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Both banks’ capital ratios exceed requirements and are above average by international comparison. Thanks to these capital buffers, the two globally active banks are well placed to face today’s challenging environment. The direct impact of the war in Ukraine should be limited given the comparatively low exposure of Credit Suisse and UBS to the warring parties. However, an escalation of the war or a further widening of sanctions could adversely affect the economic environment and financial market conditions. The SNB addresses such adverse developments in its analysis of standard stress scenarios. This analysis shows that the loss potential for both banks remains substantial. Taking on risk is an integral part of the banking business. From the financial stability perspective, it is crucial that these risks be backed by sufficient capital. Our stress scenario analysis underlines that the ‘too big to fail’ capital requirements applicable to the systemically important banks in Switzerland are necessary to ensure adequate resilience at Credit Suisse and UBS. Domestically focused banks I shall now turn to the domestically focused banks. The profitability of these banks increased slightly in 2021. Improved cost efficiency and lower provisions for credit losses offset the decline in interest rate margins. As in previous years, the domestically focused banks improved their capital position by retaining earnings. Sustainable profits and large capital buffers are essential, as they allow banks to absorb losses and continue lending to the economy during periods of stress. Two sources of risk are of particular relevance for the domestically focused banks in the current environment. | First, an escalation of the war in Ukraine could result in a worse-than- Page 2/3 Berne, 16 June 2022 Fritz Zurbrügg News conference expected economic slowdown in Switzerland. This could lead to a deterioration in the quality of credit portfolios. Second, a significant tightening of financial and monetary conditions could trigger a correction on the Swiss mortgage and real estate markets. Domestically focused banks’ exposure to these markets has increased further since the publication of last year’s Financial Stability Report, with mortgage volume at these institutions having grown once again. As regards credit quality, the strengthening of banks’ self-regulation in January 2020 has led to a reduction in the share of new mortgages with a high loan-to-value ratio in the residential investment property segment. However, affordability risks as measured by the loan-to-income ratio have increased for new mortgages. The SNB’s stress scenario analysis suggests that most domestically focused banks’ capital buffers remain sufficient to cover the loss potential stemming from relevant stress scenarios. These include the scenario involving a severe recession and the scenario involving an interest rate rise with a simultaneous correction in real estate prices. However, these simulations also suggest that the capital ratios of certain banks could decline significantly and approach, or even fall below, the regulatory minimum requirements. Given the risk exposures of these banks, adequate capitalisation is particularly important. The recent reactivation of the countercyclical capital buffer will help to maintain the banking sector’s resilience. | 1 |
1.5 Draft Budget macroeconomic forecast The macroeconomic forecast underpinning the Draft Budget expects real GDP in Spain to fall by 11.2% in 2020, followed by growth of 9.8% in 2021. In the fiscal sphere, it envisages a correction of 3.6 pp in the general government budget deficit between 2020 and 2021, from 11.3% of GDP this year to 7.7% of GDP next year. In such an extraordinarily uncertain and changing environment as the present one, we need to be especially cautious when assessing these forecasts and comparing them with those made – mostly at different moments in time – by other analysts. In my view, three points should be highlighted. First, the starting point for this Draft Budget, which is none other than the forecasts made for the current year. In general, these are consistent with those published by the Banco de España in our latest projections report. In particular, the scale of the possible fall in GDP in Spain in 2020 – 11.2% according to the macroeconomic forecast underpinning the Draft Budget – is more or less mid-range between the two projection scenarios presented by the Banco de España in September, which envisaged a decline of 10.5% under scenario 1 and of 12.6% under scenario 2. This is also true for the budget deficit estimated for 2020 in the Draft Budget forecast, which is 11.3% of GDP, virtually mid-range between the deficit envisaged under scenario 1 (10.8%) and scenario 2 (12.1%). | Anita Angelovska Bezhoska: Open doors to the changing payments landscape Speech by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of North Macedonia, at the 12th Conference on Payments and Market Infrastructures "Open doors to the changing payments landscape", hosted by the National Bank of the Republic of North Macedonia, Ohrid, 3 June 2019. * * * Distinguished guests, excellences Ladies and gentlemen, good morning It is my great pleasure to welcome you to the 12th Conference on Payments and Market Infrastructures hosted by the National Bank of the Republic of North Macedonia. Through the years, the organization of this conference has benefited from the invaluable contribution and unreserved support of the Dutch Central Bank, for which I express my deep gratitude. The presence of the European Central Bank, the Bank for International Settlement and the European Commission is an inherent feature of the conference, as well. And we are privileged and grateful for that, given the prominent role these institutions play in the area of payments. Financial technologies and innovations are reshaping the financial sector, creating new providers, business models, new products and solutions, thus changing the entire financial ecosystem. It is not imaginary, but rather a real possibility today, with a few swipes on a smartdevice, to be able to track payments across accounts, control direct debits, find a better credit card, compare household bills, or cancel unwanted subscriptions or consents. | 0 |
For the euro area as a whole, the fall in GDP projected by the IMF and the European Commission for 2020 is, respectively, 7.5% and 7.7% (and the related whole-world decline would be 3% and 3.5%). These scenarios incorporate the effect of the measures approved in the fiscal, monetary and prudential areas, to which I shall later refer, such that the declines in activity would be significantly greater in the absence of these measures. In any event, what has been confirmed in recent weeks is that the recovery will not be free from difficulties, and that scenarios more unfavourable than those currently considered cannot be ruled out. These macroeconomic scenarios also offer an estimate that the budgetary cost of the crisis will be very high, owing to the dual effect of the alleviating measures adopted and, above 3 These are scenarios 2 and 3 constructed using the Banco de España quarterly model in the analytical article cited (see footnote 2). The assumptions on which scenario 1 rested, where a virtually full lifting of the restrictions on activity was assumed after eight weeks, appear to have been exceeded already by events. 12 all, of the operation of the automatic stabilisers. That will lead to a very high budget deficit this year, with its subsequent pass-through to overall general government debt. | If the uneven pace of economic recovery in the euro area is confirmed and if we see a risk of inflation being too low for too long, we can take action in June. We can act in various ways, depending on the situation. At present, however, it is too early to say what exactly we’re going to do. A lot depends on the forthcoming economic data and on our staff growth and inflation projections, which are to be released in June. Your room for manoeuvre is limited as interest rates are already very low: the key rate is only 0.25%. They are low but they can still go lower. Are negative interest rates in the euro area possible? Negative rates are one of the instruments available to us. They have been discussed extensively by the Governing Council. We are technically and legally prepared for such a possibility. And market participants are well aware that we are contemplating such a move. Wouldn’t negative rates discourage people from keeping their money in banks? This depends on how negative they would be. Indeed, rates that fall deep into negative territory could have an impact on depositors. But a deposit rate slightly below zero does not necessarily imply that depositors would be affected, while still providing incentives for banks to lend more. In recent years, the ECB has used a number of non-standard monetary policy tools. It has purchased bonds on the market, pumped hundreds of billions of euro into the market in the form of cheap loans for banks. | 0 |
That might be because they hold assets directly in their trading books. For example, the £ of credit trading losses of RBS in 2008 amounted to 40% of the total net accounting losses of RBS between 2007 and 2010. 5 Or they might be exposed to a corporate sector that, if asset prices adjusted, would have a debt overhang. Our stress tests show that losses on corporate loans can account for more than a third of banks’ losses in an economic shock, even though they account for only a fifth of banks’ loans. iii) Markets lack resilience and so amplify adjustments There are myriad reasons why this can happen and I’ll discuss some live examples later. 4 Research by Bahaj, Foulis and Pinter (2016) suggests that a 10% fall in UK commercial real estate prices is associated with a 1% decline in firm investment. 5 See the report by the board of the Financial Services Authority (2011), ‘The failure of the Royal Bank of Scotland’, for additional information. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 When markets amplify price adjustments, the other channels become more powerful. And there is also an important direct effect on the economy: the cost of new finance to the wider economy is driven up and its availability driven down. In extreme cases, markets can become dysfunctional and effectively shut out access to finance. UK high yield bond issuance markets were closed for four consecutive quarters during the global financial crisis of 2008-9. | I’ll highlight two areas where markets have evolved in ways that raise questions about their resilience, even if all the intermediaries are safe. They might mean investors aren’t able to take the liquidity of markets for granted if they adjust. In both cases, there is no proven problem for markets or the economy. Inquiries are, as the police like to say, ongoing. Through our market intelligence gathering, I’m pleased to say that market participants are helping with those inquiries. And I look forward to the contributions of this Centre too. i) (Mis) use of volatility measures Against a backdrop of relatively stable markets, some investors may have developed an appetite for betting that a range of markets, including bond markets, will remain stable. 10 All speeches are available online at www.bankofengland.co.uk/speeches 10 That means selling options – effectively insurance against moves in market prices. A put option, for example, is insurance against falling prices. An investor who buys this insurance is guaranteed a sale price for the asset insured, regardless of what happens to the market. If prices are currently higher but then fall below the guaranteed price, an investor that wants to sell will incur some loss – think of this as the insurance excess – but the insurer will pay for the rest. If markets stay stable, as the insurer is betting they will, no payout is made and the insurance collects a premium. While markets are stable, it’s a nice little earner for the insurer. | 1 |
Imports from countries where the price level is lower than in Norway are increasing, resulting in a fall in prices for a number of consumer goods. On the other hand, higher production in large countries such as China and India has led to higher prices for energy products. As a result, the overall rise in consumer prices has edged up both at home and abroad. The projections in the Inflation Report are based on an interest rate path that in the Executive Board’s assessment provides a reasonable balance between the objectives of monetary policy. Previously, we based our analysis on various technical assumptions concerning future interest rates. One such assumption was market interest rate expectations. As from Inflation Report 3/05, we now base our projections on an interest rate path that we consider reasonable. This gives Norges Bank more active ownership of the projections that are presented and of the uncertainty we believe surrounds these projections. The arguments favouring a very low interest rate in Norway are to some extent less relevant. The outlook and analyses suggest a gradual increase in the interest rate towards a more normal level, but we expect the adjustment to occur in small, not too frequent steps. Output growth is high and may in isolation suggest a more rapid increase in the interest rate ahead. This would reduce the risk of bottlenecks in the economy with rising cost inflation and continued debt build-up. | We export not only goods but also services - primarily transport and travel services - also computer and IT services and the volume of these services has been increasing rapidly during the last three years. The FDI inflow that has reached the 9 billion kroon level in recent years proves our competitive position in the Baltic Sea region as well as a broader region. Equal distribution of investments between the main sectors of economy is an indication of the balanced economic development (in 2001, for example, manufacturing industry - 20%, transport and communications - 23%, wholesale and retail trade - 14%). It is also important to note that the FDI inflow was not contingent on the privatisation of former SOEs. And finally, our competitiveness is demonstrated by the yield of investments made in Estonia and reinvesting of substantial part of annual profits which in 2001 amounted to 3,8 billion kroons. This is also shows our competitiveness. The readiness of Estonian economy for the integration with the European economic system is demonstrated especially well by such key sectors of our economy as the financial and telecommunication sectors. Here we talk about the complete opening of the market to domestic and foreign competition, strong state supervision and integration of Estonian enterprises in the big multinational corporations. What should we focus on in the future? Estonia is no longer a catching-up candidate country as it was three-four years ago. However, we still cannot say that the restructuring of our economy has been completed. | 0 |
It also involves patrolling the frontiers of our powers and 6 Id. at 483. 7 Dodd Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111–203, 124 Stat. 1376 (2010). 8 12 U.S.C. § 5365. 9 12 U.S.C. § 5365(a)(1). 10 12 U.S.C. § 1842 (c)(7). 11 Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System, September 18, 2013, Press Conference. BIS central bankers’ speeches 3 recognizing where and when the rule of law forecloses options. This is essential to the credibility of the central bank, a concept closely connected with the public’s trust. To conclude, I hope these remarks about financial stability also reflect on what our legal colleagues have accomplished at the ECB. In this regard, I pay tribute to the leadership of Antonio Sáinz de Vicuña, and to his work not only in presiding at the birth of the euro, but guiding the ECB to take the extraordinary actions necessary to preserve the euro. As President Draghi accurately forecast, they have been enough. Antonio, as you step down as general counsel, I congratulate you on the accomplishment of the mission, and applaud you for a job well done. Thank you, ladies and gentlemen, for your kind attention. Disclaimer: The views expressed are the views of the author and do not necessarily reflect the views of the Federal Reserve Bank of New York, or any component of the Federal Reserve System. 4 BIS central bankers’ speeches | Total debt issuance last year was USD 1.25 trillion, about 30% lower compared to 20133. Morgan Stanley and Oliver Wyman estimate that industry balance sheets committed to bonds, foreign exchange and commodities contracted 25% over the past five years owing to tighter post-crisis regulations, and could decline another 10% in the next three to four years, with banks looking to trim capacity to improve returns on risk-weighted assets as regulatory costs and challenging markets continue to drag on returns4. 5 However, the story going forward is more upbeat. Infrastructure and sustainable financing offer opportunities for investors. Asia will need USD 8 trillion of infrastructure by 2020 5, and within that, ASEAN will need USD 110 billion a year in infrastructure investment through 20256. The World Bank Group has pledged to support climate-friendly development with USD 16 billion per annum in direct funding and mobilised USD 13 billion in external private sector capital annually by 2020. Technology and innovation will underpin and drive such growth opportunities. The inaugural Singapore FinTech Festival running this week demonstrates the tremendous potential that technology holds for capital markets to seize these opportunities and helps us cope with the market challenges. 6 The ASIFMA conference programme reflects these trends, opportunities and challenges. Tomorrow’s concurrent panels will cover macro and market developments in China, India and ASEAN, as well as opportunities in infrastructure financing, sustainable financing, big data and 1/7 BIS central bankers' speeches cyber security. | 0 |
Financing conditions remain highly supportive, which contributes to a strengthening in credit creation. They continue to support our baseline scenario of an ongoing economic recovery and an increase in inflation rates. At the same time, given prevailing uncertainties, the Governing Council will continue to monitor economic and financial market developments very closely and to safeguard the pass-through of its accommodative monetary policy to the real economy. Over the coming months, when we have more information, including new staff projections, we will be in a better position to reassess the underlying macroeconomic conditions, the most likely paths of inflation and growth, and the distribution of risks around those paths. If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate. Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2016, after 0.4% in the last quarter of 2015. Growth continues to be supported by domestic demand, while export growth has remained modest. Incoming data point to ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter. Looking ahead, we continue to expect the economic recovery to proceed at a moderate pace. Domestic demand remains supported by the pass-through of our monetary policy measures to the real economy. Favourable financing conditions and improvements in corporate profitability continue to promote a recovery in investment. | In an environment of accommodative monetary policy, the swift and effective implementation of structural reforms, in line with the 2016 countryspecific recommendations recently approved by the European Council, will not only lead to higher sustainable economic growth in the euro area but will also make the euro area more 2 BIS central bankers’ speeches resilient to global shocks. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union. Full and consistent implementation of the Stability and Growth Pact over time and across countries is crucial to maintain confidence in the fiscal framework. At the same time, all countries should strive for a more growth-friendly composition of fiscal policies. We are now at your disposal for questions. BIS central bankers’ speeches 3 | 1 |
03.04.2018 Spain: From Recovery to Resilience Banco de España-IMF High-Level Seminar Luis M. Linde Governor Ladies and Gentlemen, Let me welcome you to this Banco de España and International Monetary Fund joint conference devoted to the recent evolution of the Spanish economy in the Euro-Zone and European Union context. I would like to thank the International Monetary Fund, represented here today by David Lipton, First Deputy Managing Director, Poul Thomsen, Director of the European Department and Andrea Schaechter, Mission Chief for Spain, for their proposal to organise this conference. The Banco de España was more than pleased to accept, considering it to be very timely and of great interest. As to the title of the conference: “Spain: From Recovery to Resilience”, allow me, before going forward, a candid clarification: I can assure you that it is far from our intent to suggest any pessimistic forecast or premonition. The title refers to our economy’s resilience in the face of a hypothetical cyclical downturn which, needless to say, we hope will be later rather than sooner. In 2017 Spain’s economic recovery maintained the strong growth path of previous years, exceeding expectations for the fourth year in a row. In particular, GDP grew by 3.1%, meaning that the economy has grown above 3% for the third consecutive year. Strong domestic and external demand pushed GDP up, and the economy has proved quite resilient to uncertainty shocks. | To achieve this goal without hampering long-term economic growth, the composition of the fiscal adjustment is very relevant. Moreover, the combination of this consolidation efforts with other structural reforms on which I will focus later might be crucial in order to smooth and reduce the public finances adjustment needs. In addition, given the high degree of decentralisation of public spending in Spain, all government decision centres must contribute to this effort. To this end, it is crucial to provide efficient mechanisms to finance the different competences, permitting citizens to identify the bodies responsible for implementing the different public policies. On a related matter, let me mention that the adequate access to external financing by regional governments – be it by credit provided by financial institutions or through the capital markets – is of particular importance to avoid a pro-cyclical stance in the provision of the public services, and guarantee market pressure geared towards fiscal discipline. Currently, an exceptional mechanism is in place, namely the “Fondo de Liquidez Autonómica”, whereby the central government provides funds to most regions, in the form of bilateral loans, in exchange for a heightened control over their fiscal policies. However, in the current favourable macroeconomic and financial context, regions should regain market access. Challenges of the Spanish labour market The second session of the Conference is devoted to the challenges facing the Spanish labour market. During the last three years, the annual growth rate of employment has been 3.0%. | 1 |
Although the cost of bank credit for households and firms and of fixed-income securities issues rose as the single monetary policy adopted a more neutral stance, these costs reached levels which, from a historical perspective, should be classified as moderate. In any event, somewhat less generous financing conditions than those prevailing during the recent period of exceptionally low interest rates are better suited to the circumstances of the Spanish economy. Consequently, they provide some relief following a lengthy phase of high demand pressure, while helping to make our growth pattern healthier. The strength of demand has been met by very favourable elements in the supply-side response. All the productive branches contributed positively to the expansion of output, though mention should be made of the continuing momentum of construction and the notable dynamism of the manufacturing branches, closely linked to the recovery in the European economies. It is worth noting once again the Spanish economy’s continuing high employment-generating capacity, both in 2006 and in early 2007, since this feature is playing a key role in the continuity of this long expansionary cycle. The strong growth of employment in 2006, at a rate of more than 3% for the year on average, contributed decisively to sustaining domestic spending. | 11 Carhart M. (2003), “Global Tactical Asset Allocation” in Litterman R. (ed) “Modern Investment Management”, Goldman Sachs Asset Management, John Wiley and Sons, New Jersey, 2003. 12 Solnik B. (1974), “Why Not Diversify Internationally Rather Than Domestically?” Financial Analysts Journal. 30, 4 (July/August 1974). Reprinted in Financial Analysts Journal. 51, 1 (January/February 1995). 13 Stewart F., Pension Fund Investment in Hedge Funds, OECD Working Papers on Insurance and Private Pensions, No. 13. OECD September 2007. 14 Survey on investment regulations of pension funds, OECD, July 2007. 4 BIS Review 134/2007 4. payment systems, which process the cash settlement of a transaction, Beyond doubt, this model is simplified a bit and serves only as a starting point for further analysis. I would like to confine it to two elements: securities settlement systems and payment systems. Securities settlement systems and payment systems currently comprise a couple of large systems of international, pan-European or even global character (e.g. CLS) operated either by private institutions (Euroclear, Clearstream, EURO1 and STEP2) or by central banks (TARGET) as well as by many domestic and local systems, including central depositories of securities and depositories maintained by central banks, clearing houses and other systems, e.g. card systems. On account of the adopted diverse legal and market solutions, the present system of capital market infrastructure cannot be deemed optimal. | 0 |
(vii) In case of an excessive increase in the liquidity surplus or the emerge of extraordinary fluctuations in the market even at reasonable levels of excess liquidity, to enhance the effectiveness and flexibility of monetary policy and liquidity management strategy, in addition to YTL deposit buying auctions with standard maturities, reverse repo auctions and Central Bank liquidity bills with maturity up to 91 days may also be used actively. As a matter of fact, technical procedures regarding the issue of the said bills were completed by the Central BIS Review 1/2007 9 Bank, by “the Communiqué on Liquidity Bills” published in the Official Gazette, number 26310, dated 5th of October 2006. (viii) Currently, depending on liquidity conditions, whether there will be standard one week or two weeks YTL deposit buying auctions will be held or not, if there will be an auction, the maximum amount to be drained through the auction is announced at 10.00 at Reuter’s CBTY page. In 2007, the Central Bank may hold New Turkish Lira deposit buying auctions with standard maturities of 1, 2 and 4 weeks and continue to announce the maturity and the maximum amount to be bought in the auction(s) on Reuters’ CBTY page. Starting from 2007 onwards, no announcement will be made on the said page on days when no auction is deemed necessary according to liquidity conditions. | Given that this research was originally focused on the reasons r-star had risen, it’s ironic that I and others have ultimately dedicated much more of our careers to understanding why it’s dropped. In recent years, r-star has been averaging well below 1 percent. And it’s actually now lower than at any time before the Great Recession. One of the reasons for this dramatic decline in r-star lies in changes to the major factors determining potential growth: labor force growth and productivity growth. Baby boomers are retiring and fertility rates have come down. Both of these demographic shifts have significantly slowed labor force growth relative to past decades. Productivity growth has also fallen considerably from the boom years of the late 1990s and early 2000s. All the rapid changes in technology that we see around us every day may make this seem 1/4 BIS central bankers' speeches counterintuitive. But for the moment, being able to order a Nintendo Switch and have it arrive the same day is, shockingly, not increasing productivity in a meaningful way. I could go on for quite some time on this topic, but will leave it to another day! I should note that these demographic and productivity trends are not unique to the United States. In fact, we’ve seen similar slowdowns in growth and sharp declines in r-star in other advanced economies.1 So why did I take you back to simple days of the millennium bug, when you were playing Snake on your phone and ordering takeout from a paper menu? | 0 |
However, this concern for customer rights came into being and developed in a context of maximum customer confidence towards banks and, most importantly, towards bank employees, which, in short, led to a high degree of customer loyalty to banks. During the 1990s and in the first half of the last decade such loyalty was negatively and slowly impacted by growing competition and the subsequent need to improve net interest margins. And the crisis unleashed as from 2007 saw the culmination of this deterioration and led to a significant loss of confidence by customers in banks, giving rise to a new scenario. Against this background of public mistrust in banks, and the weakening of the aforementioned degree of loyalty, the new technologies add additional challenges for the industry when it comes to tending to their relationship with customers. They alter consumer demands, with consumers now seeking flexible, immediate and personalised interaction anywhere and at any time. They also lower the entry barriers to the business, as the extensive networks of branches to capture and retain customers that characterised traditional banking no longer seem necessary. I consider that, as regards technological innovation, it is more fitting for the moment to talk about evolution rather than revolution, and that not all technological initiatives exert the same influence on banking business and nor do they necessarily constitute projects that enter into direct competition with banks. But there are indeed technological innovations that are acting as a catalyst for firms that may come to compete with banks in specific segments. | By trading in foreign exchange, in local currencies, by credit extension, by rule making, and by setting interest rates, the general level of economic activity can normally be influenced by the central bank. In so doing, central banks used to try to contribute to peace and prosperity by making sure that the less advantaged or the more useful activities or social class and such like have better access to funds in general or to the funds of the central bank, and in the extreme case even go so far as financing projects and infrastructure. In the modern world, it is now normally agreed that each national economy is so vast and complex that central banks could be considered to have done very well if it just keeps the country stable and let government build infrastructure and help the poor and private sector trade and invest to economically develop the nation. The recent trend is that, central banks are now given the sole task of keeping price stability, and is given the independence to do that since if they have no independence, government will, at time ask it to do things that are in conflict to that sole function. | 0 |
This group is closely tied to some of the initiatives that are part of the Financial Education Plan (FEP), about which I will also speak. I shall be beginning in a somewhat dismal tone, “dismal” being the label that has been attached to those of us practising as economists since the times of Thomas Carlyle, back in the 19th century. And the situation is that, despite all the efforts made in terms of private initiatives (as exemplified by this EduFin Summit, now in its third edition) and by the public sector [specifically the FEP initiatives under way since 2008 jointly launched by the Banco de España, the CNMV (National Securities Market Commission) and other collaborators], and also despite the general increase in the educational level in Spain, we have not managed to instil the youngest cohorts with better financial literacy than we have the population as a whole. Adult financial literacy in Spain, from an international perspective We are, at least, now in a position to make this diagnosis. This is thanks to the information drawn from the recent Survey of Financial Competences, an initiative of the Banco de España and the CNMV, as part of the FEP. Thus, since last year, our knowledge on the status of Spaniards’ financial literacy and on their interaction with the financial system has improved decisively. | It has been rolled out in educational centres that voluntarily decide to participate in this initiative and to impart financial education. Indeed, some 500 centres each year throughout Spain have taken part. The participant centres have educational material provided by the Plan itself, through the Gepeese portal, so they may be used by teachers according to their own criteria and programmes. Complementing this is specific training for teachers, who are provided with supplementary educational resources (such as games and workshops). There is also an annual competition for participating pupils. In fact, on 1 October 2018 I had the opportunity to congratulate the winners of this competition from a school in Plasencia. In order to gauge the impact of this school programme, inform society of it and seek to continually improve it, an exhaustive evaluation of the programme was conducted in the 2014-2015 academic year.9 The evaluation of the short-term impact of the programme showed that: Pupils following the financial education course obtained better results in financial literacy tests at the end of the year than pupils who did not. In terms of theme-based content, it was found that the financial education course especially increased pupils’ knowledge in “bank relations” (e.g. opening and closing bank accounts, the consequences of an overdraft and knowledge of bank fees, along with the notion of interest rates and their calculation). The impact of the course was less evident on matters such as saving, means of payment and responsible consumption. | 1 |
