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Alberto G Musalem: International spillovers and policies Remarks by Mr Alberto G Musalem, Executive Vice President of the Integrated Policy Analysis Group of the Federal Reserve Bank of New York, at the People’s Bank of ChinaFederal Reserve Bank of New York Joint Symposium, Hangzhou, Zhejiang, China, 15 Mach 2016. * * * Good morning. Thank you for the opportunity to speak here in Hangzhou about the important theme of international spillovers. By exchanging perspectives and experiences we can forge relationships and a shared understanding that can lead to better economic outcomes. I will focus mostly on the interaction of international spillovers with policy frameworks within and across countries. I will do this from the vantage point of a domestic economy experiencing foreign spillovers. I will then briefly turn to considerations from a U.S. perspective. As always, my remarks reflect my own views and not necessarily those of the Federal Reserve Bank of New York, the Federal Open Market Committee (FOMC), or the Federal Reserve System.1 International spillovers encompass a broad topic with respect to their sources and channels. Before narrowly focusing on monetary sources and associated channels, it seems appropriate to first take a broader view of the various sources. Foreign spillovers can emanate from monetary, fiscal, regulatory, currency or trade policies. Spillovers can also arise from endogenous productivity changes, from financial stability developments, and from a global financial cycle.2 The Mundell-Fleming logic remains relevant for thinking about policy options of open economies. | It provides lessons on channels of transmission, basic tradeoffs across objectives, and the effectiveness of policy responses.3 The channels of macroeconomic and financial transmission among open and interdependent economies occur through the current account of the balance of payments, the capital account, or both. From the vantage point of the domestic economy, there are three main channels of transmission: the exchange rate; the external demand; and the interest rate or risk-premia channel. The last can be more broadly defined as the financial conditions channel. The intensity of transmission of spillovers will depend on the monetary policy, currency policy and the real and financial openness of the economy being affected by external developments. Other relevant characteristics include the flexibility of labor and product markets; the depth, safety and soundness of the financial system; and the economy’s position as an international creditor or debtor. The Mundell-Fleming framework suggests that a country with a high degree of capital mobility and a flexible currency will be in a favorable position to use monetary policy to attain its internal growth and inflation objectives. When foreign interest rates increase and financial conditions tighten, changes in relative prices brought about by currency fluctuations can help to absorb the external shocks. The positive expenditure switching effect from currency depreciation improves the trade balance and supports demand. | 1 |
Public and private efforts have stepped up significantly to expand the capital markets domestically as well as regionally. Across the region, policymakers are sharing knowledge and expertise to ensure efficiency and pragmatism in the implementation of policy. Most obviously, Asian countries have also built up international reserves to a multiple of short-term external debt or other traditional measures of potential claims on reserves. They have also relied less on foreign debt financing and shifted more toward equity securities and direct investment. 4 This shift in the pattern of capital flows demonstrates to some extent advances in equity market development and corporate governance in the region. For a few countries, reserve accumulation partly constitutes a deterrent to the repeat of the last extreme episode of instability in 1997. As an added benefit, a relatively well-developed system of prudential banking regulation has also helped these countries avoid speculative pressures on their exchange rates. As far as financial integration is concerned, there have been selective and timely capital account restrictions and liberalization on both inflows and outflows over the years. Much of this caution derives from the bitter lessons from the 1990s. But, even so, it is worth mentioning that, measured by total foreign assets and liabilities as a percentage of GDP, the trend from Bangkok to Seoul is that of more financial integration over the past 20 years. 5 Ladies and Gentlemen, These changes in policies and risk awareness make it less likely that financial market disturbances will trigger a sharp and broad-based dent to real economic outcomes. | In fact, these bouts of extreme instability have disrupted the potential growth trends, which in some cases have taken years to recover. On the whole, these episodes may be associated with too much financial liberalization too soon. The unique global backdrop, as well as the economic outcomes in terms of growth and volatility that I have just shared with you, presents a real dilemma and at times tension in emerging Asia. And nowhere is this tension more palpable than it is in the realm of exchange rate and capital account regimes. While benefits from trade integration are appreciated and shared by billions the world over, net benefits from international financial integration have not been so apparent in Asia and emerging economies in general. This is consistent with an observation that Asian emerging markets rely increasingly more on trade integration because it is judged to be a safer mode of risk-sharing with the world. As a result, while the pace of financial integration has far outstripped trade integration in advanced economies, it has only managed to keep pace with trade integration in emerging markets. 3 Ladies and Gentlemen, Asian economies and policymakers have come a long way in their attitude toward macroeconomic risk management since 1997. Countries have taken unilateral actions to promote economic and financial resiliency. Having appreciated the evidence that macroeconomic stability provides an environment that is conducive for sustained growth, Asian emerging markets have continued to pursue fiscal discipline and more flexible exchange rates on the whole. | 1 |
SPEECH DATE: 2021-10-06 SPEAKER: First Deputy Governor Cecilia Skingsley LOCALITY: Swedbank (digitally) SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 [email protected] www.riksbank.se Building payment systems for our grandchildren* Payments at the heart of our everyday lives Firstly, thanks for inviting me this morning to speak about payments and the infrastructure that makes them possible.1 A topic that currently commands quite a lot of time at both the Swedish banks and the Riksbank, due to large projects aimed at basically building the future payment systems. I will say more about this shortly. Many of us tend to pay without thinking so much about what actually happens. On a typical day, a first interaction with the payment system could be preloading your public transport card from your bank account. At work, you use your mobile phone to send – or ‘swish’ as we call it after the domestic mobile payment service – a contribution to a colleagues 50th birthday present. Later, lunch is paid for with a bank card that you may also use to buy groceries with on your way home. Back from work, you may still have a few payments to make. In the evening, perhaps you log on to your internet bank to pay a couple of bills. Also, if the month has not been too costly, a sum of money may be placed in your savings account or even invested in the stock market. | The percentage of financially constrained but viable SMEs – defined as those with positive turnover in the last six months seeking a bank loan – was estimated to have varied from around 1% in Germany and Austria to a quarter of the SME population in Spain and as much as a third in Portugal. The second part of our response has therefore been to improve the transmission of loose market financing conditions into the actual borrowing conditions of firms and households. In this context, between June and September last year we launched our credit easing package to strengthen banks’ incentives to improve the availability and lower the price of credit. In parallel, we gave our full technical and operational support to the Comprehensive BIS central bankers’ speeches 1 Assessment of bank balance sheets – the supervisory exercise aimed at forcing banks to acknowledge non-performing exposures and to raise provisions and capital where needed. This exercise was powerful in the sense that it accelerated what had until that point been a slow process of balance sheet repair in the euro area; banks strengthened their capital by over € billion in advance of the outcome. In this way the new monetary policy impulse coming from our credit easing package coincided with a banking sector in a stronger position to transmit it. But as these measures were coming into effect the euro area was hit, like all advanced economies, with a further downward shock to inflation emanating from the steep fall in global oil prices. | 0 |
In the euro area, the economy depends on the banking system for more than two-thirds of its financing. Any lasting disruption to credit flows would cause considerable harm. Regulators could jointly decide on the following sequence. In the immediate future, priority should be given to capital conservation. As I mentioned, most of the current banking profits are, in fact, by-products of public policies and there is a good case for requesting that they should be kept inside the banking system and used to strengthen balance sheets and finance credit to the economy. This would require some restraint in dividend distribution and, of course, in the overall amount of variable compensation. In parallel, all possibilities to issue new equity should be exploited. This would be a first step. As a second step, a progressive schedule of capital strengthening could be precisely defined and published for the future. It would be crucial that this schedule be made explicitly contingent on the state of the world economy. Again, we want the direction and the path to be clear. But it is important to avoid any negative procyclical effects. The same approach could apply to the new liquidity regime when it is introduced. Let me conclude by mentioning one broader and fundamental issue. We don't know yet what kind of financial system will emerge from the crisis. We need to think about this. We want to reduce or eliminate moral hazard, but the definition of a systemic institution still eludes us. | As a result of the turmoil, and of the policies implemented to contain it, some financial activities have become heavily concentrated among a very small numbers of players. This raises some basic questions about monopolistic tendencies. Competition policy in the financial sector must be reinvented. This cannot be done without some vision about the future shape and structure of the financial industry, as well as the degree and modalities of its internationalisation. The debate is clearly open. This is – for all G20 policy-makers, the FSB and regulators – a formidable challenge. BIS Review 133/2009 3 | 1 |
This period coincided with the consequences caused by the pandemic. Second, the Bank of Albania has initiated and implemented a plan of measures to increase the use of the national currency, in the financial system. This plan of measures aims at strengthening the financial stability of the banking sector and economy and at the better monetary policy pass through. It has induced positive effects in terms of reducing the share of loans in foreign currency around the level of 50% and increasing the interest for holding savings in our national currency. Third, the Bank of Albania has successfully managed the consolidation process of the banking sector. This process, consisting in a huge investment of time and energy, has aimed at not simply reducing the number of commercial banks (from 16 to 12), but – above all – at the introduction of new and motivated actors in the domestic market and increase of competition in this market. Albania has benefited a more competitive, efficient and safer banking sector. Last, the Bank of Albania has worked for the adoption of the best practices in the banking regulation and supervision field, aiming at the convergence with the euro area standards and focusing on the analyses and address of large risks. In reflection of this work, the Bank of Albania is already a member of the supervisory colleges of central banks. We have also established and approved a complete and functional framework on resolution of banks, thus being the first amid regional countries. These efforts have given their fruits. | The FPC has said that it would take a proportionate and graduated response to evolving housing market risks. Experience suggests that momentum in the market, and an associated increase in indebtedness, can be hard to check, particularly if expectations of a rapidly rising market become deeply entrenched. A number of countries have had to take a series of actions over time to slow fast growth in housing market activity to more sustainable rates. 2 See the Box on page 22 of the May 2013 inflation report. BIS central bankers’ speeches 5 To return to where I started. The Financial Policy Committee of the Bank of England is charged with looking ahead to identify and to counter risks to financial stability. There will always be a number of blinking warning lights – risks generated at home and risks coming from abroad – on our dashboard. The growing momentum in the market is now in my view the brightest light on that dashboard. It has not yet been accompanied by a substantial increase in aggregate mortgage debt, though gross mortgage lending is growing and there are signs that debts are becoming more concentrated. This could fade as affordability and lender constraints act increasingly as a brake on momentum. But other outcomes are very possible and the Financial Policy Committee will need be both vigilant and ready to act. 6 BIS central bankers’ speeches | 0 |
The Basel Committee on Banking Supervision, which was formed in 1974, in the wake of the Herstatt incident25, has been setting the norms for banks’ capital adequacy, for instance, since the 1980s. With regard to financial legislation, harmonised regulations have long been drawn up for banks and other financial companies within the framework of the European Union. However, there is no doubt that the international cooperation has further intensified since the global financial crisis. The focus has more clearly been on a systemic perspective, or, if you will, a macroprudential policy perspective. After the crisis, it became a natural task for the Basel Committee to make a thorough review of the requirements with regard to capital and liquidity. The results of this review include the guidelines that are known as Basel III. The G20 countries’ reform agenda now includes, within the framework of the work conducted by the Financial Stability Board, special capital requirements for so-called 25 On 26 June 1974, the West German authorities revoked the Cologne-based Herstatt Bank’s licence to conduct banking activities. On that date, several banks released payments in D-mark to Herstatt Bank in Frankfurt, in exchange for US dollars, which were to be delivered in New York. A time lag arose between the different time zones, where operations ceased before the counterparts in New York had received their dollars. The Herstatt incident is a famous case that is often used as an example of so-called settlement risk. | (2020), “Does financial structure affect the carbon footprint of the economy?”, Financial Integration and Structure in the Euro Area, ECB, March. 13. European Council (2022), “International taxation: Council reaches agreement on a minimum level of taxation for largest corporations”, 12 December. | 0 |
Under these circumstances, there was a likelihood that a number of credit and interest rate markets would experience extreme price moves and possibly cease to function for a period of one or more days and maybe longer. This would have caused a vicious cycle: a loss of investor confidence, leading to a rush out of private credits, leading to a further widening of credit spreads, leading to further liquidations of positions, and so on. Most importantly, this would have led to further increases in the cost of capital to American businesses. Let me be clear: had we not just experienced in August precisely this type of shock to our credit markets, had we not just seen a sudden, world-wide straining of investor confidence, had there not already been underway a flight of capital away from private credit and into Treasury securities, were much of the world not experiencing financial strain, then our judgements about the risks to the American economy of an abrupt and disorderly close-out of Long-Term Capital may well have been different. But, in the circumstances that did in fact exist, it was my judgment that the American people, whom we are pledged to serve, could have been seriously hurt if credit dried up in a general effort by banks and other intermediaries to avoid greater risk. | There are several ways that the problems of Long-Term Capital could have been transmitted to cause more widespread financial troubles. Had Long-Term Capital been suddenly put into default, its counterparties would have immediately “closed-out” their positions. If counterparties would have been able to close-out their positions at existing market prices, losses, if any, would have been minimal. However, if many firms had rushed to close-out hundreds of billions of dollars in transactions simultaneously, they would have been unable to liquidate collateral or establish offsetting positions at the previously-existing prices. Markets would have moved sharply and losses would have been exaggerated. Several billion dollars of losses might have been experienced by some of Long-Term Capital’s more than 75 counterparties. These direct effects on Long-Term Capital’s counterparties were not our principal concern. While these losses would have been considerable, and would certainly have adversely affected the firms experiencing them, this was not, in itself, a sufficient reason for us to become involved. Two factors influenced our involvement. First, in the rush of Long-Term Capital’s counterparties to close-out their positions, other market participants - investors who had no dealings with Long-Term Capital - would have been affected as well. Second, as losses spread to other market participants and Long-Term Capital’s counterparties, this would lead to tremendous uncertainty about how far prices would move. | 1 |
Mugur Isărescu: The single currency – a central banker’s viewpoint from an EU Member State outside the euro area Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the 2015 COFACE Country Risk Conference, Bucharest, 29 April 2015. * * * Dear Professor Issing, Ladies and gentlemen, I am delighted to have the honour of opening this conference, the more so as this is an opportunity to meet Professor Issing again – the similarity of our surnames brought us literally side by side at many events over the years. Professor Otmar Issing’s career is stupendous, but it is only natural that the general public has been remembering him as a prominent figure of the European Central Bank, whose inaugural chief economist he was, and as a key contributor to the building of the Economic and Monetary Union. I. Euro adoption by Romania: between desirable and feasible My intention today is to speak about the issue of the single currency from the viewpoint of a central banker in an EU Member State still outside the euro area. During my address, it is inevitable to touch upon various opinions which our distinguished guest has expressed over the years. I start by recalling what Otmar Issing said back in 2006, in a dinner speech occasioned by his leaving the ECB: “We were all privileged to participate in a historically unique experiment: the creation of a new currency for Europe. | Joseph Yam: Asia’s ability to cope with the continuing challenges of globalisation Statement by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority and Alternate Governor on the Board of Directors of the Asian Development Bank, at the 37th Asian Development Bank Annual Meeting, Jeju Island, Korea, 15-17 May 2004. * * * Mr President, I join other Governors in: first, thanking the Government and the people of the Republic of Korea for their warm hospitality in hosting this year’s Annual Meeting; secondly, thanking the Bank’s management and staff for the excellent arrangements made; and thirdly, welcoming our two new members - Luxembourg and Palau. Mr President, on the governance of the Bank, I would like to commend the Bank for adopting a number of reform initiatives in the past year to enhance accountability and efficacy of operations. Greater transparency and accountability in all aspects of the Bank’s operation is to be welcomed. Measuring, monitoring and managing development results are essential. The creation of the independent Operations Evaluation Department will enhance the credibility of the Bank’s achievements. These initiatives will put the Bank in a stronger position in meeting the many tasks ahead. On the region, Mr President, I would like to focus just on the continuing challenges arising from globalisation and the ability, or rather the lack of ability, of Asia in coping with them. The Asian financial turmoil of 1997-98 demonstrated this vehemently. | 0 |
It is, therefore, important that in the examination that follows a country’s request for a convergence report due consideration be given to the policy consistency and credibility of the applicant country. A comprehensive economic analysis that is not only quantitative but also qualitative, and which recognizes the difficultly of simultaneously satisfying all the Maastricht criteria in the current world environment would encourage EMU candidate countries to persist in their efforts to achieve even closer nominal and real convergence. It would also provide further evidence that the euro project is credible, that it is both feasible and realizable in a near-term perspective. Let me conclude by thanking you again for being here to contribute to a deeper understanding of the challenges ahead. I also wish you a pleasant stay in our country. BIS Review 53/2006 5 | Arthur Yuen: Transforming risk management and compliance harnessing the power of regtech Speech by Mr Arthur Yuen, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong FinTech Week 2020, Hong Kong, 2 November 2020. * * * Opening 1. Ladies and Gentlemen, a very good morning or good afternoon to you, wherever you are in the world! Welcome to the Fifth Annual Hong Kong Fintech Week. 2. The focus of this session is how we can harness the power of technology to transform risk management and regulatory compliance. 3. COVID-19 has sparked many changes for all of us. The fact that I am speaking virtually to you today as part of a fully virtual Hong Kong FinTech Week is one of those changes. And those changes once again reminded us of how important it is for government, regulators, banks and other industries to be adaptive. More importantly, these are not changes to be feared or avoided. Rather, we should embrace them in order to move forward. 4. At the HKMA, we have always been passionate about promoting and implementing technology solutions to make our banking system smarter. This, we reckon, is the only way to ensure that our banking sector remains internationally competitive. Along this same line of thinking, we are launching a White Paper today that sets out a glide path for the wider adoption of Regtech in Hong Kong. This White Paper outlines a series of actions that we would take to accelerate Regtech adoption. 5. | 0 |
For Mervyn, I am guessing that one hundred years may not seem like a long time, given that the Bank of England is over 300 years old, but I am sure he will graciously allow us our moment. We are also joined by many other friends and associates of the New York Fed, and a great number of our current and former staff. For 100 years the Federal Reserve has been an essential contributor to American economic prosperity and stability and that record is reflected in this fascinating exhibit. Rather than focus on its achievements during my brief remarks this evening, I thought I’d highlight what I think makes the institution that I have the honor of leading, the New York Fed, such a remarkable place within this extraordinary System. First, we are a bank within government. That means we not only have researchers, supervisors and market analysts, but we also provide banking services and possess significant operational capabilities. We accept deposits, make loans and operate the System Open Market Account for the Federal Open Market Committee. When exigent and unusual circumstances require extraordinary operations, be it in a financial crisis or to implement BIS central bankers’ speeches 1 unconventional monetary policies, we stand ready. Our operational capabilities complement our more conventional central bank policy role in a way that is, I think, very special within the Federal Reserve System. Second, the New York Fed is a vital component of the international role played by the Federal Reserve System. | Residents are also allowed to purchase, through authorised financial institutions, shares quoted on foreign stock markets, and are permitted to transfer foreign exchange abroad to pay for purchases of such securities. 3. By the same token, non-residents are allowed to buy and sell Turkish securities quoted on the Turkish stock market. They are also allowed to buy and sell Turkish government securities through intermediary institutions operating in Turkey. 4. A substantial part of the controls on capital movements were removed, greatly easing inflows and outflows of credit. Turkey has accepted the provisions of Article VIII of the Articles of Agreement. 5. To avoid excessive risks for the banks, new regulations were adopted governing the foreign exchange position of the commercial banks. The banks are free to set their own rates for buying and selling foreign exchange. Our foreign exchange system, described above, is very convenient for foreign capital flows. Now let me describe the main characteristics of our financial system. Even though our efforts to liberalise the financial system did not begin until 1980, the Istanbul Exchange Market has existed and operated since 1858. It grew out of the activities of Non-Muslim bankers in the Galata district of Istanbul. These operators, mostly Levantines, Jews, Armenians, and Greeks, used to risk their own capital by extending credit to the government, secured by pledges of future tax collections. | 0 |
Using the adapted risk model, the maximum assumed risk of loss on the corresponding positions, and hence the requisite capital requirement, was reduced. 18 Granting permission to use this model was, in the conditions prevailing at the time, a logical step and in line with international practice. During the crisis, however, it became clear that the overreliance on risk models was a mistake – something which FINMA (the successor to the SFBC) has also acknowledged in hindsight. 19 Switzerland’s regulatory response to the ‘too big to fail’ issue The financial crisis vividly exposed the shortcomings of banking regulation. A broad consensus quickly developed over the need for a thorough overhaul of the regulatory framework. In Switzerland, the UBS case, in particular, generated strong political momentum for stricter banking regulations. a) Extensive adjustment of international regulatory standards At international level, the Basel Committee and the Financial Stability Board (FSB) subsequently adopted a number of measures to strengthen banks’ resilience and find a solution to ‘too big to fail’. With respect to banks’ resilience, the Basel Committee increased the minimum risk-weighted capital requirements, in terms of both quality and quantity. It also specified a capital surcharge for systemically important banks over and above the new minimum requirements applying to all banks. Furthermore, it revised the calculation of risk-weighted assets with the goal of restricting banks’ freedom to determine capital requirements. | However, suppose that, for some reason, the appropriate and effective instruments to ensure financial stability are not available, for instance, because of serious problems with the regulatory and supervisory framework that cannot be remedied in the short run. In such a second-best situation, if there is a threat to financial stability, one may argue that, to the extent that policy rates do have an impact on financial stability, that impact should be taken into consideration when choosing the policy-rate path to best stabilise inflation and resource utilisation. Such considerations could result in a lower or higher policy-rate path than otherwise, in order to trade off less effective stabilisation of inflation and resource utilisation for more financial stability 5. However, so far all of the evidence indicates that in normal times 5 Such considerations could include evidence of the “risk-taking channel” as in Borio and Zhu (2008). Adrian and Shin (forthcoming) and Adrian and Shin (2010) argue, in a model with such a risk-taking channel, that short interest-rate movements may have considerable effects on the leverage of securities broker-dealers in the market-based financial sector outside the commercial-banking sector. If we assume that the risk of a financial crisis increases as this leverage increases, and that policy rates affect leverage, then policy rates would affect the risk of a financial crisis (Woodford 2010b). However, new regulation is likely to limit excess leverage and limit the magnitude of these affects. | 0 |
