or a fundamental shift in the path itself. At various moments over the past 20-30 years there may have been calls for a weaker HK dollar in order to preserve the local manufacturing sector. | 1 |
Philipp M Hildebrand: Albert Gallatin, one of the financial founding fathers – what can we learn from him today? Speech by Mr Philipp M Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Swiss-American Chamber of Commerce, Geneva, 10 September 2008. I would like to thank Signe Krogstrup for her valuable support in drafting this speech. I also thank Rita Kobel and Urs Birchler for their very helpful comments and discussions. * 1. * * Introduction As always, it is a great pleasure to be in Geneva. I want to thank the Swiss-American Chamber of Commerce for its kind invitation. My remarks today are unusual in the sense that I will not structure them around monetary policy, the ongoing financial turmoil, or any other current monetary topic. Instead, I have the privilege to step aside temporarily from my day-to-day preoccupations and indulge in a little bit of history about a remarkable man whose origins are firmly rooted in Geneva’s beautiful “vielle ville”. Ladies and Gentlemen, it is an honor for me to pay homage to Albert Gallatin – the Geneva-born fourth – and to this day longest – serving United States Secretary of the Treasury. 1 Those of you who enjoy economic history will be familiar with the extraordinary accomplishments of Alexander Hamilton, the first Secretary of the Treasury, appointed by President George Washington in 1789. Hamilton built the foundation of the U.S. federal financial system in the late 18th century. | You will find our detailed explanatory evaluations regarding the base effect and its effects on 2010 inflation outlook in a box under the third chapter of the Inflation Report to be posted on our website shortly. I strongly recommend that you read these evaluations carefully. The fact that inflation is expected to stay at elevated levels for some time due to tax adjustments and strong base effects highlights the importance of expectations management. In this respect, with the awareness of these temporary factors, it is critical that economic agents focus on the medium-term inflation trend, and therefore, take inflation targets as a benchmark for their pricing plans and contracts. I would like to emphasize once more that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, assumptions regarding future policy rates underlying the inflation forecast should not be perceived as a commitment on behalf of the CBT. 4. Risks Distinguished Members of the Press, In the last part of my presentation, I would like to talk about the risks with respect to the inflation outlook in the upcoming period and provide some information pertaining to the probable monetary policy strategy should these risks materialize. The outlook for the domestic economy and the risks thereto has been largely shaped by global developments in line with the intensification of the global crisis as of the last quarter of 2008. | 0 |
One way of doing it is to calculate the average expected future real interest rate, which provides a benchmark if nothing else. Figure 12 shows how an estimate of the Swedish long-term real interest rate has moved since the mid-1990s until now. 20 According to this estimate, it was around 1.5–2 per cent in the middle of the 1990s. Since then, it has shown a downward trend to around −1 per cent. This downturn is primarily due to a trend decline in international interest rates. Figure 12 also shows that the long-term real interest rate has fallen in large and important economies such as the euro area, the United Kingdom and the United States. The Swedish long-term real interest rate followed the level of the euro area fairly closely until the financial crisis in 2008–2009, after which it has been a little higher. There are several reason why international real interest rates have shown a falling trend. At an overall level the willingness to save has increased more than the willingness to invest, which has meant that the long-term real interest rate has fallen. The former Federal Reserve Chairman Ben Bernanke pointed to the increasing saving in China and other Asian countries as one reason for the global increase in savings, partly because of deficiencies in the social insurances systems in the rapidly-growing countries. | Anita Angelovska Bezhoska: Efforts for further development of the financial education and improving the financial literacy among the population Address by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of North Macedonia, at the Meeting with the Teaching Staff on the Occasion of the European Money Quiz, Skopje, 22 February 2019. * * * Dear Deputy Minister of Education and Science, dear President of the Macedonian Banking Association, dear teachers, dear guests, First of all, please allow me to greet and welcome all of you here in the National Bank. This is the first such meeting, which I hope will become a regular practice in the future, within our efforts for further development of the financial education and improving the financial literacy among the population in our country. The global financial crisis that arouse from the deficient regulation of the financial system, as well as from the poor financial knowledge of the population, clearly emphasized the necessity for additional efforts in the financial education segment. Therefore, in the global context of the postcrisis period, the policy-makers, including central banks, undertake numerous activities, making financial education an integral part of central banking operations. Being aware of the importance of financial literacy, both for each individual and for the society as a whole, the National Bank has been undertaking activities in the field of financial education for the younger population for many years, and many students from primary and secondary schools, of course, together with their teachers, have already visited our bank. | 0 |
The Riksdag (2014), Finansutskottet utser toppnamn för att utvärdera Riksbankens penningpolitik. [The Committee on Finance nominates prominent persons to evaluate the Riksbank’s monetary policy] (In Swedish), Press Release, June 17. Rosengren, Eric S. (2015), Changing Economic Relationships: Implications for Monetary Policy and Simple Monetary Policy Rules. Speech on 16 April. Federal Reserve Bank of Boston. Schück, Johan (2015), 2 procents inflation är ett orealistiskt mål. [2 per cent inflation is an unrealistic target] (In Swedish), Column, Dagens Nyheter, 8 May. Stein, Jeremy C. (2013), Overheating in Credit Markets: Origins, Measurement and Policy Responses. Speech on 7 February. Federal Reserve Bank of St. Louis. Sydsvenskan (2015), Sikta lägre Ingves. [Aim lower, Ingves] (In Swedish), Editorial, 4 September. Williams, John (2009), Heeding Daedalus: Optimal Inflation and the Zero Lower Bound. Brookings Papers on Economic Activity, no.2, s. 1–37. Winsth, Annika and Isaksson, Torbjörn (2015), Låg inflation gynnar Sverige. [Low inflation benefits Sweden] (In Swedish), Debate article, Dagens Industri, 2 February. 12 BIS central bankers’ speeches | And it is also probable that the buildup of leverage and bad debt itself would have been significantly restrained in the years before the crisis by the discipline imposed by shareholders and bondholders aware that they stood first in line to bear losses if the banks failed. We not only have to follow through domestically. There is further work to do to ensure that we can not only manage the failure of a bank large enough to be systemically significant in one jurisdiction, but that we can manage the failure of large, internationally active banks. 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 Again, if we want better options than bailout or insolvency, we need to continue working now, internationally, to put those options in place. This of course requires trust and cooperation between the home authority for the group and the host authorities of the jurisdictions in which it has major operations. But trust and cooperation, while necessary conditions, are not in themselves sufficient. Home and host authorities needs to agree, in advance, on the resolution strategy for a major cross border banking group. Hosts need to be confident that the chosen strategy is viable and that it will respect their own financial stability needs. In other words, confidence that local operations will not be cut loose in resolution and that, if necessary, hosts have the ability to draw down loss absorbing resources through the parent. We have made very significant progress in agreeing international standards on resolution. | 0 |
Birgir Ísleifur Gunnarsson: Monetary policy, economic growth and prosperity Opening address by Mr Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, at a conference to mark the 60th anniversary of the University of Iceland Faculty of Economics and Business Administration, Reykjavik, 31 October 2001. * * * I would like to congratulate the University of Iceland’s Faculty of Economics and Business Administration on its 60th anniversary, its noteworthy activities and its contributions towards strengthening the Icelandic economy. I also wish the faculty every success for the future. At the same time I thank you for the honour I have been shown with this invitation to deliver the opening address at this anniversary conference. I have chosen to call my talk “Monetary policy, economic growth and prosperity.” I shall therefore focus on the role played by monetary policy in economic policy implementation, and its contribution towards economic growth and prosperity. And there is ample reason as well, because the most notable events in economic organisation this year have involved precisely the monetary policy framework and the Central Bank. Price stability Important changes have been made to central bank legislation around the world in recent years. | There is always scope for new opinions in debates on current affairs. The debate in recent weeks partly reflects the fact that people are still absorbing the major changes that were made to the monetary policy framework this year. A wide range of cooperation has taken place between the Central Bank and the University of Iceland in recent years. The Central Bank has supported research projects in its areas of activity, and published the findings in its journals. As the importance of monetary policy becomes increasingly recognised in economic policy implementation, it is vital for the University’s Faculty of Economics and Business Administration to give a high profile to monetary economics, both theoretical and practical. Monetary policy is transmitted through numerous markets and it is vital for people engaged on both the analytical and business sides to have a firm grounding in this field. Similarly, it is important for the dialogue on monetary policy to be conducted as far as possible on a firm professional basis. The Central Bank is eager to cooperate more closely with the faculty and other bodies on strengthening university level teaching in monetary economics and central banking. Ladies and Gentlemen: In this talk I have described the changes made in Iceland’s monetary policy implementation and new attitudes to monetary policy in much of the world. The main task of most central banks is to promote price stability, because it is recognised that by doing so they make the best contribution to economic growth and prosperity. | 1 |