Fourth, the banking industry should undertake effective measures to reduce the number of cash and cheques used for credit card and loan repayments which totalled 101 million transactions in 2014. This would bring about operational BIS central bankers’ speeches 3 efficiency and reduce costs in the banks’ operations. The industry should strive to achieve an annual decline rate of 15% per year similar to that of cheques; v. Fifth, payment system infrastructure providers such as MEPS and MyClear should enhance their Memorandum of Understanding (MoU) to ensure any payment infrastructure development initiatives would not result in duplication of efforts by the banking system. In addition, both MEPS and MyClear should develop medium term roadmap to enhance payment system infrastructure to keep pace with innovation and meet user needs. This must be supported by consultation with relevant stakeholders and robust market assessment and cost-benefit analysis; and vi. Last but not least, it is critical for the banking and payments industry to maintain confidence in the use of e-payments, Hence, the industry should continuously enhance their risk management measures and security features, and review the effectiveness of their customer education and awareness programs. On this note, I wish all of you an engaging and productive forum. Please take the opportunity to visit the exhibition booths to find out more on how you can benefit from the various business and payment solutions. 4 BIS central bankers’ speeches | Lastly, Patricia Mosser, now a Senior Research Scholar here at SIPA, used to work at the New York Fed, and a number of Banque de France staff have had the privilege of working with her over the years. So, Patricia, allow me to thank you warmly for organising this lecture on the ECB’s monetary policy and the resilience of the Eurozone. In Europe, the euro construction process is pretty well-known, while the ECB monetary policy is often debated. In the United States, it may be the reverse: the monetary policy is often better understood than the euro construction process. Thus I will deal successively with both issues before turning to the future and a call for action in Europe. 1. The euro has strong foundations. Political foundations As you know, the single currency was officially launched with the Maastricht Treaty in 1992 and introduced in 1999. But Maastricht and the euro are naturally part of a broader history: the history of Europe, and its singular achievement of making the transition from war to peace. As early as 1946, Josef Müller, who was a leading figure in the German resistance to the Nazis and the founder of the Bavarian CSU, acknowledged that “we need[ed] a European currency, because countries that share a currency will never be at war”. The euro has indeed provided us with a strong symbol of unity among European nations. | 0 |
If these factors together imply that what is possible to attain is a long-run employment rate of, say, 75 per cent, it would be meaningless to give the central bank the task of promoting an employment rate of 80 per cent. What monetary policy might be able to do in such a situation is to make the employment rate temporarily reach 80 per cent by overheating the economy. But nothing would be gained by this, as the employment rate would soon return to 75 per cent. However, the overheating, in turn, could cause problems that might be difficult to deal with, such as making inflation expectations rise and creating asset market bubbles. Thus, one cannot give the central bank a numerical target for employment that it should strive to attain in the same way as an inflation target.11 It is sometimes claimed that the Federal Reserve is an example of a central bank with an employment target. Although the Federal Reserve Act states that the Federal Reserve shall “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates”, this does not mean that it in practice works with a numerical target for employment.12 10 However, there is a research literature on so-called fiscal dominance that suggests that the central bank may experience difficulty steering inflation if public debt is too high. See, for instance, Leeper, Eric, M. and Tack Yun (2006), “Monetary-Fiscal Policy Interactions and the Price Level: Background and Beyond”, International Tax and Public Finance 13(4), pp. | William C Dudley: What kind of jobs have been created during the recovery? Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Regional Economic Press Briefing, New York City, 21 May 2014. * * * Good morning and welcome once again to the Federal Reserve Bank of New York’s Regional Economic Press Briefing. I am pleased to have this opportunity to speak with you. This morning I want to focus on economic conditions in our region, giving particular attention to the kinds of jobs created in New York, Northern New Jersey and Puerto Rico during the recovery from the Great Recession. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. While the New York Fed has broad operating responsibilities on behalf of the FOMC and the Federal Reserve System, we are also deeply committed to our region. That commitment manifests itself in several ways. We produce monthly indices of economic activity that enable us to gauge the performance of the region’s economy. We conduct a regular poll of small businesses in our region, and just last week, we hosted a summit examining new sources of credit for small businesses. We developed block-by-block flood maps which were created after Superstorm Sandy to inform residents and businesses in Brooklyn of their vulnerability to future storms. | 0 |
Our research indicates that the large growth in student debt, and an associated high level of student debt delinquencies, has been associated with a reduction in mortgage and auto loan borrowing among younger people. While younger individuals were previously much more likely to finance home and car purchases by age thirty, Chart 16 (Proportion of Borrowers with Home-secured Debt at Age 30) shows that those with student debt are now less likely to do so than those with no student debt, as shown by Brown and Caldwell in a Liberty Street Economics blog post in 2013.5 In fact, our research suggests that student debt appears to have replaced or crowded out other types of debt, so that the difference in average total debt held by student-loan and non-student-loan borrowers has remained stable over time. We suspect that this decline in taking on other types of debt by student-loan borrowers partly reflects increased uncertainty about the future. However, in addition to a possibly reduced 5 Meta Brown and Sydnee Caldwell (2013), Young Student Loan Borrowers Retreat from Housing and Auto Markets Federal Reserve Bank of New York, Liberty Street Economics blog, April. 6 BIS central bankers’ speeches appetite for borrowing, a reduction in access to credit is also likely to play an important role, despite the comparatively high earning potential of those with a college education. | However, as has been the case since October 2009 when the unemployment rate peaked at 10 percent, this decline in the unemployment rate was associated with an almost equal percentage point decline in the labor force participation rate. Much has been written about the forces that are causing this decline of the participation rate. Researchers have shown that the aging of the population is playing a role, as are changes in behavior. But our own analysis suggests that the cyclical weakness of demand BIS central bankers’ speeches 1 for labor is an important contributing factor, and so we do not take as much comfort from the decline of the unemployment rate as we otherwise might. Looking forward, I believe that the underlying fundamentals of the U.S. economy have improved to the point where we can expect sustained growth above the recent pace of 2 1/4 percent. That being said, I doubt that over the near term we will see growth as rapid as that in the second half of last year. Special, one-time factors, such as very rapid growth of exports and sustained inventory building, are unlikely to be repeated over the first half of this year. Moreover, while there is now a much better balance between supply and demand in the housing market, that market is still adjusting to the roughly 100 basis point increase in mortgage interest rates that occurred in mid-2013. | 1 |
Supervisors need to ensure that cyber security becomes a permanent agenda in the board’s engagements with senior management. There should be on-going dialogue about emerging trends and vulnerabilities, and the measures in place to address them. This would raise awareness of security concerns and ensure that existing cyber security risk management practices are effectively integrated with the firm’s wider business strategy and risk appetite. It is equally important to ensure that the board of directors’ of the financial sector invests adequately in cyber security infrastructure systems and procedures. The amount of funds allocated should commensurate with the nature and scale of an institution’s business activities, and its strategic direction. 65% of respondents in an Ernst and Young survey in 2013 cited an insufficient budget as the primary challenge for information security functions to meet the demands of the business. As supervisors of the financial system, we should require financial institutions to continuously benchmark infrastructure and systems against leading best practices in cyber security. This includes the application of security testing measures to identify key potential vulnerabilities in a financial institution’s information security system. Financial institution ought to take a long term view on this matter. Supervisors can do more to encourage financial institutions to improve the response to evolving threats by ensuring continued access to external and internal expertise necessary to rapidly develop controls and defences that protect critical assets and operations. Today, the lack of skilled resources remains a key barrier to value creation in regard to information security. | Looking further into the future, a more comprehensive legal international framework, such as a treaty, may be useful to empower authorities to bring cyber criminals to justice. Concluding remarks Let me now conclude. The digitisation of the economy and the financial sector is a process that cannot be stopped and we need to embrace it to our benefit. As financial institutions grow bigger and have greater international presence, the nature and extent of cyber risks will continue to expand. Events like this summit help propel the cyber security agenda forward. It is my hope that the sharing of knowledge and experiences here will generate new ideas to stem threats to cyber security. With that, I wish you all a productive and fruitful experience for the next two days. Thank you. BIS central bankers’ speeches 3 | 1 |
Our domestic assets are too low and a transfer of foreign reserves would have a negative impact on the Bank’s operations: • • the SNB would be impeded in conducting its monetary operations (interventions, money market operations) the bank’s profitability and liquidity would diminish drastically. Consequently, a transfer in gold of a part of the valuation gain is the obvious solution. A group of experts has been asked to make an estimate of the excess reserve of the bank. 2.2 The proposals The group of experts has come to the conclusion that a capital corresponding to 1300 tonnes of gold could be withdrawn from the SNB’s balance sheet to be used for other purposes than monetary policy. Of these 1300 tonnes, 500 tonnes are to be set aside for financing the Swiss Foundation for Solidarity previously announced. What to do with the remaining 800 tonnes? A first idea would consist in transferring the remaining excess reserves to a public investment fund having more extensive investment possibilities than the SNB. Currently, our asset management policy is basically limited to fixed-income investments. The fund’s regulations should provide for investment in shares in order to achieve a higher long-term yield. But there is usually no limit to the imagination of politicians when money is to be distributed! Other concrete proposals exist. Some would like the excess gold reserves to be earmarked for specific goals such as improving the capitalisation of our social security schemes or for educational purposes. | Listening to my presentation, you will no doubt have concluded that the process of demonetisation of gold is well under way and that one can reasonably expect that the gold parity of the Swiss franc will be abandoned in the spring of next year. Formally, the demonetisation of gold will give the SNB sufficient room for manoeuvre to become active on the market. Gold transactions could thus be scheduled to begin next year when the legal framework will be in place. Greater uncertainty surrounds the question of the allocation of excess reserves, but this will have no impact on our sales intentions. As no precise date for the beginning of our sales activities could be set, I will limit myself to indicate to you in what spirit we plan to approach this question. In my opinion, two observations seem essential: First, as a major holder of gold, the Swiss National Bank has no interest in adopting a strategy which would push the price down. We know that 1300 tonnes of gold cannot be absorbed by the market in a short period of time. We therefore are considering distributing the sales over a period of several years. Second, we intend to keep important gold holdings. Once the sales programme has come to an end, gold will continue to play an important role in our monetary reserves. The recent revision of the Constitution has led to the stipulation that we should maintain “sufficient” gold reserves. | 1 |
But unfortunately people offer these things, and it’s really quite tragic, because the people who fall for these things often are people that are not so sophisticated, of not so large means, and they can’t afford to be sending money to fraudsters hoping that there might be a big prize from the Federal Reserve Bank in New York or somewhere else down the road, which of course there’s not. Dr. Olajide Oladipo: Thank you. I think we have – I just have time to take only one more question. Audience Member: Actually, the question I wanted to ask is for the students. Why do you refuse to ask questions? Dr. Olajide Oladipo: Somebody wants to ask now. Thank you. Audience Member: How are you, sir? My question for you today is what are, or were, your daily habits or rituals that helped you get to the level of success that you have today? President Dudley: Oooh, I can’t think of any rituals. Habits. I guess what I would say is I’ve always just tried to learn more. So basically, it’s always about trying to find opportunity to, what I call, grow my human capital. So, I think – my view of the way to success is find a job that’s interesting to you, because you need that passion about what you do. If you don’t have passion about what you do, it’s not going to feel like a lot of fun and you’re not going to do it with a great enthusiasm. | Spain’s global position in terms of innovation and digitalisation Now let me give you some figures on Spain’s relative position in terms of innovation and digitalisation. According to Eurostat10, R&D expenditure as a percentage of GDP stood at 2% in the EU in 2017, below the target of 3% of GDP set at “Europe 2020 strategy” and also below US levels (2.8%). Spain’s investment in R&D was lower than the EU average. It only accounted for 1.2% of its GDP in 2017 despite having been growing for the previous three years. According to COTEC11, Spanish companies fund the majority of their investment in R&D, around two thirds, with internally generated resources. Regarding external funding sources, venture capital and private equity are the most relevant ones. Another key element for innovation is the supply of human capital, i.e., the availability of high-skilled workers such as researchers. In this dimension, there is also an important gap between Spain and the EU average. In particular, according to Eurostat12, in 2017 Spain had 0.27 researchers per 100 employees in the private sector, while the EU average was 0.45. Regarding digitalisation, Spain is gradually improving its global position. According to the Digital Economy and Society Index, published by the European Commission13, that tracks the evolution of EU member states in digital competitiveness, Spain ranks 11th among the 28 countries of the European Union. The index comprises five indicators: connectivity, human capital, use of Internet services, integration of digital technology and digital public services. | 0 |
Lars Nyberg: The framework of modern central banking Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at a Conference on Reforming the State Bank of Vietnam, Hanoi, 21 March 2006. * * * Thank you for inviting me to this conference on reforming the State Bank of Vietnam. I imagine that one reason why I have been invited here is that the central bank I represent, Sveriges Riksbank in Sweden, just over a decade ago was in a situation which resembles the one the State Bank of Vietnam is experiencing now. At that time we had reached a situation where there were strong reasons – if not imperative ones – for reconsidering the way in which we used to think about monetary policy. It became clear that a reform of monetary policy and its framework was both desirable and necessary. Of course, Sweden is by no means the only country where monetary policy has undergone major changes in recent times. The view of how best to conduct monetary policy has changed fairly radically over the past twenty years and this has been reflected in a more or less worldwide reform process. What I hope to be able to contribute here today – as an introduction to the discussions – is to provide an overall picture of the ideas that formed the basis for this process and to describe what are today considered to be the guiding principles for a modern central bank, according to established research and practical experiences. | BIS Review 52/2006 5 optimism regarding the role monetary policy can play in long-term real economic growth was one important reason why inflation was so high during the 1970s. The value of independence How can one then construct a framework for monetary policy that provides the central bank with the best possible conditions to carry out its tasks? Here I intend to be fairly brief as this is something that will be discussed in more detail in the next contribution to this conference. Let me just note that there is currently general agreement that the central bank should be given the opportunity to work independent of the political system in order to attain the objective of price stability. It has been observed that if monetary policy is conducted at arm’s length from party politics, there is greater confidence in the price stability objective. This is linked to the fact that there has often been a tendency for politicians to use monetary policy for more short-term purposes which have conflicted with the long-term price stability objective and which have often entailed loosening the nominal anchor. Making the central bank independent is probably the element of the past decades’ monetary reform process that has triggered the most debate and has been perceived as the most controversial. It is probably natural for politicians to feel uncomfortable giving the central bank increased independence as it unavoidably means that they give up some of their decision-making powers, and moreover in a field perceived to be central. | 1 |
In a multi-country FSAP you must give increased emphasis to the cross-border weaknesses and channels in addition to the domestic ones. A regional FSAP might include an analysis of efficiency aspects. The financial system may be robust but is it efficient? It is possible to regulate a financial system to ensure a very low level of risk, but the cost in terms of reduced efficiency may not be worth the gain. But on the other hand, the cost of a crisis can be so large that building adequate prevention makes good sense. A reasonable balance must thus be found between on the one hand efficiency and on the other hand the degree of regulation and the ways to implement it. Conclusion The whole FSAP process, which uses large resources in manpower and financial costs, was created to meet a specific purpose: to reduce the incidence of financial sector problems. It is as yet too early to prove whether this goal has been met. It is a fact that there have been fewer cases of major financial crises since 1999, when the FSAPs started, but this might also be attributed to the fact that global economic development has been generally positive during this period. It is also a fact that compliance with preconditions and with regulatory standards has improved since the FSAPs started – as an important example, the minimum capital ratios for banks have increased globally. However, we can all see that much remains to be done worldwide, including in our own countries. | It has steadily established a reputation as the leader in executing the € capacity-building initiatives through the development of skills, and expertise. MII has continued to broaden and enhance its training directory to meet the increasingly complex and diversified needs of the insurance industry. T he Registered Financial Planner (RFP) programme which was launched in 2002 has now produced its first batch of 964 graduates in January 2005. In keeping pace with the evolving changes in education, in July 2006, MII launched its MII e-Academy, an on-line learning avenue to make learning more accessible to the insurance professionals, unconstrained by location, distance or time. I am pleased that MII has taken the necessary steps in upholding the responsibility to deliver quality training, not only for the local insurance industry, but also across the region. The increasing number of participants from abroad signifies the growing recognition of the programmes organized by MII. At the regional front, MII's out-reach has been further enhanced with the conclusion of the Memorandum of Understanding between MII and FORTE Insurance ( Cambodia ) Plc. in June 2005, whereby MII will conduct professional insurance examinations in Cambodia . At the same time, MII continues to assume its role as the secretariat of the ASEAN Insurance Training and Research Institute, or AITRI, in Malaysia , serving as a regional network centre for insurance education and research. For this purpose, AITRI conducts an annual series of insurance programmes and courses for the ASEAN regulators and practitioners. | 0 |
So far, measures adopted in the context of the CMU initiative, albeit positive and helpful, are not yet commensurate with the ambition of the project. With CMU, we should aim to reach a situation where both issuers and investors enjoy the same basic legal rights concerning capital markets activity regardless of the EU country where they are located. The CMU project involves all EU member states but it is particularly important for the euro area member countries. It is a big waste to have taken the huge step to adopt a single currency and continue to forgo the benefits that could be reaped by creating a true banking and capital markets union. I believe that euro area countries should forge ahead in enhanced co-operation in order to achieve CMU more rapidly. We should however, be well aware that CMU requires a European safe asset, the harmonisation of taxes on financial products, a convergence of company law, including on bankruptcy, the 6/9 BIS central bankers' speeches creation of a single rule book of regulation for markets activity and ultimately a European Single Securities Market Supervisor. The other big condition is a rock solid monetary union so that assets’ risks and returns are not significantly influenced by redenomination risk but exclusively by their idiosyncratic features. A heavy toll, I know, but I will believe that the CMU project is possible when I see authorities start making inroads in some of those difficult issues. Thank you for your attention. | 11 The FSF was established by the G7 finance ministers and central bank governors in 1999 to promote international financial stability through enhanced information exchange and international cooperation in financial market supervision and surveillance. 12 Financial Stability Forum, 2007. 13 The Counterparty Risk Management Policy Group II (CRMPG) is comprised of senior officials from major financial institutions. 4 BIS Review 74/2007 As mentioned above, I do not see HLIs as a direct threat to financial stability. The Achilles heel of the system is the link between HLIs and banks of systemic importance. Thus, the systemic risks originating from HLIs are better addressed through indirect measures aimed at the HLIs' counterparties and creditors, which are mostly large international banks. This has the advantage that best practice guidelines are focussed directly on the transmission channels through which the risk would be propagated and on the institutions which are cornerstones from a financial stability perspective. An example of guidelines for the counterparties and creditors of HLIs is the May 2007 report by the FSF. The FSF published recommendations to address potential financial system risks relating to HLIs. The focus of the report is clearly placed on systemic risks. Investor protection issues associated with institutional or retail investments in HLIs are not addressed. The aim of the two most important FSF recommendations (no. 1 and no. 2) is to mitigate the two transmission channels discussed above: First, core intermediaries – i.e. | 0 |
Population that is used to change, reform and transformation. Malaysia is no stranger to change and reform. Our people are very adaptable. We used to be a primary commodity producing economy in the 1960s and 1970s, before embarking on import substitution and then manufacturing. In merely two decades, we have transformed from an agricultural economy to a manufacturing powerhouse. Since the Asian Financial Crisis, we have metamorphosed the economy from an export dependent to a domestic driven economy. And now, Malaysia embarks on a journey into high-value growth activities. We are confident in achieving our quest to be a high income nation with equity. Today, Amazon has steadily nudged out physical retailers, rendering them almost-obsolete at retail outlets. Soon, checkout counters would seem as foreign as cassette tapes to our millennials. While driverless cars seems to be the “in” thing now, it is quite possibly, just the start to many more changes that we cannot even fathom now. Against these changes, the ability to learn, unlearn and re-learn would be an indispensable requirement. There are many lessons to be learnt. One of these lessons is that we need to prepare society for jobs that do not yet exist. Students of today can expect to hold more than 11 jobs between the ages of 18 and 42. That is more jobs than most of us have ever. With automation and artificial intelligence on the verge unleashing many possibilities, our value proposition is not knowledge, but cognitive skills. | As I noted earlier, while the Code is not a set of rules, nor is it regulation, support for the Code and its principles is central to achieving its goals. With that in mind, I would like to turn now to the Statement of Commitment that was developed alongside the Code, talk about steps the New York Fed itself is taking, and then touch upon some of the industry measures underway to support adoption. The Statement of Commitment was developed and appended to the Code to provide a standard tool by which an institution may—on a voluntary basis—demonstrate its commitment to the principles of the Code. The Statement of Commitment provides that an institution is an FX market participant and has reviewed the Code. By using it, an institution acknowledges the principles as reflecting good practice and exhibits a commitment to conducting that institution’s activities in a manner consistent with the Code. The Statement, like the Code itself, acknowledges that market participants vary by size, complexity and nature of activities, and that diversity should be reflected in the steps they may need to take for adoption and adherence. Central banks, similar to FX market participants, are committed to the Code’s adoption as well. Following its publication, BIS central bank governors expressed their support for the Code by noting that central banks “are strongly committed to supporting and promoting adherence to the Code. | 0 |
First, the Chinese transition to a more balanced growth path appears to be underway – with stronger consumption and less emphasis on investment. And the Chinese authorities have a range of tools available to support their economy during this transition. Second, despite the intense strain placed on many emerging market economies by the substantial deterioration in recent years in their terms of trade, this stress does not yet appear to have led to the type of financial system breakage that might lead to widespread contagion and large capital flow reversals. In fact, in recent weeks, emerging market equity markets have recovered substantial ground and many countries’ currencies have stabilized. It is also important that the forward momentum in the jobs market persists. The August and September employment reports raised some concerns that the U.S. labor market might be faltering. Those concerns should be at least partially put to rest given the strength of the October employment report, recognizing that the employment news can be volatile on a month-to-month basis. Most noteworthy to me are the strong payroll employment gains in October and the solid 0.3 percent rise in aggregate hours worked. Over the past three months, payroll gains have averaged 187,000 per month, not much below the average payroll growth of 213,000 per month during the first half of 2015. We are now much closer to our goal of maximum sustainable employment than at the start of the year. | As you may be able to infer from my earlier remarks, I think it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied. In particular, I will be evaluating the incoming information to see if it confirms my expectation that growth will be sufficient to further tighten the U.S. labor market. After lift-off commences, I expect that the pace of tightening will be quite gradual. In part, that is because monetary policy is not as stimulative as the low level of the federal funds rate might suggest. There is strong evidence that the short-term neutral real interest rate – let’s call that r* – is currently quite low, certainly below the level that historically has applied on a longer-term basis. 1 A wide range of models suggest that the short-run real r* is currently around 0 percent, far below its historical longer-run level that is estimated to be about 2 percent. 2 This benchmark “neutral” rate needs to be compared to the actual real federal funds rate. If we measure the latter by subtracting the core PCE inflation rate from the nominal federal funds rate, the actual real federal funds rate is slightly below –1 percent. Thus, current short-term real interest rates are not far below their neutral counterparts, suggesting that the current monetary policy stance is not exceptionally stimulative. The notion that r* is currently very low is also evident by more casual empiricism. | 1 |
If we can move to a position where sufficient and appropriately committed loss absorbing capacity is in place on a global basis in order for these groups to deliver outcomes for both home and host supervisors, then we will be better able to realise the benefits of international banking – and to do so safely. In conclusion, international banking benefits the global economy. However it carries risks. And because of their cross-border nature, international banks are inherently harder to supervise due to the risk of duplication and gaps. There is in addition a danger of international banks being supervised sub-optimally in a balkanised manner. As the largest host supervisor globally by many measures, the UK is more exposed to these risks than most. In my view the best approach to try to tame these risks is to act globally, through committed cooperation between home and host supervisors. We can get to the point where we are not in fear of international banking, and that the risks that it brings are appropriately managed – just like a lion tamer controlling their lions – and under control. As host supervisors we are committed to playing our part in global consolidated supervision and resolution of international banks. This supports international banking and flows of capital – and supports a strategy of being “open for business” as long as it is safe. BIS central bankers’ speeches 7 | We are starting from a good position. BIS central bankers’ speeches 3 • To quote the KPMG report on Singapore’s payment landscape, “the underlying infrastructure is world-class” • And Singapore has one of the highest smartphone penetration rates in the world and wireless internet access is pervasive. Yet, our payments preferences remain largely paper-based: cash and cheques. • For consumers, the use of cash for daily payments is high. • For businesses, the use of cheques is relatively high. As pointed out by the KPMG report, “consumer payments in Singapore are unique among highly developed economies”. • Cash in circulation in Singapore is 8.8% of GDP, compared to 4.4% in Australia and 2.12% in Sweden. • 12.7 cheques per person were written in Singapore in 2014, compared to 7.1 in Australia. • In Sweden, the total number of cheques issued is so small that it is effectively zero on a per person basis! The economic cost of this heavy reliance on cash and cheques is not trivial. • Our studies, conducted together with KPMG, estimate that the social costs of cash and cheques is around 0.5% of GDP, or about $ billion per year. • A good part of these costs can be attributed to the cost of securing cash, both in transit and in storage, and processing cheques. The encouraging thing is that a growing number of our consumers and businesses would like to move towards e-payments. • The infrastructure is there. | 0 |