6 BIS Review 36/2005 Graph 5: Risk Premium and Real Interest Rates 1000 35 900 30 800 25 700 600 20 500 15 400 300 10 200 Risk Premium (JPMorgan) Real Interest (Calculated w ith inflation expectations) 100 5 Mar-05 Jan-05 Nov-04 Sep-04 Jul-04 May-04 Mar-04 Jan-04 Nov-03 Sep-03 Jul-03 May-03 Mar-03 Jan-03 Nov-02 Sep-02 Jul-02 May-02 Mar-02 0 Jan-02 0 Source: CBRT, JP Morgan. Graph 6: CBRT Interest Rates and Secondary Market Nominal Interest Rates 90 ISE T-Bill and Bond Market Interest Ratescompound 80 CBT Overnight Interest Rates 70 (%) 60 50 40 30 3/2/05 1/2/05 11/2/04 9/2/04 7/2/04 5/2/04 3/2/04 1/2/04 11/2/03 9/2/03 7/2/03 5/2/03 3/2/03 1/2/03 11/2/02 9/2/02 7/2/02 5/2/02 3/2/02 10 1/2/02 20 Source: CBRT, ISE. At this point, within the scope of the changing dynamics of inflation, I would like to talk about the passthrough effect of the exchange rates on inflation, which is quite significant not only in terms of the determinants of inflation, but also the current exchange rate regime. | Inflation, on the other hand, continues its downtrend in May, and although we see inflation numbers turning negative, the current uptick in commodities and asset prices, together with signs of greater stabilization in the real sector, help lessen the concern regarding deflation risk. Against this background, the Monetary Policy Committee in its meeting on May 20th held the view that monetary policy has been substantially eased and the current policy rate at 1.25 percent remains supportive of the economy. Two implications must be drawn from this decision. First, given the low policy rate and the ample availability of liquidity, more gains could be made by ensuring that, at the current policy rate, the benefits of past rate reductions are passed on more fully to consumers and the private sector through corresponding adjustments in the banking system’s interest rates. The second implication is that, while the BIS Review 76/2009 1 emerging signs of stabilization are positive and are consistent with the developments on a worldwide basis, they must be treated with caution given that the current state of the global economy and financial markets are still far from normal. Hence, the MPC will continue to monitor closely the uncertainty surrounding both domestic and external economic conditions, and stand ready to implement appropriate monetary policy to support economic recovery in the period ahead. Turning now to the banking sector. The Thai banking sector was able to weather the impact of the global financial crisis with a relatively strong initial position. | 0 |
6 BIS central bankers’ speeches Figure 1 Quarterly economic growth (1) (q-o-q change, percent) 3 3 2 2 1 1 0 0 -1 -1 -2 -2 -3 -3 07 III.07 08 III.08 09 Developed (2) III.09 Emerging (3) 10 III.10 (1) Regions weighted at PPP. (2) Includes: Australia, Canada, Denmark, the Eurozone, Japan, New Zealand, the Sweden, Switzerland, the U.K., and the U.S. (3) Includes Argentina, Brazil, Bulgaria, Chile, China, Colombia, the Czech Republic, Hong Kong, India, Indonesia, Malaysia, Mexico, Peru, the Philippines, South Korea, Russia, Singapore, South Africa, Thailand, Taiwan, Turkey and Venezuela. Sources: Central Bank of Chile based on each country’s statistics institute and International Monetary Fund. Figure 2 World growth (*) (y-o-y change, percent) 15 12 9 6 3 0 -3 -6 -9 -12 -15 15 12 9 6 3 0 -3 -6 -9 -12 -15 80 85 Developed 90 95 Chile 00 05 Latin America 10 (*) Gray area shows April 2011's WEO forecasts. Source: International Monetary Fund. | This is consistent with economic activity fluctuating around its full capacity level, going from periods of capacity under-utilization to periods of over-utilization. So the maximum level the MPR will ultimately reach and when this will happen in the current cycle is something the CBC Board will be analyzing as events unfold. This year to date, a 200 basis point increase has already accumulated in the MPR and we believe further increases will be needed. The magnitude and timing of these increases will respond to incoming data, risks and their implications for inflationary prospects, taking into account the lags that are inherent to monetary policy. Thus, no scenario can be ruled out. It is likely that in the coming meetings the magnitude of the correction will be reduced and there may even be pauses. Likewise, although today it seems less likely, it can also happen that the recent pace is maintained if inflationary risks so recommend. In any case, there seems to be consensus in market expectations that smaller adjustments will be required going forward. Actually, most forecasts place the MPR around 6% at the end of this year (figure 17). Conclusions The last several years have been very complex. Policy makers have faced probably the greatest challenges in decades. Swings in economic activity, inflation and expectations, among many other variables, have been marked in unprecedented ways. Chile’s macroeconomic policy framework has given proof of its flexibility and effectiveness, succeeding in mitigating and overcoming the effects of the world crisis. Today we face new, significant challenges. | 1 |
The experience at federal level motivated various cantons to follow suit. This has proved to be a very effective fiscal policy reform. The debt brake is a rule that links expenditure to the amount of cyclically adjusted revenue. It aims at a balanced structural budget over the medium term. Fiscal policy maintains a countercyclical profile through the mechanism of automatic stabilisers. The strict implementation of this rule led to BIS central bankers’ speeches 5 significant budget surpluses in the boom years preceding the global financial crisis. Importantly, the debt brake has made it possible to regain control over public spending, which had steadily increased during the 1990s. Since the main focus of the debt brake rule is on long-term sustainability, the framework leaves little room for discretionary spending. The Federal Government can make an exception and allow additional emergency spending only in the event of a proven severe crisis. During the recent crisis, the healthy state of Swiss public finances enabled the automatic stabilisers to play their role to the full extent, which contributed to supporting the economy, without threatening medium-term fiscal stability. In particular, public spending on the unemployed and short-term workers increased significantly, while income and profit tax revenues decreased. Contrary to what we have seen in other countries, no tax increases or austerity measures were needed to correct the public finance trajectory. This has had a positive impact on households’ disposable income, and hence on both private consumption and business confidence. | In the euro area, meanwhile, the ECB made it clear that additional monetary stimulus would be required. A tangible sign of these diverging patterns was the substantial weakening of the euro against the dollar. With the clear prospect of a significant QE programme in the euro area, the pressure on the minimum exchange rate intensified hugely at the beginning of 2015 – especially in the last few days leading up to the SNB’s decision on 15 January. Against that backdrop, the minimum exchange rate became unsustainable and the SNB had no choice but to discontinue its policy. By maintaining the minimum exchange rate for longer, the SNB would have run the risk of losing control over its balance sheet. This, in turn, would have hampered its stability-oriented policy in the future. Once you have arrived at such a conclusion, you have to act swiftly. Speculative position-taking against the minimum exchange rate could easily have caused the SNB’s balance sheet to double within a few months. We would subsequently have been compelled to discontinue the exchange rate floor under even greater pressure, with all the consequences for our balance sheet and the Swiss economy that this would have implied. The costs of maintaining the floor would have been out of all proportion to the benefits. As a consequence, the Swiss economy is now dealing with very difficult exchange rate conditions. In an interdependent world with highly integrated and liberalised capital markets, the strengths of an economy like Switzerland can, paradoxically, turn into a major challenge. | 1 |
And the value of stress testing and scenario analysis is even more important in those situations where risk measurement is based on scarce or incomplete data or unproven quantitative tools. The above mentioned examples demonstrate the clear view we have taken in the Committee that the sound and stable functioning of credit institutions requires consideration not only of micro conditions, but also, and very importantly, incorporating a macro, long-term and forward-looking perspective. I think these principles also make good business sense. I believe that risk managers, should incorporate macro perspectives into their risk management models and into the design of the bank’s capital strategy. That is, to analyse how risks may change through the cycle and in stressed economic conditions, and incorporate these elements into the decision-making process. It is often thought that risks increase during times of economic downturn. But this is only partly true. Banks’ risks increase as they take on more business and extend more credit during times of economic expansion. The risks may not crystallise until times of difficulty, but the seeds are sown during the BIS Review 46/2006 5 good times. It seems to me to be both prudent policy and consistent with risk management objectives to take a long term perspective, using the results to make decisions that gain room for manoeuvre in the good times in order to face up to difficulties that arise in the bad times.. | Over 500 organisations have endorsed the TCFD recommendations, with a total market capitalisation of $ trillion. 9 See TCFD (2017), ‘Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures,’ June 2017. 5 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 5 The implementation report issued by the Task Force in September 201810 – a year after the recommendations were first published – assessed some 1800 companies (that made some reference to climate in their reporting) using artificial intelligence, and analysed in more detail an additional 200 of the largest companies, drawn from eight representative sectors. Across both, it found that a majority of companies already disclose information in their 2017 filings that aligned with one or more of the TCFD’s recommendations. Reporting by the largest companies appears to have been more sophisticated – with a higher share of the firms reporting against more of the TCFD recommendations. This is remarkable given companies only had about six months to respond to the final TCFD recommendations in their 2017 filings. That said, compared to both the recommendations and user expectations, more progress is needed. | 0 |
In investment, a weak performance is anticipated for the remainder of 2022 and all of 2023, in line with the more persistent rise in the real exchange rate, worse financing conditions, the reduction in the investment outlook contained in the latest survey of the Capital Goods Corporation (CBC) (public works, mining and energy projects) and the weakness of construction sector indicators. In addition, the pessimistic outlook for the sector (IMCE) and the current high uncertainty. It should be noted that the fall in the machinery and equipment component would be lower than expected, given the higher volume of capital imports, mainly associated with energy projects and transportation and telecommunications. 3 Bilateral Meetings Market forecasts for activity and demand exceed those of the central scenario, especially for 2023, even considering the corrections after the IPoM was published. The differences are especially notable in the case of private consumption. Certainly, the external impulse that the Chilean economy will receive will be lower than in previous years and what we anticipated some months ago, mainly due to less favorable financial conditions and terms of trade, together with lower external demand. In this macroeconomic scenario, inflation will return to the 3% target within two years. Core inflation will decline more slowly, affected by higher persistence. Our closing inflation projections —at the beginning of September— were made with a nominal exchange rate at $ In recent days, it is closer to $ a depreciation of around 5%. | Therein lies our biggest challenge. Prices for services have been rising at a fast rate as the economy has recovered from the recession. In particular, rents for new leases have climbed rapidly. And labor shortages are everywhere, leading to higher labor costs. Indeed, inflation pressures have become broad-based across a wide range of goods and services. Good News and Bad News What does the future hold? I will start with some good news. First, prices of many commodities, such as lumber, are in retreat. Absent further supply disruptions, I expect slowing global growth, in part reflecting tighter monetary policy here and abroad, will continue to reduce demand for these products. This should put downward pressure on commodity prices and help ease inflationary pressures, especially for goods and services that are heavily reliant on commodity inputs. Second, we have seen significant improvement in global supply chains, and I expect this to continue. At the New York Fed, economists have developed the Global Supply Chain Pressure Index, which measures the extent of global supply-chain disruptions by summarizing a variety of data, including reported delivery lags and the costs of transporting goods. The Index soared to unprecedented levels late last year but has 2/5 BIS - Central bankers' speeches now reversed about two thirds of its rise. Although significant supply-chain problems are still affecting some industries, such as autos, improvements in supply should help ease supply-demand imbalances and result in lower prices for affected products. 3 Unfortunately, that's it for the good news on inflation. | 0 |
One essential question is whether, in general terms, short-term stabilisation policies should be pursued in an attempt to bring about high real growth in the long term. It is worth emphasising here that monetary and fiscal policy differ in how promptly they react to changes in economic circumstances. In principle, the Riksbank can adjust its instrumental rate at any time whatever so as to stimulate or curtail demand. At the same time, however, the impact of such measures can be expected to peak only after 1 to 2 years. This means that monetary policy should be framed primarily with a view to its long-term effects. Fiscal policy, in contrast, can have a major direct impact on the economy, but its most important components resist rapid change. There are administrative costs associated, e.g. with changing tax rates, and changes in regulations take time to implement. This means that fiscal policy is difficult to adapt quickly to meet changed economic prospects. This leads to the conclusion that even if monetary policy can react immediately to changes in the economic situation, neither monetary nor fiscal policy should aim to influence economic conditions in the short term, i.e. to function as instruments of “fine tuning” stabilisation policy. Instead, both monetary and fiscal policy should be designed so as to create stable long-term conditions. The contribution made by monetary policy to welfare is precisely to create as stable conditions as possible in the economy by means of the inflation target policy. | Since the inflation risk premiums are low, employees will not need to demand extra high nominal wages to insure themselves against unexpectedly high inflation. This is because it can be anticipated that the central bank will tighten monetary policy. This in turn will mean that less stringent measures will probably be required than would be needed by a central bank that had not yet established its credibility. BIS Review 132/1999 2 Turning more specifically to the situation in Sweden, it can be said that the macroeconomic conditions today are favourable: inflation is low, budget deficits have been transformed into surpluses and the prospects for growth are good. However, economic policy is a continuous learning process and the successes of recent years should not be taken as evidence that the structural problems have been solved. On the labour market, for example, structural rigidities remain; also, the tax-pressure is still high, which inevitably distorts incentives to work and save. As far as monetary policy is concerned, the credibility of the inflation target regime has as yet hardly been tested in a period of economic upturn. What does this mean for how much and how often monetary policy should react to changes in the economic outlook? This, of course, is a question that the Executive Board of the Riksbank addresses on an ongoing basis, communicating its views in inflation reports, the minutes of its meetings and speeches. | 1 |
It seems very timely that we overcome the history that has separated us and begin working more closely together. During the Cold War, it was the view of many in the United States that India was too closely allied with the Soviet Union. American businesses that looked at India found it afflicted with the legacy of the worst of British bureaucratic administration. (The old joke was that you could never get morning tee times at any Indian golf course because the bureaucrats had locked them up at least until noon). From an Indian perspective, America seemed too hegemonic. Attempts by U.S. companies to invest and do business in your homeland revived memories of the East India Company. We viewed each other through the lens of the time and against a background of our own histories, with suspicion. But the (Berlin) Wall came down, the economy has been globalized and cyberized, and new threats to security have arisen, many of them from nonstate actors or forces who operate from within failed states to inflict damage elsewhere. This is a time for like-minded people to unite and work together. We are like-minded in that we are democracies. But tonight we celebrate something even more fundamental. My reading of India is that, like in the U.S., your country men and women are more pragmatic and business-oriented than they are ideological or inherently bureaucratic. The recent election of Prime Minister (Narendra) Modi offers the promise of making this abundantly clear. | And I trust they and others like them will use it to lead the world, including India, to expanded economic prosperity. Thank you for having me here this evening. 4 P.G. Wodehouse is widely read and wildly popular in India. BIS central bankers’ speeches 7 | 1 |
This shortcoming has clearly contributed to the situation we face today. Unwinding its consequences is the key challenges the euro area faces. So let me now discuss how we can address that challenge. Fixing EMU for the long-term Unwinding the euro area’s imbalances What is the way out of this situation for the euro area? First and foremost, the imbalances that accumulated in certain euro area countries have to be remedied by those countries themselves. Under present rules, other member states can only provide some interim financial assistance and have indeed done so via the EFSF/ESM. The indispensable national consolidation effort by the more indebted countries is the implication of a system where fiscal, economic and financial policies are basically decentralised. But despite a difficult start, a significant rebalancing is now happening within the euro area. Across the euro area, strong budgetary consolidation is taking place. The IMF forecasts that the euro area’s primary budgetary position will be almost in balance this year. This is quite an achievement in an international context: Japan, for example, will have a 9% of GDP primary deficit this year, the U.S. 6.5% and U.K. more than 5%. And the euro area is not only performing well on average: each individual member country will have this year a primary budget deficit lower than those three countries. 4 BIS central bankers’ speeches Important improvements are also taking place in competitiveness. Member States have now started to undertake structural reforms to facilitate intra-euro area adjustment. | Following the last decision to reduce the interest rate on 22 September 1999, we signalled that our forecasts indicated a greater probability that the next interest rate change would be a reduction, although we did state that there was little room for further reductions in interest rates. Through the latter half of 1999, economic indicators suggested that we had underestimated economic growth. The projections for price and cost inflation in the mainland economy over the next few years were revised up. This was why Norges Bank, following its monetary policy meeting on 16 March 2000, at which interest rates were left unchanged, signalled for the first time that the next interest rate change was more likely to be an increase. On 12 April 2000, Norges Bank decided to increase the sight deposit rate by 0.25 percentage point to 5.75 per cent. The decision to raise our key rates was taken in a period when the krone had depreciated against an average of trading partners' currencies, but was stable and strong against the euro, primarily reflecting the weakness of the euro. Given the prevailing situation in the Norwegian economy, we were of the view that an unchanged interest rate would not contribute to bringing price and cost inflation down BIS Review 7/2001 7 towards the corresponding aim for inflation of the ECB. An unchanged interest rate would therefore undermine the objective of a stable exchange rate over time. | 0 |
Third, it is timely for financial regulators to engage non-financial regulators such as telecommunication authorities at a global and national level, in order for regulation to keep abreast with the latest developments in financial inclusion solutions. Technology plays a significant role in rapidly scaling up financial inclusion by lowering the cost of delivery as well as increasing convenience and quality of services for the masses. Technology enables us to bypass legacy systems and constraints. For example mobile banking, where banks partner with mobile network operators to offer banking services anywhere, any time and in real time, that has enable reach beyond traditional boundaries without the need for a huge investment in infrastructure. Importance of the Global Symposium to galvanise action This leads on to why we are gathered here at this symposium. The Global Symposium will discuss and highlight the detailed next steps to implement proportionality in practice. This Symposium uniquely brings together the relevant key stakeholders to deliberate the issues of proportionality in practice. The AFI’s Working Group members on Digital Financial Services, SME Finance and Global Standards will share their perspectives on regulatory and supervisory matters. The private sector banks and remittance service providers share practical realities in the market to comply with international standards. In addition, we have international experts from the SEACEN, Toronto Centre and World Bank, who have a pivotal role in implementing effective projects to advance Proportionality in Practice. | Of importance, this Symposium will culminate in an Outcome Statement that captures the actionable recommendations from deliberations among subject matter experts and key stakeholders over the next two days. It is my hope that the Outcome Statement will at least identify 5 practical and easily implementable suggestions and the statement will be adopted by all participants, and provide us with a clear way forward to execute and deliver the recommendations on “Proportionality in Practice” that make it a reality and make a difference for the 2 billion individuals that remain unbanked. BIS central bankers’ speeches 3 Finally, I would like to also convey my sincere appreciation to our co-host, the Alliance for Financial Inclusion and Toronto Center, for all their contributions to this Symposium. 4 BIS central bankers’ speeches | 1 |
One way to manage growth or variability in demand, and the associated impact on demand for reserves in the banking system, could be to impose limits on how much of a CBDC individuals or institutions could hold. Some central banks are actively considering such limits.13 However, these could also diminish the use cases for CBDC and reduce the potential for consumers and businesses to take advantage of the payment benefits. Stablecoins may not have the same types of holding limitations, which could lead to faster growth or more variability in demand. At least one jurisdiction is considering the potential use of holding limits or transaction limits on stablecoins on a temporary basis, to manage the possible shift from commercial bank deposits during a transition to new forms of digital money.14 Central banks could also contemplate putting some limits on balances at the central bank associated with stablecoin issuance to manage the unpredictability associated with these flows. I have spent some time discussing the potential need for greater supply of liquidity; however, the direction is not all one-way. As payments become faster, the demand for some central bank liabilities may decline. For example, in some jurisdictions, payment innovations have led to a substantial decline in the amount of currency in circulation.15 Banks may also find that more efficient payment systems bring about liquidity efficiencies, and could reduce their own demand for reserves in response. | Along with the Central Bank, the Committee is composed of the Banking Regulation and Supervision Agency, the Capital Markets Board of Turkey, the Savings Deposit Insurance Fund and the Undersecretariat of Treasury. In the international arena, Turkey became a member of the Financial Stability Board (FSB) in 2009. It will take part in G20 Troika in 2014 and assume the Annual Presidency of the G20 in 2015. Moreover, Turkey’s representative from the Undersecretariat of Treasury will join the FSB Steering Committee during the 2014–2016 period when Turkey will be in G20 Troika. Moreover, Turkey became a member of the Basel Committee on Banking Supervision (BCBS) and the Group of Governors and Heads of Supervision (GHOS) in 2009. The Central Bank of the Republic of Turkey will take part in the FSB Steering Committee during the period 2013–2015 when Turkey will be chairing the FSB Regional Consultative Group for the Middle East and North Africa (MENA). As part of the governance reform of the International Monetary Fund (IMF), a New Constituency was established with the countries Turkey, Austria, Hungary, Czech Republic, Slovak Republic, Slovenia, Belarus and Kosovo. According to this agreement, the Executive Director position will rotate among Austria, Hungary, Czech Republic and Turkey. This is perhaps a symbolic but, in my personal view, a very significant step in the right direction regarding the future of the Turkish-Austrian relations. Distinguished Guests, At this point, I would like to exemplify increasing commercial and economic relations between Austria and Turkey. | 0 |
The slowdown is also considered healthy, given a degree of irrational exuberance seen in asset markets in the past couple of years. Indeed, inflation this year will slow down further to 5% from 5.8% in 1997, with the unemployment rate staying low and the current account remaining broadly in balance. Thus the Hong Kong economy will not be too much affected by the devaluation of the exchange rates of our competitors. This is understandable for a highly service-oriented economy which Hong Kong now is 8. One Country, Two Currencies 11. Perhaps I should digress a little here and address a related issue which has been the subject of some attention, with considerable apprehension amongst observers. This concerns whether the currency of the Mainland of China, the RMB, would be forced into devaluation by the Asian financial turmoil and if so what would be the implications for the Hong Kong dollar’s link to the US dollar. The Chinese 7 As an illustration, residential mortgage loans, which account for roughly 25% of total domestic loans extended by the banking sector, have been of very high quality, helped by the prudent lending policy of the banks, including for example a maximum loan to valuation ratio of 70%. As at the end of September 1997, the actual average of this ratio was only 52%. The delinquency ratio, measured by loans overdue for more than 90 days as a percentage of total outstanding loans, stood at only 0.1% as at end-September 1997. | But I think that, at least in some areas, Basel II will act as a kind of catalyst for action. Under the new framework, internationally active banks will use systems whose recognition and on-going validation will indisputably require vastly increased collaboration among supervisors. Co-operation is a key word, but so too are convergence, communication and confidence. Communication is vital not only between supervisors or between supervisors and the industry but also, and very importantly at this stage, within banking groups so that all units are aware and understand the implementation plan. Additional co-operation and communication among supervisors will enhance confidence, reliance and convergence of supervisory practices. And some reliance and convergence will be necessary if we want to avoid redundant work, inefficiencies in the use of supervisory resources and an excessive burden for the industry. We are placing great emphasis on all these issues in our “Accord Implementation Group”, which is working together with many supervisors on what we call “real” case studies, and which is making good progress. 8. Conclusion Let me take a few moments to draw some conclusions. What I have tried to do today is to highlight the anticipatory and forward-looking elements of Basel II. But, as with many things, I think that the real value of Basel II will be best evaluated with the benefit of perspective. This brings me back to our author of 2046. It may be that Basel II does not cover all the areas and refinements that are necessary to complete the framework for financial stability. | 0 |
08.04.2022 Sustainability and climate change: measurement and management challenges* “Private capital: investment with an impact” / Annual congress of the Asociación Española de Capital, Crecimiento e Inversión (ASCRI) Pablo Hernández de Cos Governor *iEnglish translation from the original in Spanish. Good morning. I should like to begin by thanking the Asociación Española de Capital, Crecimiento e Inversión (ASCRI) for inviting me to participate in their annual congress. This congress is today going to address environmental sustainability, one of the main challenges facing our society, as we have very recently been reminded by the Intergovernmental Panel on Climate Change (IPCC). As you know, the IPCC has just published the third part of its Sixth Assessment Report, which stresses that we are still in time to limit the temperature increase by the end of the century to 1.5ºC, although immediate and decisive measures are required.1 In particular, the transition to a more sustainable economy (one that generates lower emissions) requires a very significant volume of economic resources. In the European Union alone, according to European Commission estimates,2 complying with the emissions reduction target set for 2030 requires investing approximately an extra € billion per year over the current decade. The financial sector clearly needs to be involved in mobilising this enormous volume of resources. Given our mandate to preserve financial stability, the contribution of supervisors and financial regulators to the achievement of these targets involves ensuring that intermediaries identify, measure, manage and disclose the financial risks associated with climate change. | To ensure that the relative prices of financial instruments change, and thus to help internalise the consequences of climate change, it is essential that financial market players identify climate risk factors and their transmission channels, measuring their economic and financial impact appropriately, and that they disclose their exposure to these risk factors and define and develop possible measures to mitigate and reduce them. This is necessary to supplement the fiscal and environmental instruments required to achieve the environmental targets. Allow me to finish by emphasising the global nature of this strategy. Climate change is a phenomenon that affects the whole planet. Globally coordinated action is needed to address it, including, of course, in the financial sphere. This is the perspective that informs the Banco de España’s firm commitment to do its utmost to contribute, within the scope of its responsibilities, to this common task of combating climate change. 18 “The value of housing and ecological degradation: the case of the Mar Menor”, Box 3.2 of the Financial Stability Report, autumn 2021, Banco de España. 8 | 1 |