Trichet: I can confirm that three of the four decisions were unanimous or taken on the basis of a consensus. One decision namely the Securities Market Programme was decided, as I have already said, by an overwhelming majority. All our decisions – including last Sunday’s – are taken after weighing up all the pros and cons. HB: Were you not in contact with authorities? Trichet: Yes, I was in contact with my good friend Ben Bernanke, the Chairman of the Federal Reserve and other central bank governors, throughout the evening and the night. It was not only a European but also a global serious situation. HB: For more than ten years, the ECB was able to keep inflation in the euro area under control. Now, all of a sudden, the Union has stopped functioning properly. What has happened? 2 BIS Review 67/2010 Trichet: We are currently facing challenges on a global scale. The events that we are now seeing have ceased to be a matter solely for Europe. The challenge of running sound sustainable fiscal policies is the problem affecting most of the world’s major industrialised countries. That needs to be understood. The crisis in private financial markets has now been followed by severe tensions in the public sector. Ultimately, all industrialised countries are very much in the same boat. HB: From Athens are coming only nice words, just words… Trichet: No, nice words aren’t the only thing coming out of Athens. | The situation in a number of financial markets was hampering the transmission of our monetary policy, a monetary policy stance that we had judged to be appropriate precisely the previous Thursday. That had to be put right. The exceptional circumstances demanded that we act swiftly. HB: What volume will the purchase programme have? Trichet: I do not provide any figures at the moment. HB: The markets would like to know in somewhat more detail how you intend to absorb the liquidity again. Trichet: Allow me to repeat myself: We are not changing our monetary policy stance. We are not embarking on quantitative easing. We will withdraw the liquidity that we will inject mainly through tendering term deposits. HB: Will that be possible? Trichet: Of course. It does not present technical difficulties. That is what we intend to do. And let me say, that what counts, is our determination and the fact that we are true to our primary mandate of safeguarding price stability. The Governing Council will not tolerate inflation. HB: Is Greece an isolated case? Could the same happen to other countries as well? Trichet: Greece was clearly in a unique exceptionally grave situation before it embarked on its adjustment programme. But I call solemnly upon all countries to implement programmes commensurate to recover sound fiscal situation. HB: What has to be done? | 1 |
Third, and this is the trickiest of the three, is when individuals consciously tap on these cognitive biases to their own advantage. The rise of the asset management industry is one example, where asset managers’ herd behaviour may be looked at as perfectly rational. An IMF researcher referred to such situations as “rational bubble-riding”, whereby financial benchmarking and the short-term nature of performance appraisals imposed on asset managers, lead them to consciously ride on bubbles, despite believing that the prices are unjustified by fundamentals. Investors may be incentivised to herd, preferring to succeed or fail together to prevent reputational damage. As John Maynard Keynes famously said, “It is better for reputation to fail conventionally, than to succeed unconventionally”. Whether these cognitive biases are unconsciously wired in us or consciously being tapped on, we ought to recognise the power of perception. Edward de Bono aptly pointed out that “perception is real, even if it is not reality.” In reality, a few of these misperceptions result in tangible consequences that influence the ringgit exchange rate level. Let me cite five instances of misperceptions that have been making its rounds in the market: First, the perception that the ringgit is driven by oil prices. This was derived from fact that Malaysia is one of South East Asia’s net exporters of oil and gas. Petronas is also one of the world’s largest producers of LNG. | Two factors are behind this development: the sharp appreciation of the Swiss franc following the discontinuation of the minimum exchange 2 4 According to World Bank data, the Swiss economy ranked 20th out of 194 countries in 2014. Switzerland’s export intensity is significantly above the OECD average. BIS central bankers’ speeches rate and the pronounced fall in oil prices last year. These factors are transitory, and as such do not pose a threat to price stability over time in Switzerland. Exchange rate appreciation and the energy price decline are the results of international spillovers that affect consumer prices primarily by lowering import price inflation. 3 Chart 8 shows that most of the downward pressure on Swiss inflation is attributable to these international spillovers. However, as can be seen in the chart, domestic price components have shifted down as well. This harks back to the flexibility of Swiss companies, which I referred to earlier. In particular, those Swiss companies that compete in markets for imported goods have lowered their prices in order to maintain competitiveness in the wake of the exchange rate appreciation. Such price cuts play an important role in restoring the Swiss economy’s price competitiveness over the medium term. They are thus part of the adjustment process in response to the sudden exchange rate appreciation. That such a process can be painful for some of the companies directly involved goes without saying. For this year, we expect consumer price inflation to average about –1.2%. | 0 |
Focus groups and surveys conducted by the Federal Reserve System suggest this contraction is the result of three distinct factors – a decline in demand for credit, a tightening of lending standards, and a weakening of credit quality due to lower collateral values and cash flows. 1 Which is the most important is difficult to discern. However, surveys of small-business owners indicate that much of the weakness in lending to this sector reflects lack of demand. The National Federation of Independent Business (NFIB) Small Business Optimism Index, for instance, asks respondents to indicate their single most important problem from a standard list. For some time now, the response “poor sales” has been the most frequently cited problem. In contrast, relatively few respondents cite “financial and interest rates” as the most important problem (Chart 13). A caveat to this is that credit constraints could be inhibiting the formation of new small businesses – something that surveys of existing firms would not capture. Although credit availability has begun to improve, the decline in collateral values remains a significant impediment. For example, housing prices have declined so far that nearly one quarter of homes are now worth less than the value of the mortgages that finance them. Lacking sufficient collateral value, such homeowners cannot take advantage of the fact that conforming mortgage rates are at their lowest level in history and refinance their mortgages. | Overall, the desire to rebuild wealth through savings and the limits on credit availability to households has acted to restrain consumer spending, keeping the recovery tepid. To some degree, this adjustment is unavoidable, as the economy had reached unsustainable levels of consumption and housing demand. However, the fact that many of these adjustments are inevitable does not rule out a role for monetary policy to support economic activity. Very low interest rates can help smooth the adjustment process by supporting asset valuations, including making housing more affordable and by allowing some borrowers to reduce debt interest payments. Beyond this direct role in smoothing the deleveraging process – to the extent that monetary policy can “cut off the tail” of the distribution of potential adverse economic outcomes, making a truly disastrous outcome less likely – it can help encourage those households and businesses with money to spend to do so. Today’s low and falling rate of inflation – at a time when interest rates are near zero – is a problem that is slowing the adjustment process. Currently, by most measures, inflation is below the level that members of the Federal Open Market Committee (FOMC) view as consistent with price stability. Although the Federal Reserve has no formal numerical inflation target, it is noteworthy that the long-run inflation forecasts of the FOMC members cluster around 1.75 percent to 2 percent for the personal consumption expenditures (PCE) deflator. | 1 |