Rates of infant mortality have fallen by th 8 40 percentage points since the end of the 18 century. The estimated lifespan of a human has risen by a 9 factor of over two. And estimated male skeleton heights have risen by 5-10cm. 10 Humans have grown, financially and physiologically, in lockstep. The world has moved from a Malthusian Era to a Golden one. 5 Stiglitz, Sen and Fitoussi (2009). For example, Clark (2009). 7 Malthus (1798). 8 Our World In Data: https://ourworldindata.org/child-mortality 9 Our World In Data: https://ourworldindata.org/life-expectancy 10 Haldane (2015a). 6 3 All speeches are available online at www.bankofengland.co.uk/speeches 3 A Story with One “i” What explains this extra-ordinary inflexion point in the history of economic growth and living standards? So fundamental is this question to so much of social and economic history that, understandably, it has attracted huge amounts of empirical, historical, social and theoretical research. Out of this cloud of evidence, a clear sunbeam of understanding has emerged about the deep causes and catalysts of economic growth. th If you ask a schoolchild what happened in England around the middle of the 18 century, as I often do, many will give you the right answer. It marked the dawn of the Industrial Revolution. But what exactly was this a revolution in and what exactly caused it? In the standard account, the catalyst for this revolution in economic growth came from a single source, from one “i” - ideas. | What the UK may lack is some diffusion spokes to accompany these innovation hubs – spokes that could help spread new and existing technologies, new products and practices to the long and lengthening lower tail of companies. To be successful, these spokes would need to be repositories of knowledge and expertise on technologies and their application to companies. And, ideally, these repositories would have regional and sectoral reach to enable them to touch the long tail. The UK’s existing university network would be one institutional solution to this spoke problem. They have regional and sectoral reach. They also have embodied expertise and knowledge. By working in partnership with local businesses, they could serve as repositories of expertise on good company practices – in management, organisation, logistics, robotics, AI and the like. A new set of business parks attached to these universities could serve, not so much as innovation incubators for new companies, but as diffusion clinics for existing ones. This idea goes with the grain of the earlier proposal; it would broaden the scope and purpose of universities. In future, these would develop a broader set of capitals – beyond human capital (in people) to include physical and intellectual capital (in firms). And they would do so throughout the lifecycle of companies, not just in their early years. As it happens, this would also be consistent with Newman’s original conception of universities as diffusion-engines, every bit as much as innovation-engines. | 1 |
2 It was on the whole greater than during the recessions at the beginning of the 1990s and 2000s and, above all, it lasted longer this time. Statistics regarding this are only available from 1995 for Sweden, but they nevertheless show 1 See the article “Policy expectations and policy evaluations: the role of transparency and communication” by Lars E.O. Svensson in Sveriges Riksbank Economic Review no.1 2010 (p. 62). 2 This applies regardless of whether one calculates the uncertainty in terms of standard deviations in the forecasts, or the difference between the highest and lowest assessment. 2 BIS Review 65/2010 that the uncertainty rose rapidly and was high in Sweden during the most recent financial crisis. In recent months the uncertainty that can be measured in the CF has declined somewhat with regard to the United States and even more with regard to Sweden, where it has returned to the historical average level. If one does not have anything else to go on, a forecast can be based on what is known as an autoregressive model. What this means is a model where the forecasts for a variable are solely dependent on its earlier outcomes and a random error term and where one assumes that the variable tends to return to a normal level according to historical patterns. However, forecast evaluations carried out by the Riksbank show that on average there is an added value in making active and more sophisticated forecasts for at least up to 1–1 ½ years ahead. | This means that the different opinions must instead be brought together into a compromise as far as this is possible. The Monetary Policy Reports and Updates that we publish can thus be said to reflect the average stance of the members of the Executive Board. If one or more of us considers that the opinions expressed in the Report or Update differ too much from our own opinion to be able to express support from them, we must enter a reservation at the monetary policy meeting. We have, of course, also had the opportunity to put forward any dissenting opinions during a number of earlier meetings. When a member of the Executive Board enters a reservation at a meeting, it therefore rarely comes as a surprise to those initiated in the BIS Review 65/2010 5 forecasting process or to the rest of the Executive Board. Most of the Executive Board members believe that they know roughly how their colleagues on the Executive Board will vote at the actual meeting. This is usually true, according to the conclusions of a study made by the Monetary Policy Department, and which is based on a questionnaire sent to all current and previous members of the Executive Board. 8 The reservation and motivation are published after the monetary policy meeting, in the press release and in the minutes of the meeting. | 1 |
Given what we have experienced in the last two years, it is my hope that the international community will see the wisdom of not waiting for the next crisis to learn how we can make the international financial system a more robust and safe one for all of us.” 3. Ladies and Gentlemen, I made the above remarks over 10 years ago, in June 1999. It was ten months after the Asian Financial Crisis hit Hong Kong, which was then followed by the turbulence of the global financial system as a result of the abrupt collapse of the LTCM. It was rather unfortunate that the fear I expressed in 1999 has come true ten years later. The international community has failed to learn the lessons from the Asian Financial Crisis and the LTCM debacle and to make the financial system more robust and safer. As a result, we have been punished, and punished very, very severely. The latest Financial Tsunami, dubbed as “Once in a Century”, has demonstrated that somehow all the key safety valves and gatekeepers have failed functioning properly to prevent excessive leverage and risktaking within the financial system, leading to very heavy fiscal and social costs in the subsequent bail-outs. 4. Now the international community, led by G20, is trying very hard to draw lessons from this latest financial crisis. I sense that there is a very strong resolve to do something this time round. | William C Dudley: The outlook, policy choices and our mandate Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Society of American Business Editors and Writers Fall Conference, New York City, 1 October 2010. * * * The deep recession that ended in June 2009 has been followed by a very tepid recovery. Economic activity has grown – but only slowly from levels far below the productive capacity of the economy. With demand growth barely keeping pace with firms’ ability to increase productivity, job creation has been too weak to significantly reduce unemployment, which stands today at 9.6 percent. And, as is typical in such circumstances of considerable slack, the rate of inflation has declined. Viewed through the lens of the Federal Reserve’s dual mandate – the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory. Given the outlook that the upturn appears likely to strengthen only gradually, it will likely be several years before employment and inflation return to levels consistent with the Federal Reserve’s dual mandate. Today, I will discuss why the recovery has been disappointing and highlight some of the issues facing the Federal Reserve and monetary policy, echoing some of the themes laid out by Chairman Bernanke in his Jackson Hole speech in late August. | 0 |
Svein Gjedrem: The conduct of monetary policy Introductory statement by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the hearing before the Standing Committee on Finance and Economic Affairs of the Storting (Norwegian parliament), Oslo, 23 May 2005. The Charts in pdf-format can be found on the Norges Bank’s website. Please note that the text below may differ slightly from the actual presentation. The statement is based, among other things, on Norges Bank’s Annual Report for 2004, Inflation Report 1/2005 and the assessments published after the monetary policy meeting of the Executive Board on 20 April. * * * I would like to take this opportunity to thank the Storting for again inviting me to appear before this Committee on behalf of Norges Bank in order to report and answer questions on monetary policy in connection with the Storting’s deliberations on the Government’s Credit Report. The introductory statement is based on the Bank’s Annual Report, but is also updated based on the Executive Board’s assessments for the period to the preceding monetary policy meeting. Flexible inflation targeting Monetary policy in Norway is oriented towards low and stable inflation. This is the most important contribution monetary policy can make to sound economic developments in the long term. The inflation target provides enterprises and households with an anchor for future inflation expectations. When there is confidence in the inflation target, monetary policy can contribute to stabilising developments in output and employment. | One approach to this challenge would be for the Bank to return to basics and improve the three channels of financial intermediation, namely, banking, equity and debt, through a number of measures. First, the Bank could increase investment in the financial infrastructure in Asia. Just as physical infrastructure, such as airports and highways, facilitates the movement of people and goods, financial infrastructure, such as the payment and settlement systems for the banking and securities sectors, facilitates the safe and efficient movement of money. The importance of a robust payment and settlement system in this region is underscored by the events of 11 September. Secondly, the Bank could expand the technical assistance programme to assist economies in restructuring the banking sector. Small and medium-sized enterprises employ the most workers in Asia and they are mostly dependent on bank financing. The banking sector in Asia, devastated by the Asian financial crisis, has not fully recovered. Banks understandably are adopting a very conservative lending strategy towards companies with a lower credit rating, such as Small and Medium-sized Enterprises. The Bank’s assistance in speeding up the banking sector reform would help SMEs to get back on their own feet, thereby reducing unemployment and poverty. Thirdly, the Bank could expand assistance in building up the institutional capacity of individual economies to improve corporate governance in the private sector. Emphasis should also be made to improve the auditing, disclosure and transparency standards of publicly-listed companies. | 0 |
A significant part comes from the US economy, which is currently near or above full employment and inflation pressures that could trigger a more forceful reaction from the Fed. Special mention deserves the fiscal stimulus package recently approved by the US Congress, which will put pressure on an economy where, as I just pointed out, gaps are already tight.3 It is worth stressing that the deterioration that this would cause in the global financial conditions could have particularly severe consequences for those emerging economies with weaker fiscal or financial positions or that are highly indebted. China's situation is worrisome, as there are still several imbalances in its markets yet to be 2 / This Report includes a box analyzing the magnitude of the pass-through coefficient of exchange rate variations to inflation, identifying the origin of the variation and establishing that its effects on inflation change depending on the type of shock faced. In particular, it reviews how the inflationary effects of exchange rate fluctuations change depending on where they originate, e.g. in a movement of the global value of the dollar as opposed to an idiosyncratic shock hitting the Chilean economy. The analysis finds that the inflationary impact of exchange rate movements associated with deviations of the interest rate parity is stronger and more persistent than if stemming from changes in foreign inflation. Thus, the implications for monetary policy are obvious: not all exchange rate variations have the same inflationary consequences and, therefore, the policy rate response must factor in their origin. | Similarly, the investment decision is not an isolated one, but one that has to be made in view of the firm’s overall business goals, business strategies, capital needs, liabilities structure and risk appetite. Insurers would gain from establishing a robust Enterprise Risk Management (ERM) framework to manage these factors holistically. Good execution on this front will entail close coordination and communication between the investment function and other key functions, including actuarial, risk and finance, to ensure that dynamic trends on both investment assets and insurance liabilities, as well as the resulting impact on earnings and balance sheet volatility, continues to be monitored and managed dynamically. Asia driving global insurance growth 18. The ability to manage investment risks skillfully is even more essential in the Asian context, due to its rapidly growing share of insurance business and attendant risk exposures. 19. Over the next decade, Asia will continue to rise in importance in the global insurance arena. Munich Re for example, estimates that Asian premiums can register healthy growth of about 8% per annum, and account for almost 40%6 of global premiums by 2020. This is underpinned by positive structural factors such as a growing middle-class and rising affluence, aging demographics, and the continued industrialisation, trade and infrastructure development in emerging Asia. 20. In particular, I would like to focus now on how insurers can play a long-term role in Asian society and economies in two pertinent areas: one, financing Asia’s retirement funding gap; and two, financing Asia’s long-term investment needs. Financing Asia’s retirement funding gap 21. | 0 |
Unemployment in the EU and the euro area has reached historic levels, especially amongst the youth. Economic growth is weak and is mainly concentrated in central countries of the euro area. Our countries have been affected by this situation for objective reasons. Trade relations, movement of capital and workers, and the financial system are channels that pass these problems on to our economies. The form, size and extent of this impact have evolved over the past four years. At present, the situation is reflected in the decrease of domestic demand, decline of economic growth, reduction of available income, loss of confidence and deterioration of optimism; this is, in turn, reflected in higher savings. Consequently, these developments have placed the focus of economic policies towards economic activity and revitalisation of optimism in order to boost investments and consumption. On the other hand, maintaining financial stability becomes a necessity, creating thus a binomial of priorities that condition each other and require a simultaneous solution. The Albanian economy is increasingly facing the challenge of economic growth. Although the Albanian economy enjoys consolidated macroeconomic stability and sound financial foundations, aggregate demand has been weak during the first nine months of 2012. Both domestic and foreign demand suffer from high uncertainty, relatively tight lending standards, and limited space for discretionary and stimulating policies. | Consequently, it would convert the tendency of the region to be negatively contaminated from global developments into an opportunity, a positive impact, in order to achieve high and stable economy growth in the long run. Thank you! BIS central bankers’ speeches 3 | 1 |
The survey consisted of an electronic questionnaire sent to 354 members of the SBE. 141 replies were received, a response rate of 40%.12 Over 85% of respondents said that forming a view of interest rate prospects was important to them. For those of us who have continually argued that the news on interest rates stems from developments in the economy rather than meetings of the MPC, it is heartening that, collectively, you place more weight on economic data than on MPC communications in forming a view of interest rate prospects. Respondents were asked to allocate a total of 100 points across the categories of information in terms of how useful they were in forming such a view. Twice as many points were given to economic data as to MPC communications, especially at the longer horizons – see chart 9. And the weight on data was divided roughly equally between financial data, official data on real activity, official figures for costs and 12 6 The full survey is to be published in the next issue of the SBE’s journal, the Business Economist. BIS Review 43/2007 prices, and business and consumer surveys. So the argument that the MPC responds to developments in the economy has been largely understood. This is welcome news for those of us who wish to be boring. So far I have talked only about the past – the performance of the UK economy and the behaviour of the MPC since 1997. What of the future? 3. | A number of processes, such as those concerning government finances, are being modified. But this is accompanied by an increased need to discuss issues raised by the fact of monetary union. Now that the countries which will be participating initially in monetary union have been singled out, moreover, an informal group - the Euro 11 Group - is being set up for discussions among the ministers of finance and economy in the euro area. The idea is that this group will concentrate on matters that concern just the participating countries and cater to the greater need for dialogue and cooperation that they perceive in connection with the inception of monetary union. However, this is not a decision-making body and all matters considered by Euro 11 are prepared by the Monetary Committee, in which all fifteen EU Member States are represented. The crucial institutional change is, of course, that as of next year the conduct of monetary policy will be fully centralised. The Treaty explicitly states that the ECB is not to be swayed by political considerations; its task is to concentrate on monetary policy. But naturally a dialogue will be needed with the governments in the EU and euro areas, in the first place with the ministers of finance and economy. The Treaty actually provides for this in that the Ecofin president may participate in meetings of the ECB Governing Council and even submit motions. Moreover, representatives of the NCBs and finance ministries will continue to meet in the Economic and Financial Committee. | 0 |
In this connection, I shall begin by discussing how supervisory structures have developed in the main European countries; next, I shall refer to the changes brought on by the banking union; and finally, I shall conclude with some comments on the Spanish supervisory model. The organisation of supervision in the European countries Financial supervision pursues numerous aims, encompassing the safeguarding of financial stability, the proper functioning of securities markets and investor protection. These aims are linked to specific functions such as oversight of the solvency position and liquidity of banks, insurance companies and other leveraged institutions whose activity involves risk transformation; and monitoring of the conduct of institutions, intermediaries and other participants in the markets for financial products and services. Recently added to these functions are the so-called macroprudential policies, geared to the containment of macro-financial risks, and the management of orderly resolution procedures for systemically important institutions. The adoption of a model of supervisory organisation involves defining a certain number of supervisory agencies and assigning to each of them a specific scope of action, clearly defined objectives and the instruments needed to achieve them. Historically, the models chosen have been the result of the assessment by the authorities of elements such as the structure of the supervised sector, the need to ensure a sufficient institutional efficiency, harnessing the synergies between different supervisory tasks, or the need to forestall the emergence of potential conflicts between the objectives assigned to a single agency. | Moreover, although the ECB’s supervisory decisions are formally adopted by its Governing Council – which also defines monetary policy – these are prepared and pre-agreed by an independent Supervisory Board, meaning that the Governing Council acts only under the principle of non-objection. Hence, when defining the institutional model of the banking union, the European legislator has set great store by preventing conflicts of interest between micro-and macroprudential supervision and monetary policy, on one hand, and between supervision and bank resolution, on the other. The aim is to mitigate the risk of monetary policy, geared to maintaining price stability, being tainted by considerations relating to financial stability, and to separate as far as possible the policies aimed at preventing solvency crises, which are pursued by the Single Supervisory Mechanism, from those geared to managing such crises, which are the remit of the Single Resolution Mechanism. The appropriate functioning of this model, based on the principle of separation, nevertheless requires the intense cooperation and coordination of the different authorities involved. In the case of the interaction between monetary and prudential policies, the necessary cooperation arises from the complementarity, at least in the medium term, between macroeconomic stability and financial stability and, above all, from the potential impact of the instruments available in one area on the objective pursued in the other. | 1 |
However, I believe that it will be important to monitor developments in the period ahead to check that new risks do not arise. Figure 11. Decline in lending to households Credit growth, annual percentage change 20 20 Companies Households 15 15 10 10 5 5 0 0 -5 -5 -10 -10 99 01 03 05 07 09 11 Source: Statistics Sweden Conclusions Today, I have discussed three aspects that were particularly important to my assessments and my stance when the repo-rate decision was made in February. Two of these relate to the debt crisis in the euro area. My view is that it is taking too long to improve public finances and that the risks associated with a high level of indebtedness mean that the debt-ridden countries themselves must assume a greater responsibility for resolving their problems. The third aspect relates to the risks that can arise when the real interest rate is low for an extended period of time. This can, for example, lead to overheating tendencies or a too rapid increase in indebtedness. My conclusion is that, in the current situation at least, these risks are limited. This was one of the important reasons why I was able to vote for a repo-rate cut at the latest monetary policy meeting. A lively public debate is currently underway on a couple of the issues I have addressed here. | Percentage change from previous year 8 8 7 6 5 7 GDP Mainland Norway Employment 6 Average 1990-2001 = 2.8% 5 4 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: Statistics Norway SG 240802 Correlation with world index. | 0 |
Assuming constant returns to scale, perfect competition (so that factors of production are paid their marginal products) and Hicks-neutral technical change (so that shifts in the production function do not affect marginal rates of substitution between inputs), output growth can be expressed as a weighted sum of the growth rates of inputs and an additional term that captures shifts over time in the production technology. The weights for the input growth rates are the respective shares in total input payments – the labour and capital shares. More specifically: where A(t) is a multiplicative factor in the production function capturing technical change. K , L represent respectively the capital and labour shares of income. Charts 8 and 9 look at the proportion of labour and physical capital employed by the financial intermediation sector in the UK relative to the whole economy over the past forty years. They follow a not dissimilar path, with both labour and capital inputs rising as a share of the whole economy for much of the period. The proportion of labour employed by finance rises by around 50% between 1977 and 1990, while the proportion of capital almost trebles from 4% to 12% over the same period. Financial liberalisation over the period drew factors of production into finance, both labour and capital, on a fairly dramatic scale. Perhaps the most striking development, however, is what happens next. These trends have not persisted during this century. | The period from the early 1970s up until 2007 marked another watershed. Financial liberalisation took hold in successive waves. Since then, finance has comfortably outpaced growth in the non-financial economy, by around 1.5 percentage points per year. If anything, this trend accelerated from the early 1980s onwards. Measured real value added of the financial intermediation sector more than trebled between 1980 and 2008, while whole economy output doubled over the same period. 2 BIS Review 95/2010 In 2007, financial intermediation accounted for more than 8% of total GVA, compared with 5% in 1970. The gross operating surpluses of financial intermediaries show an even more dramatic trend. Between 1948 and 1978, intermediation accounted on average for around 1.5% of whole economy profits. By 2008, that ratio had risen tenfold to about 15% (Chart 2). Internationally, a broadly similar pattern is evident. In the US, following a major decline during the Great Depression, the value added of the financial sector has risen steadily since the end of the Second World War. As a fraction of whole economy GVA, it has quadrupled over the period, from about 2% of total GDP in the 1950s to about 8% today (Chart 3). Similar trends are evident in Europe and Asia. According to data from the Banker, the largest 1000 banks in the world reported aggregate pre-tax profits of almost $ billion in fiscal year 2007/08 (Chart 4), almost 150% higher than in 2000/01. This equates to annualised returns to banking of almost 15%. | 1 |
To do this properly, we will have to work with international supervisors, regulators, and governments to achieve global solutions. On this score, lots of progress has been made in the credit default swap space – with several new CCPs likely to be up and running in months, if not weeks. But we can do much more in this area. • We need an accounting and disclosure regime that allows investors to meaningfully ascertain the risks they are taking. For example, the same assets are often carried on different bank books at different prices. If you can’t trust the valuation marks on the assets, how robust can confidence be in the ability of the financial system to withstand stormy weather? • We need a resolution mechanism for bank holding companies and non-bank financial institutions – legislation is needed here. Judging from the actions of the past year, there are indeed institutions that are “too big to fail”, at least in certain circumstances. Let’s set up a resolution framework that is robust and transparent so everyone understands the rules of the road and likely outcomes beforehand. An ad hoc approach increases uncertainty and reduces policymaker credibility. • If large systemically important institutions are indeed too big to fail, then there needs to be an explicit quid pro quo for this. Otherwise, this implicit support will create moral hazard and discriminate against smaller institutions. | A mechanism such as the Vienna initiative that would encourage the commitment of parent banks to their EE subsidiaries and would discourage their financial disintermediation in these countries can be made permanent with added benefits to all the stakeholders. Furthermore, regulatory harmonization can be improved and regulatory arbitrage can be mitigated. On macro-prudential policies I argued on the need to develop specific anchors that would make more credible, transparent and therefore achievable the goal of financial stability. Measuring financial stability, or instability, might be difficult but that should not discourage us from trying. Thank you for your attention. Box 1 Measures taken in the banking supervision area during the pre-crisis period. On June 2007, the new Law on Banks in the Republic of Albania entered into force. This Law stipulates rigorous principles and rules on the risk management, aiming at protecting the depositors, investors and fostering the banking system’s stability. On January 2008, the Credit Registry started the operation representing a vital infrastructurerelated development. On March 2008, the Bank of Albania adopted a package of regulatory amendments which were generally oriented to adopting more conservatory policies in several main directions of day-to-day commercial banking running. In more concrete terms, this therapy can be described: In compliance with the new Law On Banks in the Republic of Albania, new quantitative thresholds were set for the calculation, supervision and reporting of banks’ large exposures to parent banks and related entities. | 0 |
When a loan matures, it may therefore be tempting for a government to renege on its promise to repay the 3 See Carl August Fleischer (2005): Folkerett (International law). 4 Eduardo Borensztein and Ugo Panizza (2009): “The Costs of Sovereign Default”, IMF Staff Papers, Vol. 56, No. 4. BIS Review 123/2010 3 debt. In economic policy this is known as a time-inconsistency problem. It can be profitable to make lofty promises, but turn your back on them once you have cashed in the benefits. Why do countries not renege on commitments in stable times? We observe that they do honour their commitments, but the economic literature does not provide us with a good explanation for why this is the case. Countries want to preserve a good reputation. Governments that default do so in adverse times, but only after sharp fiscal retrenchment to avoid that fate. 3. Countries default more frequently than we believe It is no new phenomenon that some countries live beyond their means and fail to settle the bill. History shows that many countries have defaulted on sovereign debts. This has occurred during emerging phases. From 1500 to 1900, Spain defaulted on its sovereign debt 14 times. 5 France defaulted nine times in the same period, while the states that later became Germany defaulted six times. England also defaulted once, but as far back as in 1594. (See Chart: Sovereign debt default.) | Given the proven track record of the two existing links, I am confident that the new link with the Thai Baht RTGS system will similarly be able to deliver reliable service to the banks in Thailand. As always, the HKMA stands ready to explore with our Asian neighbours opportunities for further collaboration in the area of financial infrastructure to promote regional financial integration and to help our markets cope with the challenges posed by the rapidly changing landscape of the global financial system. The implementation of this new PvP link demonstrates that both the Bank of Thailand and the HKMA fully recognise the merits and importance of cross-border co-operation to the promotion and maintenance of financial stability in the region. I believe that the solid partnership developed out of this project will open up new horizons for further cooperation between the Bank of Thailand and the HKMA in the future. Thank you. 2 BIS central bankers’ speeches | 0 |
The key standards here are the 40 recommendations of the Financial Action Task Force (FATF), first issued in 1990 and revised twice in 1996 and also this year. After the events in September 2001, eight further recommendations were added, focusing on combating terrorism financing. These recommendations have been accepted by the international financial organisations as a basis for anti-money-laundering criteria in the financial sector. The Basel Committee published a document entitled “Customer Due Diligence for Banks” in October 2001 specifying details of the “know-your-customer” principle for banks. The IMF has added the recommendations to its surveillance work within the FSAP missions and Offshore Financial Centre assessments, having developed a methodology for assessing the general principles in practice. These AML standards are thus on a par with all the other international codes and best practices and form an integral part of the strengthened global financial architecture. I should also note that an increased awareness of the crucial role played by the AML regulations in today’s world is also apparent among private financial institutions themselves. This has been demonstrated, for example, by their adoption of the “Wolfsberg principles” and the involvement of the banking associations in many countries in AML issues. The AML regulations require financial institutions to identify their customers in certain transactions, either in suspicious ones, or in standard ones such as opening bank accounts, safety boxes, etc. The growing use of modern communications channels, e.g. | It also leads to potentially high moral and reputational costs for the financial system and for society at large. Finally, it generates inefficiencies and volatility in the allocation of resources, as launderers move their funds not in response to economic rationale, but in an effort to disguise the origin of their money. In the end, this runs counter to the desired benefits of financial liberalisation. However, in an environment where private capital moves quickly from one country to another without any permission being required, seeking the best short-term returns, it is naturally more difficult to detect fraudulent or money-laundering transactions. The environment is also made more challenging by the growing sophistication of financial products in the liberalised and globalised markets and by frequent use of off-shore centres for tax-optimisation purposes. The ongoing financial innovations and recent negative experience have led to a widespread conviction that the international policy and financial architecture needs to be strengthened. Moreover, it has become widely understood that regulation must be co-ordinated internationally, as tightening it in only some markets and/or countries might merely shift the negative phenomena to other places, without reducing their overall severity. There have been numerous suggestions pointing in this direction, the most ambitious of which include proposals to establish a global lender of last resort and/or a supervisor. So far, however, the actual solution has been the creation of a comprehensive set of international standards and recommendations by international organisations. | 1 |