Philipp Hildebrand: The international monetary system Opening remarks by Mr Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, at the High-Level Conference on the International Monetary System, Zurich, 10 May 2011. * * * Good morning, Ladies and Gentlemen. I am pleased to welcome you to the second joint SNB-IMF conference on the international monetary system. It is a privilege for the Swiss National Bank to cooperate with the IMF and contribute to this important debate by yet again bringing together such a distinguished group of policy makers and experts. The IMF Managing Director, Dominique Strauss-Kahn, is once more honouring this event with his participation. The reform of the international monetary system is subject to an ongoing debate. The global financial crisis put a sudden end to a near decade of seemingly healthy growth widely distributed across the globe. The crisis rocked the system to its core. It has brought forth concerns about the stability of an increasingly complex and interconnected global economy. It has also refocused attention on the potentially destabilising effects of unprecedentedly large and, at times, extremely volatile cross-border financial flows. Globalisation has led to dramatic changes. Emerging economies have been steadily moving to the fore of the international scene. It is imperative that the international monetary system adapts itself to these rapid changes. A thorough reassessment and reform of the system have become a priority among policy makers. | This would imply formal, systematic coordination between the different facilities to allow synchronised provisioning of liquidity during crises. Apart from the fact that any significant transfer of power from national to supranational authorities is extremely difficult to achieve, I am not yet convinced that a global financial safety net of this kind is necessary or even desirable. First, concerns about moral hazard must be taken seriously. Second, we have to be careful not to undermine established mechanisms at the national level. Finally, let us not forget that it is only the central banks that can create liquidity as needed. And their cooperation has proven to be very effective during the recent crisis. Let me now shortly outline the topic of the five panels of today’s conference. The first panel will discuss policy discipline and spillovers in an interconnected global economy. It will assess proposals for improving the surveillance of the system and global policy cooperation. The second panel will deal with global liquidity provision in systemic crises. It will evaluate the adequacy of currently available facilities and proposals on expanding them. The third panel focuses on capital flow management. It will follow up on the recently initiated discussion about a new, more uniform and balanced approach. The fourth panel will discuss the desirability and feasibility of a multi-polar currency and reserve system, and the fifth panel will wrap up and outline realistic objectives for 2011 and beyond. I am looking forward to a lively discussion and open exchange of views. | 1 |
It is the only way forward to resolve the tension between solidarity and responsibility. Last, on the crucial issue of economic governance for the EA, France and Germany have not always seen eye to eye. In Germany, “economic government” as advocated by Pierre Bérégovoy in the early ‘90s, was originally seen as a threat to ECB independence and is now viewed as a new trick to avoid implementing domestic reforms. To be fair, the French call for Germany to support coordination, and the German doubt about French reforms, have been and are still both well-founded. A weak outcome would be that nothing would happen before the French and German elections of 2017. But even in this case, 2016 can and must be a year of intense preparation. B. Why this remains a necessary debate and why we must make the economic case We know there is deep political resistance to sharing fiscal resources and sovereignty, as well as Euroscepticism and lack of a sense of national ownership of European matters. The sad example of the refugee crisis illustrates how European countries so far have displayed little solidarity to find a common solution. From a political economy perspective, this can be seen as tension between national preferences and common interest. This is why we need to make the economic case. If we are to promote a stronger governance of the euro area, it cannot be a purely institutional case out of blind belief in ever closer integration. | News conference Zurich, 17 December 2020 Fritz Zurbrügg Introductory remarks by Fritz Zurbrügg In my remarks today, I will begin with the developments in the Swiss banking sector environment. I will then provide an assessment of the current situation at the two globally active big banks, Credit Suisse and UBS, as well as at the domestically focused banks. Finally, I will talk about the impact the coronavirus pandemic is having on the use of cash. Banking sector environment Economic conditions for the Swiss banking sector continue to be difficult. As already mentioned by my colleague Thomas Jordan, while global GDP has recovered somewhat since the downturn in the second quarter, in most countries economic activity remains well below its year-back level. As a result, credit risks in particular have increased worldwide, with ratings of corporate bonds deteriorating significantly over the course of the year. In comparison with the real economy, the situation on the global financial markets has eased considerably more since the spring. Risk premia on corporate bonds rose markedly after the outbreak of the pandemic, but have since largely declined again. Stock prices have also recovered from their downturn in February and March. The steep recession has thus far had very little impact on the Swiss credit and real estate markets. Lending volume in the mortgage market and prices in the residential real estate market continued to rise in the second and third quarters of 2020. Furthermore, the number of bankruptcies and value adjustments on existing loans has remained low. | 0 |
Concluding, I would like to thank you all for the insofar cooperation and avail myself of the opportunity to invite all the participating institutions to continue and intensify the cooperation in the future, in the commitment to contribute to the future generations and the Albanian society. 2/2 BIS central bankers' speeches | Quite in line with this subject, I would like to stress the quality of the work that has been done recently by the Working Group Risk Assessment, to compare the various European central Banks’ Internal Credit Risk Assessment Systems: this is a very topical issue which is a good example of what your Committee can bring to all of us. Second, information on non-financial companies is important for analyses on a macro level, e.g. by using aggregated company data to perform economic analyses or stress testing experiments. On a macro level, the analysis of the non-financial sector is essential both for policymakers and for central banks. From a central bank’s perspective, these analyses help to ensure financial stability, e.g. through performing different kinds of economic analyses and stress tests, the latter having gained dramatically in importance in the course of the crisis. The work performed by the working groups has thus several major fields of application. Be it by trying to fathom new accounting standards, building databases, or working on the model development and default definitions, the different working groups contribute greatly to enhancing our models and procedures and also, more generally our micro economic intelligence. Thus the publications of the different working groups, especially on the ECCSBO website can play an important role in consolidating our knowledge but also supporting works in other instances within all participating institutions and beyond, because we can only gain in keeping an open mind. | 0 |
The resulting anxiety led to the waning of trade on a number of financial markets. As the banks have become increasingly dependent on the financial markets for their funding, many banks now found it difficult to refinance their operations. In other words, they found it difficult to borrow in order to cover their lending. When the US investment bank Lehman Brothers was forced to apply for bankruptcy protection in September last year, this had major repercussions in many parts of the world. The global financial crisis escalated and the Swedish banks were also affected to an increasing extent. When the conditions on the global financial markets deteriorated, there was a general increase in credit risk premiums. For those borrowers – banks or countries – that were deemed to entail the highest risks, the premiums increased more than for others. A process to reduce exposures and debt/equity ratios began among banks and other financial institutions around the world. The rapid decline in the supply of credit reinforced the downturn in global economic activity. This in turn accelerated the substantial fall in asset values and the increase in the bank's credit losses. A vicious circle arose in the global economy in which the financial turmoil aggravated the weakening of the real economy and vice versa. The events in the financial sector reflect fundamental failures in the risk management of the financial players. Securitisation partly removed the banks' incentive to monitor credit risks. 4 BIS Review 41/2009 The credit rating institutions largely took over this role. | Moreover, managing a company requires certain skills – interaction, strategic, operational and control abilities – that also appear to be comparatively lower in Spain than in countries such as Germany, the United Kingdom, France and Italy. In any event, the indicators available on business management should be viewed with caution. It is not clear they distinguish appropriately between entrepreneurial capabilities per se, as opposed to structural problems arising from an institutional framework that constrains the capacity to organise firms’ productive resources. For instance, excessive Spanish labour market segmentation does not facilitate on-the-job training of either temporary or permanent workers. Thus, on top of improving entrepreneurial and employee capabilities, doing away with the excessive duality of employment contracts is fundamental for raising productivity. To conclude my thoughts on the importance of human capital, allow me to refer also to the need to improve the relationship between general government and the firm in two spheres: that of vocational training and that of innovation. On vocational training, it is essential that firms should be involved in the guidance of youths seeking their first job. But it is likewise necessary that the administration should evaluate and adjust the vocational training system as business needs evolve. Recently there has been much discussion of the virtues of dual vocational training, based on the positive results in other countries. But it is difficult to define how best to transfer a system such as Germany’s, with a high prevalence of large industrial corporations, to Spain’s very different business sector. | 0 |
These price control schemes coupled with the price support projects outlined above mean that the market mechanism is not well-functioning. Distorted prices in the spot market may have also discouraged foreign players from participating actively in our futures markets. A freely traded spot market is a necessary condition for a successful futures market. Ladies and Gentlemen, I would urge the board of directors of AFET and AFTC, the Ministry of Commerce, the government, all members of AFET and key players in our main agricultural products to be totally committed to making AFET a highly successful futures market - an exemplar to our neighbours and one where global trading is benchmarked. We need to be strategic, prioritising our products and evaluating needs of different participating groups. I pledge my full support to this cause. I have spent a great deal of time talking about the AFET, I would now like to briefly touch on its siblingTFEX. TFEX is launching its very first product SET50 futures in the next few months and from the road shows to date, I hear that it has been very well-received. As the next step, the Stock Exchange Commissioner and the Bank of Thailand are currently working on launching the much-anticipated bond futures or interest rate futures. I hope that once Thai financial market has been complemented by these interest rate futures, our players will be able to make much progress in the area of risk management, financial product innovation and trading. | This is not only the case for economies like ours here in Hong Kong where financial services constitute a substantial proportion of GDP, but equally for economies that rely on other sectors, be they manufacturing, mining, or agriculture, for the bulk of economic activity. There are many reasons for this. First, a well-functioning financial system helps allocate capital to the most productive individuals, firms, and sectors through the process of intermediation between households that engage in savings and entrepreneurs who require funds to carry out investment projects. Second, broad financial markets permit risk sharing and diversification, thereby reducing the exposure of investors to idiosyncratic risks. Third, structured financial products allow the transfer of risk to entities that are most capable of bearing it. This makes it possible for economic agents to offload risks that they are not well equipped to deal with and specialize in activities which constitute their comparative advantage. Last but not least, a financial system makes it possible to shift purchasing power across time as individuals build up financial assets while they are working to sustain a comfortable living standard in retirement. Considerable progress has been made by many regional economies in revamping and strengthening the financial markets since the Asian financial crisis. However, there is still a general lack of diversity in the channels of financial intermediation, with a significant over-reliance on the banking system. | 0 |
Let me follow up this brief summary by focusing my remarks this morning on four main areas where lessons from the recent East Asian crisis may be found. First, it was the countries’ ongoing exchange rate policies that contributed to the build up of crisis conditions. The countries of the East Asian region chose to pursue a fixed exchange rate policy, or one pegged to the US dollar, for about a decade after the Plaza Accord. In the beginning these policies contributed to stronger growth and low inflation in these BIS Review 50/1998 -2- countries. But starting in 1995, the appreciation of their currencies had begun to threaten their balance-of-payments positions. Second, to offset the weakness of their economies, the authorities relied heavily on much short-term financing, which concealed the weaknesses of their macroeconomic policies. The nature and direction of the flow of short-term international capital had not been properly analyzed. The ratios of short-term debt to usable foreign exchange reserves were in the range of 170-200 percent for Indonesia, Korea and the Philippines, much higher than the average ratio of 70 percent for the other major emerging market economies. Third, transparency of banking systems, including central banks, is essential for analyzing ongoing developments in countries’ financial sectors. In particular, trends in their off-balance-sheet items, cross-border interbank funding and their transactions with offshore centers should first of all be transparent and second should be available for making judgements about the system. | Anita Angelovska Bezhoska: The importance of savings for investment growth Speech by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of Macedonia, on the occasion of the World Savings Day - celebration of the Macedonian Banking Association, Skopje, 30 October 2018. * * * Dear Guests, Ladies and Gentlemen, It is a great honor and pleasure for me to address you at today's event marking the World Savings Day - a day that banks and financial institutions around the world dedicate to promoting saving and raising awareness of the public about the benefits it brings. The saving is undoubtedly important from the aspect of both, individual and overall economic progress and maintenance of the macro financial stability. For each individual, or family, it is the principal and the most important step towards providing financial stability in a long run. By saving, we protect ourselves from unpredictable changes in the personal income dynamics, we more efficiently plan the longterm investments and we build sound foundations for maintaining stable finances throughout the lifetime. Saving is also beneficial for the entire society, as it is one of the key factors which the economy’s investment level depends on, which is a prerequisite for boosting the long-term economic potential. Usually, a significant portion of the savings is channeled into the banking system thus providing stable sources of financing to domestic banks, which is particularly important for the bank-centric financial systems, such as the Macedonian one, where the banks act as major financial intermediaries. | 0 |
This should help to deter future speculative attacks on the Hong Kong dollar. However, we have to acknowledge that the possibility of short term interest rates shocks does exist under the currency board mechanism and the banks therefore need to take this into account in the way in which they run their business and manage their balance sheets. 21. Bearing this in mind, I draw three main supervisory lessons from the regional crisis and its impact on Hong Kong: • First, it is important for banks to maintain a strong balance sheet that can withstand the interest rate fluctuations to which I have referred and maintain the confidence of the public. Banks in Hong Kong score well in this respect but it is not something that can be taken for granted. I think that it is true to say that some banks did expand their loan books too rapidly during the mortgage boom in 1997. As a result, loan to deposit ratios came under some strain. The banks were also exposed to growing interest rate risk because a substantial proportion of their assets are linked to best lending rate while their liabilities are linked to HIBOR. This has been a reminder of the need to maintain sound fundamentals: high capital adequacy and liquidity ratios; prudent loan classification and provisioning; and sound risk management. • A second and related lesson from the region is that banks need to beware of excessive lending to finance overheated asset markets. | Looking forward, we continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of incomes and savings. After today’s decision we consider risks to price stability over the medium-term to be broadly balanced. This takes into account the latest economic data releases and survey information, which add clear further evidence to the assessment that the euro area is experiencing a significant slowdown, largely related to the effects of the intensification and broadening of the financial turmoil. Both global demand and euro area demand are likely to be dampened for a protracted period. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms this view. Monetary expansion is moderating further, supporting the assessment that inflationary pressures and risks are diminishing. All in all, the level of uncertainty remains exceptionally high. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective of inflation rates below, but close to, 2%. This supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead. Regarding fiscal policies, the Governing Council welcomes the European Council’s reconfirmation of its full commitment to sustainable public finances. In this respect, the current economic situation calls for particular prudence with regard to the adoption of extensive fiscal stimulus measures, taking into account the particular fiscal situation in each country. | 0 |
BIS Review 99/2010 9 Table 2 Economic growth and inflation (annual change, percent) 2008 2009 2010 (f) 2011 (f) GDP Domestic demand Domestic demand (w/o inventory change) Gross fixed capital formation Total consumption Goods and services exports Goods and services imports Current account (% GDP) 3.7 7.6 7.5 18.6 4.0 3.1 12.2 -1.5 -1.5 -5.9 -2.8 -15.3 1.8 -5.6 -14.3 2.6 4,0-5,0 14.5 11.3 23.0 7.8 1.0 25.8 -1.2 Average CPI inflation December CPI inflation CPI inflation in around 2 years (*) 8.7 7.1 1.6 -1.4 1.8 3.8 3.2 3.1 Average CPIX inflation December CPIX inflation CPIX inflation in around 2 years (*) 8.4 8.6 2.8 -1.8 0.7 3.3 3.5 3.5 Average CPIX1 inflation December CPIX1 inflation CPIX1 inflation in around 2 years (*) 7.8 7.7 2.8 -1.1 -0.1 1.8 3.2 3.2 2012 (f) 3.0 3.2 3.1 (f) Forecast. (*) Inflation forecast for second quarter 2012. Source: Central Bank of Chile. | Today, however, the economy is still operating below full capacity, which limits inflationary pressures and is consistent with monetary policy remaining significantly expansionary. Nonetheless, as output gaps close, inflationary pressures will be incubated which must be contained in time in order to ensure that annual inflation will stand at 3% over the two-year policy horizon. Hence, the Board estimates that achieving the inflation target in the projection horizon requires, as has been said in recent months, a progressive normalization of the current significant monetary stimulus. As a working assumption, the baseline scenario estimates that the level of the MPR one year ahead will be similar to the one inferred from private expectations. In the long term, it will converge to its neutral level (figure 8). As usual, the outlined scenario is subject to several risks. Internally, the greatest risks come from domestic expenditure. The baseline scenario considers that a significant part of its current strong expansion is temporary. However, there is a risk that said strength is largely the response to stimulative macroeconomic conditions, which would mean that the downturn foreseen in the second half of this year may not occur, speeding the closing of output gaps. The medium-term impact on aggregate demand of reconstruction works and the funding thereof will have to be assessed continually. In the immediate term, April data and the reaction of economic sectors to the earthquake and tsunami reduces the possibility of a generalized delay in the economic recovery. | 1 |
These are created by the fact that the assets and liabilities sides denote different currency units or consist of securities with different interest rates. As a matter of fact, firms with reduced financial risks on their balance sheets can allocate more resources to production. Moreover, derivatives markets introduce new investment instruments and encourage growth in the financial system. In this way, they increase the number of instruments investors can use to diversify their portfolios, and widen the financial markets. As a result, derivatives markets contribute to the increase in national income and employment by ensuring more effective allocation of resources and they provide added value as a separate sector. At the same time, these markets enable the real and financial sector investors to manage diverse risks parallel to those in world markets as well as allowing integration with those markets. Analyzed in terms of monetary policy, derivatives markets, whose development has always been backed by the Central Bank, support the continuity of financial stability by reducing volatility in the markets and help central banks to maintain financial stability. In addition, they enhance the information set used in monetary policy by providing information about the future, and increase the effectiveness of the transmission mechanism used to steer the economy. As a consequence, an improved flow of information about the future course of monetary policy makes the economy more predictable for economic agents. In this framework, the Turkish Derivatives Exchange will make important and diverse contributions to the economy, especially in terms of monetary policy. | Indeed, the EU Treaty calls, as a prerequisite for adopting the euro, for a high degree of sustainable convergence in the fields of price stability, government fiscal position, stability of the exchange rate, and long-term interest-rate levels. The sustainability of nominal convergence itself presumes that sufficient preliminary progress has been made towards real and structural convergence (and namely having set a fully-fledged market economy, catching-up in income and productivity levels, as well as economic and social infrastructures, upgrading of the legal system…). Conversely, a sustainable catching-up process requires macroeconomic stability. Therefore, nominal and real convergence should be pursued in parallel, and are not antagonistic. • Secondly, I noted that several accession countries have already expressed their intention to join ERM II rapidly after EU entry. This intention is to be welcomed, although it should be clear that ERM II membership needs neither to happen immediately after EU accession in all cases, nor to be limited to only two years, which is the minimum before adopting the euro. It would be totally misleading to consider ERM II as a mere “waiting room” before the euro. On the very contrary, ERM II membership allows countries to retain some limited exchange rate flexibility during the catching-up process and offers a meaningful, flexible and credible framework for increasing nominal and real convergence with the euro area, and for helping determine the appropriate level for the eventual irrevocable fixation of parities, in the best interest of candidate countries themselves. | 0 |
See, for example, Gordon (2012) and, for a recent survey, Fernald and Inklaar (2022). 12. The model makes the simplifying assumption that households store their wealth by holding bonds and capital via a financial intermediary, but the same mechanism would operate if households held claims on firms directly (for example, equity). The same mechanism also operates in richer models that include additional stores of wealth such as housing (Lisack et al., 2021). 13. Similar points have been made by Lisack et al. (2021), Vlieghe (2021) and Blanchard (2022). On the other hand, Goodhart and Pradhan (2020) argue that the effects of baby boomers retiring could be powerful enough to raise the equilibrium real interest rate. 14. See Bailey et al. (2022) for details. As for the baseline estimate over the 1985-2015 period, the total l ong-run effect is also subject to substantial uncertainty, and ranges between -4.3 and -1.8 percentage points depending on the simulation assumptions. 15. For example Rachel and Smith (2017) estimate a 0.45 percentage point contribution from inequality on the past decline in Global R*, although their analysis suggest that this factor will not push down any further in the future. For the United States, Auclert and Rognlie (2017) find that increased inequality can account for between 0.45 and 0.85 percentage points decline in the real interest rate. See Auclert and Rognlie (2018), Eggertsson et al. (2019), Mian et al. (2021) and Moll et al. (2021) for further discussion of the various mechanisms through which inequality impacts R*. 16. | The decline of labour market institutions includes lower trade union membership, which reduces the relative bargaining power of labour, and more flexible labour market institutions that can pose challenges See, for example, the effects of the monetary policy pursued by the Federal Reserve in connection with the financial crises in Bivens (2015), the effects of monetary policy in the USA since 1980 in Coiboin (2016), the effects in advanced economies since 1990 in panel data-analyses in Furceri et al. (2016) and effects of the monetary policy conducted by the ECB in connection with and after the financial crises, with a focus on Germany in Bundesbank (2016). 4 One example is that a decline in trade union membership (union rate) reduces the relative bargaining power of labour, exacerbating wage inequality (Frederiksen and Poulsen 2010). Another is that more flexible labour market institutions (although positive for reallocating resources to more productive firms and enabling firm restructuring) can pose challenges for workers, especially those with low skills, and hence play an important role in explaining inequality developments (Alvadero et al 2013). 3 3 [5] for workers with low skills. Technological progress combined with globalization seems to have played at least some role in increasing inequality within countries. • The discussion of the effects of globalization is interesting. Globalization has for long been a natural part of the Nordic economies. Our dependency on foreign trade is much higher than the global average. | 0 |