I attributed this in significant part to prudent fiscal and regulatory policy, underscoring that this not only facilitates job and overall economic expansion in Texas, but is the underpinning of confidence. I would suggest that 7 See the FOMC’s /20120125c.htm. 8 “Prosperity at Risk: Findings of Harvard Business School’s Survey on U.S. Competitiveness,” by Michael E. Porter and Jan W. Rivkin, Harvard University, January 2012. 6 BIS central bankers’ speeches statement, Jan. 25, 2012, www.federalreserve.gov/newsevents/press/monetary now is the time for prudent fiscal policy to be enacted by a Congress that on both sides of the aisle has for far too long, under both Republican and Democratic presidents, been shamefully negligent of its responsibility. Today marks the 1,009th day without an agreedupon federal government budget. The Congress has found it easier to not agree on a budget than to go about correcting fiscal imbalances that drive the nation’s growing indebtedness. Our political leaders’ misfeasance exacerbates the “angst” that inhibits the confidence of consumers and job-creating businesses. My staff has found a wonderful sketch on YouTube that might best illustrate the behavior of Congress. Here it is: http://www.youtube.com/watch?v=Li0no7O9zmE. That sketch says it all. The Fed, the nation’s monetary authority, has clearly articulated its longer-run goal and policy strategy and has conducted itself with integrity by responding to the needs of the economy. In contrast, the fiscal authorities have conducted themselves with impunity: Their only long-term strategy is to pass the bill to our children and grandchildren. | Richard W Fisher: A report on the Texas economy and a hawk(s)eye view on recent Fed pronouncements – what does it all mean? Remarks by Mr Richard W Fisher, President and Chief Executive Officer of the Federal Reserve Bank of Dallas, before the Headliners Club, Austin, Texas, 2 February 2012. * * * Thank you, Patti [Ohlendorf]. I am flattered that such a great group of Austinites has turned out tonight. I am especially pleased that Alejandro and Rosa Laura Junco are here. Alejandro is CEO of the print media company Grupo Reforma. He has earned a sterling reputation for journalistic independence in a part of the world where independence is a rare and sometimes dangerous thing. Columbia University, the University of Missouri and Michigan State University have honored him for his journalistic accomplishments, and the University of Texas at Austin has named him a Distinguished Alumnus. Alejandro’s company and its flagship paper in Mexico City take their name from La Reforma, a period of liberalizing reforms that transformed Mexico into a nation state in the mid-19th century, beginning with the overthrow of the man Texans know best and like least – Santa Anna – and ending with the ascension to power of a good general gone bad, Porfirio Diaz. As a child growing up in Mexico City, I was taught about La Reforma in school. | 1 |
Jessica Chew Cheng Lian: Remittance flows – benefitting lives in Malaysia and abroad Remarks by Ms Jessica Chew Cheng Lian, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Closing and Handover Ceremony of Project Greenback 2.0, Johor Bahru, 30 November 2017. * * * Two years ago, on this very same stage, Governor Muhammad Ibrahim set out two specific outcomes for Project Greenback 2.0 here in this beautiful city of Johor Bahru. First, to further improve on the costs of remittance transactions for individuals and businesses, and second, to help consumers make better and more informed decisions. Today, the results speak for themselves. The average cost of remitting funds* in Johor Bahru is now around 2%, compared to above 3% before we started the Project. The use of authorised money services business providers to conduct remittance transactions has increased by 21% in value terms on an annual basis for the period January to October 2017 against the corresponding period in 2015, offering better protection to customers while safeguarding the integrity of our financial system. Of this, remittances by SMEs using more cost-efficient formal MSB channels has more than doubled. This increase has also outstripped the growth in remittances for the industry as a whole as a result of initiatives under the Greenback project. Over 35,000 migrant workers and 3,700 SMEs were engaged to increase awareness and promote the use of formal remittance services through more than 40 education and outreach programmes organised over the last two years. | ULC, labour costs and productivity in manufacturing 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 ULC 1995 Labour cost per hour 1997 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 Labour productivity 1999 2001 2003 Note. Annual percentage changes. Source: National Institute of Economic Research. 7. SEK/TCW, UNDIMPX xe and imported consumer goods 20 UNDIM PX xe 20 15 TCW 15 Imported consumer goods 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 95 96 97 98 99 00 01 02 03 04 05 Note. 12-month changes in per cent. Source: Statistics Sweden and the Riksbank 10 BIS Review 25/2005 8. Unit labour costs 6 6 4 4 2 2 0 0 -2 -2 Transport etc Trade -4 -4 1995 1997 1999 2001 2003 Note. Annual percentage changes. Source: National Institute of Economic Research. 9. | 0 |
Running a bank is not like selling books or CDs: there is a whole range of other types of risk – credit, liquidity, interest rate risk and market risk – that need to be taken into account. Moreover, while the internet does indeed lower the barriers to entry, its anonymity and the vast range of choices also increase the importance of brand name. Depositors in particular will feel more comfortable with a name that they know and trust, and perhaps one whose name they see everyday in the street on signs above physical bricks and mortar. So banks with an existing brand name still have some advantage, but it is not something that can be wholly taken for granted. The banks will have to work hard to maintain and build their brand image, BIS Review 108/1999 2 and to offer products which differentiate themselves from their competitors. This is a tough challenge, but it is one which the boards and senior management of banks in Hong Kong will have to confront. Operational risk Operational risk, including security risk, is of course one of the more frequently mentioned risks in connection with electronic banking. Security is not a new risk. We are all familiar with the various security issues that banks are facing on a day-to-day basis, e.g. robberies, thefts of ATM machines, frauds. However, banking transactions over the internet do pose new issues. A major concern about the internet is its open nature. | 5 March 2018 The new challenges facing central banks Colegio de Ingenieros de Caminos Luis M. Linde Governor Let me begin by thanking the School of Civil Engineering for inviting me to inaugurate this cycle of meetings with regulatory agencies. Many thanks to the President of the School, its Management Board and all of you for being here today. The international financial crisis that began in 2007 has given rise to various changes and to the emergence of new challenges. Central banks are, today, in a rather different and novel situation compared with where we were before the crisis some 10 years back, and we are affected by a debate about our functions in the economy and the thrust of our policies. In the past decade central banks have increased monetary stimuli manifold and there have been deep-seated changes in the monetary and regulatory policy objectives and instruments implemented. We are now emerging from the crisis and this is raising even more the profile of the debate on the role central banks should play and whether the policies pursued in recent years should be maintained, or progressively abandoned, and at what speed and to what extent either alternative should be taken. | 0 |
BIS central bankers’ speeches 13 The Bank’s Monetary Policy Report also presents alternative scenarios for the Norwegian economy. If developments are broadly in line with expectations, economic agents can expect that the interest rate will be set in line with that projected by Norges Bank. If conditions change, as was the case in August, Norges Bank will naturally adapt the monetary policy stance in the light of new economic prospects. Through summer, dramatic falls on stock exchanges and political unrest made the headlines. There are now prospects of lower economic growth in many countries. In both the US and many countries in Europe, public debt is high and fiscal deficits are substantial. At the same time, measures to reduce the deficit in the short term will also dampen activity. Some economists fear a renewed economic setback in the US and the financial markets are characterised by turbulence and uncertainty. The US and EU authorities are facing demanding decision-making processes. In the US, the political parties and the people are divided in their views on taxation and the exercise of central government authority, reflected for example in the absence of measures to strengthen central government revenues. The debt problems in the EU are being aggravated by the lack of a similar coordination of fiscal policy to support the European monetary union. Government finances in many of the countries now experiencing problems have been weaker than required under the EU’s own rules for several years. Measures have been put in place. | Øystein Olsen: Use of models and economic theory in Norges Bank Lecture by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Department of Economics, University of Oslo, Oslo, 8 September 2011. * * * The lecture is based on previous speeches and newspaper articles. A brief comment on recent developments is included in the final section. Please note that the text below may differ slightly from the actual presentation. Allow me to start by thanking you for your invitation to give this year’s Schweigaard lecture. Anton Martin Schweigaard was one of the leading statesmen of 19th century Norway. He was a jurist, a politician and an economist. Although “revival of productive forces” and “expansion of national wealth” were to Schweigaard important objectives for economic policy, most important was the promotion of “moral progress”, “public decency” and “the perfection of political and legal institutions”.1 I doubt that Schweigaard was always impressed by the perfection of political institutions, perhaps in particular the institution of Norges Bank. Schweigaard grew up in modest circumstances in the small market town of Kragerø on the coast of southern Norway – a town severely affected by the British blockade of Norway during Denmark-Norway’s involvement in the Napoleonic Wars in the early 1800s. Norges Bank was established in 1816, the year after the Wars ended. The Storting decided that a compulsory silver tax would be levied to provide capital for Norges Bank. | 1 |