Such an occurrence can affect other economic agents. They may face illiquidity and even insolvency, affecting market interest rates, in turn leading to changes in trading activities and a disruption in market confidence Payment systems are an essential component in preventing such occurrences and a technical mechanism for the central bank to step in order to challenge contagion or potential contagion. The interest of central banks in financial stability was largely triggered by the Herstatt incident of June 26, 1974. German banks processed Deutsche Mark payments to Herstatt bank in exchange for US Dollars, to be delivered through Herstatt correspondent account in New York. Regulators, deciding to close the bank for lack of solvency immediately, failed to appreciate the time-zone difference between Frankfurt and New York, leaving transactions half-completed. German banks did not receive their US Dollar payments. Although the Herstatt incident did not lead to a financial-stability crisis, it made central banks aware of the risk and they started developing a continuous linked settlement platform, whereby commercial banks manage settlement of foreign exchange amongst themselves on a payment versus payment basis. Cooperation in this area led central banks to share experiences covering other areas of payment systems and financial stability. Well-functioning markets depend on the willingness to develop adequate solutions to ensure smooth functioning of payment systems. Ironically, part of the problem stems from the very fact that technological advances speed up the payment systems and make them more reliable. This in turn enables banks to economise on liquid balances. | They have to judge to what extent their local currency strength is a result of solid fundamentals and to what extent it is just another “no-brainer” trade that may last for quite a while but may also end suddenly. Research conducted at the National Bank of Poland and by other institutions indicates that financial markets have become much more integrated in recent years, global factors drive the performance of emerging market currencies much more than just a few years back, that home bias is being reduced and even a well-known Feldstein-Horioka puzzle is almost gone 10 , ie the cross-country correlation between saving and investment rates has declined markedly. Favorable global liquidity conditions, attractive rates of returns and good economic prospects draw global investors to Polish financial markets. Additionally, Poland’s accession to the EU and the future 6 See Dooley M., Folkerts-Landau D., Garber P. „An Essay on the Revived Bretton Woods System“, NBER Working Paper 9971, September 2003; and a series of other papers published by these authors in 2004 and 2005. 7 http://www.um.warszawa.pl/v_syrenka/miasto/mosty-9.htm 8 International Monetary Fund “Global Financial Stability Report”, March 2006. 9 Bank for International Settlements “BIS Quarterly Review. International banking and financial market developments”, March 2006. 10 Feldstein M. “Monetary Policy in a Changing International Environment: The Role of Capital Flows”, NBER Working Paper 11856, December 2005. | 0 |
The measure obtained by relating actual GDP to potential GDP – what is known as a GDP gap – has the advantage of being easy to understand. It is also close to a number of concepts that are used in monetary policy analysis. The so-called Taylor rule often used to describe how monetary policy is conducted contains such a GDP gap. When one talks about the target for monetary policy being to minimise deviations in inflation from the target and fluctuations in the real economy, the latter is often illustrated with a GDP gap. But it is not entirely clear how one should measure the long-term or trend level of GDP. A common method for determining this GDP level is to use some statistical tool to find a trend in the available GDP statistics. The Hodrick-Prescott filter, or HP filter, is one such tool. This filter is used to obtain an HP trend which is a cross between a linear trend and the uneven curve showing the actual GDP outcome. Such HP trends are regularly reported in the Riksbank's Monetary Policy Reports. Figure 1 shows actual GDP, potential GDP measured as an HP trend and the GDP gap, which is the difference between these. The actual GDP gap is stated as a percentage of GDP, measured on the right-hand scale, and in the figure this becomes a form of enlarged image of the difference between actual and potential GDP. The dotted parts of the curves represent the Riksbank’s forecasts from the April Monetary Policy Update. | But this does not prevent it from being very useful to continue developing aggregate measures of resource utilisation. Secondly, all of the measures described show that resource utilisation has recently fallen rapidly. The GDP gap, the flexprice gap and the indicator that is intended to provide an aggregate measure of resource utilisation show that resource utilisation is already below the normal level. The labour market gaps are lagging behind, but will, according to our current forecast, soon point to labour force use of below normal levels. The GDP gap that is based on an HP trend for GDP indicates that resource utilisation is falling by around 10 percentage points from the peak level in 2007 to a trough in 2010. Although we have used a gradually declining output capacity as a basis for the calculation of the HP trend, this fall in the GDP gap probably gives an exaggerated picture of the fall in resource utilisation during the period as the potential output level ought to have fallen more than is reflected in the HP trend. The deeper and longer the economic recession is, the larger the output capacity that can be expected to disappear. The resource utilisation indicator shows the same picture as the GDP gap, but there are no forecasts for this. BIS Review 66/2009 5 The employment rate and unemployment will deteriorate by around 5 percentage points from 2008 to 2011 according to the forecast we made in April. | 1 |
Sukhdave Singh: The rise of the South at a crossroad – a view from East Asia and Latin America Opening address by Dr Sukhdave Singh, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the World Bank Knowledge and Research Hub Conference “The Rise of the South at a Crossroad: A View from East Asia and Latin America”, Sasana Kijang, Kuala Lumpur, 16 May 2016. * * * I am pleased to welcome you to today’s Conference on “The Rise of the South at a Crossroad: A View from East Asia and Latin America” organised by the World Bank Knowledge and Research Hub in Kuala Lumpur. For those of you who have not been here before, I would also like to welcome you to Sasana Kijang. I congratulate the World Bank Knowledge and Research Hub for organising this conference on economic integration. Economic integration within the current global context It is indeed an opportune time for us to look at economic and financial integration and what it can offer to emerging economies in Asia and Latin America. It is an opportune time because the world seems to have been unable to bounce back towards a healthy growth path after the financial crisis in the developed world. It is an opportune time because policymakers have not been successful in generating strong sustainable growth. The traditional tools for nursing the economy back to health don’t seem to be working as well – possibly because of overuse or misuse. | Crisis response: change in central bank interactions with markets The Markets Group’s monitoring responsibilities and broad array of contacts across different market segments were critical to identifying underlying causes of the increased volatility and sharp repricing observed across a wide range of financial markets in 2007 and 2008. This information contributed to policymakers’ understanding of where and how to target liquidity support measures beyond the traditional form of discount window lending to depository institutions. The temporary liquidity facilities were designed by drawing upon skills across the Federal Reserve System including market and operational experts, lawyers, economists and accountants. Given the unprecedented shocks to the market and the economy more broadly, the facilities had to be set up very quickly – in a matter of days or weeks. These included facilities designed to lend to banks and primary dealers to ensure adequate access to shortterm credit, such as the primary dealer credit facility (PDCF) and the Term Securities Lending Facility (TSLF). Other programs were designed to lend directly to borrowers and 2 To further this objective, the New York Fed also sponsors a private-sector group of market participants – the Treasury Market Practices Group – to support the functioning of Treasury, agency debt, and agency mortgage-backed securities markets. For further information, see the following: http://www.newyorkfed.org/ tmpg/index.html. | 0 |
Deposit to GDP ratio was 64.2% at end-year, higher than its level prior to deposits withdrawal. In addition, the profile of deposit time structure reflected a higher preference for saving, characterised by a shift to longer maturity-term deposits. Easing lending terms during 2010 H2, stimulating measures taken by the Bank of Albania, and decreasing uncertainty and risk premiums were followed by a gradual credit growth. Private sector loan portfolio expanded by 10% in 2010, principally influenced by foreign-currency credit growth. This performance reflects prudential bank policies on loan portfolio quality and economic agents’ moderate demand for loan. In general, lending continues to suffer from lack of demand and realistic, qualitative and valuable business plans for crediting. Restoration of confidence in the financial system, macroeconomic stabilisation, and regulatory and supervisory measures taken by the Bank of Albania led to stabilisation and improvement of banking system capitalisation, liquidity and profitability indicators. 2. Inflation and monetary policy Annual consumer price inflation was on average 3.6% in 2010, remaining within the Bank of Albania’s targeted band. Inflationary pressures were more concentrated in 2010 H1, mostly triggered by a rise in some administered prices. Average annual inflation in 2010 H1 was 3.9%. In the following two quarters, relative stabilisation of the exchange rate and low inflationary pressures from the domestic demand contributed to the average inflation rate convergence around the Bank of Albania’s target. Negative output gap generated contained inflationary pressures throughout 2010, thus balancing the national currency depreciation effect and the international market price rise. | We are fortunate in having been able to grab him for a couple of hours today while he is briefly passing through Hong Kong. It is my pleasure to welcome him and to join with you all in the launch of this seminar, which will, I hope, be the first of many organised by the MPC over the coming months and years. 8. Finally, let me record my gratitude and congratulations to all the Committee members of the MPC for the excellent work they have put into the reconstruction of the Committee, and my thanks to everyone here for supporting this event today. 2 BIS Review 3/2001 | 0 |
An important similarity with the other measure, however, is that the liquidity that was injected via Kaupthing into the system also comes back to the Riksbank in the form of deposits from the bank(s) that have excess liquidity. In this way this measure does not have any direct monetary policy effects either. The common denominator for everything the Riksbank has done to date is that all measures are aimed at strengthening liquidity conditions within the Swedish financial system. Unlike many other countries, thus far it has not been necessary for the Swedish authorities to provide the banks with any form of capital support from the government. This point is also important. However, it remains to be seen whether the Riksbank and other authorities have done enough. How the situation develops in the future is essentially a question of what happens outside of Sweden. Nevertheless, the Swedish authorities are prepared to take those measures that are necessary to ensure financial stability. For the Riksbank, this means that we will continue to provide the banks with the liquidity required for the financial system to function. Let me now proceed to discuss paths out of the crisis. Paths out of the crisis We are now in the middle of the most serious financial turmoil that the world has seen in a very long time. It is difficult to anticipate how the situation will develop in the future, which means that it is also difficult to talk about paths out of the crisis. | Cooperation within the EU offers a unique opportunity to discuss and agree on how to handle these problems. 6 BIS Review 125/2008 However, dealing with all of these problems is not just a matter of changes in regulation and supervision. If I may once again take the US as an example, the problems there show that the incidence of financial crises can also have a clear political dimension. One important reason for the lending boom was that the country's political leaders had long pressured the mortgage lending institutions to increase lending to low income groups. Institutions such as Fannie Mae and Freddie Mac were quite simply forced to base their operations on political objectives rather than on sound credit risk policies. The fact that unfortunate political decisions such as these, as well as inadequate regulation, can help to create a crisis is an important lesson to keep in mind when we eventually close the books on this crisis. I am aware that my wish list is long and requires extensive reform work. However, the course of events over the past year has clearly underscored the need to quickly deal with these issues. Meanwhile, it is important to make clear that we must not become overly zealous about regulation. In times such as these it is easy for opportunism to gain the upper hand, resulting in measures that do more harm than good. | 1 |
Having more firms would allow clients to be provided with more choices of financial services and an overall increased competition. However, scale is important in the financial sector, and having too many firms providing the same service may not be efficient. In this sense, incumbents may have an edge over FinTech innovations, as they also have because of the prior knowledge of their clients. Striking the right balance between competition and efficiency is up the market to decide; but from a regulator perspective ensuring a levelled playing field is important and how decentralization unfolds, if at all, should be followed closely. ▪ Personal credit assessment and privacy. Financial information is very sensitive by its very nature, and ownership or access to it may be controversial. It is true that having access to that information could allow for a better and more targeted supply of financial products, and having a record of sound financial behavior can improve credit scoring, which can bring benefits for consumers. However, spreading that information raises concerns. Unrestricted access for FinTech companies to financial information is not an appealing option, whereas a full ban in practical terms may choke them. A middle ground can be to allow for some sort of access and use of financial information by FinTech companies, with strict sanctions for misuse or leakages. | Challenges and dilemmas for central banks and financial regulators Slide 16 ▪ FinTech is not necessarily a threat to a central bank ▪ Smets (2016) | FinTech offers good opportunities to central banks coming from the cost reduction implied by the DLT ▪ The ability to align FinTech developments with central bank objectives depends on the regulations issued by central banks and financial authorities Developments vs stability and trust o Inclusiveness vs risk of uninformed decisions o Decentralization, choice and competition vs. operational efficiency, economies of scale and client knowledge o Personal credit assessment and privacy Challenges and dilemmas for central banks and financial regulators [SLIDE 16] FinTech is not necessarily a threat to a central bank, no matter how striking the contrast between its sobriety and the exuberance of FinTech developers. The Governor of the National Bank of Belgium Jan Smets,4 has argued that FinTech offers good opportunities to central banks coming from the cost reduction implied by the “distributed ledgers” technology; in his opinion, the greatest revolution of FinTech. The ability to align FinTech developments with the objectives of inflation control and financial stability depends to a large extent on the regulations issued by central banks and financial 4 Smets, J. (2016), “FinTech and Central Banks,” speech delivered at the Conference “FinTech and the Future of Retail Banking,” Brussels, 9 December, 2016. 13 Central Bank of Chile 29 June, 2017 authorities themselves. | 1 |
These have enabled banks to obtain long-term funding at beneficial interest rates, which may temporarily be as low as -1%, on the condition that the participating banks maintain their supply of credit to the real economy in the context of the COVID-19 crisis. To reinforce this measure, the ECB also eased the collateral eligibility criteria for banks in its refinancing operations, thus increasing the volume of funds they may obtain. These measures have been highly successful. In the June TLTRO-III operation, participating banks received liquidity totalling € trillion, an all-time high in Eurosystem refinancing operations. The available evidence suggests that participating banks are using a significant portion of the funding received to continue to provide liquidity to the real economy. In short, the measures taken by the ECB under its refinancing operations are playing a key part in preserving the supply of bank credit. And, in an economic setting as difficult as the present one, they are helping to hold interest rates on bank loans at historically low levels and to support the vigour shown by new bank lending since the start of the crisis. Indeed, in Spain the volume of credit to the non-financial private sector has expanded again after ten years of deleveraging and posted year-on-year growth of 2.5% in the summer months. | A correct diagnosis of the situation and decisive national policy action to help fully harness the opportunities offered to us by the EU are essential preconditions for future well-being. This is why I advocate achieving broad political and social consensus to address the urgent, ambitious and comprehensive growth strategy that our country needs. Thank you very much. 11 See M. Tommasi and A. Velasco (1996), “Where are we in the political economy of reforms?”, Journal of Policy Reforms, No 1, pp. 187-238. 22 | 1 |
Moreover, as transactions that shift risk become more common and complex, disclosing the associated residual exposures takes on added importance. Such reporting, in turn, requires that banks have in place the appropriate systems to identify and measure these risks so that the risks can be documented for the marketplace. Finally, as we move toward improved disclosure, we must keep in mind that the goal is useful and reliable information - not simply a large volume of information. More is not necessarily better. In the area of disclosure, I should also mention that my colleague, Peter Fisher, is chairing a Multidisciplinary Working Group on Enhanced Disclosure, comprised of representatives from the banking, securities, and insurance industries in a pilot effort to formulate a set of public disclosure guidelines that make sense for an increasingly integrated financial market. The working group will assess the extent to which the pilot data can provide a meaningful basis for comparing risk management practices as well as the level and types of risk across institutions and across countries. The Basel Committee supports this pilot approach. It limits the burden on the banking industry and at the same time makes clear that the private sector has a key role to play in improving disclosure and enhancing market discipline. Firms participating in this program will have the opportunity to shape the exercise and influence the interpretation of its results. Through their participation, these firms will be sending a clear signal about their willingness to improve market discipline. | With regard to the latter measure, I would like to point out that such initiatives from the banks are of course welcome and praiseworthy. But it is also essential that the banks follow up what is happening and that the authorities monitor to what extent the recommendations are actually followed. Moreover, awareness that rising indebtedness and housing prices could entail problems has gradually increased among both lenders and borrowers. The situation on the housing market is now discussed regularly in the media. I would like to believe that this is at least partly because the Riksbank has long been pointing out the risks involved here. However, it remains to be seen whether these measures and the increased general awareness will be enough to slow down developments and bring us onto a less risky course. Very recently there have been signs that developments in both lending to households and housing prices have entered a calmer phase. We are of course following developments very closely. Continued vigilance necessary Despite the calmer situation, there are nevertheless strong reasons to remain vigilant. If it turns out that this was not a break in the trend, but merely a temporary slowdown, and that housing prices and the build-up of debts among households accelerate again, we and others must be prepared to take action. We therefore cannot just twiddle our thumbs; the Riksbank and others must ensure that we have an effective toolbox of measures that can be quickly and smoothly put into operation. I will return to this shortly. | 0 |
With the budgetary measures that have been proposed, the fiscal stance will also exert an effect on demand that is more expansionary in the future. In the absence of negative shocks, such a direction of policy normally tends to generate GDP growth above the rate that the economy is capable of sustaining in the longer run. If such a situation is allowed to continue for too long, it can lead to problems with bottlenecks and inflationary tendencies. In time, expectations of inflation’s level in the longer run may be adjusted upwards and this can result in a price and wage spiral that brings inflation above the targeted rate. Such a course of events has to be prevented by the Riksbank, which the Riksdag (Sweden’s parliament) has made accountable for maintaining price stability. So sooner or later the level of the repo rate will have to be normalised in order to counter an acceleration of inflation in an upward cyclical phase. This is something that the Riksbank is discussing, as was evident from the published minute of the Executive Board meeting on 12 August. In the present circumstances what we have to do is decide when – not whether – the time has come to initiate the shift towards a less expansionary monetary stance. | So far, I have mainly spoken about domestic payments, but innovation is also transforming payment systems across borders and currencies. For example, the SW IFT Global Payment Initiative has contributed to faster and more transparent cross-border payments. However, a large proportion of cross-border payments do not go through SW IFT. Cross-border payments are generally expensive, slow and opaque. The services offered are not of the same standard as for domestic payments. The challenges have long been highlighted by international organisations, but implementing changes has proved demanding. The G20 and the Financial Stability Board (FSB) are behind a new and forceful initiative. The FSB has identified measures and recently published a roadmap for their implementation. I hope that this can be a breakthrough in the work to improve crossborder payments. Furthermore, I would like to mention that the Bank for International Settlements (BIS) is in the process of establishing BIS Innovation Hub Centres in many parts of the world. Their primary purpose is to promote insight into financial technology that can strengthen the financial system. One such hub centre is being established in Stockholm, with the central banks of Sweden and Denmark, Sveriges Riksbank and Danmarks Nationalbank, the Central Bank of Iceland and Norges Bank as participating banks, in addition to the BIS. New technology provides new opportunities for innovation, but also presents new risks that must be addressed. Vulnerability to technology-enabled disruption is increasing – whether the disruption is the result of malicious attacks or other factors. | 0 |
I also wish to refer briefly to the 2023 Biennial Report on Climate Change Risks for the Financial System, drawn up jointly by the Banco de España, the National Securities Market Commission and the Directorate General of Insurance and Pension Funds, under the aegis of AMCESFI, the Spanish macroprudential authority. This report, which is to be published 24 lhttps://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.202212_ECBreport_on_good_practices_for_CST~5392 27e0c1.en.pdf 25 https://carbonaccountingfinancials.com/ shortly, analyses the impact of both physical and transition risks on the financial sector under various scenarios. The provisional results suggest that a disorderly climate transition would have very adverse effects on the banking sector, far greater than those resulting from a more gradual and planned transition,26 in line with the conclusions of the 2022 climate risk stress tests and other analyses undertaken by the NGFS. Before I conclude, I wish to underline the importance of global cooperation. The fact that the EU is currently leading the global debate on sustainable finance is positive, but we need to consider that climate change requires a global effort and that many other institutions, such as the BCBS and the FSB, are also highly committed in their respective areas of competence. As the BIS recently indicated,27 the existence of ever more complex supply chains, with international connections, makes coordination essential, to ensure that firms’ most polluting activities are not transferred to jurisdictions with more lax environmental regulations. Global warming and environmental degradation are global problems and must, therefore, be tackled in a global and coordinated manner. | The costs to society from the crisis were substantial.1 By 2013, unemployment had risen by 10 million and EU GDP was some 13% below its pre-crisis trend.2 The build-up of excessive leverage in the financial system was a key element leading up to the financial crisis, and policymakers were unable to adequately address systemic risk. While many central banks communicated on financial stability issues prior to the crisis, very few countries had established national macroprudential authorities with a specific mandate and precise instruments for policy action. Some of the tools that we would today call macroprudential instruments were used by central banks in Europe during the post-war period, albeit usually for the purpose of demand management.3 But most were no longer used or were dismantled by financial deregulation during the 1980s and 1990s. And without means of enforcement, warnings published in financial stability reports prior to the crisis often went unheeded. It was only after the crisis that there was widespread recognition of the importance of the macro dimension of financial stability. 4 An internet search on the word “macroprudential” yields 5,000 hits for the eight-year period from 2000 to 2007. By contrast, the past eight years yield 120,000 hits. Despite that recognition, macroprudential policy in Europe was far from operational in 2011. Indeed, when the European rules establishing a common legal basis for macroprudential instruments for banking came into effect in January 2014, ten Member States still had not implemented them in primary national legislation. | 0 |
In addition, we monitor various cyclical indicators and acquire information from our regional network.6 There is uncertainty associated with the estimation of both trend growth and the output gap, but the correspondence that seems to exist between the different methods of indicating pressures in the economy makes us confidant that the output gap, as we calculate it, provides useful information. The output gap provides an overview of the overall pressures in the real economy. If there are no substantial economic disturbances - or shocks - there will be no conflict between stabilising inflation and stabilising output and employment. A positive output gap will over time result in inflation that is above target, while a negative output gap will result in inflation that is too low. Nor will demand shocks in a closed economy result in a conflict in the short term between price stability and stability in the real economy. A positive demand shock will result in higher inflation, and an appropriate monetary policy response would be to increase the interest rate as much as is necessary for output to return rapidly to its potential level. In an open economy, however, a conflict of objectives could arise in the short term following a demand shock. Although a higher interest rate would contribute to stabilising both output and inflation, there might be a conflict with regard to the “dosage”. | Despite this advantage, the Bank of Thailand is not complacent and we will continue to prepare our banking sector for future challenges. In this regard, a SWOT analysis of our current financial institutions system reveals that while there was overall improvement in efficiency and soundness, operating costs remained high and financial access gaps remained. Furthermore, there was still inadequate financial infrastructure to support risk management of financial institutions. Meanwhile, future challenges of the next five years would likely come from more intensified competition – not only among banks, but from capital market, both local and overseas. It would also come from more complex and varied needs for financial services, as a result of globalizations and aging population, the shift in resource allocation with greater role of domestic demand vis-à-vis external demand as engine of growth, and finally, capital inflows and external challenges from the global economic crisis. Taken together, these remaining areas of improvement and the need to tackle future challenges have led to the recent launch of the second phase of financial sector reform. This brings me to the second part of my talk: key strategies in the Financial Sector Master Plan Phase 2. When thinking about characteristics that our future financial system is envisioned to have, several keywords come to mind: efficiency, strength and resiliency, diversification, fairness and transparency. | 0 |
One reason lies in the model that western governments in the 1990s prescribed for the east’s transition to free-market democracy. As it shed its communist past, the east was told to embrace not just liberal democracy but globalisation, open borders and the lightly regulated financial capitalism that the west viewed as the touchstone of its own economic success. This model’s flaws were exposed in the 2008 financial crisis and the European refugee and migrant emergency of 2015–16. […] EU membership, too, has brought more pluses than minuses. Access to the single market, regional aid and, from ordinary people’s viewpoint, Europe-wide freedom of movement are cherished gains. […] This resentment has much to do with the western model grafted on to the east. In 1989, as during Europe’s 1848 revolutions, the people wanted civic freedoms and, in many cases, liberation from foreign overlords and their first independent states of modern times. But after 1989 the adoption of the western model — complete with EU membership, global capitalism and a liberal political philosophy — created tensions between liberalism allied to internationalism and the assertion of a newly acquired national sovereignty. […] Now central and eastern Europe is experiencing its own contest between populist nationalism and liberal democracy. It would be brave to forecast a winner when some western societies are caught up in much the same struggle.” This being said, let me thank you for your attention and wish you insightful discussions. | 2/4 BIS central bankers' speeches While this could be in itself regarded as a lesson, I will go further and add that the recent views expressed by policymakers in Hungary and Poland appear to favour the idea that euro area membership contains the room for growth. A number of public statements are relevant in this respect. The Hungarian Prime Minister, Viktor Orbán, said in April 2013 that “Hungary cannot seriously consider joining the euro zone until the country’s average economic development reaches 90 percent of the level of euro states”. Poland’s former central bank governor Marek Belka stated in 2015: “You shouldn’t rush when there is still smoke coming from a house that was burning… As long as the eurozone has problems with some of its own members, don’t expect us to be enthusiastic about joining”. His successor at the helm of the monetary authority in Poland, Adam Glapiński, said that – and I quote – “We will not give up on the zloty (currency), because it will dramatically limit growth opportunities for the Polish economy”. Back in 2001, Leszek Balcerowicz noted that structural reforms are those that harmonise nominal and real convergence, as there are also unavoidable tensions between the two. The more comprehensive the structural reforms, the less costly the disinflation and the more robust the economic growth over the long term. | 1 |
The time to push ahead on tackling climate change Speech given by Andrew Bailey, Governor of the Bank of England Corporation of London Green Horizon Summit, Mansion House 9 November 2020 1 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice It is a great pleasure at least to have the opportunity to meet virtually. Today, I want to focus on how we ensure that we get back to the vital subject of tackling climate change and the role of the financial system. First, I want to say what a pleasure it is to be sharing a platform today – so to speak – with Mark Carney. As I have told Mark quite a few times, timing is everything, and midnight on March 15th was an interesting choice of date to hand over as Governor. But let me also say that in everything that has happened since at the Bank we have benefitted from the many things that Mark did during his term, and for that we owe him great thanks. Mark has gone on to push forward his deep commitment to tackling climate change, and the role of the financial system in doing that. There have been times since March when we have faced very stark decisions in the face of the Covid crisis. We decided in the spring to prioritise preserving people’s jobs and livelihoods in this emergency, and as far as possible the businesses that provide employment and the life blood of the economy. | We would like to see greater ambition still, including wider adoption of these best practices, and that will be a focus for us when the UK takes over the G7 presidency and works closely with the Italian G20 and together we co-host the COP26 next year. Thank you. 5 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 5 | 1 |