BIS central bankers’ speeches 3 which emerged before VAT was raised to 20% in the UK. Indeed, the UK is not alone in raising indirect taxes to reduce its public sector deficit and VAT rates have been rising in other European countries as well.3 In addition to this contrast with other European countries, our experience of rising UK inflation has been at odds with the standard “output gap” model used by many central banks and economic forecasters to project inflation. The impact of depressed demand and spare capacity created by the recession should mean that inflation falls in a recession and the early phase of an economic recovery – and this was indeed the expectation of the MPC and other forecasters in 2009 and early 2010. As Chart 3 shows, the forecasts published in the Bank of England Inflation Report at that time were for CPI inflation to be around 1% or below in the first quarter of this year, whereas in fact the out-turn is above 4%. Short-term inflation forecasts have had to be radically altered as evidence of higher inflation has accumulated. And yet the settings of UK monetary policy have not changed at all in the light of this experience of much stronger inflation. The view that spare capacity and weak demand will bear down on inflation in the future still underpins the majority view on the MPC, despite the evidence that this is not what has happened over the recession and the early phases of the recovery. | The benchmark prices of traded goods in the European market will be set in terms of euros, reflecting the fact that this is the currency in which most European producers will have their costs and revenues denominated. So when the pound falls against the euro, producers will tend to raise their prices in sterling terms to maintain euro revenues, creating a positive UK-euro area inflation differential, as we have seen recently. By the same token, the weakness of the euro against the pound in the first half of the last decade created a negative UK-euro area differential with UK inflation running below continental European countries. Chart 6 Euro-Area/UK inflation differential and exchange rate Euro/ sterling % 0.3 2.0 1.5 0.2 1.0 0.1 0.5 0.0 0 -0.5 -0.1 -0.2 -1.0 Euro-area/UK CPI differential (RHS) * -1.5 Euro-Sterling exchange rate (LHS) ** -2.0 -0.3 -2.5 -0.4 -3.0 1997 1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2011 *: Euro-area CPI minus UK CPI. A negative differential implies higher UK inflation. **: Expressed as the deviation from its average over the same period. Source: Thompson Datastream Chart 6 suggests that this inflation differential can be quite persistent as it takes time for prices to adjust. That is not surprising, as companies know that foreign exchange markets are volatile and so the initial response of prices to an exchange rate change is likely to be relatively small. | 1 |
Many of 3 2 For a more detailed description see the Riksbank’s Financial Stability Report 2007:2. BIS Review 11/2008 these funds belonged to the group of hedge funds with a strategy that is normally called a long/short equity strategy. In principle, with the help of quantitative methods as a basis for investment, their strategy entails both long and short positions in equity. At the same time they are neutral to the stock market as a whole. If we disregard quant methods, this strategy was one of the first to be used by hedge funds, and which, more than 60 years ago, gave them their name. Over a number of days in August several quant funds were however forced to close positions and to realise significant losses. They were forced to do so because of the sudden emergence of large price fluctuations in parts of the stock market. The large fluctuations entailed that the quantitative links, which were based on historical data and statistical probability analyses, no longer worked. But what was it that triggered the initial fluctuations in prices? It was probably the case that other types of hedge funds or investors, in order to meet the banks increasing collateral requirements, were forced to reduce their risk exposure. 4 If trading is thin in the shares concerned, that is, if liquidity is weak, the price fluctuations can be significant. That is the normal pattern. | My main message is that recent events support rather than oppose my opinion – namely that further regulation is not necessary as long as the major banks manage their exposures to the hedge funds correctly. I shall shortly discuss the role the hedge funds have played – and not played, during last autumn’s unrest in the financial markets. However, let me first say a few words as to why hedge funds as a group are important to financial stability. Hedge funds spread risk and improve pricing Hedge funds are, as we know, a broad concept and one that covers managers with a number of different working methods and strategies. However, a common denominator for most hedge funds is that they have as a goal an absolute return rather than a relative return and have far more liberal investment rules than other funds. Also they often have highly leveraged portfolios with the aim of increasing the return. For those who reflect on the way in which financial stability develops, and all central banks do so, it is, of course, of particular interest to see what advantages and risks hedge funds as a group can convey – once again being aware that this is an extremely heterogeneous group. In my opinion, hedge funds fulfil several useful functions in the financial markets. They contribute to spreading market risk and credit risk to more agents. Further, since they can act swiftly and in a flexible manner, they can often help improve the pricing for different products. | 1 |
This is a rapidly-developing area even by fintech standards and an important area of work for us, and one worthy of a speech in its own right. I don’t have time to do it full justice today, so I’ll just note three key recent developments. 1. First, we are continuing with our work to renew our RTGS service, which is twenty five years old this week. Building on the functionality provided today, the new RTGS service will deliver a range of new features and capabilities for payments and settlements between financial institutions, ensuring our payments architecture is fit for the future.5 2. Second, as the Chancellor of the Exchequer highlighted in his speech at the start of Fintech Week on Monday, we have also enabled ‘omnibus accounts’ to be opened in RTGS: these allow us to offer the benefits of settling in the ultimate risk-free asset, central bank money, to a wider range of payment systems, and by so doing can help the industry to develop faster and cheaper high-value payment services.6 3. And third, as the Chancellor also highlighted, we are, together with HM Treasury, establishing a new joint Taskforce, along with two stakeholder engagement forums, to explore a possible central bank digital currency or CBDC. A CBDC would, if introduced – and that is an important if – be a new form of digital money issued by the Bank of England and for use by households and businesses, existing alongside cash and bank deposits rather than replacing them. | To some extent, this is inevitable, and it is normal that items like intangible assets should be prominent in good times; but when the sky darkens and the clouds become heavy, the rain can start at a moment’s notice, and little may be left of those assets when the air clears. So we must take care in this as well as in other things. By law, the Central Bank of Iceland is assigned a clearly defined role. The Bank takes that role very seriously. It does not ask to be spared criticism of its work and its decisions, but it would appreciate some support in its attempt to keep inflation within tolerable limits. If we are successful in that endeavour, all Icelanders will benefit. If we all work together, we can reduce interest rates sooner and more quickly. BIS Review 131/2007 5 | 0 |
The financial education course was not detected, however, to have any significant impact on pupils’ decision to have a bank account or card, or on the amount of money they report they save weekly. The financial education course did significantly raise the proportion of pupils who talk to their parents about economic matters. After having followed the course, the percentage of pupils doing a job at home to obtain income also increased, which suggests that financial education may lead to greater pupil involvement in their household’s financial matters. A change in pupils’ attitudes was detected regarding their temporary consumption preferences six months after the financial education course, with their “patience” increasing when it came to hypothetical money choices. This observed result did not disappear in an exercise performed three months afterwards, in which it was 8 An initial pilot programme was carried out in 2010-2011. Bover, O., L. Hospido and E. Villanueva (2018): "The Impact of High School Financial Education on Financial Knowledge and Choices: Evidence from a Randomized Trial in Spain", Banco de España WP 1801. 9 7/8 proposed to students that they distribute their present and future consumption with real payments.10 These results point to the pertinence of monitoring over time the pupils evaluated, with the aim of analysing the effects of financial education in the long term. This is in light of the potential significance of consumer attitudes in financial decision-making throughout the life-cycle of individuals. | Matters to do with world economic development and what should be done - not just to mitigate the short-run effects but also to construct systems and institutions so that similar events can be avoided in the future - have been high on the agenda for economic policy discussions in various fora this autumn. The latest instance is the 1998 Annual Meeting of the International Monetary Fund in Washington D.C. earlier this week. In connection with that meeting, finance ministers and central bank governors from all over the world assembled in various groups to discuss the situation. Background to the global economic problems Just a year or so ago, many observers foresaw a golden future for the world economy. There was talk in some places of a new economic era, with strong growth and permanently low inflation, at least in the United States. Today, the discussion has shifted in general to deliberations about the risks of a world economic slowdown. The challenges the global economy is facing at present are a combined result of several factors. One of these factors is, of course, the situation in Japan, where the economic problems, as I just said, have been at work throughout this decade. The inability to take sufficiently resolute action has led the Japanese economy into a serious decline. Japan has the world’s second largest economy and is of primary importance for the outlook in Asia as a whole. A crisis in other Asian countries then materialised almost a year ago. | 0 |
It is not something exceptional for the countries implementing inflation-targeting regime to experience significant deviations from the inflation target. What matters most here is to be able to explain the reasons for the deviation, to take necessary measures to ensure that the target could be attained again and to inform the public of the convergence period. If the Central Bank had changed its inflation target for end-2006 as 10 percent, it would have achieved the end-year target and would not have been liable to be called to account to the public. However, instead of changing the target, the Central Bank preferred to render account to foster its communication policy. Within this framework, the Central Bank will inform the Government through a new open letter in January 2007 and explain the reasons for overshooting the end-year inflation target, in addition to sharing its projections pertaining to the convergence process with the public. In conclusion, the Central Bank considers that frequent changes in targets are likely to have adverse effects on inflation expectations and pricing behaviors, which could damage the credibility of the future commitments. For this reason, it is important in the upcoming period that targets should be left intact as long as inflation is expected to converge to targets within a reasonable period of time. 2 BIS Review 1/2007 Transmission mechanism and control horizon Central banks in both developed and developing countries experience serious uncertainties regarding the lagged effects of monetary policy on inflation. | Churchill himself said that “a nation that forgets its past has no future.” Our banknotes are testaments to the outstanding achievements of the nation’s greatest individuals; they are repositories of the United Kingdom’s collective memory. That contribution will continue with the new £ which brings together the future, in the form of polymer and the most advanced security features yet, and Britain’s glorious history, in the achievements of Sir Winston Leonard Spencer Churchill. BIS central bankers’ speeches 3 | 0 |
Eddie Yue: Developing Asia’s infrastructure to sustain economic growth Statement by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, and Head of Delegation, Hong Kong, for the 48th Asian Development Bank Annual Meeting, Baku, Azerbaijan,4-5 May 2015. * * * I would like to thank the Government of Azerbaijan for hosting the 48th Annual Meeting of the Asian Development Bank (ADB), and the Management and staff of ADB for the excellent arrangements of the event. I would also like to express my deepest condolences to the people of Nepal affected by the recent earthquake. Global economic growth has been modest and uneven since the last Annual Meeting. While developing economies including those in Asia remain an important source of global growth, there are signs that activities are slowing and potential outputs are falling. Despite substantial progress, developing Asia still faces significant development challenges. In particular, a number of developing economies have been held back by infrastructure bottlenecks. To sustain economic growth and fully realise their growth potential, substantial infrastructure investment is needed. Developing Asia’s infrastructure development needs dwarf existing official development assistance, government and private investments combined. To fill this huge infrastructure financing gap, we need bold, new efforts. In this regard, we welcome the combination of Asian Development Fund (ADF) resources with the ADB’s ordinary capital resources. The merger will allow ADB to make more efficient use of its existing resources and substantially expand its financial capacity by up to 50% according to ADB’s estimates. | The fact that, last summer, most banks came out with information on their positions in the sub-prime market only hesitantly, providing an incomplete picture, has made a significant contribution to the uncertainty in the interbank market. Consequently, we are reiterating our request that banks do a better job in making information available on their existing risks. In order to promote market discipline, it must be possible for outsiders to be able to assess a bank's resilience under both normal and stress conditions. Second, recent events highlight the limitations of risk-weighted capital adequacy requirements. The problems in risk management have made it clear that the modelling of bank risks will always remain imperfect. In interpreting capital adequacy requirements which are based on such risk models, we must therefore proceed with appropriate caution. This is particularly relevant in view of the new capital adequacy requirements that will also be introduced in Switzerland next year. The main change under these requirements, known as Basel II, is that capital adequacy requirements will rely more heavily on banks' own risk assessments. Bearing this in mind, the lesson learned last summer may well have come at the right time. This now begs the question as to whether – in addition to the complex, riskweighted capital adequacy requirements – other criteria, such as volume limits or the simple debt-equity ratio should not also be considered. The reason for this is that the higher this ratio, the greater the leverage effect of losses on the soundness of a bank. | 0 |
However, even if interest rates did move up abruptly and the SOMA portfolio experienced realized losses, it would have no meaningful operational consequences for the Federal Reserve’s ability to implement monetary policy. These losses would not impair the FOMC’s ability to control short-term interest rates by paying interest on reserves or by draining reserves as needed. Accordingly, the Federal Reserve would continue to operate in the same manner that it otherwise would have in pursuing its economic mandate. What would be affected by unexpectedly large realized losses on the SOMA portfolio would be our remittances to the Treasury. All Federal Reserve earnings in excess of those needed to cover operating costs, pay dividends and maintain necessary capital levels are remitted to the U.S. Treasury on a weekly basis. Accordingly, any change to the income on the SOMA portfolio directly affects the amount of funds that the Federal Reserve remits to the Treasury. The unusually large amount of portfolio income realized of late has boosted those remittances considerably. If portfolio income were to decline going forward, whether toward more normal levels or toward unusually low levels, the amount of those remittances would adjust lower. 17 Ensuring our ability to remove policy accommodation While the potential risks around the SOMA portfolio will not hamper the implementation of monetary policy, the size and duration of the portfolio will have to be taken into account when considering the appropriate policy strategy. | Brian P Sack: Implementing the Federal Reserve’s asset purchase program Remarks by Mr Brian P Sack, Executive Vice President of the Federal Reserve Bank of New York, at the Global Interdependence Center Central Banking Series Event, Philadelphia, 9 February 2011. * * * It is a pleasure to be back in my hometown of Philadelphia and to be invited to speak tonight at this event hosted by the Global Interdependence Center (GIC) and the Federal Reserve Bank of Philadelphia. The GIC has an impressive history of promoting public dialogue about monetary policy and other topics, and it is a privilege to be able to participate in that process. Tonight I will focus my comments on the implementation of the recent monetary policy decisions of the Federal Reserve and the associated implications for its balance sheet. As always, the views I will express are my own and do not represent those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. Unconventional policy decisions In the second half of 2010, the FOMC made two important policy decisions about the size and composition of the Federal Reserve’s balance sheet. In August, it decided to begin reinvesting the principal payments from its holdings of agency debt and mortgage-backed securities into longer-term Treasury securities, thereby keeping the amount of domestic assets held in the System Open Market Account (SOMA) portfolio unchanged at about $ trillion. | 1 |
Such an approach would be a recipe for a regulatory framework that’s well-crafted, detailed and intricate... …but ultimately, irrelevant. Regulation of finance is a means, not an end. So it makes much more sense to define the outcome that regulation should achieve and to give regulators the tools to achieve it. Then they can be held to account for doing whatever it takes to deliver that outcome, even as circumstances change. The EU has, however, taken the first approach, putting a large body of rules in the equivalent of primary legislation. Those rules are inflexible and slow to respond as times change. As my colleague Sam Woods has argued, this approach follows from a goal of harmonising regulation across 28 countries.7 Given that, it would be an odd approach to follow outside the EU. And few non-EU countries have. Indeed, even as a member of the EU, the UK has taken the second, very different, approach. By tasking us with promoting a financial system that serves households and businesses in bad times as well as good, it overlaid EU rules with an outcome to be pursued. 7 See speech by Sam Woods (May 2019): ‘Stylish regulation‘. 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 And that outcome is what the UK Parliament holds us to account for delivering, even as times change. That has given us the freedom and responsibility to move regulation with the times; to be agile. It’s a responsibility we take seriously. | 1/3 BIS central bankers' speeches To help us achieve this balance, we emulated the Financial Technology Regulatory Sandbox introduced in some other countries to provide an avenue for industry players to pilot or test new solutions within a safe space. Here, industry players have the opportunity to trial new financial technologies that support sustainable goals. At the same time, we are able to better understand and observe market impacts and tailor our regulatory and supervisory response accordingly. To date, 19 solutions have been tested in the sandbox. Of this, over 60% have been successfully rolled out into full-scale production. The Bank has also introduced new digital bank licences and implemented a series of changes to existing regulations applicable to agent banks, microinsurance, and payment and remittance services to enhance financial inclusion and consumer protection. Secondly, we continue to support a meaningful role of the financial sector in helping households and businesses meet transition challenges. While we are encouraged by a number of financial institutions in Malaysia that have announced net-zero or carbon neutral goals, it is imperative for financial institutions to do more to support transition. We expect this to gain momentum with the implementation of the Climate Change and Principle-based Taxonomy for financial institutions that was issued by Bank Negara Malaysia in April this year. By shining a light on climate risk mitigation and adaptation activities, the taxonomy will strengthen incentives for both financial institutions and businesses to adopt practices that are aligned to climate goals. | 0 |
Furthermore, developments in the domestic economy at the end of last decade were such that the stable exchange rate policy was gradually undermined. During the second half of the 1990´s, the Icelandic economy entered a period of high economic growth. Growth was initially well balanced and led by exports and increased investment in the private sector. But as it unfolded it became increasingly driven by consumption and investment in the non-traded goods sector, fuelled by a foreign financed credit expansion in the wake of intensified competition among lending institutions and a significant increase in credit availability. By 1998, signs of overheating were already increasingly visible in rising inflation and the ballooning current account deficit which climaxed in 2000 at 10 per cent of GDP. The Central Bank responded to the imbalances in the economy by tightening monetary policy. Through the effects of the tighter monetary policy, the exchange rate of the króna gradually appreciated as can be seen from Chart 1. In the spring of the year 2000 expectations in the market shifted for a variety of reasons; but concerns about the current account deficit and lower expectations of future economic growth were the most important. Subsequently the króna began to depreciate and continued to do so more or less uninterrupted, but on the whole in an orderly fashion, over a period of a year and a half until the end of November 2001. By that time, it had fallen from its peak by about a third against other currencies. | As a member of the European Economic Area Iceland is obliged to transpose into national law all existing and future EU legislation in the field of financial services. This has implied important changes in the financial system in Iceland. The EEA negotiations themselves intensified a trend towards liberalisation that started with the deregulation of interest rates in the mid 1980s and culminated in the liberalisation of the bulk of cross-border capital flows by 1995. Important rationalisation has also taken place in the Icelandic financial system. Until 1999, two of the main commercial banks were fully government owned and so were a host of so-called investment credit funds. The funds were unified in a single privatised institution which subsequently merged with Íslandsbanki in 2000 to become the then largest commercial bank. The withdrawal of the government from ownership of financial institutions was finalised in March 2003 when the government sold its last shares in the commercial banks. Already by mid April a decision had been taken to merge one of the two former government owned banks, Búnaðarbanki, with Kaupþing Bank ltd. The new bank will be the largest commercial bank in Iceland and one of the 10 largest in the Nordic countries. The privatisation of the credit institutions has thus already created ample opportunities for rationalisation and will continue to do so in the period ahead. | 1 |
BIS Review 15/2007 19 force of market mechanisms. Taxes that require the polluter to pay and tradable emission quotas are important instruments. When the costs of reduced emission are to be distributed, it will be tempting for countries to act as free riders. Restrictions and taxes that only apply to one country or to a small group of countries do not solve the problem. There are important lessons to be drawn from international trade cooperation in the post-war period, which was also marked by strong conflicts of interest but still made headway through the period. It is still uncertain how serious the impact of gas emissions will be. But once the impact comes into full evidence, it may be too late to take corrective action. There is also the risk that the concentration of greenhouse gases in the atmosphere reaches such a high level that it exceeds critical values that cannot be reversed. The right approach is therefore to guard against events that may have serious consequences even if there is a small probability of the event occurring. Most of us already pay a certain amount every year to guard against the consequences of events we will hopefully never experience. The cost of curbing global warming can be looked upon as such an insurance premium. Higher transport taxes and increased electricity and energy prices are a small price to pay. 6 Conclusion I opened by quoting from Rolf Jacobsen. | For example, there is a high level of employment protection legislation in Norway, Sweden, and Finland but not in Denmark. In Denmark, agreements between the social partners can stipulate firing rules. The negotiating position that employment protection offers employees can induce companies to go farther in safeguarding employees' interests in the event of restructuring. The social safety net – unemployment benefits and the more permanent benefit schemes – probably also make it easier to gain support for rationalisation. But this safety net has also become a pretext for not addressing the problems at hand. The increased use of our welfare schemes is increasingly becoming the Achilles’ heel of the Norwegian economy. Sickness absence has risen sharply in Norway and a steadily higher share of the working-age population is on disability benefit or rehabilitation schemes. Many choose to retire under contractual early retirement schemes at the age of 62, and these numbers will probably increase ahead. In Norway, close to 600 000 persons among the working-age population are outside the labour force and on benefit and retirement schemes. This accounts for 25 per cent of the labour force. Sweden has seen a similar development. BIS Review 15/2007 17 The sharp increase in benefits cannot be explained by the population’s state of health, which is steadily improving. | 1 |
Speech Embargo 26 October 2020, 4.30 pm The importance of good framework conditions for the Swiss financial centre Lugano Banking Day Thomas J. Jordan∗ Chairman of the Governing Board Swiss National Bank Lugano, 26 October 2020 © Swiss National Bank, Zurich, 2020 ∗ The speaker would like to thank Christoph Hirter for his support in preparing this speech. He also thanks Simone Auer and Alexander Perruchoud, as well as SNB Language Services. Page 1/5 Ladies and gentlemen, I am pleased that this important event can go ahead at the second attempt, despite the continuing exceptional circumstances. Of course, I regret very much that the audience cannot be physically present. Despite all the digital possibilities available to us now, direct contact with the general public and with business remains very important for the Swiss National Bank. Coronavirus has not only impeded the holding of this centenary celebration, it has also had a far-reaching impact on the economy and our social interaction. I am therefore particularly pleased to have this opportunity to congratulate the Ticino Banking Association in person on its 100th anniversary. As Chairman of the SNB’s Governing Board, I visit Ticino often and have meetings with representatives of the Ticino Banking Association on an annual basis – under normal circumstances. The SNB has had good relations with your association for many years. This is not surprising, since the Ticino financial centre has a long history, as this centenary anniversary proves. | The reform measures in the Payment Card Reform Framework (PCRF) implemented since 2015 have enhanced transparency and competition, bringing about a continued decline in the average merchant discount rates (or MDR). Merchants have benefited from lower cost of accepting card payments, with an estimated cost savings of about RM422.4 million from 2015 to September this year. Consequently, the annual growth of POS terminals has more than doubled from about 6.8% for the period between 2011 and 2014, to 17% for the period between 2015 and 2017. Key trends shaping our payment landscape today Since the Payment Forum in 2015, many developments have taken place in the payment landscape both domestically and internationally. Firstly, society has become increasingly digital and connected, driven by the Internet and mobile revolution. For a population of 32.1 million in Malaysia, there are 42.8 million mobile phone subscriptions while smartphone penetration stands at 70% and is increasing. Secondly, payment technology has become more advanced, scalable and increasingly low-cost. For instance, innovations in the area of merchant acceptance has lowered the cost for merchants to embrace electronic payments through the use of Quick Response (QR) codes. Likewise, the advancements in biometric and tokenisation technologies and the shift towards greater publication of Application Programming Interfaces have enhanced the ability of payment service providers to develop new use cases and deliver superior customer experience. Thirdly, the market players in our payment landscape have become more abundant, diverse and increasingly non-traditional. | 0 |
For, while the EU has for fifty years brought peace and stability to the peoples of Europe, the Single Market and Economic and Monetary Union have created a congenial environment in which economies can grow and people prosper. BIS Review 110/2007 3 | Transparency into counterparty risk should be greatly improved via disclosure requirements and the ability to aggregate trade information in trade repositories, and end user trading positions should be much better protected by segregation and portability requirements and a more robust financial market infrastructure. Although there is still much to do as part of this process, I’m optimistic that we are on the right road. We just need to continue to push ahead and not forget the lessons learned from the financial crisis. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches 7 | 0 |