Like beauty, its meaning lies in the eyes of the beholder. For some, “fair is foul” – the application of fair value principles risks exposing financial firms to the vagaries of markets, fog, filthy air and all. For others, ignoring the signals from financial market is itself foul and risks creating a financial landscape that is foggy and anything but fair. The fair value debate is generating electricity in the usually static-free professions of accountancy and regulation. Bankers fulminate at the mere mention. Among Heads of State in some of the biggest countries in the world, accounting standards for derivatives have generated levels of fear and consternation usually reserved for non-financial weapons of mass destruction. Against that backdrop, this paper attempts to shed a little light on this heated debate. Three phases of fair value So what lies at the heart of this debate? It is well-captured by Preston Delano, US Comptroller of the Currency: “…the soundness of the banking system depends upon the soundness of the country’s business and industrial enterprises, and should not be measured by the precarious yardstick of current market quotations which often reflect speculative and not true appraisals of intrinsic worth”. 1 1 Revision in Bank Examination Procedure and in the Investment Securities Regulation of the Comptroller of the Currency, Federal Reserve Bulletin, July, 1938, pages 563–564. BIS Review 28/2010 1 Delano was US Comptroller of the Currency in 1938. This provides a clue to the fact that the fair value debate is not a new one. | All the institutions involved in our payment system are devoting increasing resources to prevent cyberattacks, from banks and Norges Bank to our security authorities. However, we can never be completely certain that the system will be able to resist all possible attacks. We can lose money too. Ultimately, there may come a time when our systems have to be shut down for a period. We need to be prepared for a situation where the payment system – or parts of it – has to be shut down for a period. Contingency arrangements must provide protection against a wide range of incidents, not just cyberattacks. These arrangements primarily comprise a number of reserve solutions in our electronic systems. Our ultimate contingency and reserve solution is our banknotes and coins. This part of our contingency arrangements must be strengthened. On the advice of Norges Bank and Finanstilsynet (Financial Supervisory Authority of Norway), the Ministry of Finance recently circulated a consultation paper proposing a regulation to ensure the availability of cash in a contingency. What should the future form of money be? The role of banknotes and coins, which have been our central bank money since Norges Bank was founded a little more than 200 years ago, continues to diminish. Everyday payments are increasingly made using deposit money in bank accounts. New forms of payment are a new stage of this trend. This prompts the following question: what should the future form of money be? | 0 |
The short-term interest rate in turn affects other interest rates, and thereby activity and prices in the economy. The Executive Board of the Riksbank decides on the repo rate at its monetary policy meetings. This shows the level at which the Riksbank wants the short-term interest rate to lie. The repo rate has a direct impact on other interest rates in the economy. I shall now describe how this works in practice and how it is reflected in the balance sheet. To counteract the deep recession the Riksbank has rapidly cut the repo rate to 0.25 per cent and announced that it will remain at this low level until next autumn (Figure 4). In normal circumstances the Riksbank can steer the short market rates without any tangible effect on its balance sheet. This is because the banks usually turn to one another directly to smooth deficits and surpluses in liquidity instead of turning to the Riksbank. They then pay an interest rate that is the same as the repo rate. The repo rate thus has a direct impact on the interbank rate and through this on short-term interest rates paid by companies and households. | But these possibilities are very little used, as there are other alternatives that are more advantageous for the banks. 4 BIS Review 160/2009 Something that has attracted relatively great attention internationally is the fact that the low repo rate and the application of an interest rate corridor of plus/minus 50 basis points for the Riksbank's standing facility means that the Riksbank in principle applies a negative interest rate for deposits in the Riksbank. In practice, this is of little significance, as only a very small part of the banks’ liquidity surplus is invested in the standing deposit facility. Instead, the banks invest most of their liquidity surplus at a positive interest rate in the daily fine-tuning transactions or the weekly Riksbank Certificates. Initially, the banks invested the majority of their large surpluses in autumn 2008 in the Riksbank as “fine-tuning”. As a result of the crisis the banks had a substantial need of immediate access to liquidity. More recently they have invested most of their surplus in the weekly Riksbank Certificates, which is a sign that market conditions have improved (Figure 5). Figure 5 Riksbank Certificates and fine-tuning SEK billion 400 400 Riksbank Certificates 350 350 Fine-tuning 300 300 250 250 200 200 150 150 100 100 50 50 0 Jul-08 0 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Source: The Riksbank. | 1 |
Zeti Akhtar Aziz: Growth and development of the world economy Welcoming remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the official opening of the World Bank Group Knowledge and Research Hub in Malaysia, Sasana Kijang, Kuala Lumpur, 28 March 2016. * * * It is my great honour to welcome the distinguished Senior leadership of the World Bank Group, Dr Axel van Trotsenburg, Vice President of Development Finance; and Dr Kaushik Basu, Chief Economist and Senior Vice President, to the Master Lecture on 'Shared Prosperity' by Dr Kaushik Basu. The Lecture is held in conjunction with the Official Opening of the World Bank Group Knowledge and Research Hub in Sasana Kijang later this afternoon. As we meet today, the global economy is confronted with an immensely challenging environment. A slower than anticipated growth in several major economies, the sharp decline in commodity and energy prices, the significant shifts in global liquidity, and the heightened geopolitical tensions are having far reaching and widespread implications. Going forward, the challenge for both the advanced and emerging economies is to lift growth trajectories and search for sustainable growth factors that can rebuild economic fundamentals, address structural vulnerabilities and forge new sources of growth. Key is the "sustainability" and strengthening of the growth and development of the world economy. An important aspect in this process is that economic growth and development, no matter how stellar, will begin to fade when inequality sets in and when income disparities widen. | This is perhaps a rather dry topic and I feel sure that there are many more interesting and challenging aspects of derivatives which will be discussed during these two days of seminars related to the Derivatives Expo. 2 Record of discussion of the Exchange Fund Advisory Committee Sub-committee on Currency Board Operations on 5 November 1999, reproduced in HKMA Quarterly Bulletin, February 2000. BIS Review 91/2001 3 | 0 |
8 And yet, the G20 lacks the legitimacy that historically has been associated with a truly multilateral framework. Its ambitious economic cooperation should be anchored in a multilateral institution. The IMF is the logical choice. The G20 includes only the countries that established it. Membership seems to have been somewhat arbitrarily determined and not solely on the basis of relative size or importance in the global economy. The G20 formally founded the Financial Stability Board (FSB) 9 and sets its agenda. Membership is at the discretion of the G20. The G20 agrees on the activities of and changes in the IMF and more or less dictates decisions to the rest of the membership. The FSB agrees on standards for financial sector activity, which the rest of the world is expected to adopt, without having been consulted or given the opportunity to voice an opinion in the preparatory phase. A strong institution like the IMF must be at the center of multilateral economic and financial cooperation. Virtually all the countries of the world participate and are represented in the IMF. To be able to continue to play an effective role, the IMF needs to enjoy confidence and trust, and to be seen as having a legitimate structure of governance. Last but not least, the IMF needs to be financially strong, to have at its disposal financial resources commensurate with its tasks, including the ability to provide prompt and significant financial support when needed. | Sustained employment gains, which are also benefiting from past structural reforms, and still relatively low oil prices provide additional support for households’ real disposable income and thus for private consumption. In addition, the fiscal stance in the euro area is expected to be mildly expansionary in 2016 and to turn broadly neutral in 2017 and 2018. At the same time, headwinds to the economic recovery in the euro area include the outcome of the UK referendum and other geopolitical uncertainties, subdued growth prospects in emerging markets, the necessary balance sheet adjustments in a number of sectors and a BIS central bankers’ speeches 1 sluggish pace of implementation of structural reforms. Against this background, the risks to the euro area growth outlook remain tilted to the downside. According to Eurostat, euro area annual HICP inflation in June 2016 was 0.1%, up from 0.1% in May, mainly reflecting higher energy and services price inflation. Looking ahead, on the basis of current futures prices for oil, inflation rates are likely to remain very low in the next few months before starting to pick up later in 2016, in large part owing to base effects in the annual rate of change of energy prices. Supported by our monetary policy measures and the expected economic recovery, inflation rates should increase further in 2017 and 2018. Turning to the monetary analysis, broad money (M3) continued to increase at a robust pace in May 2016, with its annual rate of growth standing at 4.9%, after 4.6% in April. | 0 |