First, I will discuss the historical and theoretical basis for the current monetary policy. I will then move on to discuss monetary policy in practice and will also look more closely at the requirements inflation targeting imply for our analytical tools. Historical and theoretical basis for inflation targeting - lessons and experiences In particular, two fundamental lessons from the last 30-40 years have taken on considerable importance for economic policy in general and monetary policy in particular. We can, perhaps, say that these lessons have led to a paradigm shift in economic policy. One lesson is that if the authorities do not take into account that economic agents are forward-looking when they make decisions about consumption and investment, wages and prices, this may have adverse consequences. Agents take into account their expectations concerning future economic policy, not only today’s economic policy. It is thus important that the authorities do not sow doubt about their objectives. They must act in a predictable and credible manner within a long-term framework. There must be consistency between the stated objectives of economic policy and what is actually done to achieve these objectives. This is exactly what Kydland and Prescott pointed out in their pioneering work from 1977.2 Their work was based on insights from the theory of rational expectations, an area where Robert Lucas, who received the Nobel Prize in 1995, made a significant contribution.3 Economic agents will not systematically misjudge what the authorities plan to do in the future. | Looking at just the past four or five years, there is no doubt that certain laws of economics have been stretched to their limits and, in order to convince outsiders that the stakes have not been set too high, we have had to insist – and rightly so, I hope – that Iceland’s economic environment has various advantages that are not immediately obvious to those who are accustomed to operating in larger and more restrictive conditions. Here there is great flexibility, official measures are very transparent and channels of communication are shorter, which enables easier decision-making so that households, businesses and the authorities are quicker to respond to economic incentives or challenges than is the case elsewhere. To give you all a more complex and interesting topic to discuss at a conference such as this, the government itself promoted a number of measures that will benefit Iceland and its people in the long run. However, their timing and scope may have been more questionable. Thus the government itself was mostly responsible for attracting the largest single investment that has ever been made in Iceland, to which the state-owned power company, Landsvirkjun, had to respond by matching it with an investment of its own on the same scale. The inflow of capital was enormous. | 0 |
And they can be further minimised if we can ensure that when the adjustment and loss occurs, other features of the financial system do not amplify and spread the stress. The great, post crisis, programme of reform of financial regulation, that is now well into its implementation had precisely this objective. Much stronger prudential rules require banks to have capital and liquidity to enable them to take losses and withstand liquidity stress in excess of the losses and stresses encountered in the financial crisis. 19 Bordalo, Gennaiolo and Shleifer (2018) 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 Major UK banks now have capital ratios that are more than three times higher than before the financial crisis and their short-term wholesale funding has fallen from being more than 15% of total funding in 2007 to less than 5% today. | I might equally have talked about cyber risk or the impact of a credit correction in China. It is of course the job of policymakers like me to assess and address potential vulnerabilities like these, and we report on them regularly. But to me the bigger point is that at some point, in some way a correction will be triggered when the future, for whatever reason, does not match up to expectations of those who have lent and borrowed and bought assets. Our fundamental task is to ensure that when that happens, the correction can be absorbed and does not lead to a ‘great crisis’, as it did 10 years ago, with all the social and economic loss that entails. 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 References Aikman, D, Nelson, B, and Tanaka, M (2015), ‘Reputation, risk-taking, and macroprudential policy’, Journal of Banking and Finance, Vol. 50. https://doi.org/10.1016/j.jbankfin.2014.06.014 Aliber, R and Kindleberger, C (2005), ‘Manias, Panics, and Crashes’, Wiley Bank of England (2014), Financial Stability Report June 2014 Bank of England (2016), The Financial Policy Committee’s approach to setting the countercyclical capital buffer: a policy statement Bank of England (2017), Financial Stability Report November 2017 Bank of England (2019), Stress testing the UK banking system: key elements of the 2019 annual cyclical scenario Bernanke, B (1983), ‘Nonmonetary effects of the financial crisis in the propagation of the Great Depression’, American Economic Review, Vol. 73, No. | 1 |
Jürgen Stark: Towards a stability-oriented policy framework Speech by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, at the conference “Reconstructing the world economy – redesigning the macro-framework”, organised by the Korea Development Institute and International Monetary Fund, Seoul, 25 February 2010. * * * Ladies and Gentlemen, In discussing the current macroeconomic framework, I will focus on the institutional aspects that have proved successful, in particular, from the European perspective. These are central bank independence, the centrality of price stability for monetary policy and the need to adopt a medium-term, rules-based perspective in the conduct of monetary and fiscal policies. The financial crisis has not contested or discredited these three principles. However, it is certainly true that other aspects of the international consensus framework merit some deep re-thinking. I will take this opportunity to share my thoughts on four such elements, namely inflation targeting, central banking as risk management, monetary policy and asset prices, and fiscal policy. The reference model Inflation targeting, together with the canonised version of the New Keynesian model on which it is predicated, is perhaps the main building block of the pre-crisis consensus paradigm. Although they are closely connected, I wish to separate the policy prescriptions from the underlying model, and address each in turn. The shortcomings of the New Keynesian modelling paradigm have been recognised before. But addressing them has not yielded a paradigm shift to overcome them. | In addition, the monetary policy normalisation we have embarked on has established the premises for controlling inflation and safeguarding the economic and financial stability of Albania. In this view, I would like to welcome the positive role played by the banking industry over 2022, by maintaining a positive approach towards lending to private sector and taking the necessary measures to manage added risks in your balance sheets. I am confident that these measures, and others we may take in this regard, will pave the way for a rapid return to normality. Though risks remain present, our projections suggest inflation will return to target within the first half of 2024 and the Albanian economy will continue to maintain a positive growth pace throughout this period. As important actors in the economic and financial life of Albania, I would like to reemphasise that our decision making should be forward-looking, decisive and courageous. Albania has a solid economic growth prospects in both medium and long term. They have enabled the continuous expansion of economy and of the banking and financial system in the recent years, and should feed your confidence in the Albanian economy in the future. These prospects will further benefit in the framework of Albania's membership process in the European Union and from the agenda of structural reforms. 1/4 BIS - Central bankers' speeches For this reason, I kindly invite you to stand up for these processes. | 0 |
BIS Review 21/2009 13 Bank of England Stabilisation MoU Equity & Efficiency Regulation FSA HM Treasury Chart 2 : The Great Stability Variance of inflation ( )A ld De jure gold standard (1855-1913) Floating of the pound to inflation targeting (1972-1992) Bretton Woods (1948-1972) Inter-war period (1922-1939) Inflation targeting (1992-2004) 0 1 2 3 Chart 3: Consumption Growth 14 4 Variance of6output 5 7 Chart 4: Indicators of labour market tightness BIS Review 21/2009 Percentage changes on a year earlier 10 8 6 4 2 0 -2 1973 Q3 1980 Q1 1990 Q3 2008Q3 -16 -12 -4 -6 -8 -4 0 4 8 12 16 Chart 5 : Change in leverage ratios of the major UK banks(a),(b),(c) Maximum-minimum range Interquartile range Change in ratio 40 Median 35 30 25 20 15 10 5 0 -5 02 03 04 05 06 07 08 S o urc e : P ublis he d a c c o unts a nd B a nk c a lc ula tio ns . | These have a number of attractive features. It is built on sound economic principles of forward-looking optimising agents, which is useful for carrying out academic though experiments. Unfortunately, such models also have some big drawbacks. First, having introduced uncertainty into the picture by making agents forward looking, they then assume the problem away. Risk doesn’t matter: agents are assumed to make decisions today based on the path they believe the economy will take in the future, not the full range of possible paths it might take. And those beliefs about the future are based on absolute faith in the ability of the policymaker to stabilise inflation and the economy over the medium term. BIS Review 21/2009 7 They therefore beg some important questions for policy makers – how do we sustain and build confidence in our policy and what happens if it falters? Second these models generally assume that the path of the economy is one of equilibrium disturbed by a sequence of more or less random shocks to which it responds in short order to return to the equilibrium path. For economists using these models a critical question is always what shocks have led to the starting position i.e. how far from equilibrium are we and for what reason. Those starting assumptions will then condition the path back to trend growth and target inflation over the medium term. In truth, these “shocks” reflect not only events and surprises in the real world but the limitations of the model itself. | 1 |
I believe that the role played by the Banco de España in promoting this accumulation of provisions is well known, so I shall not dwell on this point. I will, however, point out that there are various idiosyncratic factors in the performance of Spanish institutions that have limited their exposure to the current shocks. I have already mentioned that in the euro area there is no equivalent to the US sub-prime mortgage market, an observation that applies fully to Spain. Rather, the credit quality of Spanish mortgages is high, as shown by the low doubtful assets ratio and the moderate levels of the average loanto-volume ratio and of the collateral required. Along these same lines, the weight of the assets linked to the sub-prime mortgages on institutions’ balance sheets is completely marginal, as is also their indirect exposure through any lines of credit granted to other financial intermediaries that may actually hold such assets. The fact is that intermediaries of this type have not proliferated in Spain’s financial system. One of the factors that has probably contributed most to preserving the quality of assets in the Spanish financial system is the persistence of a traditional banking model in which, unlike in other countries (especially the United States) in recent years, institutions have used asset securitisation mainly to fund the expansion of activity and not to transfer to third parties the risks associated with their loan portfolio. | While the lack of economic convergence among Asian economies may make an Asian Monetary Union a more challenging prospect, it is interesting to note that quite a number of governments in this region have already chosen to sacrifice some monetary policy autonomy for exchange rate stability. Hong Kong, Mainland China, and Malaysia choose to fix their exchange rates against an external currency, the US dollar, while other regional economies operate managed floats. There are indications that some economies are considering using the renminbi as a reference currency in their currency regimes, although a hard peg to renminbi is still not possible until full convertibility is achieved. It might 2 BIS Review 19/2005 also be the case that, while Asian economies are more diverse than European economies, they are flexible in ways that can compensate for the loss of independent monetary policy, for example, in their high degree of price flexibility and fast adjustment to economic shocks. It may seem premature to turn now to the technical issues surrounding Asian monetary union, but the devil is in the detail. The first set of technical issues involves the exchange rate arrangements themselves, including the transitional arrangements prior to the introduction of a single currency. For example, would Asia adopt a basket peg or choose an anchor currency? If a basket, what would be the weights for individual currencies, and would the basket include external currencies, such as the US dollar? | 0 |
In fact, during those early days, some of those countries were able to freely utilize the labour and resources of the countries that were colonized by them, and benefit immensely by the fruits of the foreign lands and natural resources. They had to adhere to very few laws and regulations relating to education, training, health or labour practices, or standards on working conditions. There were no environmental laws or treaties, and the environment was often the first casualty in their quest of accumulating wealth. Capital accumulated by illegal means or criminal activity was used freely without any restriction. 2 BIS Review 29/2008 But, today the situation is completely different. Today, emerging countries are acting in a much more responsible manner in driving their economies forward. In fact, the present day emerging economies are achieving their attractive levels of growth, while adhering to, and respecting international conventions on copyright, anti-money laundering and terrorist financing, environmental, labour, human rights, safety, health, etc., etc. This situation is sometimes forgotten by some of the economic and political analysts, particularly from advanced nations and therefore it may not be too inappropriate to remind the world of this state of affairs, on and off. All in all, from the point of view of individual developing countries, the most important economic need at present is to maintain the high economic growth momentum that they are currently achieving, in a sustainable manner. | The circular is aimed at ensuring that directors and senior managers have sound reputation and are persons of integrity and honesty. Furthermore, over the past two decades, SAMA has issued additional governance related regulations and guidance to banks operating in Saudi Arabia. These include circulars on Internal Controls; Know Your Customers rules, Anti-Money Laundering and Combating Terrorism Financing and Prevention of Fraud. Also, there are specific regulations on the Role of the External Auditors and on the Internal Audit function. SAMA also requires the Board of Directors to establish a specialized Compliance Function that monitors the compliance of the organization with regulations and standards, and has a reporting line to the Board or one of its committees. Moreover, SAMA requires all banks to apply the International Financial Reporting Standards, and that two firms of external auditors are to conduct an annual audit. Furthermore, SAMA has required banks in Saudi Arabia to meet the corporate governance guidance emanating from the Basle Committee on Banking Supervision and more recently from the Islamic Financial Services Board. In this regard, I should mention that SAMA is participating in the IFSB Technical Committee and in various working groups that are developing standards of corporate governance for Shari'ah compliant financial institutions. The leadership role played by SAMA, over the past decades, in promulgating corporate governance standards and in promoting a governance culture has been reflected in the emergence of strong financial institutions and a credible banking system. | 0 |
I think this criticism is also undeserved, because the alternative of lending indiscriminately to unknown clients (into which many banks have indulged) has proved to be even worse. Turning to the behavior of foreign-owned banks during the recent crisis, the evidence is also mixed. On one hand, it is true that international banking groups are the ones which easily spread the contagion (Goldberg, 2009). Even in the absence of abrupt deleverage, foreign-owned banks had to cope with much diminished foreign financing and shifted from financing the private sectors to financing the public sectors of their host countries. Despite the reductions in monetary policy rates, credit in domestic currency remains sluggish at best. For the time being, however, it is fair to say that foreign parent banks have maintained their support for the branches and subsidiaries in Central and Eastern Europe. Most of them had not been engaged into trading sophisticated instruments such as derivatives, so that this type of losses has been relatively contained. It has also helped that the banks present in the region are not major global players, so that contagion is often limited. On the other hand, many of the banks had been involved into financing the real estate boom, and the ensuing losses are only gradually being recognized. As a conclusion to this paradigm, the dominance of foreign-owned banks proved to be both an asset and a liability and it is too early to draw a final balance before the international financial crisis is over. | After a few banking crises which hit the region in the late nineties, the lack of domestic private capital, combined with the fragile situation of the state budgets, made it compulsory to privatize the existing banks by selling them to foreign entities. I must confess that I also advocated the penetration of foreign capital into the Romanian banking sector. When my tenure as Prime Minister ended in late 2000, one piece of advice I gave to my successor was that the privatization of banks should continue as a means to promote restructuring of the loss-incurring SOEs and to stimulate convergence to the EU. I still believe that it was the right call, as foreign-owned banks had a favorable impact on economic growth and therefore played their part in the catching-up process, even if – ten years later – Nouriel Roubini sees the large share of foreign-owned banks in the Romanian banking system as a liability. The counterfactual argument “What would have been the performance of domestically-owned private banks?” does not withstand scrutiny: domestic private capital simply did not exist. However this intellectual exercise is worth doing, given some shortcomings of foreign-owned banks, which were revealed afterwards. One such shortcoming was the excessive euroization of some economies in the region (Romania, Hungary, Baltic states), given the reliance of foreign-owned banks on their parent banks for cheap financing. | 1 |
Adnan Zaylani Mohamad Zahid: Sustainability and the challenges ahead Speech by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the IFN Green and Sustainable Finance Forum, Kuala Lumpur, 3 December 2019. * * * It is a pleasure to be here this afternoon. I would like to thank the organisers for once again inviting me to speak at their conference. I hope that I can further add to the valuable discourse that undoubtedly takes place at such events. We must now acknowledge, that the sustainability agenda has gained increasing importance and a momentum of its own. Everywhere, there is a sense of urgency and call for action. Consumers are making their purchasing decisions with the environment in mind. Investors and shareholders are making demands for their companies and corporations to adopt environmental, social and governance or ESG standards. Corporate managers, emboldened with such mandates by their shareholders are reshaping their organisations into new corporate citizens, responsible, responsive and socially aware. Governments are certainly not left behind. Globally, societies are seeking ways to create sustainable solutions for their communities. Achieving the sustainability goals will not be an easy journey. The global environment itself is more challenging than before with increasing volatilities and uncertainties arising from the global trade war, geopolitical developments and a multitude of factors. Many of these could derail or delay our efforts. How do we then stay on course to keep sustainability and responsible finance a prime focus of business in the financial sector? | 3 [8] Among other things, international bodies such as the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO), have issued recommendations and principles to make reference rates more based on actual transactions in the market. This can be achieved by focusing on the shortest maturities at which most transactions occur, and by broadening the base for the reference rate by including more transactions than those between the panel banks. As I shall discuss later, this data can also be used to replace longer-term reference rates. Examples of such fully transaction-based reference rates now published by central banks are the Bank of England's SONIA, the European Central Bank's € New York Fed’s SOFR and Norges Bank’s NOWA. In Denmark, Nationalbanken will soon start publishing DESTR. In some cases, it has also been decided that the new, transaction-based reference rates will replace the traditional interbank rates. For example, the family of reference rates most widely used globally, LIBOR, will be phased out. In the euro area, Switzerland and Norway, interbank rates for the shortest maturities are being phased out.2 This means that enormous contract values need to be migrated, in many different types of contract. This also affects Swedish participants that have entered into contracts with LIBOR as the reference rate. With regard to other currencies, the new and the old reference rates will exist side by side; but in these jurisdictions, too, there is a clear ambition to use the transaction-based reference rates to an increasing extent. | 0 |
Muhammad bin Ibrahim: Role of the Islamic financial system in supporting green technology Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at The Green Financing: Discover Green Technology Industry in Malaysia “Role of the Islamic financial system in supporting green technology”, Kuala Lumpur, 8 October 2013. * * * The recent haze that caused unhealthy air quality is the direct result of acute deforestation and irresponsible practices, a grim reminder of the unfolding environmental catastrophes confronting us and our future generation. Globally, extreme climate change, resource depletion and environment degradation have increasingly become looming threats to livelihoods. Greenhouse gas emissions are on the rise and atmospheric carbon dioxide concentrations are at its highest in three million years. It is reported that the global average temperature has risen by 0.74oC over the past century and is forecasted to rise by 1.8oC to 4oC by year 2100. Severe deforestation issues across the continents and over dependence on non-renewable energy resources pose further challenges to the finite carrying capacity of the earth. Sustainable development has become an imperative. It is a global imperative given the interconnected world we live in. It affects everyone. No one is isolated. A united action is therefore required to solve these major ecological problems before solutions become impossible. I am pleased to be here today to speak at The Green Financing: Discover Green Technology Industry in Malaysia (GF 2013). | There has been a series of issuances since the debut of the green sukuk in France in 2012, including the issuance of a sukuk in Malaysia earlier this year that is part of a larger $ billion Multi-Currency Sukuk Issuance Programme for sustainable development that was ten times over-subscribed. Globally, the increasing involvement of governments across the Middle East and North Africa (MENA) region in various projects for renewable energy and clean, efficient technologies indicate strong growth prospect for sukuk to support these green technology projects. Backed by the international Green Sukuk Working Group that has been instrumental in the development and issuance of green sukuk since its establishment in 2012, this segment of the Islamic capital market that advocates for greater socially responsible investment is expected to flourish further. 4 BIS central bankers’ speeches Reducing information asymmetry – a key pre-requisite for sustainable financing Islamic finance has strong potentials to contribute towards a sustainable financing ecosystem for the green technology sector. I have shared with you the different facets of Islamic finance that can meet the needs of green businesses. Key to this is the need to reduce the information asymmetry between Islamic financial institutions and businesses. The GTFS framework has been instrumental in assisting to bridge the information gaps between financiers and businesses. Islamic financial institutions now have to build its capacity and capabilities to assess the viability of the green projects despite its complexity. | 1 |
Pre-2013, it similarly used the now-discontinued secondary-market CD rate data. However, post-2013 it uses the interest rate on 90-day AA-rated financial commercial paper. In contrast to the retail rate Darrell and Arvind use, this commercial paper rate rose along with the federal funds rate in late 2015. 28 In the unsecured market, we also sometimes see small upticks ahead of holiday weekends, such as on days that are not Federal banking holidays but on which the Securities Industry and Financial Markets Association has recommended closure or early closure. For example, we saw modest, transitory upticks in dispersion on March 24, 2016 (Good Friday) and December 23, 2016 (the business day before the Christmas holiday). A similar uptick was observed on November 23, 2016 (the day before Thanksgiving). 29 In the measure that combines both markets, we see dispersion fall on month- and quarter-end dates; this occurs because rates tend to fall in the unsecured market on these dates, pushing them closer together. 30 I discussed these factors in my February 2016 speech. 31 Some government-sponsored entities can also participate in the dealer-to-dealer market. 32 This is due to covered interest rate parity: the proposition that the interest rate differential between two currencies of a given tenor should equal the differential between the spot exchange rate and the future exchange rate of the same tenor. See Borio, McCauley, McGuire and Sushko, “ Covered interest parity lost: understanding the cross-currency basis,” September 2016. 33 Counterparty risk may have risen somewhat since the crisis. | For example, our ON RRP operations provide a floor on the repo rate offered by dealers to cash investors because of the competitive pressure the Fed’s offer rate places on borrowers of funds in the repo market.10 If this competitive pressure were less effective, perhaps because of greater constraints on lenders’ switching counterparties, changes in the ON RRP rate could become less effective in influencing repo market rates. Other shocks could affect the transmission of rates from our operations to the federal funds rate. In the absence of strong financial intermediation between the federal funds market, interest on reserves, and the repo market, changes in rates the Federal Reserve controls—like the IOR rate and the ON RRP offering rate—might not affect the federal funds rate as intended. Shocks to intermediation could result in permanently weaker integration between markets. The effects could also prove temporary, for example if intermediation weakens initially but then recovers over time as market participants adjust to the shock. Finally, changes to the federal funds rate might not affect other interest rates and asset prices that are relevant to the cost of credit in the real economy. And also, even if changes in the federal funds rate do affect those other rates, if the linkage between them were to become particularly noisy or hard to predict, it could become harder for policymakers, as well as the public, to forecast what level of the federal funds rate will best achieve maximum employment and price stability. | 1 |
MAS, in partnership with the industry, has recently developed an Insurance Talent Development Framework, which maps out training and career progression pathways for both new entrants and existing insurance professionals. New industry-wide programmes will be launched in 2014 across a spectrum of roles and seniority levels. At the entry level, we will have two programmes. • The Insurance Executive Assistant Programme (IEAP) will prepare diploma holders for junior entry-level positions. It will complement the GIP, which is targeted at university graduates. • The Insurance Management Associate Programme (IMAP) will place and train top-tier fresh graduates through a structured apprenticeship programme. For existing industry professionals, there will also be two new programmes. • The Insurance Specialist Programme will deepen participants’ specialist and technical knowledge in key functions such as underwriting and claims, as well as in specialist lines such as trade credit, political risks, aviation and marine risks. • The Hi-Po Leader Programme will provide those with leadership potential with a series of programmes to prepare them for senior management roles in the insurance industry. The second critical success factor is Regulation. Strong prudential and regulatory standards have always been a source of Singapore’s competitive advantage as a financial centre. Through promoting sound risk management and a safe environment, regulation fosters confidence in the industry and helps attracts business. BIS central bankers’ speeches 5 Singapore was one of the early movers to a risk-based supervisory and capital framework for insurance, in 2005. | As you are all well aware, during 2018, the European Central Bank gradually scaled back the nonstandard monetary policy measures that it had introduced to combat the risks of a long period of low inflation and possible deflation. In January, the monthly purchases in terms of the Asset Purchase Programme were halved from € billion to € billion. They were halved again, to € billion, from October. The Governing Council currently anticipates that, subject to incoming data confirming the medium-term inflation outlook, the net purchases will cease altogether in December 2018. Indeed, even after net asset purchases have ended, monetary policy will continue to provide support to the euro area economy as the stock on Central Banks’ balance sheets will be maintained with the re-investment of maturing bonds. The ECB’s key interest rates remain very low, with the overnight deposit rate standing at -0.4%. The Governing Council expects them to remain unchanged at least through the summer of 2019. At the same time, the Governing Council will ensure that ample liquidity conditions will continue to prevail for as long as needed by reinvesting principal payments from maturing securities for an extended period of time. This combination of very low interest rates and ample liquidity should ensure favourable financial conditions for firms and households, underpinning economic activity, and should strengthen the sustained convergence of inflation to the target. Looking ahead, domestic demand will play an important role in economic growth. The prospects in this regard remain favourable. | 0 |
Business surveys are consistent with this, implying that the margin of spare capacity in firms is now relatively limited – in fact not much larger than after the bursting of the dotcom bubble. But against that, it is difficult to find any direct evidence of supply impairment. For instance, liquidations have been running at less than 1% (compared to 3% in the 1990s recession). One resolution of the puzzle may be that producers have mothballed capacity, which could, at a cost, be brought into use if demand conditions warranted. The MPC’s view is that the current elevated level of inflation is likely to persist in the near term – indeed our central expectation for inflation is somewhat higher than that of outside commentators. Ultimately, however, this period of elevated inflation should prove temporary. The standard rate of VAT is set to rise again at the beginning of next year, but once that drops out of the annual comparison a year later, so the inflation rate is likely to fall back sharply. The impact on prices of sterling’s past depreciation should be starting to wane. And the relatively moderate expansion that we expect over the next year or two should ensure that there is some, albeit uncertain, brake on inflation from spare capacity. We have seen muted underlying inflation pressures in both the euro area and the United States, reflecting the spare capacity in those economies, and there is no reason to believe that the United Kingdom will behave differently once the temporary influences subside. | Charles Bean: The economic outlook for 2011 and beyond Speech by Mr Charles Bean, Deputy Governor for Monetary Policy at the Bank of England, at the Market News International Annual Seminar, London, 13 December 2010. * * * Good morning! Christmas is the traditional time for looking back over the events of the past year and contemplating what the new year might bring. Today I shall follow that tradition by taking stock of economic developments over the past year and looking at the challenges ahead. Many of the recent activity indicators have been somewhat comforting. Global growth has recovered strongly on the back of a strong rebound in the emerging economies, with the IMF projecting expansion of close to 5% this year and more than 4% next year. Here in the United Kingdom, we have also seen a nascent recovery; output in the third quarter was, according to the latest ONS estimates, some 2.8% higher than a year earlier. That is marginally stronger than our projection for the most-likely path of four-quarter growth made a year earlier in our August 2009 Inflation Report. Around half of the growth over the past year was, however, down to the contribution of stockbuilding, as businesses reduced the rate of inventory decumulation and, in some cases, started to rebuild stocks. That can only provide a temporary boost to aggregate demand growth. And the contribution of public spending to growth is also set to fall as the Government’s planned fiscal consolidation gets underway. | 1 |