Historically, companies’ assets have tended to be physical and tangible, such as plant and machinery. But businesses and their assets are changing fast. Increasingly, businesses’ assets are taking on an intangible form, such as intellectual property, patents and goodwill. 45 On some estimates, intangible assets are already 41 As the data show suspiciously large rates of job churn between the bottom and top deciles of the firm-level productivity distribution, we strip those deciles out from our analysis here, and only look at the 2 nd to 8th deciles. Our description of ‘quartiles’ here is therefore not strictly the quartiles of the complete distribution. 42 For example, North (1990) and Haldane (2017). 43 Coase (1960). 44 Acemoglu and Robinson (2012). 45 For example, Haskel and Westlake (2017). 14 All speeches are available online at www.bankofengland.co.uk/speeches 14 larger than tangibles among UK and US companies. Protecting these intangibles from expropriation is every bit as important as for tangible assets. Fortunately, in international league tables the UK tends to fare favourably on those fronts, with a wellestablished rule of law and property rights, supporting investment and innovation. 46 There are other aspects of UK’s institutional infrastructure which fare less well, however, in ways which might help to explain its productivity gaps. Let me focus on two: its diffusion infrastructure and financial infrastructure. A simple comparison of UK and German institutional infrastructures is revealing here. Germany has a long-established infrastructure to support innovation and its diffusion to German companies. | The top-decile of German and French companies have, by comparison, levels of productivity 80% and 60%, respectively, above the median. If we look more closely at companies in the top 1% or 0.1% of the productivity distribution, the scale of this success story becomes clearer still (Table 1). On average over the ten years to 2014, 1%-er companies experienced annual productivity growth of 8%. 0.1%-er companies have seen annual productivity growth of 12%. There is no evidence of a lost decade among these high-fliers. For them, the Fourth Industrial Revolution has already arrived. It is tempting to think these frontier companies are a tightly-knit bunch, geographically and sectorally. By and large, you should resist that temptation. Table 1 shows productivity growth over the past decade among the top 1% and 0.1% of companies, broken down by region and by sector. 10 There are some important differences in productivity performance. Even among the 0.1%-ers, there are some wide regional variations in performance, with the East Midlands at the top (30% per year) and Wales at the bottom (0%). Differences across sectors are larger still. The upper tail of sectors such as transportation and storage and information has seen annual rates of productivity growth of 30 or even 40%. Among virtually all sectors, and across virtually all regions, however, upper tail companies have seen positive and healthy rates of productivity growth. | 1 |
Therefore, it was forecast that inflation would fall below 2% as 2011 progressed and then rise back to target by the end of 2013. As always, it was emphasised that the outlook was uncertain – which indeed proved to be the case. So where do we stand now, a year later? I think the big picture is this: economic recovery has materialised, while stability has proven more elusive. GDP growth this year will be slightly over 3%, which is above the forecasts from a year ago, largely due to changes in inventories and a smaller-than-forecasted contraction in public consumption. GDP growth is projected at 2½% annually for the next three years. I wouldn’t be surprised if it proves higher for 2011, once final figures are in a few years from now. The most recent Monetary Bulletin contains a discussion of forecasts and forecasting errors, which shows that final figures on investment and GDP growth tend to lie above the first figures. Employment has been increasing, and unemployment has fallen. It is cause for relief that the Directorate of Labour’s analysis indicates that most people leaving the unemployment register at present are going back to work. On the other hand, my concerns from last year concerning the low investment level and relatively weak export growth have not disappeared. | So we have seen financial firms outsourcing functions like IT support, systems development and HR both within the UK and Europe and to India. That too seems likely to continue so further growth of trading and management in London may well not lead to proportionate growth in jobs. On current trends we might expect a greater concentration of high value, high skill jobs in London. Conclusion So back to my question: wave or persistent stream? The answer is, as you will have spotted, both. Readers of the Bank’s Financial Stability Report (next edition due next month) – or those that have read the financial news – will know that the financial markets have been buoyant recently; in particular the premia for risks in the credit market are very low and profit growth and bonuses have been spectacular. Some of this may well be the crest of a wave. However, for the reasons I have set out this afternoon, London is also benefiting from a longer lasting and a strong current. We may expect that cycle to turn at some stage – and London will be affected because of its international position. But there are good reasons to expect London to further enhance its position as a global financial centre in the long term. And that will have implications for the rest of the economy and the risks it faces. It will continue to affect the labour market, the housing market, and the distribution of wealth and income. | 0 |
Eva Srejber: How do we create stability in financial markets? Speech by Ms Eva Srejber, Second Deputy Governor of the Sveriges Riksbank, at a public hearing in the Riksdag: “Economic policy in a global economy - is the Tobin tax an obstacle or an opportunity?”, Stockholm, 3 April 2001. * * * Thank you for the invitation to come here. This is a subject that I am often asked to discuss in various parts of the country. There is considerable interest in the challenges facing economic policy in an increasingly internationalised world. The credit market is central to a country's economy. Financial institutes are needed to mediate payments for households and companies, such as wage and invoice payments. In addition, the institutes mediate capital from savers to borrowers. This can comprise companies making investments or households buying their own home. All in all, a well functioning financial sector is a necessary condition for a country to achieve prosperity. However, mediating payments and lending money also involves taking risks. The international foreign exchange market in turn links together the national credit and payment markets, so that payments in one currency can be exchanged for payments in another currency. This enables trade, investment and foreign aid between countries. International capital flows enable savings in countries with a capital surplus, after exchange on the foreign exchange market, to finance investments in countries with a capital deficit. | A combination of insights, leadership, technical capacity and adequate preparation needs to be channeled into a general enthusiasm for both our regions to rise to the potential challenges and in the process become greater partners for success. In summary, the future direction of the ASEAN-EU relations will be dependent on several multidimensional facets that would include: the changing strategic landscape amidst globalisation, ASEAN's and the EU's desire to play a greater role in the global economy and international affairs, the EU's ability in managing its enlargement process, and ASEAN's commitment to forge greater regional integration. I am certain that the passage of time and closer analyses of the issues discussed at this Conference will yield more lessons that we could take to heart in making progress on expanding ASEAN-EU economic and financial links. It is my hope that in the future we can continue to have such constructive exchanges of views and experiences that will further nourish the broader learning environment. In closing, allow me to thank the speakers for enriching the Conference with their presence and their cutting-edge perspectives. I also wish to again thank the European Commission for giving Bank 1/2 Negara the opportunity to co-host this Conference. To all our participants from abroad, we hope you stay in Kuala Lumpur has been pleasant, and we wish you a safe journey home. 2/2 | 0 |
As a result of our strategy to increase reserves, which is applied in this framework, the amount of our reserves reached USD 60 billion as of May 26, 2006. Secondly, the Central Bank conducts interventions due to volatility. Taking into account the factors that cause volatility in either direction or potential developments, the Central Bank may intervene directly in the market or use announcements and warnings. These implementations do not have a mechanical nature. As the conditions of each intervention differ from each other, neither do they have a symmetrical nature. At this point, I would like to share my views about the activity observed in the value of the Turkish Lira lately. The international liquidity conditions, which change according to the monetary policies pursued by the central banks of developed countries, and the perceptions of uncertainty that emerged due to internal and external developments, had considerable effect on the exchange rate movements that have been observed almost for a month. In the short term, this activity is perceived to be more negative than the information it contains. However, there is no deterioration in the macroeconomic fundamentals. There is no change in the program projections and targets. The movement of the exchange rate is mainly caused by external developments. Similar movements are observed in other developing countries, as well. 4 BIS Review 68/2006 Today, the floating exchange rate regime performs its shock-absorbing function. We have observed similar developments in the past five years, as well. | Before all else, the point that I would like to emphasize is that our inflation targets are point targets. These targets have been set as consumer price index inflation. Our policies are established solely with the aim of achieving these targets. In our monetary policy implementations, we have announced our inflation targets for a three-year period in order to increase the emphasis placed on medium-term. In this context, the inflation target is 5 percent for 2006 and 4 percent for 2007 and 2008. To apply a rule to the Central Bank’s accountability in the event of any deviation or the possibility of deviation from the inflation target, a + 2 point-uncertainty band has been established around the point target. Once again, I would like to underline the significance of this issue. This band, which has been formed around the inflation target, aims at setting the accountability criteria. Looking at the practices around the world, we see that a 40 percent-uncertainty band has been formed around the point target in most countries. Our implementation is based on this approach. In the event that inflation is realized outside this band or, in case of such a possibility, the mechanisms specified with respect to accountability will start. With the introduction of the formal inflation targeting regime, interest rate decisions are made by voting at the Monetary Policy Committee meeting. Monetary Policy Committee meetings are held once a month on pre-announced dates. Nevertheless, when deemed necessary, extraordinary meetings may be held, such as yesterday’s meeting. | 1 |
Banks and financial institutions should be more innovative and make arrangements to collect/capture remittances from legal/illegal migrants at the field level and coordinate with the host country’s banking/financial institutions to transfer monies to remitter's home country speedily and at a reduced cost. Informal transfers largely take the form of cash. The absence of an efficient financial infrastructure at the remitter's end as well as receiver's end is also found to be a discouraging factor that contribute to the use of informal channels. In some destinations, there is no access to sophisticated infrastructure in the host countries for cross-border transfers. Migrant workers, therefore, depend heavily on informal systems. In this context, a global attempt should be made to facilitate cross-border remittance transfers as such transfers have a significant impact on the development of many nations. 2 BIS Review 3/2007 Part II - Importance of remittances in Sri Lanka's economy I now proceed to illustrate how dependent Sri Lanka is on worker remittances. Over the last couple of years, worker remittance has been the single largest inflow of foreign exchange after exports in Sri Lanka. Remittances have played a significant role in financing the widening trade deficit and maintaining balance of payment surpluses. During 2005, over 75% of the trade deficit was financed by worker remittances. | Otherwise the central bank will be unable to keep its promise. Throughout history, central banks have tried various mechanisms for tying themselves to the mast. Being accountable for their promises in the form reporting and follow-up is one mechanism that ensures that the bank is tied to the mast. Relinquishing the opportunity to break a promise makes that promise more credible. These are matters I touched on in my speech “On the topic of keeping promises” in 2008. Keeping a promise is difficult, because reneging on a promise will often be the tempting or rational choice in the short-term. The legal scholar and economist Michael Woodford has pointed out that in order to keep your word it is not enough to make a promise today and keep your word tomorrow. When making interest rate forecasts, we must also take into consideration the promises made yesterday. Only then can we fully use expectations to stabilise the economy optimally. This is referred to as monetary policy from a timeless perspective (Michael Woodford, 2003: Interest and Prices, Princeton University Press). Today there is general consensus that price stability is [not only] the best contribution that monetary policy can make to economic stability over time, [but perhaps also the only promise the central bank can actually deliver]. In the long term, a stable value of money is the only promise that the central bank has the means to deliver. This promise was previously kept by regulating the supply of money issued. Today, the interest rate is the instrument. | 0 |
And a recent study by IMF economists finds that risk-based capital ratios in the range 15-23% would have been sufficient to absorb losses in the vast majority of past advanced economy banking crises (Dagher et al (2016)).13 At the time of the Basel Committee’s study, there was little evidence on the impact of bank capital on the ∂∆ severity of crises (∂k ), which is why this channel was ignored in the quantitative calibration. That has since changed. Jordà et al (2017) find that, while bank capital does not prevent a crisis from occurring, it matters for the pain suffered in its aftermath. They find that real GDP per head is 5 per cent higher 5 years after the onset of a crisis-related recession if bank capital is above its historical average when the crisis hits. The benefits of capital in reducing the severity of crisis are also borne out by experience since the crisis. Chart 15 plots international banks’ capital ratios prior to the crisis against their subsequent lending growth. The relationship has a statistically significant upward slope. Banks that entered the crisis with higher capital have, on average, been better able to continue their lending. On average, each extra 1 percentage point of pre-crisis capital boosted banks’ cumulative lending over the subsequent decade by over 20%. This finding is corroborated by micro-econometric evidence. Carlson et al (2013) find that US banks with higher pre-crisis capital ratios had stronger loan growth in its aftermath, with the effect particularly pronounced at lower capital ratios. | The time-inconsistency problem that pervades the debate over the balance between rules and discretion in monetary policy (Kydland and Prescott (1977), Barro and Gordon (1983)) is arguably even more acute for prudential policy. This is partly because adverse crisis outcomes are highly non-linear and costly, making it more difficult to pre-commit to avoiding forbearance and bail-out. The low probability of crises may also mean that policymakers are insufficiently tough in tackling financial sector risks when times are good and memories of previous crises distant (Reinhart and Rogoff (2009), Malmendier and Nagel (2011), Gennaioli et al (2015)). This can create political pressures to relax regulations to support shorter-term goals. Public choice theory (Olson (1965)) would also suggest that lobbying pressure is likely to be more acute for regulatory policy than for monetary policy. The private costs of regulation are borne strongly by narrow, but 26 All speeches are available online at www.bankofengland.co.uk/speeches 26 powerful, interest groups in the financial industry. And while higher than target inflation is quickly observable, it may be very difficult to judge in real time that regulation is insufficiently stringent given the difficulties of quantifying the probability of future financial crises. These arguments point to the need for strong institutional frameworks, supported by clear mandates, objectives and instruments, to deliver financial stability policy. Indeed, on conceptual grounds, the need for such a framework appears to be at least as strong, if not stronger, than for monetary policy. | 1 |
Some analysts have pointed out that this could reflect certain doubts in the market regarding the credibility of these bonds for various reasons, including: i) the lack of ambition in setting goals, ii) the low penalties, iii) uncertainty regarding the possibility of not reaching goals and iv) the fact that prospectuses include language permitting the cancellation of coupon step-up in the event of changes in rules, regulations, guidelines or in the company’s operations. So the risk of greenwashing in this type of instruments could re-emerge. In order to avoid this, the verification and external review of their conditions and the possible inclusion of this type of bonds in the European green bond standard could help to provide reassurance. As we have seen, the existence of definitions is very important, as is transparency to avoid greenwashing. According to the European Supervisory Agencies’ (ESAs) common high-level understanding of greenwashing published last week, they understand greenwashing “as a practice where sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants.”5 Also it is recognised that greenwashing appears to result from multiple interrelated drivers and, moreover, that it depends on the area we are considering, whether asset management, the investment industry, corporates or benchmarks, but we can conclude that a common element in greenwashing is the lack of transparency. | [13] This presents a challenge when considering implications for policy – and highlights the importance of continuing to plug the kinds of capability gaps I discussed earlier. As the results publication sets out, the Bank will engage with firms individually and collectively to help them target their efforts, and share good practices identified in this exercise. Implications for policy I hope it’s clear by this point that the CBES will be a valuable tool for helping us and financial firms to understand the challenges ahead. This exercise is not going to be used to set capital requirements for banks and insurers. But it clearly sheds light on that debate. The CBES results make clear that climate risk is a first-order strategic issue for the firms we regulate. But in my view it is not yet clear that the magnitude of transition costs require a fundamental recalibration of capital requirements for the system. [14] A persistent drag on profitability would be very nasty for firms, but so long as they are able to continue to make sufficient profits to maintain their capital buffers, its impact on safety and soundness might be less material. Had the results of this exercise suggested a fundamental threat to the solvency of these firms, our response would of course have been quite different. Set against that high level view, though, a world with climate change is without doubt riskier than one without. | 0 |
Tukiya Kankasa-Mabula: Modernising Zambia’s payment system Remarks by Dr Tukiya Kankasa-Mabula, Deputy Governor Administration of the Bank of Zambia, at the Ecobank Launch of Financial Products, Lusaka, 16 December 2009. * * * • Members of the Ecobank Zambia Limited Board of Directors present; • The Managing Director of Ecobank Zambia Limited, Mrs Charity Lumpa; • Members of the Diplomatic Corps; • Ecobank Zambia Limited Customers; • Management and Staff of Ecobank Zambia Limited; • Members of the Press; • Distinguished Invited Guests; • Ladies and Gentlemen. It is with great joy and gratitude that I stand to address you at this important launch of the “Ecobank Rapid Transfer” and the “Non-Resident African Account”. I am informed that the two products are designed to transfer money faster and in real time while meeting the needs of customers resident in countries other than those where their accounts are domiciled. I am also pleased that these two products are aimed at promoting the efficient transmission of remittances at an affordable cost. Distinguished Ladies and Gentlemen, allow me to briefly highlight the importance of remittances to our economy. Remittances are increasingly growing to be one of the most important sources of finance in Zambia. Such funds are not simply an expression of fondness by people in the diaspora to assist their families in adverse situations. They also represent an important source of finance that augments capital inflows and investments in the economy. | Today, expectations are of a largely unchanged level of resource utilisation. Thus, price pressure is not as high, either, as long as no secondary effects arise from the energy price rises. Forecasts guide policy Let me conclude by underlining two important aspects when assessing monetary policy. Firstly, the Riksbank, like many other countries with inflation targeting, has chosen to look ahead when making monetary policy decisions. This is clearly seen when the actual policy is compared in the evaluation appendix with simple, rule-based decisions on the basis of observed GDP growth or actual inflation. The import of this is, of course, that forecasts of inflation and GDP growth become more decisive for monetary policy than the actually observed growth rates in price levels and GDP. A disadvantage of this policy is that forecasting mistakes have effects on policy. But one advantage, which we consider 4 BIS Review 15/2003 to outweigh this, is that monetary policy becomes less disjointed, more predictable and on the whole more stabilising for economic developments. Of course, the Riksbank could have raised its rate more when inflation rose because of higher food and energy prices during 2001. But would this have rapidly subdued inflation and led to a more beneficial development in the economy? I don't think so. Secondly, it is difficult both to make and to assess forecasts, as our picture of history and the current situation constantly changes as a result of revisions to the statistics. | 0 |
But the consequences for economic stability will be determined, among other things, by the weight of each one and by the response of monetary policy and other economic policies. In any case, it is clear that something has to give. As Chart 1 shows, we are undergoing a period of several years during which unit labour costs are growing well in excess of the level that is consistent with the inflation target. At the same time, productivity growth is very weak. 2 BIS central bankers’ speeches If the Central Bank’s most recent forecast materialises, the result will be as is shown in Chart 2: the real exchange rate and wage share will rise far above their historical averages, and the tension in the labour market will be amplified even further. But I consider it unlikely that this will be the outcome. Either the adjustment will take place through some combination of higher inflation and higher unemployment, or positive shocks will provide some assistance; for example, the improvement in terms of trade will be greater and more lasting, productivity growth will be stronger, and interest payments to abroad will be lower because of reduced external debt and improved credit ratings. It will be very interesting to see how things develop in the next few years. It would be imprudent, however, for economic policy and contingency planning to rely blindly on positive shocks. And then there is inflation. | 7 P. Aghion, P. Askenazy, N. Berman, G. Cette and L. Eymard, 2012. “Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France,” Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001–1024, October. 8 P. Aghion, D. Hémous and E. Kharroubi, 2014. “Cyclical fiscal policy, credit constraints, and industry growth,” Journal of Monetary Economics, Elsevier, vol. 62(C), pages 41–58. 9 A. Bergeaud and G. Cette and R. Lecat, 2016. “The role of production factor quality and technology diffusion in 20th century productivity growth,” Working papers 588, Banque de France. 10 C. Reinhart and K.S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573–78; Lane, Philip R. 2012. “The European Sovereign Debt Crisis.” Journal of Economic Perspectives, 26(3): 49–68. BIS central bankers’ speeches 3 impediments to the flow of resources, in particular in the labour market and in the way credit was allocated between sectors, hence revealing that a malfunctioning of the financial sector can reinforce structural weaknesses. 11 In some cases both were present at the same time. Of the uttermost importance were the structural changes targeting an improvement in the monitoring and the resilience of our financial system. Arguably the financial crisis partly resulted from excess risk taking and overinvestment in low productivity sectors. 12 The Basel 3 framework worldwide and the Single Supervisory Mechanism in the euro-zone provide new supervisory and prudential tools to mitigate these risks in the future. | 0 |
We make all our regulations and decisions accordingly. Distinguished Representatives of the Business World, Supply constraints that were triggered by the pandemic and gradually intensified due to geopolitical risks, and heightened volatilities in global financial conditions caused negative supply shocks, pushing global inflation to historic highs. The main determinants of the inflation we face are strong and persistent supply shocks, exchange rate developments and the resulting deterioration in pricing behavior. With the decisions we take, we aim to ensure a permanent decline in inflation as soon as possible. Accordingly, together with the interest rate policy, we have been effectively making use of the policy mix composed of liquidity, collateral, reserve requirements and management of international reserves. In the context of our integrated policy framework, we will continue to use our instruments with a liraization perspective. Additionally, while making our monetary policy decisions, we pay regard to the creation of financial conditions that will help increase investments and production, and support the sustainable current account balance objective. Our investment and export-targeted loan programs that will lead the sector, as well as our macroprudential policies, are also supportive of this process. While concluding my remarks, I would like to extend my thanks to you, as the representatives of the Turkish industry. The contributions of our industrialists will be of significant importance in achieving the current account surplus on the back of investment, employment, production, export gains that will lead our economy to sustainable price stability and development goals. | Increasing specialization brings real economic benefits, but can also leave workers more exposed to shifts in demand for their services, potentially on short notice. These issues are not going away, especially as emerging market economies take on a larger role in the global economy and automation continues apace. If we are to maintain a more open trade regime, globalization must be socially and politically sustainable. For that to be the case, we have to provide greater support to those who are hurt by trade. Policies should include more assistance with job retraining, help with job search and mobility, and broader unemployment support. We need to do more research into what measures have been effective in economies around the world, and we should encourage greater experimentation with new approaches. Getting the balance right between providing assistance and making sure that individuals hurt by trade can get back on their feet and achieve their earning potential will be a challenge, and we need a better understanding of what actually works. More generally, we need to do a better job positioning our workforce to cope with globalization and technological change. This will involve improvements across a range of areas, including not only education and training, but also the business regulatory environment and infrastructure investment that could support greater worker mobility. These measures would also promote higher productivity growth. While the scope and scale of issues differ substantially by country, many of these policy areas may also be relevant in India. | 0 |