Even if we supplied the correct aggregate quantity of reserve balances, individual depository institutions with a deficiency of reserves had to find and trade with depository institutions with reserve surpluses. A purchase of fed funds therefore represented the marginal source of funding for a bank, and the fed funds rate paid by the bank was the marginal cost of bank funding. The Desk’s daily fine-tuning operations represented a marginal adjustment to the aggregate supply of reserves, mostly in response to the exogenous impact of changes in other balance sheet items, such as Federal Reserve notes and the level of the U.S. Treasury’s account balance at the Fed, which altered the level of aggregate reserves in the banking system. In the five years prior to the crisis, this system functioned with an average of $ billion in reserve balances and about $ billion in excess reserves. Although aspects of this approach evolved over time, this general method for implementing monetary policy was employed by the Desk for decades, and the Desk’s ability to reliably achieve the FOMC’s policy directive was judged quite favorably by market participants. In fact, with increased transparency around the FOMC’s fed funds target (which the Committee began to officially announce in the mid-1990s) and with high confidence in the Desk’s ability to hit that target, markets often adjusted to announced changes in the FOMC’s target policy rate without the need for the Desk to conduct operations to effect the change. | Svein Gjedrem: Business cycles and monetary policy Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), for Norges Bank’s regional network, arranged by the Centre for Economic Research at NTNU – Norwegian University of Science and Technology in Trondheim, Fosen, 3 May 2006. Please note that the text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 26 April, Inflation Report 1/06 and on previous speeches. The Charts in pdf-format can be found on the Norges Bank’s website. * * * Introduction Monetary policy in Norway is oriented towards low and stable inflation, with annual consumer price inflation of close to 2.5 per cent over time. This is also the most important contribution monetary policy can make to sound economic developments in the long term. Low and stable inflation provides the economy with a nominal anchor. This contributes to predictability for agents who make decisions about saving and investment today, although the result depends on economic developments ahead. In its conduct of monetary policy, Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment. Flexible inflation targeting builds a bridge between the long-term objective of monetary policy, which is to keep inflation on target and provide an anchor for inflation expectations, and the more short-term objective of stability in the real economy. | 0 |
International financial market liquidity and the króna exchange rate Liquidity index The króna exchange rate and bank stock prices Index, January 2005 = 100 Index, January 2005 = 100 2 120 1 110 Index, January 2005 = 100 250 120 110 200 100 0 90 ‐1 100 90 150 80 ‐2 70 ‐3 80 100 70 60 60 50 ‐4 50 40 ‐5 2004 2005 2006 2007 2008 50 40 0 2004 2005 2006 2007 2008 Financial market liquidity (left axis) Real stock prices for financial institutes (left axis) Effective exchange rate (right axis) Effective exchange rate (right axis) The liquidity index shows the number of standard deviations from the mean (exponential moving average) from a simple average of nine liquidity measures, Source: Bank of England, Central Bank of Iceland. Source: EcoWin Reuters, Central Bank of Iceland. As so often occurs in great tragedies, the two stories converged in a grand finale in early October 2008, when nearly nine-tenths of Iceland’s banking system collapsed when its three large cross-border banks – Glitnir, Landsbanki, and Kaupthing – were taken into special resolution regimes on the basis of the emergency legislation that had just been passed by Parliament. | 2 BIS Review 55/2007 Who should take the blame for inflation? It is ironical that practically everyone in the society should take blame for a continuously high inflation in an economy. This is because everyone, even in a very little measure, would have contributed to facilitate inflation to raise its ugly head. It happens when people of a country believe that they can have a higher standard of living without working harder or producing more. Inflation in the long run is directly related to the amount of money which people would have for buying goods and services. When that quantity of money is in far excess of the quantity of goods and services, the general price level has to move up in order to facilitate the required volume of transactions. Hence, the magic solution for keeping inflation in check has been the production of money exactly in line with the production of goods and services in the economy. Any violation of this golden rule, for whatever the justifiable reason, would pave the way for the long run inflation to peep into the system. In this context, the Central Bank has an inalienable responsibility to take all the measures necessary to curb long term inflation. The role of the Central Bank The Central Bank takes monetary policy measures to keep the total volume of money in line with the total production and the volume of transactions in the economy. | 0 |
Recently, as prices have risen so much, it has become increasingly common for households to use the lower loan-to-value ratio to take out new loans on their housing. The new loan can then be used for further consumption, which stimulates activity in the economy. Correspondingly, falling property prices can contribute to subduing demand in the economy. If property prices were to fall heavily during an economic downturn, this could also lead to large loan losses for the banks and further aggravate the slowdown. The property market can be divided into two markets; a market for commercial property and a market for single-family dwellings and tenant-owned apartments. Today I intend to discuss both markets, but I shall begin with the commercial property market. After that I will talk about why housing prices have risen so much in recent years. Finally, I will talk about my views on future price developments. Commercial property The commercial property market has a direct bearing on financial stability. This is because property companies are the banks' largest individual borrowers. Around 20 per cent of the four major Swedish bank’s lending to the general public is to companies managing commercial properties, for instance, office premises or retail premises. The value of these properties is often pledged as collateral for the loans. When commercial property prices fell at the beginning of the 1990s, several property companies experienced problems paying their loan costs, which caused major losses for the banks. | All households who have previously paid more than SEK 4,500 a year in property tax will have lower monthly costs, according to this proposal. If households choose to use the sum they save on the abolished tax to take out larger loans, it is possible that this will lead to a slightly faster increase in prices than would otherwise have been the case. If the increased opportunities to borrow were to have a full impact on house prices, the reform could push up prices by around five per cent. The price increases would probably be highest in the parts of Sweden with the higher taxation values, where they have previously paid a relatively higher tax rate. However, there are a number of factors that imply that this calculation probably overestimates the effect on prices. Firstly, the Government has been indicating for some time that it intended to lower property tax. It is therefore possible that house prices have already been affected to some extent by the decision. Secondly, the price increases could be counteracted by the higher capital gains tax. Thirdly, if households believe that the property tax will in some way be increased in the future, it is not certain that they will be prepared to increase their borrowing. As I said, it is not easy to measure the overall effects of the changed taxes. This is a subject which I believe we will have reason to discuss further in the future. | 1 |
François Villeroy de Galhau: Recovery and resolution of CCPs Opening speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Policy conference “Recovery and resolution of CCPs”, Paris, 24 June 2016. * * * I will not comment now on the results of the British referendum. Be only assured that we are mobilised and determined. France has already quite a long history with CCPs. La Caisse de liquidation, based in Le Havre, was the first to provide, in 1882, an insurance against counterparty risk on commodities markets. This history explains why we have a longstanding role as CCP overseer; it gives us also a special interest and commitment to contribute to this policy issue, on which I would like to share a few thoughts. Considering the growing importance for financial markets and financial stability of CCPs, it is our collective responsibility shared among the financial industry and regulators- to maintain a robust network of CCPs. As we strongly believe in the key role of CCPs we must ensure that they never become the next “too big to fail” institutions. The growing importance of CCPs is linked to regulatory changes, but not only. It is also linked to financial disintermediation and changes in the behaviour of market participants, which in both cases are most welcome evolutions. Regulatory changes and the Pittsburgh agenda have been obviously major factors contributing to the systemic importance of CCPs. However, the clearing obligation for OTC derivatives is not the end of the story. | Finally, let me say a last few words to introduce the precise topic of this conference. As you know, regulations require CCPs to consider all extreme but plausible scenarios in their daily risk management. However, we cannot ignore tail risk. The remote possibility that CCP resources would be exhausted in a crisis must be dealt with appropriately. This is why we need robust recovery and resolution arrangements for CCPs, to preserve financial stability in all circumstances. Before I leave you to discuss this complex issue, I would like to offer a few thoughts: – The cornerstone principle of resolution is always financial stability: this should be achieved through the continuity of CCP services when possible, but not at the expense of the financial survival of CCP members and clients. – The permanent cost of such a regime should be assessed carefully in order to preserve incentives in favor of central clearing. CCPs already have properly sized financial resources and a sound business model that must be preserved. – Resolution arrangements should balance predictability for CCP participants and flexibility for the resolution authorities, whose task to preserve financial stability in the most extreme circumstances should not be hampered. – And lastly, cooperation between authorities and consistency at the international level are key to ensure efficient resolution planning and resolution actions, and to avoid regulatory loopholes and arbitrage. This conference is indeed illustrative of the spirit for further international cooperation in this field. Thank you for your attention. | 1 |