• This is unfortunate because equity financing is the best way to share risks and opportunities, as well as to support innovation. “Catch-up” growth, as in many Emerging Markets, can be financed by debt. But an economy standing at the technological frontier, as in the U.S. or hopefully as in Europe, is better financed by equity: as innovation is more risky, its funding must have an upside. • The Commission’s Innobarometer survey suggests that funding is the main barrier for promoting R&D and innovation in Europe. What can we actually do? Among others, taxation policies could be revised in favor of equity funding. Innovative schemes also need to be developed at European level, such as European venture capital funds, in order to support the creation and growth of new businesses. Furthermore, a Financing and Investment union is about strengthening the euro area. Short term banking flows have risen after the introduction of the Euro, but the financial crisis demonstrated that the capital markets’ channel of risk sharing was still underdeveloped in the 8 BIS central bankers’ speeches euro area. From the reality of financial fragmentation and its negative economic consequences, we can draw one obvious conclusion: equity financing is clearly the instrument that best allows to smooth asymmetric shocks in a Monetary Union. Its benefits are many (ECB Financial Integration Report 2016): it is less volatile that debt financing and it enhances the companies’ resilience to adverse conditions. | Households have traditionally borrowed mostly for housing, and the current increase in this type of lending is perhaps not so surprising in view of the fact that housing prices in metropolitan areas have risen relatively significantly. What is more remarkable is that lending for other purposes is increasing at a higher rate. It is difficult to see from the statistics exactly how the borrowed money is used, but lending both from banks and finance companies is now growing at a faster rate than lending from mortgage institutions. This has given rise to apprehensions that households are borrowing for consumption or in order to invest in shares, which could lead to rapid increased risks. In order to gain a better understanding of whether or not this is the case, the Financial Supervisory Authority has recently commenced an examination of the banks’ lending to the household sector. 1 Excluding repos. BIS Review 50/2000 2 There are several reasons why property prices play a central role in any discussion of financial stability. In addition to the fact, as I mentioned earlier, that the credit demand among households is largely governed by the demand for and price level of property, property can also be used as collateral for loans. Another reason for monitoring the property sector is that a large part of the banks’ lending is to property companies. These companies also accounted for a large part of the loan losses during the banking crisis in the early 1990s. | 0 |
So, clusters numbering about 8 to 10 groups were set up by making informal arrangements for them to work together. Separate cluster rules were prepared and the members were trained in keeping cluster accounts and records. This process went on continuously for about 12 to 18 months from the beginning of1999. When the newly formed clusters showed sufficient maturity of being able to operate independently, the next move for the project was planned by the project. In the second stage, it was necessary to give legal status to the clusters. Many options like registering them under the law relating to cooperatives or under the Companies Act were considered, but finally, decision was made to incorporate the clusters under the Societies Ordinance as limited liability societies under the name “Isuru Development Society Ltd”, for the simplicity it provided to the beneficiaries. The societies were registered with the Registrar of Companies in terms of the Ordinance. The societies so registered had the objective of realising a common goal of attaining economic well-being of the members with a mutual 8 BIS Review 22/2008 support. The incorporation of societies as limited liability societies was completed within two years by 2001. The next phase was to further consolidate the limited liability societies into still larger economic organisations. Such a consolidation was essential in order to permit this larger organisation to effectively function as a strong economic entity. This goal was attained by consolidating the common efforts of societies in a particular district into a district-wide limited liability company. | In addition, the system provided a market guaranteed price to both buyers and producers enabling them to plan their cash flows properly. It also helped both parties to raise loans from banks for both working capital and investment capital purposes. The future sustainability of the forward sale contract system will depend on the establishment of proper futures market for commodities in Sri Lanka. It is ironical that Sri Lanka, being a country famous for its rich spices throughout history and three major commodities, viz., tea, rubber and coconut, in the last 150 years, has to think of setting a futures market in the country at this late stage, when all the other countries in the region have moved much ahead in that context. However, the initial work relating to the establishment of a futures exchange is presently being done with the initiative taken by the Central Bank. Technical assistance for this purpose has been received from the Futures Commodities Exchange in India and the exchange is to be set up within the next 2 year period. Part IV Summary and conclusions This paper examined the strategies adopted by Sri Lanka, with the initiative of the Central Bank of Sri Lanka, to introduce a sustainable socio-economic security system based on the principles of the market mechanism. Despite the popular belief that the poor need subsidised 27 In fact, the system was largely saved by the flexible approach of buyers when the market price was significantly higher than the contract price of a produce. | 1 |
Insurance supervision at the PRA Speech given by Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority London Business School 20 March 2017 I am grateful to Dan Curtis for his help in preparing this speech. 1 All speeches are available online at www.bankofengland.co.uk/speeches Good morning. The UK has a world-leading insurance sector which provides a wide range of vital services to the real economy and society. It promotes growth and employment, has proved its mettle in turbulent times and the country can be proud of it. A necessary precondition to such success is world-class insurance supervision. That is what we aim to deliver at the PRA. Like insurers, our job is to be forward-looking and prudent about risk. Where we differ from private firms is that we do this motivated solely by the public interest. The recent debate about insurance regulation – while timely and important – must seem to some like a cacophony of acronyms, statistics, models and assumptions. But strip this back and you’ll see there is an essential, irreducible human core to it all. Some of the oldest and most vulnerable in our society have invested their life savings into long-term annuity contracts. By pooling and transferring many kinds of risks – from cyber to marine – insurers provide cover which is essential for economic activity. And by protecting for critical illness or personal accident, insurers commit to being there when you need them most. | But a sustained increase in pay over the forecast period without a commensurate pick up in productivity would mean that the supply side of the economy could not keep pace with growing demand. That would mean upward pressure on prices. And it would mean greater pressure on the MPC than in our forecast to act to bring supply and demand into balance so as to meet the inflation target. The outlook for pay and productivity So the gradual pick up first in pay and then in productivity is central to the MPC’s forecast for both growth and inflation particularly in the later years. Given the serial disappointments on both pay and productivity in recent years, why do we now think that will happen? On pay there do seem to be signs now of stronger, more sustained growth. In the latest data, whole economy regular pay is growing at 2.7%. This is the highest annual growth rate since early 2009 and over a percentage point higher than six months ago. The latest reading on private sector pay growth was 3.2% – the highest rate since December 2008. So the period of very cheap labour seems to be ending as expected. What about productivity growth? It was effectively zero in 2014. And we forecast it to remain pretty weak in 2015. | 0 |
Factors that generate changes in ongoing rate of inflation must be distinguished from temporary effects on inflation due to once-and-for-all shifts in the price level. It is mainly variations in the output gap and in expected inflation which have an impact on the ongoing rate of inflation. Monetary policy accordingly focuses on these factors. Temporary effects on inflation may come, for example, from changes in indirect taxes and subsidies or from shifts in terms of trade. Monetary policy measures as such may likewise have temporary effects on inflation via changes in house mortgage costs, which are included in the measurement of consumer prices. This was the case in 1996, when the average rate of inflation fell below the lower band limit of 1 per cent mainly as a temporary consequence of the Riksbank’s reduction of its instrumental rate. Clearly, monetary policy should not respond to temporary effects on inflation from upward or downward movements in the instrumental rate; to do so would be to make interest rate policy procyclical and thereby destabilising. The monetary policy reaction to other temporary effects depends essentially on how these affect inflation expectations. If a temporary increase in the rate of inflation is taken, for example, to indicate a more lasting upward shift, so that people adjust their inflation expectations, monetary policy would have to respond in order to prevent the ongoing rate of inflation from increasing. If expectations are unaffected, on the other hand, temporary effects may be of secondary importance for monetary policy. | Much attention will also be required, in the fullness of time, to make sure that the financial systems through which financial intermediation takes place are robust so that the benefits of financial liberalization could be maximized and the associated risks could be minimized and prudently managed. 3. As a financial services centre which operates with a highly liberal regime, Hong Kong has important roles to play in all this. There is not enough time to go into details here on this occasion, so I shall just identify three general areas for your consideration. 4. The first area concerns financial intermediation within individual economies, in other words, the channelling of domestic savings into domestic investments. Here Hong Kong, at this stage at least, largely only plays an advisory role. The less liberalized financial systems in this region are very much dominated by domestic financial institutions, particularly in the banking market. Further, domestic politics and a desire to protect domestic financial institutions from undue competition are such that liberalization to admit foreign financial institutions to take part in domestic financial intermediation would only proceed at a pace dictated by these considerations. For example, it will, I think, take some time and patience for Hong Kong-based banks to gain a physical presence in the mainland of China, be allowed access to renminbi banking business and command a significant share of that business. 5. | 0 |
New framework for macroprudential policy Source: The Riksbank BIS central bankers’ speeches 15 | Focus was first placed on strengthening the institutional capacity of the domestic financial intermediaries so as to narrow the performance gap between the domestic and international financial intermediaries. In parallel with this was the intense effort to develop the domestic bond market. During this phase of the development of the financial system, significant advancement in the banking sector was made in terms of capitalisation, risk management and governance practices, delivery channels and in human capital development in the industry. This paved the way for the interest rate reform to move to greater market orientation, thereby supporting a more efficient pricing of financial products and services. The more competitive environment that it generated also became an important driver of productivity gains, customer centricity and innovation in the financial system. Equally important, was the attention that was given to the development of a deep and vibrant domestic bond market as an alternative channel for the efficient raising of funds, particularly by the corporate sector. The development of the bond market has enabled better matching of long-term projects with long-term funds, and by reducing the over-reliance on the banking system, it has contributed significantly to financial stability. Among the institutions that was established to support the development of the domestic bond market was the establishment of the domestic rating agencies and Cagamas, the mortgage corporation. The Malaysian bond market has since evolved to become the largest in South East Asia to now account for 110% of GDP. | 0 |
And it is that attitude, ability and esprit de corps that will no doubt allow us and the System to meet the important challenges on the road ahead. I will focus briefly on a few such challenges: The first will be on the monetary policy front. The Federal Reserve has engaged in a set of unconventional monetary policies in recent years. These policies have been necessary because the FOMC could not ease monetary policy further by conventional means – the federal funds rate was constrained by the so-called “zero lower bound”. Exit from these unconventional set of policies is certainly feasible – the ability to pay interest on excess reserves gives us a viable tool to manage monetary policy even with an enlarged balance sheet, and the New York Fed is prepared to execute on this mission, as we always are. But we do have to be a bit humble about what we don’t know. There will undoubtedly be communications and operational challenges and unexpected consequences. We will need to be sufficiently agile so that we can best achieve our dual mandate of maximum sustainable employment in the context of price stability. The second challenge for us at the New York Fed, and within the regulatory community more generally, will be in staying the course and implementing a regulatory regime in which no institutions are “too big to fail” (TBTF). TBTF is wrong for several reasons. It creates an unfair disparity between large and small institutions. | But it also extends to tending to the so-called culture of the institution – for example, ensuring that good ideas rise to the top no matter where they originate, and that people feel comfortable to challenge the conventional wisdom. These challenges are energizing, and that’s why being president of the New York Fed is the greatest job in the world. And I am confident that, because of the talent and dedication of our staff, the New York Fed will succeed in surmounting the challenges it faces now and will face over the next 100 years. And to drive home the point of our staff’s dedication, I would like to highlight the efforts of one person, Rosemary Lazenby, who has made this exhibit possible. Rosemary is the longest tenured employee at the Bank – 55 years – she is our resident historian and curator and she has delayed her retirement in order to develop this centennial exhibit. Her efforts are just another example of what really glistens at 33 Liberty Street (and I am not referring to the gold in our vault). Thank you Rosemary, and thank you all for coming out this this evening to enjoy the centennial exhibit. BIS central bankers’ speeches 3 | 1 |
We believe there is a need for financial advisers to possess a larger body of financial and technical knowledge, that includes a deeper awareness of latest developments in the industry and opportunities available, and to be able to apply this knowledge to a client’s advantage. Other core competencies that need to be given greater emphasis include effective communication and problem solving skills. The second priority is to identify and address the barriers that are preventing qualified parties from entering the industry, and the constraints that are limiting the ability of financial advisers to recommend the best solutions to their clients. We are close to making an announcement on revised minimum entry requirements for financial advisory business. The Bank is also currently working on measures to create a more level playing field with respect to product offerings among the insurance intermediaries. The Bank and the Securities Commission will also continue to coordinate closely in facilitating the ability of financial advisers and financial planners to provide advice on a broad range of financial solutions. In this respect, further enhancements are expected to be made to regulatory processes to improve efficiency and further ease the regulatory burden on the existing players. The third priority is to improve the alignment between the interests of consumers and financial advisers. We believe how incentives are structured have an important role in shaping the quality of advice that a consumer receives. | We have a negative policy rate and have carried out extensive purchases of government bonds to hold longer-term interest rates down as well. Maintaining confidence in the inflation target is the main task of monetary policy. A challenge for monetary policy in recent years has been to push up the excessively sluggish inflation rate, which is one explanation for the expansionary policy. By doing so, we can correspond with the expectations of all the participants in the Swedish economy who base their calculations on the fact that we are aiming for a fixed target. The inflation target has been a cornerstone of the Swedish economy for twenty years, it is well known and established and helps to boost confidence in the Swedish economy. The Riksbank’s forecasts indicate that monetary policy will continue to be expansionary with low interest rates in the period ahead in order to stabilise inflation around the target. But this could also bring new challenges with it. Continued low interest rates could lead to the policy rate hitting its lower bound more often, thereby making it more difficult to stimulate the economy when economic activity weakens and inflation is below target. In such a case, it could be necessary to implement other measures, both from the Riksbank and from other policy areas. 1 For a discussion of the concepts of target range and tolerance band, see Sveriges Riksbank (2016). | 0 |
Episodes of global financial crises are an excellent illustration of how macroprudential policy measures can be activated in a counter-cyclical manner. In the upward phase of the financial cycle, they were undertaken in a timely manner, with the aim of limiting banking system's exposure to risks and strengthening its resilience by building additional reserves. After 2008, in the downward phase of the cycle, this extra liquidity was released to provide support to the financial sector and the economy. The banking system remained highly capitalized and profitable at the aggregate level. Only a few smaller banks left the market, and there was no need for bank resolution, apart from one regionally significant bank. A different scenario from that in a number of European countries, which went on to bail out banks at a very high fiscal cost. Still, a deep recession took place during the GFC, demonstrating the need for a macro-prudential policy to work hand-in-hand with other policies. Even a very tight financial regulation may fall short of fully curtailing the buildup of macro imbalances and their eventual unwinding. Capital inflows came to a halt and borrowing costs surged as risk premia increased due to worries about growth and fiscal position. As that happened, as you would expect, asset price overvaluations unravelled. However, all systemic banks were doing fine, thanks to a massive use of macroprudential policies in the run up to the GFC. Smaller banks continued to exit either by being closed down or acquired. | Not all of them disappeared though, for example, Charlemagne capital bought four regional banks and consolidated them into a single bank. Cleaning up the market, by removing inefficient banks, laid foundations for a healthier banking system, resistant to macroeconomic disturbances and improved risk management. Moreover, these two crises made us attentive to emerging risks, such as rapid credit growth or lax risk management practices and generated political support required to provide us with the toolkit needed to prevent future disruptions in the financial sector with large spillovers to the real economy and potentially huge costs to the budget. Since then, we continued cleaning up the system with no threat to either the financial stability or the budget. Navigating the Boom and the Bust The resumption of growth and resolution of weak banks eventually stabilized the banking system, setting the stage for the period of rapid international integration and financial deepening of the 2000's. After the first clean-up at the turn of the century, the number of banks has fallen to slightly above 40, and consolidated institutions started to compete strongly. In their pursuit of higher market shares, banks turned to foreign sources of financing, facilitated by extremely favourable financing conditions and high liquidity at the global level. At the surface, the financial sector supported the story of economic growth and convergence. However, experiences from the 1990s provided an optics needed to spot risks emerging underneath. | 1 |
Arguably, this is more of a communication issue than one of actual policy, and less emphasis on the readiness to clean up after a sharp fall in asset prices might have been a preferable alternative. The International Monetary Fund (2009, Chapter 3) has investigated the role of monetary policy in causing financial crises. A large number of countries and financial crises were included in the sample. The conclusion is that “the stance of monetary policy has not generally been a good leading indicator of future house price busts… There is some association between loose monetary policy and house price rises in the years leading up to the current crisis in some countries, but loose monetary policy was not the main, systematic cause of the boom and consequent bust.” Further-more, the overall relationship between the stance of monetary policy and house-price appreciation across countries in the years before the current crisis is statistically insignificant and economically weak, and monetary policy differences explain only about 5 percent of the variability in house price appreciation across countries. 13 Lessons for flexible inflation targeting What conclusions can we draw so far from the financial crisis about the conduct of monetary policy and any need to modify the framework of flexible inflation targeting? One obvious conclusion is that price stability is not enough to achieve financial stability (Carney 2009, White 2006). Good flexible inflation targeting by itself does not achieve financial stability, if anyone ever believed that. Specific policies and instruments are needed to ensure financial stability. | As a Fed policymaker, I strive to be clear in my communications. But I can’t tell you today precisely what I’d favor doing in the future, because that future remains uncertain. Thank you very much for your kind attention. 6 BIS central bankers’ speeches | 0 |
They continued to grow in the postcrisis period, driven mostly by the debt component of the government. As for the foreign direct investments, their growth in the last period stalled, mainly due to the decline observed in the CEE countries. In the other two sub-regions growth continued, but at a much slower pace especially during 2012-2015 period. Overall, the data indicate that the ECB policy measures positively affected financial conditions in the region. First, loosening of the monetary stance through conventional instruments (policy rate) created a room for loosening of the monetary stance in the Central and South Eastern economies without negative implications for the balance of payments. Reduced policy rates led to reduced lending rates thus decreasing the costs of borrowing of the private sector. Second, the ECB asset purchase programs that resulted in unprecedented increase of liquidity most probably positively affected the liquidity conditions in the region, as well. Although at a significantly decelerated pace, capital inflows continued in most of the countries of the region. Exceptions are the outflows from the banks in the context of the process of deleveraging, although the outflows might have been bigger in absence of asset purchase policies. Portfolio investments have been relatively solid, explained to a great extent by governments’ borrowing on the international markets. Although the capital inflows were not sizable leading to creation of imbalances in the economies, vigilance is warranted. The pre-crisis process of rapid worsening of the net international position was stalled, but with differences across countries. | Albeit for solving the growth puzzle a larger focus on structural policies and productivity growth is called, it is more than obvious that accommodative monetary stance of the ECB will persist in the forthcoming period, as a tool for growth support and for closing the gap between the current inflation and the medium term inflation target. Chart 1: ECB balance sheet and key interest rate (%) 6 ECB assets as % of GDP 40 35 ECB key rate Deposit facility Marginal lending facility 5 4 30 25 20 15 3 2 1 10 5 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -1 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ECB, WEO and Federal Reserve Economic Data Having in mind the magnitude of the monetary accommodation and the fact that ECB tapering seems remote, this note investigates the effects the monetary accommodation produces on the countries in the Central and South-Eastern Europe3. All economies in the region are open economies with strong trade and financial linkages with the EU. Thus, there are a couple of channels through which the accommodative monetary policy of the ECB may be transmitted to the Since 2009 ECB adopted a number of asset purchase measures aimed at stabilizing dysfunctional financial markets. | 1 |
Tarisa Watanagase: Strengthening the banking and financial sector – what needs to be done? Speech by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at Finance Thailand, a seminar organised by The Banker Magazine and Financial Times Business, Bangkok, 22 February 2010. * * * Ladies and gentlemen, First of all, I would like to thank The Banker Magazine and The Financial Times for the invitation. It is an honour, and indeed an opportunity, to join all of you here at this conference, and to share with you my thoughts at this very challenging juncture, not only for the global economy and financial system, but also at an important stage for development of Thailand’s economic and financial sector. The past three years have been one of the most turbulent periods in global economic development. On the global economy front, despite the signs of green shoots in the global economy, we are constantly reminded of the remaining fragility and vulnerability of such recovery in various hot spots around the world, with emerging new paradigm of risk, namely sovereign risk. For the global financial system, risk and challenges remain abound. The key challenge strikes at the heart of the global financial system – regaining trust. Trust in market mechanism, as well as its regulator, has been severely tested. | The response to the new note has been predominantly positive; feedback indicates that the public find the theme and the design appealing, and the security features easy to remember. The SNB’s extensive information campaign surrounding the 50franc note in Switzerland and Liechtenstein played a role here. Among experts – both at home and abroad – the note is seen as high-quality and cutting-edge in terms of its security features. First impressions suggest that, overall, the new 50-franc note is more stable and, as hoped, more resistant to tearing than the eighth-series notes. However, given that so little time has elapsed, we do not yet have any hard data or long-term forecasts of the quality and fitness for circulation of the new notes. We do have some initial data on the Page 1/3 Berne, 10 May 2017 Fritz Zurbrügg News conference on new 20-franc note security front. So far, only a handful of crude counterfeits have come to our attention; these were spotted immediately and withdrawn from circulation. We are happy to say that our logistics strategy for the issue worked well. The new 50-franc notes were available in the right place at the right time, right across the country. The decision to include the manufacturers of ATMs and other types of banknote-processing equipment early in the process paid off – the changeover was virtually seamless. The process of returning old 50-franc notes has so far also gone as expected. So far, over two-thirds of the old (eighthseries) 50-franc notes have been exchanged. | 0 |
Institutional structure that is determined by the legal and administrative framework is the first pillar of competitiveness. The ability to execute financial transactions efficiently, with 2 BIS Review 117/2009 sufficient certainty and enforceability, and a clear process for resolving ambiguities and possible breaches of the contract will enhance competitiveness, both at the institutional level as well as for the financial system as a whole. In Malaysia, Islamic finance disputes are adjudicated in civil courts and not the Shariah courts where the jurisdiction is limited to matters relating to Muslim individuals. If the dispute concerns a point on the ascertainment of Shariah, the courts and arbitrators are required to refer to the Shariah Council at Bank Negara Malaysia to facilitate the ruling. The Shariah Council’s authority is the ultimate body responsible for Shariah in banking and financial matters that is within the purview of Bank Negara Malaysia. This referral system provides an enabling platform for preserving consistency and predictability in interpretation and application of Shariah principles for financial transaction in Malaysia. Concluding remarks Allow me to now conclude my remarks. The inherent strengths of Islamic finance amid the global financial crisis has heightened interest in Islamic finance across the world. The level of innovation, scale and complexity of Islamic financial transactions is also increasing at a tremendous pace. Going forward, it is envisaged that the legal services in Islamic finance will become even more significant in the continued advancement and efficiency of Islamic finance. | The second imperative relates to the continuous effort to develop the key resources of the industry, by expanding and building new capabilities needed to support its growth and development. There is a critical need to upskill the leadership and technical competency of talents given the increasing complexity of the industry. With broader scope, scale and internationalization, the demands on the capability of talents in Islamic finance industry can only increase. It will require more internationally oriented management teams that have the necessary international exposure and orientation. In addition to education and research to build the expertise in Islamic finance, a more structured framework for capacity-building that includes other key resources including the investment in technology for industry development is also needed. Such a coordinated effort in capacity-building has been initiated by the Islamic Development Bank (IDB) in support of its member countries in the development of Islamic finance. This is being undertaken through the IDB’s Member Country Partnership Strategy (MCPS) programme. Indeed, in a world of increasing interconnectedness, there is a need for such a strategic approach to capacity-building through cross-border cooperation for the mutual benefit of the members so that growth and development of the industry can be collectively strengthened. Finally, the third imperative is to accord importance to mutual recognition of Shariah interpretations across jurisdictions and thus contribute towards greater international financial integration. A critical factor that will support this process pertains to the need to enhance awareness in respect of the justifications underlying the Shariah resolutions in the industry. | 0 |
16.07.2020 50th anniversary of the UNAAC Margarita Delgado Deputy Governor Good afternoon. Thank you very much, Manuel. And my thanks also to Cristina for this invitation for me to speak to you today, on the 50th anniversary of the UNACC. It is a shame that we have not been able to celebrate this anniversary as was originally planned. We are living through strange and difficult times, but we must adapt to them. Yet despite this unique scenario, a 50th anniversary is an event well worth celebrating. Anniversaries, especially those which mark the passage of a decade, not least a halfcentury, are an ideal time to take stock of our achievements. Undoubtedly during this period a great deal has been achieved, but if you will allow me, in my supervisory capacity, I would like to make some mention of those areas where we must continue to improve. Over these 50 years we have been through several banking crises. The picture of our financial system as it stands today is naturally the result of these crises. And one point to note in this “family” photo is the large number of cooperatives which are present. The truth of the matter is that a highly significant number of credit cooperatives, or rather, a highly significant number of yourselves, have overcome these crises. | Evidently the supervisor’s aim must be to ensure that the banking sector is a fortress against the storm and not an added problem that we have to face at the worst time imaginable. 1 Recently, it has been frequently said that the banking sector is in much better shape than it was before the previous crisis. This will allow it to become part of the solution. In any event, crises are, by definition, periods of transition and COVID-19, despite its specific features, will be no exception. I believe this crisis will serve as a catalyst which will speed up many of the trends that we have already seen and discussed on many occasions at our meetings. First, as regards the importance of digitalisation. Second, in respect of the need to gain in efficiency and cut costs. Also, naturally, as regards the criticality of good governance and risk control, underpinned by the best international practices which will allow institutions to react appropriately to such changing circumstances. And, above all, regarding having a sound and sustainable business model for the medium and long term. We do not know what the future holds for us, but what we do know is that the better prepared we are, the better we will fare. Before I conclude, let me apologise for not having made the most of this address to introduce a supervisory “wedge”. | 1 |