Apparently, the issue of rising unequal income distribution is neither new, nor the world has been shielded from tectonic changes in the systems, such as for example the transition in Europe, which was “fertile soil” for rising inequality. However, it is only in the last ten years that we witnessed such substantial proliferation of literature, and academic and political debates on the roots and consequences of rising income inequality. It was the financial crisis that brought the issue to the fore. Even more, some authors link the severity of the financial crisis and its unexpected spell, exactly to the uneven societies. In his book “Fault Lines”, Raghuram Rajan argued that rising inequality in the past three decades led to political pressure for redistribution that eventually came in the form of subsidized housing finance, which was at the root of the global crisis. Whether or not policies of the central bank affect the income distribution gained lots of attention, as well. I would say that the pure fact that we inherently face with heterogeneity across households in terms of their primary sources of income – capital or labor – or with respect to their position of being saver, or borrower naturally implies that monetary impact, at least in the short-term, could differ along these groups. Macro-prudential measures, by design are targeted and selectively used to tackle identified points of vulnerability. Purchase of different types of assets, also significantly alters the pricing on the financial markets and can have different wealth effects. | Bank of England reserves) and, crucially, by requiring all private money to be exchangeable for Bank of England money, cash, on demand by the holder and without loss of value. Alongside regulation, the provision of Bank of England money to the public and reserve money to commercial banks institutions anchors the confidence, uniformity and interchangeability of money in the UK. Our assessment is that future developments in payments and money will make it likely that, alongside regulation, we will in future need a digital pound, issued by the Bank of England to perform this anchor function. The experience of digitalisation is that new products and services, enabled by new technology, can be adopted rapidly at scale. The Government has identified several characteristics of digital markets that may lead to concentration. Such characteristics include network effects, economies of scale and scope and data advantages, which can act as barriers to entry. This suggests that the future development of private money issuance could tend towards a small number of firms taking a significant market share. While concentration and market power are not inherently harmful and may reflect innovative products and services, they can damage consumer choice, competition and innovation. Dominant issuers of new forms of private digital money may create ‘walled gardens’ - payment systems that are not fully interoperable or restrict the development by smaller firms of payment services using the money they issue. | 0 |
One challenge consists of further developing the technology and expertise gained in oil production and oil services. Costs have been brought down at many stages to strengthen competitiveness in response to lower oil prices. If we succeed in this endeavour, the oil industry will continue to be a pillar of the Norwegian economy for many decades ahead. The other challenge lies in paving the way for growth in other industries and replacing the revenue shortfall and jobs shed in the oil industry owing to lower activity levels. The groundwork is in place. In recent years, the Norwegian financial system has been strengthened. During a period of restructuring, it is crucial that banks are in a position to channel credit to projects and businesses that will generate new growth. We have more fiscal policy muscle than most countries, but it must be used sensibly. The social partners seem to understand the gravity of the situation and are prepared to do their share. Monetary policy can be geared to facilitate the necessary structural changes. Norges Bank is in its 200th year. As a central bank, we have a responsibility to promote economic stability. In addition, the Bank is responsible for managing Norway’s collective financial wealth. The responsibility we have been given cannot be taken for granted. It is a mission that must be merited. Under the parity policy of the 1920s, the economic downturn was amplified by the desire to return to parity. In hindsight, that policy was described as oneeyed. | For instance, during a press conference in 2015, when asked whether he was dovish like Janet Yellen or hawkish like Paul Volcker, he replied ‘My name is Raghuram Rajan and I do what I do’. Of course, the next day this James Bond-ish remark made headlines in the financial press. When his three-year tenure ended, inflation was near the five percent inflation target, thereby improving conditions for ordinary citizens. Interest paid by the government had been reduced and bonds with maturities up to forty years were being issued for the first time. The value of Page 3/4 the rupee had stabilised, foreign exchange reserves were at a record high, and India was the world’s fastest growing major economy. The three pillars of society Let me finish by saying a few words about one of Raghu’s latest publications. Next to an impressive list of about 90 peer-reviewed papers on specific economic and financial topics, Raghu has also written four books with a broader perspective. In his book, The Third Pillar: How Markets and the State Leave the Community Behind, which was published this year, Raghu emphasises that society is supported by three pillars: the state, markets and the community. Society can prosper if it achieves the right balance between the three pillars. Raghu argues that today, these pillars are seriously out of balance. While states and markets have expanded their powers, communities have been left powerless in dealing with the consequences of technological change and globalisation. As a result, people turn towards populist politicians. | 0 |
So when it comes to making assessments of what risks becoming a bubble, I believe that we must continue to make use of our experience combined with a dose of the sort of conclusion referred to in English-speaking circles as a “duck test”; if it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck. Of course what we are talking about here is much more difficult to identify than a duck. But if there are sufficiently strong indications that developments are untenable, then there is a good probability that this is the case. And if this is expected to affect inflation and developments in the real economy, I consider the interest rate to be a possible weapon if others are not available or not sufficient – if not to prevent a bubble, then at least to tone down the bubble and its consequences. House prices today and in the coming period So what does this reasoning entail for my views on developments in house prices and lending today? Firstly, the crisis has meant that the repo rate has long been adjusted to try to alleviate the effects of the financial crisis on inflation, production and employment and to give support to the economic recovery. | I do not consider financial dominance to be a problem at present, but one cannot rule out the possibility of such a situation arising at some point in the future. We therefore need to continuously monitor developments and take measures to prevent this from happening. The Riksbank is responsible for inflation being stable, while responsibility for financial stability is shared between Finansinspektionen (the Swedish Financial Supervisory Authority), the Riksbank, the Swedish National Debt Office and the Ministry of Finance. The responsibility for macroprudential policy lies with Finansinspektionen. One of its aims is to limit financial imbalances, but monetary policy also has effects on financial imbalances. While macroprudential tools are particularly effective when one knows where risks in the financial system are building up, such as an excessive build-up of private debt. However, when interest rates are low for a long time, it can be difficult to know where in the system the main risks lie. In some situations it may therefore be reasonable to use the policy rate as a complement to macroprudential policy, as the policy rate has a broad impact on financial markets. There is an ongoing discussion in both academia and the central banking world about the extent to which monetary policy should counteract the build-up of risks in the financial system. This is an interesting and important discussion that I am following, but I do not want to belong to any particular camp in this discussion. | 0 |
Figure 6 Inflation expectations in Chile Deviation of inflation two years out from target (*) (annual change, percent) (percentage points) 4,2 1,2 3,9 1,0 4 3,6 0,8 0,8 3 3,3 0,6 0,6 3 3,0 0,4 2,7 0,2 2,4 0,0 2,1 -0,2 4 4 3 EES 1 year out EES 2 years out 2 2 11 12 13 14 15 16 1,2 Peru 1,0 0,4 Mexico Colombia 0,2 Chile 0,0 -0,2 15 Apr. Jul. Oct. 16 (*) Difference between target inflation and inflation expected at December 2017 for Peru and Mexico, and at two years for Chile and Colombia. Sources: Central Bank of Chile and of respective countries. 10 BIS central bankers’ speeches Figure 7 Real exchange rate (*) (index, 1986=100) 120 120 RER 110 110 2001-2015 average 100 100 90 90 1996-2015 average 80 70 80 70 89 91 93 95 97 99 01 03 05 07 09 11 13 15 (*) March 2016 figure includes information up to the 21st. Source: Central Bank of Chile. | In this context, the Central Bank has applied an expansionary monetary policy that is actually one of the most expansionary among comparable economies. Likewise, in the past few years we have made substantial revisions to our estimates of the Chilean economy’s potential growth. This is important, because a good diagnosis of mediumterm inflationary pressures requires a good measurement of the country’s capacity for growth. As we have explained before, the depreciation of our currency triggered an increase in tradable goods inflation. We expected this, since it is a well-established fact that in Chile, as in other emerging economies, the pass-through coefficient of the exchange rate to prices is BIS central bankers’ speeches 5 high. And not only did we expect it but we also hoped for it, as it is the way to generate the necessary change in relative prices when indexation renders the prices of nontradables relatively sticky on the downward side. In this context, it is important to understand that in our policy framework the main objective is to ensure that inflation will converge to the target within the policy horizon, which is usually two years. Of course this does not mean that we will overlook current inflation, but that we can tolerate deviations of inflation in the short term as long as we are convinced that such convergence within the above mentioned horizon is not at risk. | 1 |
However, the solution to such problems does not lie in opposing the new risk management techniques or Basel II. They will help to promote financial stability. But there is a need for the banks to find ways of handling any effects that arise from an accentuation of cyclical fluctuations. It is important for economic development that credit and venture capital are available even when business activity is cyclically low - and perhaps somewhat less so when activity is peaking. Besides influencing how the banks handle their capital, the more advanced methods for risk management have led to the creation of new financial instruments. Two examples are securitisation and credit derivatives. This enables the banks to divest themselves of the credit risk in their loans by hedging in the credit derivatives market or by simply selling the risk through securitisation of the loans. The credit risks in the economy can then be spread over more agents. That is fundamentally favourable for financial stability and market efficiency. At the same time, the authorities must follow developments closely in order to understand where these credit risks end up. Their departure from the bank sector does not mean that they disappear from the economy; they turn up instead in a different form somewhere else, for instance in insurance companies or mutual funds. Do the new risk management facilities also mean that banking operations will take a different direction? Will banks try to slim their large illiquid balance sheets by selling off loans or securitising assets? | It is the system that provides payment services, converts savings into financial resources for investment and consumption, and contributes facilities for managing risk. In other words, the financial system performs a number of important social functions. If any of these functions were to be disrupted, the social costs could be very high. The damage inflicted by a disruption would probably be particularly great if it involved a vital component of the payment system. This is readily understood when one considers the enormous flow of payments. In Sweden, for instance, the payment system has a daily turnover of around SEK 500 billion, which means that the equivalent of our annual gross domestic product has to be handled in less than a week. Studies show, moreover, that in the past fifteen years there have been more than a dozen crises which cost the countries concerned at least 10 per cent of their GDP. So there are good reasons for state supervision of the financial system. The Riksbank has a function here in that the Riksdag (Sweden’s parliament) has made us accountable for promoting a safe and efficient payment system. A major ground for making us responsible for efficiency and stability is that, along with the banks, the Riksbank is a central player in the payment system and provides means of payments. The banks distribute notes and coins, keep transaction accounts linked to giro systems and operate credit card systems. The Riksbank in turn provides accounts in the payment system, RIX, that is available for large-value interbank payments. | 1 |
It would operate with intra-day credit from its clearing bank, J.P. Morgan Chase, and overnight credit from the Federal Reserve. The Federal Reserve would provide credit that was fully secured by the collateral of the broker-dealer and this would continue for a period of time to enable the broker-dealer to wind down its trading book in an orderly manner – thereby mitigating to some degree the impact of the failure on financial markets and the economy. At the point in time when an orderly liquidation of the broker-dealer became practical, a petition would be filed for a receivership under the Securities Investor Protection Act. This became the contingency plan, although it was always subject to the Lehman board of directors deciding to file a Chapter 11 petition, a matter that was their responsibility and not ours. On September 15, Lehman’s board of directors elected to place the parent company in Chapter 11 while leaving Lehman’s brokerdealer open for business so it could wind down its operations. A look at the hypothetical alternative of lending to the Lehman holding company itself reveals that it was in fact not viable. By Monday, September 15, Lehman faced a total erosion of market confidence, and so the Federal Reserve would have been lending into a classic run. Had Lehman not filed for bankruptcy on September 15, but opened as if it were business as usual, creditors and counterparties would have rushed to protect their positions, using all legal remedies, causing the liquidity crisis to spread throughout Lehman’s organization. | Source: OECD An article in the Monetary Policy Report published in July analyses the potential consequences of this.8 One risk in this connection is that the major Swedish banks largely fund their operations on the international capital markets and the level of confidence in the banks is decisive for their ability to get funding. A future economic downturn with a fall in housing prices in Sweden could therefore in the worst case be aggravated if international investors chose to reduce their exposure to the Swedish banking sector. The IMF recently repeated its warning about the high level of household debt in Sweden and the relatively large and concentrated banking sector and called for the quick implementation of the macroprudential policy instruments.9 Clearer boundaries affect the risk analysis However, clearer boundaries have been set for the work on preventing future crises since I became a member of the Executive Board. The government has proposed that Finansinspektionen should be responsible for macroprudential policy in Sweden and that a stability council should be formed in which Finansinspektionen, the National Debt Office, the government and the Riksbank should openly present their assessments and recommendations concerning financial stability. It is good that there is now a plan for clarifying the framework for financial stability. Macroprudential policy should also be able to use special instruments to manage developments in that part of the economy where there is a risk of imbalances. | 0 |
It is a natural part of the economic debate that the Riksbank is being criticised, isn’t it? Wouldn’t it then be better to ignore the criticism and look ahead instead? No, I don’t think so. One important reason is that in the wake of the financial crisis there has been a discussion on the activities and tasks of central banks, what central banks should do and how they should do it. It is, of course, important that our debate on this here in Sweden is anchored in reality and based on how monetary policy has actually been conducted and what it has actually achieved. But meeting the criticism is important not just for the discussion here in Sweden. The debate on Swedish monetary policy also has an international interest and has been followed abroad, not least by other central banks.1 The reason is that a central issue in the international discussion has been to what extent central banks’ policy rates should be used as a complement to macroprudential policy, to counteract the build-up of financial imbalances, for instance, by trying to prevent lending and housing prices from rising too quickly.2 This is what is often called a policy of “leaning against the wind”, and I will hereafter use this expression for the sake of simplicity. Monetary policy in Sweden has in this context been regarded as particularly interesting, as the Riksbank is one of few central banks that, at least this far, has been explicit about taking such considerations into account in its policy-rate decisions. | “The Riksbank has aggressively, using a high repo rate, tried to prevent household debt from rising” The first part of the criticism can in turn be divided into different parts. For one thing, it claims that the Riksbank has leaned against the wind aggressively, and for another thing that household debt has been the main, if not the only, reason for this policy. I intend to comment on these points one by one. So how much has the Riksbank in practice leaned against the wind in recent years? My view here is clear. The monetary policy conducted after the crisis has for the most part been governed by traditional monetary policy motives, that is, the expected development of economic activity and inflation over the coming years. Giving consideration to the risks associated with the developments in household debt and housing prices has been part of our assessment, but a relatively minor part. The picture painted in the criticism has been quite different. Here the starting point is instead that the Riksbank’s concern over developments in household debt was the main motive for raising the repo rate after the financial crisis. Much of the criticism even seems to assume that household debt was the only motive for raising the repo rate. | 1 |
Of course, the dialogue cannot be open-ended: at some point we will have to draw our conclusions and make our assessment. But those of you in IRB banks can expect us to show a different level of engagement, and a greater intensity of interest in, your risk management systems than we have previously shown. 2/5 Pillar 2 As I mentioned earlier, much of the focus on Basel II has been on IRB, and thus on Pillar 1. Now, credit risk remains, of course, one of the most fundamental risks in banking. However, we in the HKMA determined at an early stage in the Basel II process that it would be desirable to broaden the focus so as to bring into the equation the various "Pillar 2 risks." The case for this is, in our view, self-evident, as risks such as concentration risk, interest rate risk in the banking book, and liquidity funding risk can be every bit as devastating for the financial health of a bank as credit risk can be. In the run-up to final agreement on Basel II, therefore, we issued a series of guidance notes to give encouragement to AIs to upgrade their ability to manage these risks appropriately. We knew that for the coming few years AIs and their risk management specialists were likely to be preoccupied with Pillar 1 and thus we wanted to make sure that these "Pillar 2 risks" were adequately addressed as a priority, and not as an afterthought. | In this context, despite high volatility of consumer prices and exchange rates in trading partners, including the sharp decline in oil prices in the second half of 2008 (one of the main fundamentals in Algeria’s economy), the REER has remained near its equilibrium level and the external financial position remains comfortable. 4 BIS Review 168/2009 | 0 |
They are an important source of liquidity, both in periods of calm and stress. They add depth and breadth to our capital markets. By taking risks that would otherwise have remained on the balance sheets of other financial institutions, they provide an important source of risk transfer and diversification. They don’t perform these functions out of a sense of noble purpose, of course, but they are a critical part of what makes the U.S. financial markets work relatively well in absorbing shocks and in allocating savings to their highest return. These benefits are less conspicuous than the trauma that has been associated with hedge funds in periods of financial turmoil, but they are substantial. Hedge funds combine the classic mix of factors that have been associated with institutions at the center of past instances of stress in financial markets. They can be highly leveraged and can be vulnerable to pressure to liquidate assets quickly if they sustain significant losses. They can be active in complex instruments, and assessing the risks in their exposures is formidably challenging. Additionally, they are not subject to the public disclosure or regulatory reporting requirements that apply to a range of other financial institutions. And they operate largely outside the framework of other requirements established by regulatory authorities to protect the stability of the financial system. They are not unique in these attributes. Some of the same things are true of other types of financial institutions. | And they are also 2 BIS Review 70/2004 motivated by the view that greater disclosure would act as a desirable restraint on risk taking, and make it possible for market discipline to work more effectively. There have been several significant efforts to induce greater disclosure since 1998, notably by the President’s Working Group on Financial Markets, by a committee under the auspices of the BIS, and by private sector groups in the United States. These efforts have fallen short of their objectives, in significant part because of the difficulties in designing a disclosure regime that would provide meaningful information about potential systemic concerns, without undermining the ability of hedge funds function profitably and provide the important benefits that I mentioned earlier. Thus, while the potential benefits of meaningful progress on hedge fund disclosures could be material, we must also be realistic about the inherent difficulties associated with such a challenge. Even if additional efforts are mounted in this area, progress is not likely to come easily or quickly. The most constructive avenues for mitigating concerns about systemic stability lie in the areas of comprehensive risk management of potential exposures to hedge funds, the overall strength of capital and risk management in the major financial institutions, and the resilience of the market infrastructure. And we believe there is room for some further strengthening of market practice in these areas. | 1 |
However, in the euro area such dilution is only 10%, owing to a greater national bias in asset holdings. The main private channel for risk dilution in the euro area at present is that of lending by the European banks that operate in different Member States. But this channel becomes unstable and may even shrink or disappear in situations of uncertainty owing to the link between sovereign States and their domestic banks. As is known, capital markets in Europe are less developed and less integrated than in the United States. Corporate financing on equity markets is very limited and, moreover, shows a strong national bias. In the United States, cross-border holdings of assets play a significant role in mitigating the shocks that affect a State. However, in Europe this mechanism is very limited. This is why it is crucial to complete the Capital Markets Union project so as to achieve greater depth and integration of European Union capital markets. That will allow for greater risk-sharing in private euro area channels and less reliance on bank financing, which will result in greater stability in the euro area. The aim of this project is to provide new financing sources for firms at a lower cost, and at the same time to attract more foreign investment towards the European Union. To achieve this, the European Commission proposed a plan of action in 2015 with over 30 measures to construct an integrated capital market in the European Union, to be completed by 2019. | Consistency has several sides • Consistency across jurisdictions: it is vital as most players on OTC derivatives are global actors: we need to minimize the incentives for regulatory arbitrage; • Consistency with respect to the localization of market infrastructures, which should remain coherent with respect to the currencies traded: infrastructures should be under the direct reach of the Central Bank concerned by the systemic risk attached to the clearing of large positions in a given currency; • Consistency regarding the different types of players/counterparties: in order to prevent the move from regulated spheres to unregulated ones, we need to set up a framework where financial innovation, a key factor for economic growth, continue to develop in regulated spheres, and benefit from appropriate risk regulation. 2 BIS central bankers’ speeches I will not dwell further on these topical issues, which are about to give rise to a fascinating discussion. It is my hope that we can collectively contribute to enlighten the policy debate. Let me now give the floor to our panelists. BIS central bankers’ speeches 3 | 0 |
National demand is estimated to hold on a mildly slowing path, and there will be further improvements in the contribution of net external demand. This profile would be in line with the macroeconomic scenario on the basis of which the State budget for 2007 has been prepared, although the starting point is somewhat higher growth rates in 2006. As to inflation, although the growth of the CPI in 2007 on average will be far below that of the current year if cheaper oil takes root, it is clear that there will only be significant headway in inflation rate convergence with the euro area if this reduction in energy prices feeds through permanently to agents' expectations. We are therefore faced with a picture of sustained growth and some gradual correction to certain imbalances in the Spanish economy. Yet this scenario is not free from risks in the medium term. On the international front I have already mentioned risks relative to the outlook for the world economy and the uncertainty over the intensity of the European recovery. Furthermore, oil prices are subject to the influence of numerous economic and geopolitical factors, any changes in which may prompt a reversal of the fall seen in recent months. Within Spain, both the persistent inflation differential with the euro area and the high indebtedness of Spanish households harbour uncertainties that economic policy should contribute to dispel. The maintenance of price increases higher than those in the euro area over a lengthy period is a cause for concern. | This has led our export shares in international markets to stabilise somewhat, following the losses recorded in the two previous years. However, no substantial changes to the gradual deterioration in the pricecompetitiveness indicators seen in recent years are discernible yet. Combined with the buoyancy of final demand, this has meant that purchases abroad have retained strong momentum, whereby import penetration has continued to increase. Despite the better export performance and the slowdown in expenditure, the external deficit has continued to increase both in nominal terms and as a percentage of GDP during the first half of 2006, albeit at lower rates than in the two previous years. The rise in the external deficit reflects, first, the impact of some temporary or one-off factors such as more expensive energy and the cyclical discrepancy between our economy and that of the euro area. We may also include here the import intensity of investment in capital goods, although this component may have a more permanent underpinning. Foreseeably, the recent course of energy prices and the recovery in the euro area will contribute to alleviating the tendency towards deterioration. However, we must not lose sight of losses in competitiveness. Reversing these losses may prove much more complex since that will ultimately depend on the economy’s efficiency and flexibility. The labour market has continued to be governed by the patterns of previous years, with strong job creation that has provided for the incorporation of a growing number of workers into the market and a reduction in the unemployment rate. | 1 |