Christine Lagarde: IMFC statement Statement by Ms Christine Lagarde, President of the European Central Bank, at the forty-seventh meeting of the International Monetary and Financial Committee, IMF Spring Meetings, Washington DC, 14 April 2023. *** Introduction Since the October meeting, the global economic outlook has improved on the back of a gradual easing of global supply bottlenecks, declining energy prices, and the recovery of the Chinese economy following the lifting of pandemic-related containment measures. Global inflation has also been declining since it peaked in summer 2022, supported by easing supply constraints, as well as by the tightening of monetary policy among advanced economies. However, the recovery prospects for the global economy remain fragile amid continued uncertainty, fuelled by Russia's unjustified war against Ukraine, and the possibility that pressures in global energy and food markets may reappear, leading to renewed price spikes and higher inflation. Resilient labour markets and strong wage growth, especially in advanced economies, suggest that underlying inflationary pressures remain strong. At the same time, other factors that may accelerate disinflation include: persistently elevated financial market tensions, falling energy prices, and a weakening of demand, owing also in part to a stronger deceleration of bank credit or a stronger than projected transmission of monetary policy. As inflation is projected to remain too high for too long, the Governing Council of the ECB decided in March to raise the key ECB interest rates by 50 basis points, bringing the total increase since July 2022 to 350 basis points. | Stronger than expected pipeline pressures or higher than anticipated increases in wages or profits could drive up inflation, while financial market 2/4 BIS - Central bankers' speeches tensions and falling energy prices could lead to faster disinflation. At the same time, most measures of longer-term inflation expectations currently stand at around two per cent, although they warrant continued monitoring. Euro area banking sector, non-bank financial sector and financial stability Euro area banks remain resilient in the current market environment thanks to strong capital and liquidity positions. Since the start of the ECB's policy rate hiking cycle, euro area bank profitability has been boosted by higher interest margins, while the change in impairments and provisions has been rather muted so far. However, in the current environment of tightening financing conditions including for banks, credit risks have increased, and lending dynamics have substantially weakened, which may weigh on future bank profitability. The decrease in bank lending to firms has, in general, not been offset by an increased recourse of firms to market-based financing, despite a bout of corporate bond issuance in the fourth quarter of 2022. Looking ahead, the decline in the asset purchase programme portfolio will increase the share of debt issuance that needs to be absorbed by investors. Based on their past behaviour, investment funds appear able to absorb part of such an increase. At the same time, in spite of some reduction in exposure to higher-risk assets, structural vulnerabilities in the non-bank financial sector remain elevated. | 1 |
There are, certainly, things that we can do to reduce the risks - to try to prevent the first climber falling off the rock face, or to avoid kicking the rock that starts the avalanche. A key condition, obviously, is maintaining macro-economic, monetary, stability. That goes without saying. It gives everyone on the mountainside much the best chance of coming down unscathed! We can also turn the new information technology to our advantage, using it to make the linkages between the climbers safer - by reducing the risks in payments and settlements systems. A good deal of our attention on the financial stability side of the Bank is focused in this direction. And we can satisfy ourselves - through micro-prudential supervision and regulation of individual financial businesses - that the climbers are properly trained and equipped, and fully conscious of the risks. This now, of course, becomes the responsibility of the FSA. Intervention But however much we try to prevent accidents, we need to be prepared for them to happen. The Bank’s concern then becomes to ensure that they do not spread to other parts of the financial system. This may involve providing liquidity on penal terms, outside the central bank’s normal money market operations, against high quality assets to a particular institution, that does not want to appear in the market because it is under a cloud. Or it may mean standing between an intermediary and the market place, to facilitate payments or settlements which might not otherwise be completed, which could then cause gridlock. | And the key to that is that both the Bank and the FSA should have a clear understanding of their respective responsibilities, and that they should continuously work very closely together to ensure that they keep sufficiently out of each others hair without letting things disappear between the cracks! Our ongoing relationship was formalised during the summer in a Memorandum of Understanding (MOU) agreed between the Bank, FSA and the Treasury. This defines very carefully our respective responsibilities and provides for both the Bank and the FSA to exchange information freely and to consult where our interests interact or overlap. It helpfully establishes a high-level Treasury-Bank-FSA Standing Committee, which will provide a forum in which a common position can be developed in relation to emerging problems. And, as a further means of ensuring that we are aware of each other’s concerns, the Chairman of the FSA will become a member of Court, while the Deputy Governor responsible for Financial Stability will serve on the FSA Board. In the end the success of these arrangements will depend upon the working relationships between our respective staff at all levels, and it is helpful in this context that our own supervisory staff are moving to the FSA which will help to ensure that we establish the right working relationships from the beginning. But we will need to work at these relationships continuously to ensure that they are embedded into the future. | 1 |
BIS Review 31/2003 1 Against this background of closely interacting national economies, mention should be made of the high dependence of the rest of the world on the US economy, which proved greater than expected, despite the fact that the results in the United States were not particularly buoyant. Such dependence is a cause for concern since the United States is, at the same time, the main source of growth for the rest of the world and the main raiser of savings on the international capital market, a situation that is hardly sustainable over the medium and long term. Moreover, the saving/investment mismatch in the United States has been heightened recently by the clearly expansionary bias of monetary and, above all, fiscal policy. In these circumstances, a swift correction of the US external deficit, while undoubtedly desirable in the medium and long run, might affect numerous other economies most adversely in the short term through causing a contraction in the external demand of these economies at a time at which their growth is rather low. A lesson to be drawn from this complex situation is that when international economic disequilibria increase and swell out of all proportion, there is a risk that their correction will be at the least timely moment and with significant costs in terms of growth and well-being. Last year the main economies adapted very differently to the above-mentioned shocks. | The Rt Hon Sir Edward George: Macro-economic policy and monetary stability Speech by The Rt Hon Sir Edward George, Governor of the Bank of England, at the Euromoney Bond Investors' Congress, London, 19 February 2002. * * * Thank you Padraic for that kind introduction and for honouring me with the Euromoney Lifetime Achievement Award. It's nice to be prompted to recall some of the good times - and some of the not so good times in the course of my career at the Bank of England which I think of not so much in terms of achievement but of lifelong learning. We've come a long way since 1962 - both nationally and internationally - from different starting points certainly, and moving in fits and starts, at varying speeds and to varying degrees, in a process of continuing, indeed accelerating, change. But standing back and trying to look through the confusion of short-term events, I would pick out three broad trends for comment this morning. The first relates to macro-economic policy, where the earlier emphasis was very much on short-term demand management designed to manage the perceived trade-off between growth and employment, on the one hand, and inflation and a manageable balance of payments position, on the other. | 0 |