The history of money originates long ago and its developments are closely related to the people that have produced it. Its role is not limited to the economic functions; it is also a historic evidence of the minting or issuing country. It speaks about periods of economic crisis or downturns, of peace and prosperity, of successes and injustices. In this context, we decided to dedicate the First Conference of the Museum of the Bank of Albania to two main topics, which we think are the gist of its exhibitions and educational activities. 1. Findings, researches and discussions in the area of monetary production and circulation, the history of the economy and banking activity in Albania and Albanian historic territories, which contribute to accurate interpretation and updating of information transmitted to the visitors 1/2 BIS central bankers' speeches through Museum collections. 2. The educational role of central bank museums in getting to know the history of money, and banking activities and enhancing financial literacy through exhibitions, education and innovation. For this purpose, we aim, therefore, to bring together foreign central bank experts to share their perspective on the management of central bank museums, collections and educational activities. This conference certainly underlines the commitment of the Bank of Albania to earnestly engage in both research and educational activities. We are very interested in enhancing cooperation with researchers, academia, peer museums, and specialised institutions in economic, historic and cultural heritage research. | Such cooperation is an excellent opportunity to Bank of Albania employees, who may benefit from valuable skills and expertise for our Museum. It would also contribute to new networking and collaboration in research activities. In light of promoting and furthering cooperation, we are committed to turning our Conference of the Museum of the Bank of Albania into an annual event. Also, in 2017, the Museum of the Bank of Albania will organise a cycle of lectures dubbed as “Nights of the Museum”, which will address a variety of topics, such as numismatics, banking history, economic and financial education, philately, art and architecture. These projects aim at developing another aspect of our work at the Museum, which would focus on social developments vis-a-vis museum objects. Dear participants, The first conference of the Museum of the Bank of Albania coincides with the 25th anniversary of the establishment of the modern central bank of the Republic of Albania and a two-tier banking system. In these 25 years, the Bank of Albania has served to the country’s economic and financial development, supporting successfully the development of an efficient and stable financial system. It will continue to remain an institution with ambitious objectives in the field of European integration and approximation with the European Central Bank. Today, it is undertaking a new challenge: opening to the public, not only to communicate clearly its primary objectives, but also to contribute to helping the public learn about the history of money, art and tradition that it represents. | 1 |
BIS central bankers’ speeches 9 price movements are large, LFT market-making is driving in the dark, stock-picking with a safety-pin. During the Flash Crash, many traders suffered just this problem. Message traffic resulted in delays in disseminating quotes for over 1000 stocks. These delays lasted for up to 35 seconds. As a result, discrepancies emerged between the prices of common stocks trading on different exchanges (Chart 13). Faced with such uncertainty, a number of market participants paused or halted trading. The equilibrating force of long-term investors went missing. Bargain-hunting shoppers simply had no price list. The combined effects of these inventory and information problems is to widen the bid-ask spreads LFT market-makers charge. Greater execution risk and uncertainty calls for a larger insurance premium. This, too, may have an adverse feedback effect on financial market pricing. That is because it is likely to render uncompetitive LFT firms relative to HFT firms able to charge tighter spreads. Market-making will increasingly congregate around HFT firms proffering these lower spreads. If the way to make money is to make markets, and the way to market markets is to make haste, the result is likely to be a race – an arms race to zero latency. Competitive forces will generate incentives to break the speed barrier, as this is the passport to lower spreads which is in turn the passport to making markets. This arms race to zero is precisely what has played out in financial markets over the past few years. Arms races rarely have a winner. | Measures of market volatility and correlation are two plausible metrics. 9 Chart 9 plots the volatility of, and correlation between, components of the S&P 500 since 1990. In general, the 6 Stoll (1978). 7 Glosten and Milgrom (1985). 8 This term has its origins in work by Diane Vaughan on NASA’s decision-making in the run-up to the space shuttle Challenger disaster in 1986, where repeated oversight of small problems culminated in a big problem (Vaughan (1996)). It has since been found in a much broader range of phenomena, where small cognitive biases have had disastrous physical consequences (Cliff (2010), Harford (2011)). 9 See also Brogaard (2010) and Zhang (2010). BIS central bankers’ speeches 5 relationship between volatility and correlation is positive. Higher volatility increases the degree of co-movement between stocks. Now consider how this volatility/correlation nexus has changed. This can be seen from the difference between the mass of blue dots (covering the period 1990 to 2004) and red dots (covering the period 2005 to 2010) in Chart 9. Two things have happened since 2005, coincident with the emergence of trading platform fragmentation and HFT. First, both volatility and correlation have been somewhat higher. Volatility is around 10 percentage points higher than in the earlier sample, while correlation is around 8 percentage points higher. Second, the slope of the volatility / correlation curve is steeper. Any rise in volatility now has a more pronounced cross-market effect than in the past. | 1 |
This is to say that Europe must avoid a lost decade; this is to say that European policy-makers must be intelligent and fight causes instead of consequences. This is to say that Europe will be able to maintain its geo-economic and geopolitical influence. Thank you. 4 BIS central bankers’ speeches | The conclusion of this point of view is, put simply, that more recent innovations have not been as significant as those during earlier industrial revolutions.4 Others, such as Andrew McAfee and Erik Brynjolfsson at MIT, say that the effects of digitalisation have passed under the radar and that we will see major productivity increases in the future when the new technologies are used more broadly in the business sector.5 Economic historian Joel Mokyr also points out that the productive potential in new technologies will lead to strong pressure for change in the economy.6 As you can hear, there are very differing views on the subject and the assessment of future productivity growth is a question we are constantly struggling with. We are in the “installation phase” Personally, I think that that model from Bart van Ark (2016) is useful when considering the different views. This distinguishes between an “installation phase” and a “deployment phase” for new technology. The first phase involves exploring new markets and growth is limited to a couple of companies. During the second phase the markets are consolidated and there is broad growth in the economy. One can imagine that Brynjolfsson and McAfee consider we are in the first phase, while Gordon thinks we have already passed the second phase. My assessment is that we are probably somewhere in the installation phase with regard to digitalisation. | 0 |
Of equal importance, is the need to develop alternative sources of funding, such as the equity and bond markets, not simply to ensure a more balanced allocation of financial and economic resources within an economy but more importantly to attain greater diversification within the financial system, hence ensuring the efficient distribution of risks within the system. In addition, the integrity and credibility of the payments system and effectiveness of regulation and supervision would require the support of a comprehensive set of legislations, one that would need to evolve in tandem with the developments that are taking place in the financial landscape. It is also recognised that good corporate governance reinforces sound regulation and supervision. It contributes towards maintaining market confidence, and strengthens transparency and accountability. For corporate governance to work, good corporate practices need to be instilled and embedded in all aspects of the operations and at all levels within the organisation. To succeed in the new environment, institutions will require qualified board members and management teams that exhibit a high degree of professionalism. In addition, transparency and disclosure is essential, particularly in a rapidly changing environment and greater attention is being accorded to make banking systems more transparent. While the comprehensive and timely availability of financial information will enhance market discipline in 2 BIS Review 40/2003 emerging market economies, the disclosure of information must be complemented with the ability of the market players to analyse, digest and appropriately interpret the information to achieve the desired results. | Much of this “banking glut” 4 can be traced to the advanced economies: for example, around half of the gross inflows into the United States just before the crisis came from European institutions, rather than emerging economies. 5 3 See Borio and Disyatat (2011), Cecchetti (2011) and Tucker (2012) for more on this issue. 4 See Shin (2012). 5 See Borio and Disyatat (2011). BIS central bankers’ speeches 3 Now global capital flows of this nature can be valuable. They help to oil the wheels of the international financial system, allowing saving to flow to where it can be most effectively used. They allow banks to diversify across national boundaries, reducing their susceptibility to idiosyncratic domestic shocks. And they increase the degree of competition within the domestic banking market. But by increasing the linkages between financial systems, they can also increase systemic vulnerabilities. In this case, banks became dependent on shortterm funding from overseas, rather than their traditional domestic deposit base. When investors re-trenched, that funding dried up and banks struggled to find viable alternative sources of funding. Ensuring gross capital flows are not excessive is just as important as avoiding excessive net capital flows. Moving to a sustainable equilibrium requires a narrowing in the international payments imbalances. And we have indeed seen such a narrowing since the start of the crisis. | 0 |
Recent developments in the SIC system Amid all these longer-term visions, we should be careful not to overlook changes that are just around the corner – or indeed, have already been introduced. So let me return to the present and talk about developments in cashless payment transactions that are already having a tangible effect on central banks around the world. For obvious reasons, my remarks will be based on the situation in Switzerland. As I have already mentioned, one of the SNB’s statutory mandates is to facilitate and secure the operation of cashless payment systems. One of the key ways in which we perform this duty is through our strategic guidance of the SIC payment system. This includes approving technical changes to the system and the rules of conduct for system participants, fixing operating hours and rates, and deciding who is granted access to the SIC system. At the same time, the SIC system is operated not by us, but by SIX Interbank Clearing; system participants are involved in the decision-making process and therefore play a direct part. This configuration makes SIC a market solution. Another feature is that the SIC system is used to settle not only interbank payments, but also a large proportion of retail payments. 8 By virtue of its role in SIC, the SNB has a substantial influence on retail payments in Swiss francs and is, in turn, also impacted by dynamic forces at work in this area. | The city of Zug has recently even launched a pilot project allowing certain public services to be paid for using a crypto-currency. But even those of us who prefer more traditional payment methods can benefit from many innovations in Switzerland. For instance, cash can now be withdrawn from ATMs without a bank card – simply by using a smartphone. Like Switzerland, central banks are associated with stability and continuity. And yet, since the financial crisis, they too have had to adopt ever more inventive policies to shield their respective economies from serious harm. The Swiss National Bank has likewise had to mobilise its innovative resources. We have developed and deployed new monetary policy instruments, which have enabled us to carry out our mandate as fully as possible. When it comes to implementing monetary policy, financial market infrastructures are vital. In Switzerland, these infrastructures are run by SIX Group and the SNB is actively involved in shaping the strategic direction of certain functions. Without safe and efficient infrastructures we would be unable to fulfil our mandate. This fact alone explains our keen interest in ensuring their smooth operation. But our interest goes beyond monetary policy implementation. The infrastructures also play a major role in enabling the SNB to perform other statutory duties, such as facilitating and securing the operation of cashless payment systems and contributing to the stability of the financial system. As mentioned, the financial sector is experiencing a surge of innovation. | 1 |
Notwithstanding some recent signs of improvement in the economic outlook, it is premature to declare the financial crisis over. From today’s perspective, the need for enhanced credit support remains. Therefore, for the time being central bank liquidity is likely to remain abundant. This does not mean, however, that the broader concept of liquidity in terms of monetary aggregates grows strongly. And it is this broader concept, not central bank liquidity itself, which is related to inflationary pressures over the medium term. Of course, central bank credit and broader monetary aggregates are linked over time. In a modern banking system, and in normal circumstances, central bank credit is largely used by banks – in the form of required reserves – to create bank credit, and expand deposits and broad money aggregates. So, an increased provision of central bank credit can lead – more or less automatically – to an increase in broad money. In current conditions, that link has been weakened, however. Today, banks – in the aggregate – tend to hold part of the central bank credit that they obtain in our refinancing operations not as a reserve against an expansion of loans and deposits, but in the form of 8 BIS Review 103/2009 excess reserves deposited with the Eurosystem. This attenuates the automatic link between the provision of central bank liquidity and broad money. And, as a consequence, it attenuates the inflationary potential of the Eurosystem’s outstanding credit to banks. | Rather, it lays out a framework and set of principles to govern actions in the face of circumstances in whatever form they take. The distinction between a strategy and a particular course of action is well known in monetary policy. A monetary policy strategy provides the framework for assessing economic circumstances and responding to ever changing contingencies. But a strategy does not spell out interest rate decisions in the future. In my view, the exit strategy from non-standard measures is comparable. As of today, we do not have all the information necessary to decide which exit path will be desirable or optimal from the perspective of tomorrow. But we have developed a set of criteria that will guide our future decisions. In this sense, exit considerations are subject to the same qualification that I always make when I speak on behalf of the Governing Council on monetary policy matters: we are not pre-committed. 4 BIS Review 103/2009 Accordingly, as of today, we are not committed to a particular timing or sequence of actions for the exit phase. But our future decisions will not be arbitrary. They will be guided by a framework. In my view, four cornerstones have to be considered in our approach to exit from non-standard measures: the link to our monetary policy strategy; the forward-looking initial design of the measures; our technical and institutional ability to act; and our reputation for swift and decisive action when it is required. BIS Review 103/2009 5 1. | 1 |
The scale of the floods and the knock-on effects of natural catastrophes on global supply chains came as a rude surprise. The floods damaged more than 7000 industrial and manufacturing plants in 40 separate provinces. This affected countries with significant manufacturing capabilities in Thailand, most notably Japan. The majority of the insurance losses therefore came not from property damage, but from business interruption claims arising from the disruption to manufacturing and supply chains. It is therefore important that insurers have senior experts in the region who understand Asia’s multi-faceted and inter-connected risks. This will enable the industry to better price and underwrite regional risks, and achieve sustained growth. MAS will seek to increase the depth of expertise in Singapore by continuing to work with existing players to build up their specialty and reinsurance underwriting and broking capabilities as well as expand their regional hubs. MAS will also seek to increase breadth in the industry by promoting growth in emerging business lines, such as cyber risks. Lack of data is a key hurdle for cyber insurance in Asia. MAS is working with industry to create a test-bed for cyber risks where insurers and potential clients can come together to simulate loss events. • Cyber insurers will be able to generate sets of valuable loss data and raise awareness about the value of specialty cyber insurance cover. | • Clients will get the opportunity to stress-test their systems, assess the responsiveness of existing coverage to losses, and gain an appreciation of potential losses and the need for cyber insurance cover. Promote Asian demand Next, we want to promote insurance demand in Asia. Asia is already leading the world in premium growth. We seek to catalyse the development of insurance demand in the region via a three-pronged approach. First, enhancing cross-border access to regional markets. The ASEAN economies are working together on a comprehensive insurance liberalisation framework. • We aspire to achieve substantial liberalisation by 2020 for all insurance sub-sectors, namely life insurance, non-life insurance, reinsurance and retrocession, insurance intermediation, and insurance auxiliary services. • Insurers can expect to benefit from easier cross-border provision of services and substantial access across the ASEAN customer base from offices in any ASEAN member country. • The framework is expected to be discussed at the ASEAN Finance Ministers’ Meeting next year. Second, increasing the pool of Asian risk data. Modelling and loss simulation are key tools to help insurers manage and price their exposures. Accurate and timely data are critical for risk models to predict the impact of a loss event. For example, to predict the vulnerability of an insured risk to catastrophes, a wide variety of data is required, such as geographic location, BIS central bankers’ speeches 3 soil structures, rainfall, construction materials and urban density, just to name a few. | 1 |
Inflation Forecast June 2002 with Libor at 1,25% Annual average inflation in % BIS Review 39/2002 2001 2002 2003 2004 1.0 0.9 1.3 1.6 3 | The rationale behind ERM II is that, if a country succeeds in maintaining the value of its currency against the euro within the fluctuation bands for a period of two years, then it would be reasonable to assume that the country would be able to deal with the binding constraints of EMU. During this phase, accession countries will have to prove that they are able to put up with the disciplines inherent in a fixed exchange rate without imbalances arising in other sectors of the economy. That is why accession to EMU is conditional on prior participation in ERM II. Furthermore, it would be unfair on the twelve euro area countries if the EU were to demand less stringent conditions of the present wave of accession countries. Upon EU accession and during the ERM II phase, Malta, like the other accession countries, would have the status of a “country with a derogation”. Since ERM II neither entails the formal transfer of monetary policy responsibilities to the ECB nor the replacement of the domestic currency by the euro, it will not, as I have already indicated, involve any significant departure from current practice, although it offers more flexibility than our current fixed exchange rate regime, which does not involve any fluctuation band. Another difference is that the obligation to defend the central exchange rate under ERM II would be binding on both the ECB and the Central Bank of Malta. Both institutions would be expected to intervene to preserve that value. | 0 |
It is, however, encouraging to see that these deficiencies are being addressed and that efforts are being made to render BIS Review 93/1999 2 the impact of economic decision-making on the euro area as a whole visible and transparent for the markets and the public at large. Moreover, the recognition that Europe’s performance depends to a large extent on its ability to take on the task of implementing real structural reforms appears to be gaining ground. There is no alternative to orienting the conduct and the presentation of economic policies to the new framework of EMU in order to explore its full potential. It remains to be seen whether these adjustments will have institutional implications, either motivated by functional necessity or in response to the demands from our partners and interlocutors. I should add that institutional changes will in any case be on the agenda of the EU in the coming years, not least in order to endow Europe with a capacity for decisive external action. This is a consequence not only of the momentous changes in the wider Europe, but also the projected expansion of the EU. The European Union has launched an enlargement process of unprecedented dimensions, with 12 countries from central, eastern and southern Europe currently involved in, or preparing, entry negotiations. The prospect of EU membership and the eventual participation in EMU has galvanised these countries into pursuing economic reforms, re-orienting their trade and embarking on a difficult and sometimes painful process of disinflation. | In this context, there should be no denying that the European Union too will have to reform its institutions and decision-making structures in order to cope with a larger number of Member States. By agreeing to convene an Intergovernmental Conference next year, the Member States have taken the first steps in this direction. So far the progress of negotiations is encouraging, and the applicant countries should be applauded for their great efforts towards meeting the economic and political entry criteria set by the Copenhagen European Council in 1993. Beyond that, it appears that the very prospect of eventual participation in EMU has also helped to establish clear policy orientations. Naturally, the ECB takes a keen interest in developments in the future Member States and has established the relevant contacts. I should like to conclude that the ECB is well aware of the challenges ahead, and that we are still far from “business as usual” – despite the smooth and successful launch of the euro. With the establishment of Economic and Monetary Union, the EU has recorded an outstanding historical achievement, but the task of making EMU a success will be an ongoing one, and perhaps even more momentous challenges in the wider Europe are awaiting our response. Thank you very much. 3 BIS Review 93/1999 | 1 |
In addition, the country concerned is expected to join the Exchange Rate Mechanism II, for which it must similarly fulfil certain economic criteria. Finally, the convergence criteria must be complied with, which should ensure that a candidate country wishing to join provides evidence of sufficient economic convergence with the euro area. In addition to sound public finances and a high degree of price stability, they must also provide evidence of relatively low long-term interest rates and stable exchange rates. The European Council decides whether a country is eligible to join in Monetary Union and calls upon the ECB and the European Commission to give an Opinion. Conclusion I shall now come to a close. The ECB has been responsible for monetary policy in the euro area for nine months now. So far, we believe that the ECB’s monetary policy, the new monetary policy strategy and the new range of instruments have passed their first test very well indeed. Many international observers share this view. The real art of monetary policy will continue to be maintaining price stability in the euro area in the foreseeable future. Faith in a currency cannot be achieved by way of national or international legislation. Rather, the ECB must try to inspire new faith in the euro on an almost daily basis in order to build up credibility over time. It would be wise to develop this credibility so that the ECB’s monetary policy is also sufficiently prepared for difficult phases in the future. BIS Review 99/1999 6 | In simpler terms, consumer spending of Albanian households, private sector investments, public spending and external demand for Albanian goods and services do not manage to fully use the productive capacities of the economy. The low aggregate demand leads to low increase in employment, wages and production costs, and hence to low inflation rates. Also, it poses difficulties for many businesses and is translated into increase in nonperforming loans in the banking system. In this context, undoubtedly, promoting and stimulating the economy should be a priority of the macroeconomic policies. The Bank of Albania deems that besides the classic instruments of the economic stimulus, monetary and fiscal policies, attention should be paid to smoothing uncertainties in the economy. I will briefly address three of these elements. First, in our opinion, the fiscal policy has limited space for economic stimulus. The rapidly expanding public debt increases the vulnerability of the Albanian economy and may make the fiscal stimulus counterproductive. We deem that the fiscal policy should focus on monitoring the public debt in the medium and long term. The Bank of Albania sticks to the opinion that the public finance consolidation should anchor to an effective and transparent fiscal rule. This rule would increase the short-term flexibility of public finances and reduce the fiscal adjustment cost. Second, the overall economic and financial stability is a prerequisite for a rapid economic growth. The monetary policy has been and will remain oriented toward meeting our inflation target. | 0 |
Controls might very well ensure the fulfillment of these criteria, but there are two problems here. First, it might happen that such controls are not effective, meaning they can easily be circumvented. Nearly two thirds of the increase in the liabilities of foreign-owned banks in Romania during 2005–2008 occurred after the reserve ratio was raised to 40 percent. Second, even assuming they cannot be evaded, controls need to be discriminatory 1, so as to allow, for instance, equity inflows and discourage debt flows. But controls come at a very high price. Capital flows were subject to controls in all countries until the end of the sixties. Moreover, controls were also in place for lending and deposit rates, the volume of private sector credit, as well as for the business scope of certain groups of intermediaries. The positive effect of these controls was enhanced stability of the financial system: no banking crisis broke out during 1945–1971 (Eichengreen and Bordo, 2003). But the negative consequences were not negligible. Banks innovated less, they limited lending to large and secure firms, and operated on a less efficient basis. Once controls provided protection against crises, central banks became less interested in financial stability and preserved minimum expertise in this respect (Goodhart, 2010). There is also the issue of anteriority. Recent research concluded that controls yielded better results in countries where controls had been in place beforehand. Should we therefore consider preventive controls? This would mean ignoring the fact that large capital inflows are temporary in nature. | Mugur Isărescu: Monetary policy during transition. How to manage paradigm shifts Presentation by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Annual Conference of the European Association for Banking and Financial History, organised by the European Association for Banking and Financial History and the National Bank of Romania, Bucharest, 7–9 June 2012. * * * Ladies and Gentlemen, I started my career back in August ’71, the day after President Nixon announced the suspension of gold-convertibility of the US dollar and the introduction of a 10 percent surcharge on American imports, thus marking the dismantling of the Bretton Woods System. We all know what happened next: in an attempt to preserve a system of fixed exchange rates, the Smithsonian arrangement – which set a fluctuation band of +/–2.25 percent – was introduced in December 1971. It only lasted for six months, so that during 1972–73 fixed exchange rates were replaced by floating regimes in most economies around the world. Exception made the countries of the European Economic Community, which decided to implement a joint floating arrangement and introduced rather funny concepts such as the “snake in the tunnel”. Those were also years of intellectual controversy – I remember reading alternatively the Newsweek articles of Samuelson and Friedman, one preaching the virtues of Keynesian policies, while the other praised free markets and non-intervention. I witnessed the end of an era and the dawn of another. | 1 |
I find relevant what Agustín Carstens, General Manager of the BIS, said in his lecture held at the London School of Economics in May 2019: “The textbook version of the inflation targeting framework, which prescribes pursuing inflation stability with floating exchange rates through adjustments of a short-term interest rate, is obviously too narrow for EME central banks. In particular, the financial channel of the exchange rate gives rise to difficult trade-offs for monetary policy, while at the same time complicating the conduct of monetary policy by weakening its transmission. EME central banks have risen to this challenge through their innovative use of additional policy instruments. They have turned to FX intervention to deal directly with the financial channel or insure against undesired exchange rate swings, and to other non-orthodox balance sheet policies as well as macroprudential tools to deal with specific imbalances or vulnerabilities in a targeted way.” Not only that I share his view, but I have to say that, in Romania, we started practicing what he speaks about now even before the outbreak of the global crisis. We resorted to forex interventions in order to mitigate the exchange rate volatility and we took prudential measures to contain excessive growth of credit (of forex lending in particular). The IMF mentioned the NBR as being among “the pioneers” of what was later referred to as “macroprudential instruments". | No matter how rapidly or how slowly the economy is growing, or how fast or slow the money is circulating, the aggregate amount of reserves will be exactly the same. So it should be clear that the quantity of central bank reserves held by the commercial banks is useless as an indicator of the effectiveness of Quantitative Easing. Now obviously we would prefer that the money circulates more rapidly and that this is done through increased bank lending and deposit taking. In other words, we would like to see a further expansion of credit and broad money. Since the banks collectively are now awash with reserves, they should not be prevented from making additional loans because of any liquidity concerns. Banks are, though, constrained by a lack of capital and are looking to reduce leverage rather than increase it. Fortunately, increased bank lending is not necessary for Quantitative Easing to work. Indeed, it was precisely because the Monetary Policy Committee expected the additional monetary injection not to stimulate bank lending directly at the current juncture, that the Asset Purchase Facility’s purchases were targeted at assets held primarily by the non-bank private sector 1 . So if the Asset Purchase Facility buys gilts from pension funds or asset managers, they will then have to look for another home for their money. As it is not very rewarding just to hold it on deposit, they are likely to look to put their money into other assets, including equities and corporate bonds. | 0 |