Of late, however, academics have started to recognise how critical leadership, politics, good governance and institutions are to growth. I believe that to trigger off and sustain economic growth, three necessary conditions are required: • First, vision and ideas; • Second, sense of reality; and • Third, good implementation As the first and second factors are related, I will discuss them together. Vision and ideas and sense of reality First, vision and ideas. By this, I mean that leaders must offer a political and economic vision to excite the imagination of their people. They must offer hope and programmes to rally the people to sacrifice, struggle and work together to achieve a better future. Second, by sense of reality, I mean leaders must have their feet firmly planted on the ground even as their imagination of growth and prosperity soars. In pursuing growth, sound basic economic principles such as prudent fiscal policies, monetary discipline, and high savings must be practised. Many countries' experiences have reinforced the importance of a stable macroeconomic environment and the benefits of a market-based system. Policies on growth must be applied to local contexts in a practical way, taking into account an economy's resources and constraints. In addition, countries must be open to new ideas and be prepared to change. They must not be trapped in old paradigms but must constantly adapt to the everchanging world. Let me illustrate this with Singapore's example. After independence, we implemented policies that promoted macroeconomic stability. | Yugoslavia, Mexico and Egypt had the advantage of being close to the critical export markets in the developed world. Honduras and Tanzania had precious metal deposits, as did several of the other Latin American and African countries. Singapore had nothing, was over-populated and had high unemployment. Many economists of the day predicted that countries in Latin America and Africa would outgrow over-populated, resource-scarce Asia. The outcome, however, was totally different. Living standards have barely risen in Honduras in the last 40 years, and have declined in Tanzania. Tito's Yugoslavia no longer exists. East Pakistan fought a war with West Pakistan and separated to become Bangladesh. Civil war and internal disorder tore up countries like Liberia, Ethiopia and Uganda. Singapore which was written off by pundits as being not viable without the Malaysian hinterland not only survived but thrived. Its GDP per capita increased more than six-fold, better than any of the other 15 countries represented in my class. Why have the growth experiences of individual countries been so disparate? Some of you might have watched the movie, "The Good, the Bad, and the Ugly", released, coincidentally, exactly 40 years ago. Set during the American Civil War, it was about three bandits who each held one clue to a hidden trove of gold coins. They did not trust each other, and wanted all the money for themselves. In the end, the "Good" bandit who put all the three clues together won. | 1 |
How do we solve the Triffin dilemma and what role will Europe play in the Global Financial Safety Net (GFSN)? A more international Page 6 sur 7 euro will provide increased options to store global liquidity, but the goal will obviously not be to turn the euro into a dominant currency. On the contrary, we would aim for reliance on multiple currencies to offer stability to the International Financial System through diversification of risks. Regarding the global safety net, the euro area generated a quantum jump for the regional layer of the GFSN in creating the European Stability Mechanism (ESM). In addition, the euro area countries were instrumental for the strengthening of the IMF resources and the SDR allocation and rechannelling. The weight of the euro in the SDR basket should increase in the future in proportion of the increase of its international use. Finally, the Eurosystem is already providing international liquidity through existing swap lines and repo facilities with other central banks, and stands ready to do more if and when warranted. 2. Invoicing international trade With the EU ranking as the world largest trading block, the euro has ample margin to improve as an international trade invoicing currencyvi. The choice of invoice currency is a complex and largely private phenomenonvii, partly driven by the structure of global value chains, which are being reshuffled. | Under one important prerequisite: the private sector should play its part in the effort, and we should unlock cross border capital flows for the transition; this is the strongest argument in favour of a Green Capital Markets Union, which I advocated with my German colleague Joachim Nagel x). Except in 2022 and the exceptional energy shock, the euro area had a structural excess of savings to investment of 2% of GDP. Hence, provided we have the right economic incentives, Europe can finance its ambitious climate transition; this final and fundamental conviction is a good piece of news. * ** Good news is also important in what could seem like an ocean of alarming information on climate change. Our natural tendency to shut our ears when faced with pessimistic announcements was best captured by Homer with Cassandra. She repeatedly tried to warn that Troy would fall should they let Ulysses’ Trojan horse get into the city. I don’t claim to be Homer or even Cassandra. I tried this morning to sum up in a fair way what we know and don’t know yet about the macroeconomics of climate change, but above all what we can and must do as soon as possible – we are already in “money time”. I thank you for your attention. | 0 |
Most recently, the IMF, in its World Economic Outlook assessment of October 2008, forecasted that “The world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s. Global growth is projected to slow substantially in 2008, and a modest recovery would only begin later in 2009. […] The immediate policy challenge is to stabilize financial conditions, while nursing economies through a period of slow activity and keeping inflation under control.” Nevertheless, there is also a positive development. Central banks and regulators around the world are now taking coordinated and concrete actions. Comprehensive measures aimed at restoring confidence in the banking systems include provision of liquidity, new capital injection, guarantee of interbank loans, blanket deposit guarantee, and government purchase of troubled assets. As for Thailand, despite the magnitude of the turmoil in the global financial market and the decline in local stock market, the immediate impact of the turmoil on Thailand’s banking system thus far has been limited. This is because the direct first-round impact linked to investment exposure of the Thai banking system is small. The indirect second-round impact via the downside risks to economic growth and financial market volatility, however, will be a challenge and will require vigilance on macroeconomic policy, as well as prudential measures, to ensure continued economic growth and financial stability. Let me cite some of the factors which have helped to keep the direct negative impacts limited. First, Thai banks have low direct exposure to problem assets. | The total foreign investment of Thai banks amounts to only around 1.2 percent of their total asset, and a small part of this is the investment by Thai banks on CDOs. Banks that have CDO investments have mostly sold them off, and all have made full provision and recognized losses in line with IAS 39. Secondly, Thai banks rely predominantly on local deposits for funding, as opposed to the international wholesale market. This helps make the domestic financial conditions more stable and not affected by the global credit crunch. Liquidity conditions in the Thai system have remained more or less stable, though liquidity tightened marginally due to acceleration in credit growth. The ratio of loan to deposits, BIS Review 133/2008 3 including bills of exchange, has been stable at around 90 percent, indicating no shortfall in liquidity. Thirdly, the fundamentals of the Thai banking system have strengthened markedly, with robust capital and improved risk management. Banks have had solid profit since 2001, with gross NPL ratio to total loans declining to 6.4 percent and the NPL ratio net of provisioning declining to 3.4 percent as of the end of the second quarter of this year. NPLs are fully provisioned for in accordance with IAS 39. In August, the BIS capital ratio of the banking system increased to 15.5 percent due to higher profit and capital increase. | 1 |
But we are very much aware that both policies may interact. As mentioned before, financial instability may undermine monetary policy’s ability to maintain price stability, both directly by its negative impact on credit provision, growth and inflation and indirectly by impairing the monetary transmission process. Conversely, a protracted low interest rate environment necessary to maintain overall price stability may create incentives to search for yield and lead to local bubbles in a heterogeneous monetary union. In both cases, macro-prudential policy can be used to address financial stability concerns and facilitate our monetary policy conduct. In the first case, where the financial stability concerns are of a systemic nature affecting the whole euro area, those policies will have to be coordinated. In the second case, national macro-prudential authorities may take actions to reduce the risk of local financial imbalances. In such a case, macro-prudential measures may exert cross-country spillovers that matter for monetary policy. For example, raising capital requirements in one jurisdiction may dampen lending in the whole euro area, while a tightening of loan-to-value ratios may simply shift lending between respective jurisdictions, leaving the euro area aggregate unchanged. A monetary authority may therefore have a legitimate interest in which macro-prudential measure is used. Many of these questions are yet to be fully explored and we have to acknowledge that the macro-prudential policy framework is still in its infancy. We are in a learning process. | We are committed to a dialogue, and that includes a dialogue with the people of Scotland. I cannot claim that we shall always do what some of you would like us to. But I can promise that we shall explain and we shall listen. And we shall remember those words of Rabbie Burns, O wad some Pow’r the giftie gie us To see oursels as others see us! It wad frae mony a blunder free us, And foolish notion. Some of you may still feel that the MPC’s decision to raise interest rates was a “foolish notion”. But I can assure you that our mission to explain will continue, and that we shall take the case for stability to every part of the country in order “to see oursels as others see us”. 5 BIS Review 111/1999 | 0 |
“The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong”, National Bureau of Economic Research Working Paper 14631. White, William R. (2006). “Is Price Stability Enough?”, Bank for International Settlements Working Paper 205. White, William R. (2009). “Should Monetary Policy ‘Lean or Clean’?”, Federal Reserve Bank of Dallas Globalisation and Monetary Policy Institute Working Paper 34. Williams, John C. (2009). “Heeding Daedalus: Optimal Inflation and the Zero Lower Bound”, Brookings Papers on Economic Activity, 2, 1–50. Woodford, Michael (2003). Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press: Princeton, NJ. Woodford, Michael (2010). “Financial Intermediation and Macroeconomic Analysis”, Journal of Economic Perspectives, 24(4), 21–44. | At a 2017 conference, hosted by the New York Fed, representatives from across the industry came together to discuss how boards of directors assess their firms’ cultures, hold management accountable, the benefits of data and benchmarking, and finally, the role of performance management and incentives.4 Since then, several firms have started to use big data to perform network analysis to understand how culture is transmitted through an organization. Others have further honed their ability to gather qualitative data and interpret it in new ways. There is a greater recognition that there are no simple and straightforward metrics to tell them where they stand vis-à-vis cultural capital.5 Rather, these firms are regularly experimenting with new ways to identify patterns within complex systems that are continuously evolving. A number of firms have recognized that the data they gather must be contextualized. Cultural capital is not a single statistic; one part of a firm could have generous stores of it, while another department or geography requires more focused investment and attention. From the accumulation perspective, building cultural capital means investing in the way the organization approaches everything it does, including defining its purpose, setting its business strategy and risk appetite, training, communications, decision-making, prioritization, compensation practices, and how employees are incented to interact with colleagues, clients, and customers. A critical part of sustained investment is that business leaders and boards of directors see it as their responsibility to set the tone from the top. | 0 |
I consider that a clear but, at the same time, flexible framework for macroprudential supervision will create the best conditions to counteract future financial crises. But this is not to say that this would be enough to ensure that no financial crisis ever occurs again. The crises of tomorrow will probably have completely different causes to the crises of yesterday, making them difficult to protect ourselves against. However, the scale of the costs of a financial crisis justify making every effort to protect ourselves. As regards the question of where responsibility for macroprudential policy ought to lie, it is clear that this area is closely linked to both the Riksbank’s and Finansinspektionen’s activities. The Riksbank has been analysing the stability of the financial system for fifteen years and also currently provides recommendations for safeguarding it in its Financial Stability Reports. Finansinspektionen also works for the stability of the financial system but with a focus on individual institutions. The competence and experience of both authorities will have to be utilised if macroprudential policy is to be effective in Sweden. While awaiting a more long-term solution for Swedish macroprudential supervision, the Riksbank and Finansinspektionen have set up a temporary council for cooperation. In addition to consulting and exchanging information on assessments of risks and possible countermeasures, one task of the council is to discuss the development of instruments and methods within macroprudential supervision. The joint communication of our assessments in connection with this council for cooperation is a benefit in itself. | The level of the countercyclical capital buffers will be determined 6 This refers to Core Tier 1 capital in relation to risk-weighted assets. 7 FSB (2011), “Policy Measures to Address Systemically Important Financial Institutions”, 4 November 2011. 8 See, for example, Financial Stability Report 2012:1, Sveriges Riksbank. 4 BIS central bankers’ speeches by the relevant authorities on the basis of quantitative and qualitative assessments. Among other data, the quantitative assessment will take into account the so-called credit gap, which is how far credit growth deviates from an estimated trend. But this is a fairly rough measure of the degree of risk in the system, and other measures and assessments may also be fairly important. The aim of the countercyclical capital buffers is primarily to strengthen the banks and the resilience of the financial system. One effect of introducing the buffers will be to moderate the fluctuations of the credit cycle. In an upturn, substantial credit expansion will activate the buffers, which means that the banks will gradually have to hold more capital. This will restrict lending and thus reduce the risk of exaggerated credit growth and rising asset prices. In a situation in which lending is being tightened, the banks’ capital will be freed up as the buffer requirement is reduced. The banks will therefore not need to reduce their lending to the same extent, which would otherwise reinforce the downturn. | 1 |
Just as when we travel on a journey, we need not only reliable vehicles, but also skilled drivers and passengers that are cautious explorers, and enforceable driving laws to ensure that we arrive at our next destination safely. The fact that the Thai banking system has been able to withstand many incidents in the past years, including the great flood, the subprime crisis, and the economic slowdown, testifies to the fact that we have been on the right path on sustainability. But again, complacency must be avoided. In this context, our banking system needs experienced bankers with good governance, excellent risk management practices and banking regulations to ensure safety and soundness, as well as financially literate customers. In my opinion, banks, as the first touchpoint to the customers, play a central role in promoting financial literacy and usage of new channels such as digital banking. More convenience does not mean a compromise on security and reliability of financial services, critical for customer’s confidence in the usage of digital channels. As QABs are increasingly interlinked with more cross-border transactions, it also calls for closer cooperation on the part of home and host supervisors in line with the global regulatory reforms to ensure stability of the financial system, similar to enforceable international driving laws. Last but not least, human resources are another key aspect that needs to be continually improved as without sufficient talent pool, the above milestones may not be achieved. | Taking into account inflation expectations, the pricing behavior and the course of other factors affecting inflation, we will maintain our tight monetary policy stance as long as deemed necessary. Chart 3. Chart 4. (2-Week Moving Average, Billion TL) (Percent) CBRT Funding* *Marginal funding is O/N funding quoted at the upper limit of the corridor. Source: CBRT. CBRT Rates and BIST Interbank O/N Repo Rates Source: BIST, CBRT. The yield curve, which was nearly flat in the last quarter of 2015 as in the entire year, assumed a positive slope in January 2016 (Chart 5). This was mainly due to long-term rates that rose amid the uncertainty surrounding global markets, geopolitical risks and heightened inflation expectations, which also affected the spread between 5-year market rates and the BIST overnight interbank rates. After remaining negative across the fourth quarter of 2015, the spread turned slightly positive in the first weeks of January as a result of rising 5-year market rates (Chart 6). 2 BIS central bankers’ speeches Chart 5. Chart 6. Yield Curve Between October 28, 2015- January 22, 2016 (Percent) (Percent, 5-Day MA) Source: Bloomberg, Maturity (Year) Money Market Rates Source: Bloomberg, BIST. Regarding our Turkish lira liquidity policy, there has been some decline in banks’ FX swap deals with the market for short-term funds owing partly to changes we made to the guidelines for the use of FX deposits as collateral following the announcement of our road map. | 0 |
28 See Rey (2013). 29 See Rey (2013). 30 See Kamin (2010) for a compilation of the empirical research into the effects of globalisation on monetary policy. 14 BIS central bankers’ speeches nationally, and if they were to try to take into account the spillover effects of their policy abroad, this would mean having to set aside the national objectives, at least temporarily. It would probably be difficult to get the domestic support and understanding that is ultimately needed for such a policy. It would moreover probably be difficult to both estimate and reach agreement internationally on the size of the effects – different countries will most likely have different opinions.31 Having said this, I believe there are good reasons to take global aspects into account in models and monetary policy analyses, to a greater extent than is the case today –spillover– and feedback effects that individual countries’ monetary policy may lead to. Just as the financial crisis started a research agenda on how financial conditions should be included in macro models to a greater extent, I believe that the increased globalisation will create a need for further development work with regard to the analysis of monetary policy in open economies. But it remains to be seen how far this will lead and whether it will have an impact on the practical policy, and if so, how large an impact. | At this point, I would like to briefly comment on the interpretation of our forecast. It is based on the above-mentioned assumptions regarding the development of the world economy, and on the three-month Libor remaining stable throughout the forecasting horizon. In other words, the forecast BIS Review 101/2001 1 shows the development of inflation on the condition that monetary policy is left unchanged. However, monetary policy will certainly need to be adjusted during the forecasting period. The economic environment changes continuously as new disruptions occur, and the National Bank responds to these changes in order to meet its objective of maintaining price stability. Therefore, it is important to bear in mind that the forecast is made for a three-year period but is valid for only six months at most, i.e. until the publication of the next forecast. The relatively long forecasting period reflects the time lag with which monetary policy measures impact on the price level. We publish our forecast in order to inform the public of our assessment of the inflation outlook, at the time of the forecast, on the basis of an unchanged monetary policy. The publication is a means of making our monetary policy decisions more transparent and easier to understand. I will now make a few remarks about the development of the Swiss economy in the year now ending and the coming year. The recessionary trends witnessed across the globe will not leave Switzerland unscathed. | 0 |
Put more plainly, we need to think about an environment where those in the position of most influence have the incentive to “poke holes” in myths via robust stress tests, and not the incentives to override their risk managers when the stress-test implications are not to their liking, or risk a near-term loss of clients or market share. Concluding observations New financial myths are regularly created. In closing, I will just speculate on where some may exist that interested parties should be exploring, now. Potential Myth 1 – Sovereign debt problems will not be disruptive to the world economy. Not long ago, the sovereign debt problems were viewed as manageable and confined to one country. However, as interest rate spreads have widened – as shown in Figure 12 – investors are highlighting that problems in many countries BIS central bankers’ speeches 5 have yet to be resolved. While I believe the most likely outcome is that there are no serious disruptions, interested parties should diligently consider scenarios that could be disruptive, involving various countries. Potential Myth 2 – State and local financing problems will not be disruptive to the national economy. While much attention has been given to problems in state and local finances, it is generally assumed that the capacity exists to resolve these problems. While I expect these issues will be resolved without widespread or cascading problems, we should consider what scenarios could emerge if political impasses result in more disruptive outcomes. | These are just two of many potential scenarios that are worth exploring. However, I would add that the recent financial crisis highlighted that unlikely events can happen, and when they do, the outcomes can be quite costly for everyone. So the need for better risk management is clear. Fortunately, the opportunity is there as well. Thank you. 6 BIS central bankers’ speeches BIS central bankers’ speeches 7 8 BIS central bankers’ speeches BIS central bankers’ speeches 9 10 BIS central bankers’ speeches BIS central bankers’ speeches 11 12 BIS central bankers’ speeches | 1 |
The Global Financial Crisis led to a loss of economic activity equivalent to around £ per person in the UK, based on the net present value of the shortfall in income since 2007 compared to its pre-2007 trend(Brazier 2019). 2 For example, Acemoglu and Zilibotti (1997), Arestis and Demetriades (1997), and Beck and Levine (2004) provide evidence that the financial sector has a positive role on economic growth. 3 The ‘efficient market hypothesis’ was popularised by Fama (1970). Complete markets were theorised by Arrow and Debreu (1954). 4 For example, markets could be inefficient due to information asymmetries, transaction costs, market psychology, sticky prices, monopolistic competition, or credit constraints. 5 Drehmann et al. (2012) and Lang et al. (2020) highlight the importance of cyclical risk for financial stability. 6 Glasserman and Young (2015) and Acemoglu et al. (2015) discuss the risk of contagion in the financial system. 7 Woods (2022) discusses alternative approaches to buffer usability. 8 6/7 BIS central bankers' speeches 8 See Bank of England (2021). 9 See Chatterjee (2022) for a comparison of the UK financial conditions index for the GFC and Covid. 10 Lloyd et al. (2021) shows that foreign shocks are a key driver of domestic macroeconomic tail risks. Bluwstein et al. (2020) also show that global factors can predict financial crises. 11 See Czech et al. (2021). 12 Bank of England (2021) provides more details on vulnerabilities associated with market-based finance and liquidity mismatch in open-ended funds, in particular. | Sarah Breeden: Macropru – fit for the future? Speech by Ms Sarah Breeden, Executive Director for Financial Stability Strategy and Risk of the Bank of England, at Lancaster University, Lancaster, 28 April 2022. * * * When the financial system is in poor condition – when there is financial instability – it can be damaging to us all. I like to compare the importance of financial stability to our collective prosperity with the importance of health to an individual. Good health may not be the only thing that matters for an individual’s happiness. But it is essential. Because poor health comes with undesirable consequences. We need only remind ourselves of the global financial crisis, more than a decade ago, to appreciate the undesirable consequences of financial instability. UK GDP shrank by more than 6% during the first five quarters of the crisis, staying below its prerecession size for a further five years. Unemployment increased, with an additional 1 million jobs lost by its peak at the end of 2011. And labour productivity, the best way to measure living standards in the long-run, fell sharply in 2008 and has barely recovered since.1 The poor health of the global financial system was exposed in the most dramatic of fashions. We might liken it to a heart attack. And in response the authorities co-operated across borders and across institutions to design a radical ‘healthcare plan’ – to improve resilience, both at the microprudential individual institution and the economy-wide macro-prudential levels. | 1 |
Whereas then the exchange rate depreciated continually, amplifying the effect of external price increases, in the past few months the peso-dollar parity has shown large swings, and is now, as of the statistical closing of this Report, at around CLP480 per dollar. After the Bank’s announcement of the reserve accumulation program in early January, the peso depreciated from some CLP465 per dollar to nearly CLP500 per dollar. After that there was an appreciation trend that took it back to pre-intervention levels; however, the effects of this measure have combined with external developments, in particular the sustained weakness of the dollar at the global level and the copper price increasing to all-time highs in nominal terms (figure 15). Thus, since its peak of late 2008, the appreciation of the peso against the U.S. dollar has not differed much from that of the currencies of commodity-exporting countries or other economies that have intervened or applied administrative measures in their forex markets (figure 16). The real exchange rate (RER) followed the trend of the multilateral parity, which has depreciated since December. Considering the level of the nominal exchange rate and parities prevailing at the statistical closing of this Report, in March the RER posted figures in line with its long-term fundamentals (figure 17). The baseline scenario of this Report uses as a working assumption that the RER will stay near its recent levels. | We also work closely with some of the organisations sharing the stage with me today, aiming to get the best result and to minimise the burden on industry. We work extensively with Pay.UK who are working to deliver change across the retail payment schemes through their New Payments Architecture Programme. Together, we are tackling issues such as whether we could build a shared Public Key Infrastructure (PKI) for UK payments. And of course payments globally continue to change apace, so we thrive on our engagement with other central banks on key topics such as standards harmonisation, where our close collaboration is a crucial part of how we can collectively transform the payments landscape. Working together provides the opportunity to learn, share insights and collaborate on common challenges. Conclusion Just as payment systems are at the heart of the economy, industry engagement must remain at the heart of the Programme. User input enables us to create the platform and capability that industry needs to innovate: the building blocks to transform the payments landscape. But as we mobilise delivery at the Bank, we need industry to mobilise too. We are on track against our plan and we need firms to develop theirs – so the payments industry is ready to transition safely to the new service and maximise the opportunities for innovation and transformation promised. We are developing a strategy to work closely with Direct Participants to provide information, monitor key milestone completion, undertake testing and seek assurance that they are each ready to implement changes. | 0 |
It is vital that this work continues with real vigour if we are to avoid either the Scylla of costly public backstops becoming increasingly frequently used as frontstops, or – worse – the Charybdis of households and firms having to bear the risks of systemic instability directly. Page 7 3) Ensuring we have central bank tools that are effective To provide a credible backstop, central banks need: first, a well-defined framework for deciding when systemic stability is sufficiently threatened for intervention to be necessary; and, second, a tool that is able to target the underlying market vulnerability. In the LDI case, the decision to intervene was made on the basis of a recommendation from our Financial Policy Committee that UK financial stability was at risk from the development of a selfreinforcing price spiral affecting long-dated UK government debt. That judgment was informed by a dashboard of quantitative measures, starting with the sharp rise in long gilt yields, a blowout in bid/ask spreads and a material reduction in traded market depth. But these measures were not enough to trigger action. A sharp rise in yields for example might simply reflect economic developments. And they could not by themselves elucidate the underlying dynamics driving market pricing. It was only through direct contact with the LDI funds themselves, and broader market participants on both the buy- and sell- sides, that we could understand both the scale of the fire sales underway, and the prospective size, timing and composition of future transactions if yields continued to rise. | That selling pressure overwhelmed the capacity (or willingness) of intermediaries to warehouse those instruments, leading to sharp and disorderly price declines in core assets relied upon, directly or Page 5 indirectly, by households, firms and governments to support economic activity. And central banks’ traditional tools, working through banks, were unable to direct liquidity to the source of the shock (Figure 1). European energy markets in Spring 2022 saw similar dynamics too, when sharp price movements triggered by the invasion of Ukraine triggered large margin requirements on energy derivative positions that thinly-capitalised intermediaries struggled to meet, driving liquidation of positions that further amplified the initial shock to energy prices. Some may argue that Covid, Putin and the UK’s autumn 2022 fiscal announcements are truly exceptional shocks that would challenge any market structure, and are unlikely to be repeated. Maybe. But the underlying vulnerabilities are real and growing, and hoping for calmer times is not a strategy. LDI was just the latest warning of the need for action. 2) Public backstops vs. private self-insurance Given that the evolution of this new form of systemic liquidity risk is real and growing, there is an important debate to be had about how responsibility for insuring against the social consequences of that risk should be shared between private and public interests. It is a core function of public institutions to provide a backstop against genuine tail risks. The alternative – systemic collapse – would be hugely costly to the real economy. | 1 |