If we are to perform, we need to build in ourselves, the ability and the courage to meet with obstructions and move forward, in the face of challenges. Otherwise, our performance would not be realized. Fourth, Thithi Dhathu. That is, stay firm in the intended path. Even in the midst of opposition or challenges, we have to develop the ability to be focused and move with a clear vision and determination. We should not be distracted. We should not dilute the impact of our performance. 2 BIS Review 10/2008 Fifth, is the Thawara Dhathu. That is, the action should convey a strong stable message of commitment and dedication. Such a strong signal is often infectious and when the leader shows such firm commitment, performance often improves. Sixth, Upakkama Dhathu. That is, being wise to cleverly steer the path and induce others to also support the performance of the particular action. That is not easy, but it is vital. Inducing all within the team to move towards a single goal is the best assurance of success. We are today living and working in an unforgiving world. In this unforgiving world, the business sector in which we operate is intolerant of failure. Failure or even suggestion of failure invokes harsh penalties and abrupt ends to promising careers. We show how many important heads rolled after the “sub-prime” issue hit the market. However high and mighty a person may be, failure or non-performance or sub-performance is not forgiven. All past victories are erased with a single failure. | Ajith Nivard Cabraal: Management Accountants – focusing on the repositioning of the profession Special address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the Global Summit, organised by The Institute of Cost and Works Accountants of India on “Repositioning the Management Accountant”, New Delhi, 12 January 2008. * * * The theme of the Conference suggests that the Management Accountants of today are de facto doing something different to the traditional role of the Management Accountant. The new de facto role seems to be more of that of a strategist and a performance management specialist, rather than a historical “information supplying” or even a “decision facilitating” role of an accountant. If one were to drill down, we may perhaps note that the education and training of those who have become strategists and performance management specialists may not have necessarily been intended that way. But yet, it happened. How did this happen? • Perhaps the training, although intended to create management accountants, was appropriate to create a strategist. • Perhaps the training, coupled with business developments and public expectations, shaped management accountants to become strategists or the deliverers of outputs rather than contributors of inputs only. • Perhaps the ability of the management accountant, as a result of his core disciplines, enabled him to respond effectively to unfolding developments and then deliver new outputs, and such abilities were recognized by the business community in the course of time. | 1 |
The Bank of Sierra Leone has also recognised the need to bring the legal framework for regulating the banking sector consistent with international best practice. Hence, in consultations with our International partners, (ADB, IMF, World Bank, etc), the Bank of Sierra Leone is undertaking a comprehensive review of the Banking Act 2000, and the Anti-Money Laundering Act 2005 in order to align them with international best practices and to address some of the weaknesses which have been identified while implementing them. We anticipate that once these legislations have been amended, the legal framework will provide a conducive environment for a more robust banking sector. Going forward, the Bank of Sierra Leone plans to draft operating guidelines for other specialised institutions, including Merchant and Agricultural banks, in order to broaden the financial landscape in the economy. Traditional Commercial banks, on the other hand, should endeavour to increase product innovation and diversification. The real challenge for all of us is how to enhance savings mobilisation and effectively channel such savings to their most productive use. Madam Chair, Distinguished Guests, let me conclude my remarks with a serious appeal to the entire banking industry for the better packaging of banking products for our clients. This, I believe will enhance our service delivery, which in turn, will enable us offer more affordable banking services. Providing affordable banking services has the potential of drawing a larger number of Sierra Leoneans to the formal financial system, resulting in an expanded banking clientele. | By our estimates so far, ProCredit has already made some mark in the domestic Banking Industry and is poised to do more. As at end January, 2008, the bank’s credit portfolio amounted to about Le8.0 billion; this was disbursed to 1,440 customers. Deposit base during the same period stood at about Le3.0 billion, with an impressive record of 5,600 deposit BIS Review 33/2008 1 accounts. What is important here is that many of these customers are first-time account holders who might have found it difficult to open accounts with the traditional commercial banks. Loan recovery has also recorded a formidable and impressive rate. We therefore commend the management and staff for this ground-breaking performance. Microfinance activities now include products such as micro credit, micro insurance, mobile banking, etc, which are designed to increase the product portfolio and provide customers with a variety of products that are easily accessible. We believe that with the increased efforts to further institutionalise microfinance activities in the country, we will soon see a wider variety of microfinance products for small scale producers. Madam Chair, I believe this is a befitting occasion to discuss what we, at the Bank of Sierra Leone, are doing to foster an efficient, sound and stable financial sector, including microfinance. The Bank of Sierra Leone, in collaboration with MITAF, is drafting guidelines for the regulation and supervision of deposit-taking Microfinance Institutions. Development in this area is far advanced. | 1 |
The capacity of policymakers to restore stability was constrained by the depth of the balance sheet problems. In some cases, where the scale of external borrowing was less acute, policymakers had more room to act. But in most cases, policy options were very limited. Initially, governments were reluctant to let exchange rates move too far, because of fears that this would force banks and companies that had borrowed in dollars or yen into default on a scale that could further damage growth. At the same time, the authorities were reluctant to tighten monetary policy as a way to help stabilize the exchange rate because of concern it would hurt growth and perhaps exacerbate the flight from domestic assets. This dilemma made the initial policy response in the crisis countries look halting and tentative. And, uncertainty about the strength and continuity of political leadership further hampered government efforts to recover credibility. In the countries hit hardest by the crisis, looming issues of succession and elections compounded the problem of confidence. The crises prompted a searching reassessment of the conventional economic wisdom and a new appreciation of the challenges that come with financial integration. The classic measures of macroeconomic stability and policy prudence, in fiscal positions and measured inflation rates, could mask substantial structural weaknesses, and these same structural weaknesses could ultimately undermine the achievements of otherwise reasonably conservative macroeconomic policy management. Partial capital account liberalization, which encouraged the accumulation of short-term debt obligations, brought substantial risk, magnifying weaknesses in domestic financial systems. | Timothy F Geithner: Asia, the world economy and the international financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Economic Society of Singapore 2007 Annual Dinner, Singapore, 13 June 2007. * * * Good evening. I am pleased to be able to join you tonight. The past decade has been one of remarkable achievement in Asia. This is a testament to the resilience and dynamism of this region, and yet the memories of the financial crises remain vivid and still exert a powerful influence on policy today. Tonight, I want to reflect on what policymakers learned from the crises, to review the extent of the progress since and to examine some of the challenges ahead. The Asian financial crises of the late 1990s were exceptional in many respects. Described at the time by some as the first crises of the 21st century, they were commonly regarded as without precedent and fundamentally different from previous emerging market financial crises. Here were countries with a remarkable record of rapid economic growth over several decades, substantial rates of investment, with low inflation and relatively strong fiscal positions. Most conventional indicators of economic performance and financial strength did not suggest acute underlying vulnerability. Yet the crises erupted with remarkable speed and force. The sudden collapse of confidence led to a sharp reversal of capital flows to the region. | 1 |
Over the ensuing months, members of the Committee and several of its working groups engaged in intensive work with industry participants—many of whose institutions are represented here today—to develop practical and prudent solutions in these areas. In addition, I am pleased to note that we worked very closely with our colleagues in the International Organization of Securities Commissions in the areas of trading book and double-default. In July this year, the Committee issued guidance in both areas. With the publication of these documents on trading book/double-default and downturn LGDs, the Committee has concluded the policy development stage of Basel II. The industry has voiced the opinion that, while it could be possible to continue refining the Framework, it is more important that there be a pause to allow banks to implement the Framework. I very much support this view. Our priority now should be to achieve high-quality implementation. A good example of how we, industry and regulators can collaborate, without the need to add additional rules, is what we did in the case of low-default portfolios. Several types of portfolios may have low numbers of defaults or a bank may not have sufficient loss experience of its own (e.g. portfolios of exposures to sovereigns, banks, insurance companies or highly rated corporates). The industry was concerned that the lack of sufficient statistical data in some portfolios and the resulting difficulty in backtesting risk parameters would result in LDPs being excluded from IRB treatment. We have published a newsletter clarifying our view. | Jaime Caruana: Basel II progress Remarks by Mr Jaime Caruana, Governor of the Bank of Spain, at the Institute of International Bankers Breakfast Dialogue with Government Officials, Washington DC, 26 September 2005. * * * Thank you very much. It is an honour to be here once again for a productive dialogue with members of the Institute of International Bankers, and it is equally an honour to be on a panel with such distinguished colleagues from the United States and the United Kingdom. I will keep my remarks as brief as possible so that we can have plenty of time for your questions and comments. It will probably come as no surprise that I will focus my remarks this morning on the same topic that I discussed with you last year: the new framework for capital adequacy, or Basel II. As you are probably aware, the Basel Committee published the Basel II Framework in June last year. At that time, the Committee indicated that while the Framework was mostly complete, several important technical matters still needed further work. Specifically, the Committee determined that more work was necessary with regard to (1) elements of the trading book and the treatment of so-called double-default effects for hedged transactions; and (2) the estimation of loss given default during periods of economic downturn. | 1 |