At the national level, the PACTE Act proposes certain advances in life insurance, which is by far French households’ leading form of financial savings (EUR 1,700 billion at end-2018), in particular to promote the Euro-Growth Fund by making it simpler and more understandable for savers and to increase insurers’ investment in innovation financing. The French authorities are also very careful that the current review of the Solvency II Directive is favourable to the long-term investment of insurers in equities. At the European level [Slide 3], we need to build a real “Financing Union for Investment and Innovation” to better steer our resources – a savings surplus of EUR 345 billion in the euro area5 – towards equity and innovation. This Financing Union must bring together and amplify existing initiatives, the Capital Markets Union, the Banking Union and the Juncker Investment Plan. I would now like to answer my second question: is the diversification of sources of financing sufficient? From my point of view, the answer is no because diversification carries risks that need to be well managed. II. Diversifying sources of financing is a complex business whose success requires 2/4 BIS central bankers' speeches managing all the traditional and new risks faced by intermediaries A. First, there are the risks linked to fast-growing private sector debt Corporate debt in France is growing much faster than in the rest of Europe [Slide 4]. We are now significantly above the euro area average. | Transition risks – which stem from the adjustment to a low-carbon economy – are longer term and therefore less visible. To better assess these risks, we need to both measure exposures and perform forward-looking stress tests. We also need to develop the considerable opportunities associated with the financing of the transition to a low-carbon economy [Slide 5] – this involves finding close to USD 90 trillion by 2030 – while preventing the risk of greenwashing. A major work programme for the Central Banks and Supervisors Network for Greening the Financial System (NGFS), which was launched by the Banque de France in December 2017 and now counts close to 40 members and entities 3/4 BIS central bankers' speeches about to join. Conclusion To conclude and summarise my speech, the diversification of sources of financing holds the promise of improving the financial system’s ability to support innovation and sustainable economic growth, as long as this diversification is encouraged and its risks are well managed. Given this promise, the slow pace of change, the modest progress towards a capital markets union, the complexity of the challenges of digitalisation and green finance should encourage us to continue to act with determination, patience and perseverance. On the way, we can seek support and comfort in this quote by the former President of the Czech Republic, Vaclav Havel: “Hope is not the conviction that something will turn out well, but the certainty that something makes sense, regardless of how it turns out". Thank you for your attention. | 1 |
However the impact on the economy remains positive, as outsourcing and off-shoring allow companies to increase their competitiveness and lift the sales – inter alia, due to the fact that foreign branches to a large degree serve the local markets – which, in turn, requires a higher employment level in head offices and a higher number of well-qualified people at home. 20 Moreover, the fear of off-shoring increases the investment of employees in human capital, which results in better performance and flexibility of the labour market. 21 Therefore, the ability to change and improve qualifications as well as to assess which sectors in Poland have the potential and which are on the decline due to their inability to face the global competition, is gaining on significance. We should also assess what impact globalization has on company strategies. If multi-sourcing strategies are to be more and more widely applied, the question arises how Polish enterprises should operate on that market. The question whether a long-term employment relationship in a large organisation is better than the one of self-organizing cooperating nets of small companies or even persons, which proved well in the manufacturing of motorbikes and textiles in China, and some software, still remains unanswered. Last but not least, we should consider how Polish companies and their employees should develop their most precious assets in the homo sapiens globalus society i.e. the intellectual capital. I am just making a remark of these extremely important topics. Conclusions The recently published report by Edward Bendyk, “Przyszłość pracy. | The issues reflect areas where the true costs of managing a large, complex, internationally active firm have not yet been fully internalized by the firms. Said differently, the cost of international financial activity has probably been too low, and as it rises, some readjustment of those activities will be necessary. The forces of change continue strong, as strong as they were in the peak years of innovation more than 25 years ago. Now, as then, financial institutions will need to adapt and transform themselves. This time, however, we have the sobering experiences of the financial crisis to guide us. We all have an interest in moving forward, given the pace of change in the world and in technology. Thank you for your attention. BIS central bankers’ speeches 5 | 0 |
These movements have been very beneficial for the economy and, when starting our asset purchases a year ago, I would have been more than willing to have settled for such an outcome. However, it is difficult to identify the incremental role of QE in driving these improvements. These other asset prices may respond less quickly to asset purchase announcements and so are less easily isolated using event studies. Moreover, these movements coincided with a global rally in financial markets, which further complicates the task of isolating UK-specific effects. However, it is important to see this global rally in the context of the similar policy strategies adopted by a number of the world’s most important central banks: official interest rates were cut to very low levels and central banks’ balance sheets in many parts of the world were greatly expanded. The fact that UK capital markets moved in line with global markets during this period does not suggest that domestic policy had little impact. Indeed, I have little doubt that our asset purchases contributed substantially to these movements, via the channels I have discussed. Through a portfolio rebalancing effect, as both retail and institutional investors switched out of gilts into alternative assets, such as corporate bonds and equities. Through improvements to market liquidity, aided by our purchases of commercial paper and corporate bonds. And through their impact on expectations, as asset purchases demonstrated our commitment to act, boosted confidence in the economic environment and so reduced the likelihood of further large falls in asset prices. | Speech Embargo 5 September 2019, 6.00 pm Currencies, money and digital tokens 30th anniversary of the WWZ and VBÖ, University of Basel Thomas J. Jordan* Chairman of the Governing Board Swiss National Bank Basel, 5 September 2019 © Swiss National Bank, Zurich, 2019 (speech given in German) * The speaker would like to thank Oliver Sigrist for his support in preparing this speech. He also thanks Simone Auer, Nicolas Cuche-Curti, Matthias Gubler, Christoph Hirter, Carlos Lenz and Alexander Perruchoud, as well as SNB Language Services. Page 1/7 Ladies and gentlemen It is a great pleasure, and an honour, to be invited to speak to you today, on the occasion of the 30th anniversary of the University of Basel’s Faculty of Business and Economics (WWZ) and the Vereinigung Basler Ökonomen (VBÖ). I congratulate you wholeheartedly on reaching this milestone. There is a long-standing and close association between the Swiss National Bank (SNB), on the one hand, and the WWZ and the University of Basel on the other. Many SNB economists were trained here and some of our staff regularly give lectures at the WWZ. I would like to thank the University of Basel and the organisers for inviting me to this special event. I am sure that the ties between our institutions will continue to be close for many years to come. For central bankers, Basel is a special place. | 0 |
It cannot be stressed too strongly that although the Riksbank’s sights are consistently on the target, inflation will always tend to hover around the bull’s-eye. Looking back, however, it will be seen that ever since the target was instituted, inflation has on average been very close to it. The intention is that this will continue to be the case in the future. More and more signs of a recovery So it is not the transitory price shocks that give the greatest cause for concern. Things are worse if we cannot rule out the possibility that part of an increase in inflation stems from strong activity earlier. Such effects usually show up after some time and tend to persist. During a strong upward phase, firms can begin to pass through rising business costs to consumers in the form of higher prices. Perhaps it is precisely this we have seen recently, at least to some extent. Support for such a conclusion may lie in that fact that, according to the latest statistics, the average wage level in Sweden is rising somewhat faster than is compatible with a 2 per cent inflation target. This may indicate that resource utilisation is in some sense more strained than we counted on earlier. If economic activity in Sweden were to rise only moderately, leading in time to a weakening of inflationary pressure, the risk of inflation would diminish. | And no doubt the world economy will also have a share in these benefits. 3 BIS Review 109/2000 | 0 |
So earlier this year the Bank announced we would be drawing up a blueprint to replace our current real-time gross settlement (RTGS) system, now twenty years old. 48 institutions currently have settlement accounts in RTGS. All other users of the systems that settle across RTGS access settlement via one of four agent banks. 5 These users include over 1000 non-bank PSPs serving customers’ increasingly demanding standards, and many rely on major UK payment schemes, particularly Faster Payments (FPS). As they grow, some PSPs want to reduce their reliance on the systems, service levels, risk appetite and goodwill of the very banks with whom they are competing. Re-selling services ultimately provided by banks limits these firms’ growth, potential to innovate, and competitive impact. 3 These PSPs include firms granted the status of either an e-money or payment institution in the UK. 4 Examples include From Stripe to Square, from Paypal to Ripple, from Applepay to Zapp. 5 Indirect access removes the need to build costly payments infrastructure – a potentially large fixed cost for young companies. 4 BIS central bankers’ speeches That is why I am announcing this evening that the Bank intends to extend direct access to RTGS beyond the current set of firms, allowing a range of non-bank PSPs to compete on a level playing field with banks. 6 By increasing the proportion of settlement in central bank money, diversifying the number of settlement firms, and driving greater innovation in risk-reducing payments technologies, expanding access should bring financial stability benefits. | It is constantly developing its skills to understand and assess the impact of relevant risks – including those linked to climate change – on the economy and the stability of the financial system. It also integrates these considerations into its balance sheet risk management in order to guarantee the value of its reserves over the long term. Here, the SNB applies ESG criteria to its asset portfolio, while respecting the requirements of monetary policy. Given the rapid 13 IMF Global Financial Stability Report (2019), October. Cf. also Krüger, P., Z. Sautner and L.T. Starks (2019), ‘The importance of climate risks for institutional investors’, Finance Working Paper No. 610/219, September. Page 11/12 pace of developments in environmental economics, the SNB is closely monitoring developments at both national and international level. Ladies and gentlemen, it is now my pleasure to invite you to a round table. This will give us a chance to broaden the debate beyond central banking and to hear what other players have to say about the impact of climate risks on the economy and the financial system. Page 12/12 Climate risks and central banks: an SNB perspective Andréa M. Maechler, Member of the Governing Board Thomas Moser, Alternate Member of the Governing Board Swiss National Bank Money Market Event Geneva, 14 November 2019 Sources: SNB, Baker, Bloom and Davis. | 0 |
The ultimate vision is for the Asia School of Business to be a premier business school that develops transformative and principled leaders who will contribute to the advancement of the emerging world, particularly in Asia. Bank Negara Malaysia’s commitment to this collaboration is not only in providing the 20-acre land that is in the green lung of Kuala Lumpur for the campus and in building state-of-the-art facilities for the School, but being very much part of the Asian region, we hope that Malaysia, and more specifically, the Central Bank, will also be leveraged upon for our knowledge and experience in the region. BIS central bankers’ speeches 1 Located in the heart of Asia, Malaysia offers an eclectic mix of cultures and ethnic backgrounds that reflects the heterogeneity of Asia. As a highly open economy, Malaysia has strong economic and financial inter-linkages with the world, from Asia to the advanced economies and other emerging economies, including Latin America, the Middle East and Central Asia. The School will, therefore, draw extensively from the network of businesses in the emerging world to provide a platform for learning and research, and thus offer an extensive experience of the diversity that exists, in particular, in Asia. With the strength founded in the collaboration, I am confident of our potential to develop the Asia School of Business on solid foundations. The Bank looks forward to working with MIT Sloan in making this collaboration a success. | Ces critiques avaient tort sur l’inopportunité de l’euro mais ils avaient raison s’agissant du diagnostic sur les maux qui affligent l’économie européenne. L’euro, loin d’entraver les réformes structurelles, sera complémentaire de celles-ci. La monnaie unique facilitera les mouvements de biens, de services et de capitaux au sein de la zone euro, mais elle encouragera également la “ fertilisation croisée ” des meilleures pratiques grâce au renforcement de la coordination entre les politiques des États membres dans des domaines tels que : marchés du travail, enseignement et formation, incitations au travail et à la création d’emplois, meilleure efficacité des systèmes de protection sociale etc. - En quatrième lieu, tous les responsables économiques d’Europe doivent être lucides sur la question cruciale de la compétitivité. La politique économique de la période antérieure à l’introduction de l’euro consistait à surveiller la balance commerciale, la balance des paiements, les marchés de change et de taux. Les gouvernements recevaient ainsi en retour des informations constantes sur les principaux indicateurs de l’évolution de l’économie nationale et pouvaient agir en conséquence. Avec l’avènement de l’euro, ces indicateurs ont pour la plupart disparu au niveau national, mais ils subsistent naturellement au niveau de la zone euro. D’où l’importance des dispositions du Traité sur la coordination des politiques budgétaires et des politiques économiques. Néanmoins, les règles de l’économie de marché continuent de s’appliquer à chacune des économies. Les consommateurs créent des emplois lorsqu’ils choisissent les biens et services qu’ils estiment présenter le meilleur rapport qualité/prix. | 0 |
Before moving on to the next topic, let me close this discussion by stressing that, while central banks have been and will continue to be creative in using all available tools to achieve their mandate, we must recognize the limits of conventional monetary policy in circumstances of extreme financial distress. Conventional monetary policy alone is unlikely to be able to put back the economy on the right track and its combination with other policies certainly increases the chances of success. 4. Financial rescues and their Impact on a central bank’s balance sheet Please allow me now to finish with another topic where Chile’s experience can contribute to the international debate: the implementation of a financial bailout and the risks it imposes on the operation of a central bank. In normal times, central banks conduct their operations maintaining only the safest assets on their balance sheets, typically government bonds or other low-risk assets. But in times of distress, acting as lender of last resort, central banks may also accept lower quality, more risky assets, as collateral for liquidity provision or in outright purchases aimed at rescuing banks, with the consequent risk to their balance sheets. This has been indeed the case in several countries during the recent financial crisis. The possibility that risk-taking by central banks may result in losses that affect their reputation and operations has recently preoccupied policymakers, especially when pondering about the possibility of a large rescue operation of troubled European banks by the ECB. The concerns are both financial and operational. | Let me summarise the three main points: • The Eurosystem is exploring synergies between TARGET2 and T2S, with the ultimate goal of achieving a consolidated Eurosystem market infrastructure. • We are assessing new service opportunities arising from bringing the two infrastructures closer together. In particular, we are considering enhancements to the TARGET2 services in the field of instant payments. • The Eurosystem will increase harmonisation of its own collateralisation techniques and procedures. We will also consider the business case for a common Eurosystem collateral management system. As part of this morning’s panel, we will delve a little deeper into this vision and will discuss some of the challenges we can expect the future to bring. I would like to welcome the panel members and Marc Bayle who will moderate this session. 2 BIS central bankers’ speeches | 0 |
3 For a more detailed description of the model, see Adolfson, M., S. Laséen, J. Lindé and M. Villani (2007), "RAMSES - a new general equilibrium model for monetary policy analysis", Economic Review 2, pp. 33-68, Sveriges Riksbank. http://www.riksbank.com/upload/Dokument_riksbank/Kat_publicerat/Artiklar_. PV/07_2eng_ramses.pdf. 4 BIS Review 66/2009 Sweden’s data on capacity utilisation in industry and the National Institute of Economic Research’s Economic Tendency Survey. Figure 5 shows capacity utilisation in industry as reported by the companies. According to figures from Statistics Sweden, capacity utilisation in industry reached a peak of around 91 per cent in the first quarter of 2007, and has since fallen to around 78 per cent in the first quarter of 2009. According to the National Institute of Economic Research’s Economic Tendency Survey, capacity utilisation in industry during the same period has fallen from around 88 per cent to around 72 per cent. In both cases a large fall is reported. But these data concern only a small percentage of the economy and do not in general provide the same picture as, for instance, the GDP gap also shown in the Figure. Aggregate measure of resource utilisation At the Riksbank we have also produced an aggregate measure of resource utilisation. But this is not intended to replace all other measures; it will be used as a generic complement to the other measures. The aggregate measure of resource utilisation has been produced with the aid of a principal component analysis. | 10 BIS Review 65/2009 Table 1 World growth (*) (annual change, percent) Average Average 90-99 00-05 World World at market nominal exchange rate United States Euro zone Japan China Rest of Asia Latin America Commodity exporters Trading partners 2007 2008 (e) 2009 (f) Report Jan.09 2010 (f) Report Report May 09 Jan.09 Report May 09 2.9 3.8 5.2 3.2 1.2 T -1.2 3.3 T 2.1 2.4 3.1 2.2 1.5 10.0 5.5 2.7 2.7 3.0 2.9 2.5 1.9 1.6 9.4 4.8 3.0 3.1 3.1 3.8 2.0 2.7 2.4 13.0 5.9 5.7 3.2 5.0 2.2 1.1 0.9 -0.6 9.0 3.0 4.2 1.0 3.0 -0.3 -1.8 -1.9 -2.4 7.5 1.2 1.2 0.2 0.4 T -2.3 T -3.0 T -3.5 T -7.2 T 6.5 T -1.9 T -2.0 T -1.7 T -1.5 2.3 2.0 1.0 1.2 8.0 3.2 2.7 1.8 2.7 T T T T T T T T T 1.4 0.5 0.4 0.9 7.5 1.4 1.5 0.9 2.0 (*) Regional growth rates weighted by share in world GDP at PPP as published by the IMF's World Economic Outlook (WEO, April 2009). (e) Estimate; (f) Projection. Source: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts and International Monetary Fund. | 0 |
The industry plays a key role in helping contain costs and to align the consumers and medical industry towards preventive care measures. This will reduce the burden of individuals in society, especially those less privileged. Further, the world’s population is ageing and Malaysia is not far from this. An ageing population will put pressure on growth and the social protection system. Insurance will have a role to play in ensuring the life, health and pension needs of society are met in a sustainable manner. These demands on the industry are far from trivial and will not be met without strong leadership, a longer-term view on investments in capacity, and a relentless focus on quality standards and operational efficiency. Yet, today these conditions remain hampered by what is still a fragmented industry. It is therefore timely, if not more urgent, for institutions to consider synergistic partnerships to achieve the scale and competitive edge to lift performance and break into new markets. Our economy is in need of transformational change in the insurance sector – not incremental ones. To achieve this, we believe there is room for further consolidation in the industry. Technology and innovation Let me turn to our views on innovation. This industry has no shortage of evidence of its ability to seize opportunities provided by technology to improve itself. In the United States in the 1950s, the life insurance industry was one of the first and largest commercial users of the computer during its formative years. | As a result of this, Turkish banks have started to provide interactive banking services to decrease their costs and increase efficiency of banking transactions. They are also part of the Electronic Fund Transfer system for their internal banking transactions and of S.W.I.F.T. for external transactions. Parallel to the process of liberalizing the economy, Turkish banks have made significant progress in investments and in organizations abroad. They opened branches abroad and took important steps to increase their shares in international markets by acquiring financial participations and partnerships. As of June 2000, Turkish banking sector, including branches abroad, operates with the total asset size of USD 140.4 billion, more than 8,000 branches and almost 170,000 personnel. The Turkish banking sector is also open to international competition. At present 25 foreign banks, including development and investment banks, constitute 31% of the total number of banks in the sector. The share of foreign banks has also increased during the past few years. While their share was 5.8% and 5.6% as the end of 1997 and 1998 respectively, it increased to 6.7% as of June 2000, representing the total asset size of USD 9.4 billion. The majority of this share belongs to foreign commercial banks. As of July 2000, Turkish banks have: • 83 financial subsidiaries in 24 different countries; • 41 branches in 10 different countries; and • 62 foreign representative offices in 10 countries. | 0 |
Imagine if the banks publish their ‘rewards points’ suite of APIs, a single aggregator app could be developed that allows us to enquire and redeem points directly with merchants and service providers. The Playbook also provides guidance for the standardisation of APIs. The industry has come up with standards for information security, data exchange, and governance mechanisms. Having common standards will help promote greater data sharing and interoperability. The API Playbook is an important milestone in our FinTech journey. Some of our FIs are announcing their API initiatives over the course of this week. So watch this space. Not to be outdone, MAS published last week 12 APIs for its most heavily used data sets. We will progressively expand the list. Conclusion Let me conclude by saying a few words about the larger picture behind what we are trying to do 8/9 BIS central bankers' speeches in FinTech. We talk a lot about technology but it is really about fostering a culture of innovation. In an industry facing the headwinds of lower economic growth and heavier regulatory burdens, innovation must be the way to refresh and re-energise the business model. And innovation is not always about high-tech. It is about seeking newer and better ways to do things, about a spirit of enterprise. It is about hope in the future. The financial industry needs that. And let us not forget the purpose of innovation. | 7/9 BIS central bankers' speeches An Open API Architecture And saving the best for the end: creating an API economy. APIs, or Application Programming Interfaces, are likely to be one of the most important building blocks for innovation in the future economy. APIs are basically a set of protocols that define how one system or application interacts with another, usually from the perspective of information exchange. They allow systems to interact with one another without the need for human intervention. Publishing these APIs allows FIs to collaborate with external users to: – seamlessly merge multiple data sets from different sources into an integrated rich data set; and – deliver more functional and customised solutions faster and cheaper. MAS aims to establish Singapore as a centre of excellence for APIs on financial services. We are actively pushing FIs to develop and adopt APIs, and to offer as many of them as possible to the broader community. APIs are the essential ‘plumbing’ – the pipes – that enable the connections and collaborations that foster innovation. The financial industry has come together, in partnership with MAS and the Association of Banks in Singapore, to develop guidance on APIs. I am pleased to announce that we will publish today what we call the “Finance-as-a-Service API Playbook”. The API Playbook provides guidance on common and useful APIs that FIs could make available. For instance: Many of us struggle today to track and use our rewards points on our credit cards issued by various banks before they expire. | 1 |
Under the programme, examinations have been made mandatory to maintain continuing education standards of agents. · Guidelines dealing with unfair practices in insurance business have been introduced in April 2003 to provide a more comprehensive framework for the regulation of insurance market practices. Among other things, the Guidelines provide for enhanced disclosures to consumers, requirements for insurance to be sold on equitable terms and conditions, and specific restrictions against misrepresentation and unfair discrimination. · The Guidelines on Claims Settlement Practices introduced in 1995 have now been revised to incorporate new measures and improved market practices in claims handling, as well as the specification of minimum fraud control and risk management practices relevant to the claims process. · A minimum standard on product disclosure and transparency in the sale of medical and health insurance policies was issued in May 2003. The standard requires insurers and their intermediaries to provide sufficient details of the essential features of medical and health policies so that policyholders will understand the important provisions of the policies, in particular, with respect to premiums, benefits, exclusions and limitations under the policies. · A survey has also been commissioned to determine the level of consumer satisfaction with financial services, including insurance. The results of the survey will provide important input for the development of a service quality index for financial services that will serve as a benchmark for financial institutions to evaluate their service levels and identify areas for improvement. | 23.06.2020 The main post-pandemic challenges for the Spanish economy Appearance before the Parliamentary Committee for the Economic and Social Reconstruction of Spain after COVID-19 – Congress of Deputies Pablo Hernández de Cos Governor 1. Introduction Ladies and gentlemen, I appear before this Committee to set out what should be the guiding principles, in the opinion of the Banco de España, of Spain’s economic policy strategic priorities at present. Before elaborating on these priorities, allow me to convey my praise and gratitude to Spanish citizens for their exemplary behaviour in the especially difficult circumstances we have faced in recent months. Naturally, my support also goes out to all those who have lost loved ones as a result of the pandemic. The crisis has disrupted economic activity on a massive scale. To such an extent that, on all available forecasts, this year will see the biggest declines in GDP recorded in peacetime. As I argued in my appearance last May before the Parliamentary Economic Committee, the severity, temporariness and global nature of this shock initially warrants forceful economic policy measures that are time-limited and internationally coordinated. The goals of this shock therapy should be to lessen the effects of the pandemic in the short term and provide for an exit from the lockdown of the past few months with the least economic harm possible. Broadly, the response of the authorities - with measures I described and assessed in the aforementioned appearance - has been significant. | 0 |
Secondly, SMEs with good track records will not only enjoy a wider acceptance from banks, they will also be able to access financing on more favourable terms, and obtain faster decisions on their financing applications. This is because the Bureau acts as a one-stop center for banks to obtain consolidated information on SMEs, which is currently scattered, and will take longer for banks to obtain and verify individually. We have already seen how this can work in the case of consumer financing, where real-time and comprehensive information on consumers’ credit exposures and history that is available from CCRIS has 2 BIS Review 67/2008 significantly shortened loan-processing times. With greater availability of information on SMEs, the processing time for SME loans can be similarly shortened. Thirdly, the Bureau includes and takes into account both positive and negative information on SMEs. Certain third party information that financial institutions use in the evaluation of credit applications only provides negative information on the business conducts. Examples are information on bankruptcy and legal suits, which are sometimes not updated and may result in a biased assessment of creditworthiness. By collecting and disseminating both positive and negative information, the SME Credit Bureau will benefit SME loan applicants by providing a more balanced view of SMEs’ credit standings. In an objective rating process, credit bureaus typically accord greater weight to the more recent credit information or behavior. Negative records in the past can thus be mitigated by more current and consistent good track records. | These interventions have largely succeeded in avoiding deflation and a cumulative fall in GDP during the most acute phases of the crisis. It remains true, however, that, contrary to past episodes which followed deep recessions, the current recovery appears sluggish, uncertain and fragile. The global growth environment remains affected by significant uncertainties. Today, I would like to reflect upon these developments and focus on the challenges facing central banks in the post-crisis environment. 1. Let me start with a few stylised facts The first, and most visible, is the spectacular expansion in central banks’ balance sheets. In all advanced economies, their size has been multiplied, over four years, by a factor of two to five. This is an unprecedented development. Beyond advanced countries, central banks in emerging economies have also, to a lesser extent, expanded their balance sheets, mainly, but not only, as a result of foreign exchange interventions. A second, and related, feature is the diversification of central banks’ interventions. Prior to the crisis, central banks would conduct monetary policy by determining the policy rate, and, in some countries, by imposing compulsory reserve requirements on banks. The crisis has led to the development and proliferation of so called “non-conventional measures”, with two objectives. First, to remedy financial market disruptions; and second, to provide further monetary accommodation once policy rates have been brought down to very low levels and hit the so-called “zero lower bound”. | 0 |
From Construction to Maintenance: Patrolling the ring-fence Speech given by James Proudman, Executive Director, UK Deposit Takers Supervision Cass Business School, London 26 November 2018 I am grateful to Simon Debbage for preparing these remarks and to Michael Ainley, Sadia Arif, Charlotte Bull, David Eacott, Jeremy Leake, Duncan Mackinnon, Ben Martin, Alex Michie, Simon Morley, Rhys Phillips, Josh Sadler and Philip Sellar for their helpful contributions. 1 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx Introduction It is a great pleasure to be here again at the Cass Business School, and I am very grateful to the Associate Dean for inviting me. In fact, Andrew and I have quite a lot in common. We share a birthday, for a start, and a home county (Hampshire). For a while, we also used to share an office, back in the far off days before the financial crisis, when – as young(ish) economists – we used to debate the relevance of the ‘corporate veil’ for determining macroeconomic outcomes. Nowadays, we don’t discuss the corporate veil so much as the banking ring-fence, and that is the focus of my speech tonight. A decade on from the financial crisis, one of the largest ever reforms to the structure of the UK banking industry is coming into force. By 1 January 2019, the largest UK banking groups must have implemented the ‘ring-fencing’ – or separation – of their UK retail business from their international and investment banking operations. | And by the end of this year, we will have assessed and approved more than 50 applications for senior management positions within these groups, and considered the suitability of their proposed prudential sub-groups, containing hundreds of entities between them. Ring-fencing also resulted in the Bank helping ring-fenced banks undertake around 20 on-boarding operations to payment systems settling across the books of the Bank, and admitting six banks to the Sterling Monetary Framework. Most of the banks have also needed to undertake a complex legal process – called a ring-fencing transfer scheme – to transfer assets and liabilities between legal entities in their group.4 Each transfer required Court approval. Independent ‘skilled persons’ were required to review the banks’ plans, the PRA and FCA were called to provide their opinions, and objections from the public were invited before the judges could make their decisions. In each case, the Courts were able to approve the transfers going ahead. These transfers took place between April and August this year. Over £ billion of assets were moved between legal entities over a series of implementation weekends. Operational changes, in particular involving IT systems, can be complex, and the impacts when things go wrong can be wide-ranging and difficult to remedy. But in each case the ring-fencing transfer took place smoothly. A knock-on impact of these transfers was that the sort codes of over 1.3 million retail and corporate account holders needed to be changed. | 1 |
Subsets and Splits