(2013), When credit bites back, Journal of Money, Credit and Banking, supplement to vol. 45/2. Jorda, Ò. et al. (2016), Macrofinancial history and the new business cycle facts, NBER Working Paper, 22743, October. Keynes, John M. (1936), The general theory of employment, interest and money, Macmillan. Kindleberger, C.P. and R.Z. Aliber (2005), Manias, panics, and crashes: a history of financial crises, 5th edition, Basingstoke: John Wiley & Sons. Koo, R.C. (2011), The world in balance sheet recession: causes, cure and politics, Realworld Economics Review, 58. Levine, R. (2005), Finance and growth: theory and evidence, Handbook of Economic Growth, 1A, Elsevier, pp. 865–934. Page 15/16 Minsky, H.P. (1992), The financial instability hypothesis, The Jerome Levy Economics Institute of Bard College, Working Paper, 74, May. Modigliani, F. and R.H. Brumberg (1954), Utility analysis and the consumption function: an interpretation of cross-section data, In: Kurihara, K.K. (ed. ), Post-Keynesian Economics, Rutgers University Press, pp. 388–436. Reinhart, C.M. and V.R. Reinhart (2010), After the fall, presented at the Federal Reserve Bank of Kansas City’s on Macroeconomic Challenges: The Decade Ahead, Jackson Hole, Wyoming, 26–28 August. Reinhart, C.M. and K.S. Rogoff (2009), The aftermath of financial crises, The American Economic Review, 99/2, Papers and Proceedings, pp. 466–472. SFBC (1998), Annual Report 1997. Shiller, R.J. (2000), Irrational exuberance, Princeton University Press. Smets, F. (2014), Financial stability and monetary policy: how closely interlinked?, International Journal of Central Banking, 10/2, pp. 263–300. Svensson, L.E.O. | Janet L Yellen: Views on the economy and implications for monetary policy Speech by Ms Janet L Yellen, President and CEO of the Federal Reserve Bank of San Francisco, at the Portland Community Leaders’ Luncheon, Portland, Oregon, 29 July 2005. * * * Thank you for that very kind introduction. It’s a pleasure to be here with you in this beautiful “City of Roses.” As a monetary policymaker, my main concern is the national economy, and that will be the chief focus of my remarks today. But as President of the San Francisco Fed, I also pay close attention to developments here in the Twelfth District, which, in many respects, mirror those of the nation. Looking at the big picture elements—growth, employment, and inflation—I’d say things are in reasonably good shape. Over the past two years, the nation’s output growth has been pretty steady, averaging just over four percent; this is solidly above trend, which, by most estimates, is around three and a quarter to three and a half percent. This growth has been amply in evidence here in the Pacific Northwest. While unemployment rates in Oregon and Washington remain above the nation’s rate, your region has largely recovered from the severe hit you took during the 2001 recession and its aftermath. As a result of sustained growth at the national level, slack in labor and product markets has trended down. | 0 |
In any event, the low level of the Spanish population’s financial literacy evidenced by the Survey is not something exclusive to Spain; rather, it is seen worldwide.2 However, in the particular case of knowledge on diversification, and unlike the other questions, the percentage of correct replies in the population as a whole is significantly lower than that in other developed countries (49% in Spain, compared with 62% in the OECD or EU countries). 1 The Survey microdata are freely accessible for scientific research purposes and are available on the Banco de España website at: https://app.bde.es/gnt_seg/controlAccesoEmail.jsp?pas=ecf&lang=en. 2 OECD (2017), G20/OECD INFE report on adult financial literacy in G20 countries, http://www.oecd.org/dat/fin/financialeducation/G20-OECD-INFE-report-adult-financial-literacy-in-G20_countries.pdf. 4/8 The results reveal some sex and age-based heterogeneity in the degree of familiarity with these basic financial notions. This heterogeneity in financial knowledge has been related in some international studies to actual financial decision-making in households3, such that the level of financial literacy would be higher in the individuals that actually take these decisions. That might suggest either some specialisation in this area within the household, or that financial literacy is acquired through practice. The results of the Survey also show that the level of financial literacy in Spain increases in step with the level of educational attainment4, as occurs in other developed countries. The age profile observed is also relatively common. In Spain, the percentage of correct replies increases with age up to 54 years. Above that age, the percentage of correct replies falls and the percentage of interviewees replying “Don’t know” increases. | Indeed, such monitoring has already been implemented and will result in the improved implementation of the programme at educational centres and the improvement, in turn, of the evaluation of the Survey as a whole. Conclusion Allow me to draw some conclusions. The results of the Survey of Financial Competences show that a very broad group of Spaniards are not familiar with basic financial concepts that are essential for informed decision-making in respect of investment and debt. The lack of financial knowledge is particularly high among youths and the over-65s. These results justify financial education actions focusing particularly on these groups, as has been the case with the Financial Education Programme developed by the Banco de España and the CNMV in recent years. In any event, it is crucial to systematically evaluate the measures adopted in order to identify and prioritise those which are most evidently effective. The regular and rigorous evaluation of public policies is vital for a better definition of their effectiveness, and access to reliable statistical sources is an essential step for performing these evaluations. All institutions should contribute, within the scope available to us, to making progress in this area. In any event, I should clarify that the Financial Education Programme is only a part of the set of basic training actions in market conduct, reporting transparency, good practices, consumer information, financial education, conflict resolution and other similar areas that the Banco de España, the CNMV and other public and private institutions are developing. | 1 |
Christine Lagarde: IMFC Statement Speech by Ms Christine Lagarde, President of the European Central Bank, at the forty-fourth meeting of the International Monetary and Financial Committee (IMFC), IMF Annual Meetings, 14 October 2021. * * * Global economic activity has continued to recover since our previous meeting in April this year, thanks to further progress in vaccination campaigns and supportive economic policies. However, the pace of the recovery remains uneven across sectors and countries, and the spread of the more contagious Delta variant of the coronavirus (COVID-19), coupled with supply bottlenecks, is casting a shadow over the near-term growth prospects for the global economy. The main challenge for policymakers continues to be steering the economy safely out of the crisis. It remains crucial that policy support is not withdrawn prematurely. On the fiscal side, support measures should be increasingly targeted. And on the monetary side, clear communication by major central banks is essential, also in view of the recent inflation developments. The policy mix should be accompanied by well-tailored structural reforms to enhance long-term growth and minimise scarring effects from the pandemic, along with action to accelerate the green and digital transitions. Euro area developments and outlook The rebound phase of the euro area economy is increasingly advanced, despite supply bottlenecks and continuing uncertainty about the pandemic. | However, expectations according to forward rates were much lower than the Riksbank’s repo rate path in the longer run. The total deviation between the repo rate path and forward rates can also be seen on the far right in Figure 3. Figure 5 The repo rate path and market expectations in April 2010 Per cent Note. Market expectations are based on forward rates. “Before” are the closing rates on the day before the repo rate path was published. “After” are the closing rates on the day it was published. Prospera’s survey covers money market participants. Sources: Reuters EcoWin, TNS SIFO Prospera and the Riksbank. The real repo rate path How expansionary is the monetary policy that follows on from the Riksbank’s repo rate path? One way to gain an idea of this is to look at the development of the real interest rate. The real interest rate is the most important for the development of the real economy, as it is the interest rate on which consumption and investment decisions are based. It is defined as the nominal interest rate minus expected inflation. The Riksbank also publishes forecasts for the real repo rate in its Monetary Policy Reports. 8 BIS Review 85/2010 Figure 6 shows the Riksbank’s forecast from the April Monetary Policy Update together with different measures of market participants’ expected real repo rate. 8 Let us begin by looking at the Riksbank’s forecast for the real repo rate. | 0 |
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