Maintaining a stable currency safeguards purchasing power over time and ensures the currency’s continuity across the territory, so that every individual can spend that currency anywhere and at any time and enjoy the same ability to purchase necessary goods and services. Back in the 18th century, France's authorities found themselves unable to guarantee this stability. After the bankruptcy of the John Law note-issuing bank in 1720 and several other 2 failed attempts to set up a central bank,5 the hyperinflation fuelled by monetary financing of the Revolutionary Wars and the ensuing default on two-thirds of France’s public debt in 1797 had destroyed confidence in the currency.6 The most pressing task facing the Consulate government was to rebuild the foundations of that trust, which it did by authorising the establishment of the Banque de France in 1800 and anchoring the value of the franc through the creation of the Germinal franc in 1803. In establishing the Banque de France, France set up a central bank that was capable, because it was trusted by the French people, of offering an “elastic” money supply, to use the economic jargon, that is, of adjusting the money supply to suit the needs of the economy. In this way, the foundations for an active lender-of-last-resort policy were laid very early, providing a means to combat financial crises and thus support the economy. | For these first six channels, one can argue that it is the expected stock of security holdings to be purchased by a central bank that chiefly determines the amount of accommodation—that is, the impact the central bank’s purchases are expected to have on the size and duration of assets available to the public. Alternatively, for the market function channel, the “flow” effects are most important, in that the transactions associated with a central bank’s asset purchases can also affect an asset price by altering market liquidity and functioning, although such effects may dissipate quickly. This channel could achieve monetary accommodation through the purchase of any security type in which market functioning has become stressed. One example is the European Central Bank’s Securities Markets Programme, which was designed “to address the malfunctioning of securities markets".10 The purchase of non-sovereign assets can be helpful by providing additional channels for 2 / 10 BIS central bankers' speeches monetary accommodation to be realized. Further, having additional markets to operate in can help central banks overcome functional limitations that could exist if they were restricted to LSAPs in only one market. For example, the stock of assets held by the private sector in a given market might be too small to meet the monetary policy goal. Or, the purchase of a large amount of the existing stock of a given market might result in impaired market functioning, which, in the extreme, could impair the effectiveness of the LSAP and other monetary policy tools. | 0 |
These resources comprise first the margin collateral of the defaulting member, then some of the CCPs’ own capital (their ‘skin in the game’) and then the mutualised loss absorbing capacity of the default funds to which all members contribute. These resources are considerable. In 2017, in addition to the £ billion of initial margin, default funds held by UK CCPs totalled around £ billion. As a very broad comparison, at the height of the financial crisis the UK Government had to make an initial injection of £ billion of public funds into RBS and Lloyds. As I noted at the outset, in the Lehman case, the margin held by CCPs was sufficient to enable the CCP to liquidate, auction or transfer all of the defaulted contracts in a few weeks. We would need to go much further into the tail of the probability distribution of very bad events to exhaust a CCP’s prefunded resources against default than would be necessary to exhaust a bank’s capital. If bank 6 The largest cross-border banks are considerably stronger than during prior episodes of market stress. Common equity requirements are seven times the pre-crisis standard for most banks. For global systemically important banks (G-SIBs), they are more than ten times higher. | 7 The major UK banks on average now have total loss absorbency of around a quarter of their risk-weighted assets (RWAs) compared to an average end-state requirement of around 28% (including buffers). 8 While no measure is perfect, a range of market-based estimates suggest the implicit ‘too big to fail’ subsidy has fallen sharply since the crisis. Estimates suggest that the value of the implicit subsidy has fallen from around £ in 2010 to less than £ now – down around 90% http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/capital-andresolution/written/69208.pdf 11 All speeches are available online at www.bankofengland.co.uk/speeches 11 If counterparties have confidence that resolution will stabilise a bank so that it can continue to meet its obligations, they will not accelerate actions that could frustrate a resolution to the detriment of all parties. And the public needs to have confidence that we have learned the lessons of the crisis: that we have acted to ensure that we have an alternative to the previous crisis where we had privatisation of bank profits in good times and the socialization of bank losses when things go wrong. 9 For that reason, the Bank committed to Parliament in April 2017 and in the Purple Book last October that from 2019 we would implement public reporting of banks’ resolution plans and our assessment of their effectiveness. This marks an important transition in the implementation of full resolvability in the UK. | 1 |
Just as important is how these rules are put into practice. In normal circumstances, such as those before the crisis, this is a rather easy task, since the public and politicians understand “conventional” monetary policy quite well. People have a clear picture of how central banks act and communicate. In such times, the requirements of accountability and transparency are satisfied without undue controversy through a number of measures, namely, the annual accountability report submitted to parliament, regular 4 Cf. the National Bank Act (NBA) and Message concerning the revision of the National Bank Act. Functional independence means, in particular, that the SNB fulfils its mandate without seeking or accepting instruction from any of these bodies. Financial independence includes both the budgetary autonomy of the SNB and the prohibition against granting loans to the Confederation, thereby barring the state from using the banknote press. The SNB’s independence in personnel issues, finally, is ensured by the fact that Governing Board members and their deputies can only be dismissed during their term of office if they no longer fulfil the requirements for exercising that office or if they have committed a grave offence. 5 Specifically, art. 99 of the Federal Constitution states that “as an independent central bank, the Swiss National Bank shall follow monetary policy which serves the general interest of the country; it shall be administered with the cooperation and under the supervision of the Confederation.” Art. 5 of the NBA sets out in detail the SNB’s constitutional mandate. | Another aspect that needs to be addressed is the role of adequate control systems and financial risk management. A proper system of financial risk control and management must start by defining policies at the highest level, the board of directors. It also requires the involvement of senior management in tracking and monitoring risk. And, ultimately, it needs the development of an organizational culture that is capable of properly combining the goals of profitability and leadership with risk sensitivity. In this regard, a topic that is central to the discussion of financial reforms is the overall structure of incentives of financial intermediaries. I believe this is an issue that all players in the financial system must follow with care. As a result of the current problems, we will observe more regulation in financial markets and everyone, even those of us not at the center of these difficulties, must remain watchful. Problems of moral hazard, transparency and new ways to meet the requirements of central banks to provide liquidity are leading to a review of regulatory frameworks at the international level. We must be aware that more regulation leads to the search of ways of avoiding them, which may end up threatening financial stability. This last dimension must be taken into account in the analysis and regulatory proposals, which obviously introduces an extra element of complexity in this area. Thank you. References Allen F. and D. Gale (2000). “Financial Contagion”, Journal of Political Economy, 108(1). Benmelech E. and J. Dlugosz (2009). | 0 |
In a broader perspective which also includes impacts on the real sector, three points of view will be moved to the fore. First and foremost, trade relations with Euroland have always been strong, on the export as well as on the import side. Under the new bilateral agreements, our connectedness with the EU may become even stronger in the years to come. Given these structural conditions, it is clear that our economy is highly susceptible to shocks in the SFR/euro exchange rate. In actual fact, this marked dependence is the strongest economic argument of all those wishing to substitute the euro for the Swiss franc as soon as possible. BIS Review 2/2001 3 A second relevant perspective for the real sector is to be seen in the trend towards a real appreciation of the SFR since the transition to floating. Real exchange rate index CHF Export weighted, November 1977=100 130 120 110 100 real appreciation 0.6% p.a. 90 80 70 Jan 73 Jan 76 Jan 79 Jan 82 Jan 85 Jan 88 Jan 91 Jan 94 Jan 97 Jan 00 The rising trend - measured by the index of the real trade-weighted SFR exchange rate - averaged 0.6% per annum. Its main causes seem to be two special features of our economy. One is the extraordinarily high external surplus of approximately 10% of GDP, which generates a steady net demand for SFR. | The rapid progress of information technology in recent years has brought new risk measurement models to aid in the measurement of market risk. The most widely accepted of these is the ”Value-at-Risk” model, called ”VaR” for short. VaR is the maximum loss that can occur in the value of a portfolio having a certain investment horizon under a certain probability. Since it is a simple and clear-cut concept, the VaR model is widely used for measuring market risk. It permits comparison of the market risk of different investment instruments, so that portfolio performance can be evaluated in terms of the risk undertaken. Especially for measuring market risk to determine capital adequacy, this model has become a necessity in many countries and financial institutions. Another method widely used for measuring market risk is ”Scenario Analysis”. Scenario Analysis is a technique used to see how the value of a portfolio would be affected by various probable changes in market conditions. A last widely used method for measuring risk is the ”Stress Test” method. The Stress Test is used to estimate how the value of a portfolio would be affected by large, unexpected fluctuations in the markets, such as have been observed during the global crisis which is still with us. Though similar to Scenario Analysis, the Stress Test mainly aims to predict the maximum value that would be lost by a portfolio under certain extraordinary market conditions. The success of this method depends on successfully predicting market conditions. | 0 |
There is more we need to do, I will turn to that in a moment. And we should be clear that resolution will not be some painless magic bullet. No matter how well prepared in advance, the resolution of a major bank, if it happens, would be a painful, protracted, and probably litigious, affair. But we now have made means that we have options today to deal with a failing bank that we simply did not have 10 years ago. The choice is no longer solely between a disruptive insolvency that damages critical economic functions or bailing out the bank’s creditors at taxpayer expense. A large part of a bank’s losses must now be borne by shareholders or creditors. This penny seems to have dropped with investors in the larger banks – the implicit public subsidy that the large “too big to fail” banks enjoyed in the price of their debt has been eroded and rating agencies no longer assume that UK banks will get public support if they get into trouble. 8 It is essential that the resolution regime is fully credible - to those investing in banks but also to counterparties to banks, including CCPs and to the public at large. If investors in bank debt know that they will be bailed in if the bank fails, the pricing of that debt will exert discipline on risk taking. | The firm had derivative portfolios at a number of CCPs across Europe, the US and Asia. All were auctioned, liquidated or transferred to other clearing participants by the CCPs in weeks, not years. And, with only one minor exception, this was achieved without exhausting the margin collateral the CCPs held. 1 I mention this aspect of the Lehman failure because it illustrates the drivers behind two of the key regulatory reforms we have made as a result of the financial crisis. First, incentivising and where appropriate mandating the greater use of central clearing for derivative transactions. And second, putting in place resolution regimes to ensure banks, particularly large, highly interconnected, wholesale market players, can fail without unleashing the disruption that followed the Lehman insolvency. I want to look today at the progress we have made in the post crisis reforms around derivatives and how we address the risks around the concentration of counterparty risk in CCPs – including what the objectives should be for a resolution regime for CCPs themselves. And I want to look also at the progress we have made, and the next steps we need to make, in putting in place an effective resolution regime for large banks internationally and in the UK. 1 The exception was HK Securities Clearing Corp (HKSCC) which made a loss to the CCP of approx. USD 20 mn, including cost and expenses. HKSCC announced it would claim this from LEH’s estate. Source Norman, P., 2011. | 1 |
This means that China’s share of global output has more than doubled from 6 per cent to 13 per cent. This situation BIS Review 16/2004 1 has great significance for the world economy today. China has emerged as one of the world’s major importers of commodities, especially regarding crude oil, copper and agricultural products. For example, China’s imports of copper totalled no less than 15 per cent of world trade in copper in 2002, compared with only a couple of per cent in 1990. At the same time, Chinese exports of manufactured goods are increasing rapidly, currently accounting for 6 per cent of world exports compared with 2 per cent in 1990. When we today see an unusually big gap between international price inflation for manufactured goods, which is presently exceptionally slow, and for commodities, which instead is very fast, it is probably somewhat due to what is happening in China. My overall view is that international economic activity will continue to strengthen in the years ahead largely as we expected before. Growth in the OECD area could reach about 3 per cent this year and average around the same in 2005 and 2006. This is marginally higher than we expected and implies slightly better export conditions. International prices of manufactured goods are likely to rise in tandem with the economic recovery. But by how much is uncertain. | In fact, the loans that have already been received have guaranteed foreign exchange reserves sufficient to enable the Treasury to service its debt for the next two years without major foreign currency purchases. However, foreign reserves would fall to a level that is not acceptable. The cost would be a lower exchange rate than otherwise, and it would be inadvisable to relax the capital controls at the same time. Fourth, it is important to take the first steps towards removing the capital controls as soon as possible after the objectives described above have been achieved. The objective is to make the disappearance of the last vestige of controls an event that will hardly be noticed. We learned from the financial collapse that fair weather can turn foul at short notice. Once the storm has passed, however, the skies can also clear more quickly than most people expect. BIS Review 64/2010 3 | 0 |
I hope the sessions ahead will challenge your thinking and present you with many new ideas and perspectives on the prospects of an expanded ASEAN-EU relationship. 2/2 | In this context, we expect internal demand to continue weakening over 2008. Indeed, the most recent economic projections released by the Bank of Spain show reduced GDP growth in 2008 and 2009. At the same time as we face a slowdown in growth, we are seeing sharp increases in headline inflation. These have been driven by large energy and food price rises at the global level. The price boom has affected Spain to a larger extent than some other countries, partly due to the higher relative weight of these items in household expenditure. And the Spanish economy may be more vulnerable than other countries to second-round effects due to the widespread existence of indexation mechanisms. I would like to make a few comments about what economic agents should and should not do to face these challenges. On inflation, the key issue is how firms and workers respond to the recent shocks. I would like to make two points: • First, firms should not view the shocks as permanent. In other words, they should not consolidate price-rises over the longer term. • Second, workers should understand that inflation cannot be offset by demanding wage increases that are not justified by productivity developments. This would just keep inflation persistently high, as the 1970s experience painfully showed. BIS Review 70/2008 1 From the perspective of GDP growth, if we are to see a quick return to our potential, we need flexibility in supply and demand responses. | 0 |
The global economy is entering its new cycle at a low phase of the commodity (primarily oil) super cycle. So far, there has been no truth to the predictions that low commodity prices will have a positive impact on global growth thanks to the positive 1 / 11 BIS central bankers' speeches momentum enjoyed by raw material-importing countries exceeding the negative impact on exporting countries. However, it is important to note the technological progress in the oil industry both in terms of supply (e.g. the development of shale technologies; incidentally, the decreased investment in shale oil in the face of low oil prices has once again begun to grow) and in terms of demand (the development of the electric car and alternative green energy markets). In fact, in the medium term the balance of these factors remains highly uncertain. Therefore, the markets are constantly shifting their expectations about medium-term trends (almost every quarter) and thus the oil market remains relatively volatile. Lastly. The global economy is entering a new cycle with growing cyber-risks capable of threatening both the stability of financial systems and economic growth. Positive developments include the financial technological revolution (fintech and the cost cutting, increased financial service penetration, and the improvements to their quality it entails), and the financial markets’ increased stability in the face of various shocks. This stability has been repeatedly tested over the past year and a half, a period not lacking in political surprises. | There are therefore compelling arguments in favor of a generally positive assessment of the consequences of innovation. Does experience provide support for these arguments, or are these changes too new for us to know? The recent changes in credit markets have been dramatic. We have seen rapid growth of structured credit products, credit default swaps and new types of collateralized debt and loan obligations. Although these instruments are very new, they are the natural extension of earlier innovations in credit markets. Over a long period we have seen innovations ranging from the syndication of bank loans and the direct provision of credit through the capital markets, to the spread of asset-backed securities and products that separate different parts of the payments stream and different dimensions of the risk in a credit obligation into different instruments. These changes have contributed to a substantial reduction in the share of total credit held by banks. They have produced a greater separation or distance between the entity that first arranges a loan and those who end up holding the risk, and more intermediaries in that chain. And they have contributed to a dramatic increase in the number and diversity of creditors to any individual borrower, and a greater capacity to actively trade credit risk. BIS Review 29/2007 1 We are now well into the third decade of experience with the consequences of these earlier innovations, and this history offers some useful lessons for evaluating the probable impact of the latest changes in credit markets. | 0 |
Not all industries and companies will benefit equally from the upturn in demand. Furthermore, our companies are faced with technological, institutional and market-led changes, irrespective of the economic situation. Examples include the digitalisation of the economy, structural adjustments to domestic trade due to new consumer habits and distribution channels, new business models in the financial sector and shifting tourism flows. To overcome these challenges, companies must continue to position their products successfully through innovation and new business ideas. This capacity has proved to be a key strength of the Swiss economy in recent years. Equally, Switzerland must continue to do everything it can to offer conditions which allow companies to compete globally. 2 BIS central bankers’ speeches Inflation expectations, interest rates and exchange rates I will now review changes in inflation expectations and monetary conditions since the beginning of the year. Due to the appreciation of the Swiss franc and the decline in commodity prices, Swiss inflation once again moved well into negative territory at the beginning of 2015. Despite persistently low inflation rates, medium and long-term inflation expectations have nevertheless remained stable. According to the Consensus Economics forecast published in April, expected inflation for a horizon of six to ten years stands at 1.2%. In the current environment, a relaxed monetary policy is still needed to ensure price stability and support the economy. Consequently, interest on sight deposits at the SNB stands at −0.75%. | After a robust fourth quarter in 2015, the pace of growth slowed in the first quarter of 2016. According to the first official estimate, annualised real GDP increased by 0.4% in the first quarter. However, this deceleration is not a sign of a more fundamental slowdown. If we disregard short-term volatility, an upward trend is discernible. Available indicators thus point to a continuation of the moderate but steady recovery that has prevailed since the beginning of the year. This would suggest that growth is likely to gather pace in the second quarter. The gradual improvement in the international environment will also benefit Switzerland. Exports are likely to continue to recover. Until now, the positive development was largely driven by pharmaceutical exports. As global economic activity gradually picks up, other industries too are likely to show signs of recovery. Exports of machinery, precision instruments and metal goods have rallied slightly since the beginning of the year. Utilisation of production capacity in manufacturing should continue to improve. This is likely to stimulate corporate investment and have a positive impact on the labour market. Various industry surveys confirm these emerging signals. The employment outlook has brightened somewhat recently. We expect the unemployment rate to stabilise in the second half of the year. We still anticipate real GDP growth for 2016 as a whole of between 1% and 1.5%. The continuation of this moderate recovery and the impact of efficiency measures already taken will help industry to improve margins. However, many challenges remain. | 1 |
In the short term monetary policy can influence developments in the real economy. Norges Bank can do this through two channels. First, Norges Bank will proceed gradually when the krone’s value moves outside the initial range and instruments are oriented to returning it to this range. We seek to avoid a situation whereby monetary policy contributes to abrupt shifts in the economy. Second, 13 BIS Review 20/1999 developments in the labour market and product markets influence wage growth and inflation, and thereby the krone exchange rate. Norges Bank takes this into account when evaluating economic developments and when setting interest rates. However, monetary policy is not a suitable instrument for influencing production and employment in the long term. Nor can it be used to influence the size of the internationally exposed sector over time. It is primarily wage and income determination, the use of oil revenues over the government budget, and the adaptability and efficiency of the economy that determines this. Nor is monetary policy an effective tool of incomes policy. Interest rates cannot be used to influence the negotiating climate of the income settlements. This could act as a highly negative constraint on the freedom of manoeuvre. Long-term fiscal policy challenges The fall in oil prices has obvious and immediate implications for monetary policy. But what about long-term balance in the Norwegian economy? What if oil revenues remain low in the longer term as well? Norway’s government finances are sound thanks to the large surpluses of recent years. | Commercial banks operating in the eurozone are willing to borrow around 250 billions Euro from the European Central Bank paying the key policy rate and at the end of the same day to deposit the same money at the European Central Bank being paid the discount rate, which is 1 percentage point less, but the spread between the short-term money market rates and the key policy rate still persists. Magnitude of the commercial banks’ position compared with the European Central Bank shows how huge the uncertainty has been. Only restoration of confidence about solvency and financial stability among commercial banks can most probably solve this problem. The third frontier we are concerned about is connected to the emergency liquidity assistance. Under standard circumstances central banks provide liquidity to commercial banks only. In case of an urgent need a commercial bank may ask the central bank for an emergency credit. What we see in the United States today is an attempt to extend this emergency assistance beyond the banking system and provide liquidity against collateral to non-banking firms. On one hand, one understands the effort of the Federal Reserve to provide funding also to the non-banking sector of the economy when the traditional channels are freezing. On the other hand, the Federal Reserve is effectively printing money against collateral with uncertain value and there are concerns when and how the Federal Reserve will close and null these operations to avoid potential inflationary consequences. | 0 |
14 Customer-oriented attitude has induced the public sector to open itself to the public and private partnership solutions. One of its manifestations in Singapore is the ability to apply for a passport at the photo-shop, immediately after the passport picture is taken. Another significant factor, which stimulates the growth of both e-administration and e-economy, is the penetration of innovation and search for new applications for technologies in use between the private and public sectors. For instance, the abovementioned RFID technology was initially used to mark goods in transport and storage, as a technique more advanced than the bar code. China, which has implemented the RFID standard as a result of the efforts of Wal-Mart, the world-largest retailer, is currently considering its use in blood banks to track the location of blood batches. Another use of the RFID technology — also in the health care sector — is currently tested at the orthopaedic ward of the Singapore General Hospital. For the duration of hospitalization, the patient receives a band that facilitates tracing the patient’s location, whereas a built-in thermosensor measures the temperature without bothering the patient. Portable devices provide the nurses and physicians with an ongoing access to information on the patients. Moreover, there is a possibility to integrate the system with 15 monitoring of the heart action and blood pressure . A completely different, although slightly controversial, use of RFID has been found at the prosecutor’s office in Mexico, whereby a chip is implanted under skin of employees that have access to secret documents. | Every time they use online services, they score points, which can be later exchanged for preferential rates in banks, airlines and other programme partners. 9 Online services available in various countries worldwide are highly diversified. They are all designed to best satisfy the needs of citizens and enterprises, and at the same time to enhance the operational 5 ”Leadership In Customer Service: New Expectations, New Experiences”, The Government Executive Series, Accenture, 2005. 6 Ibidem. 7 “OECD Government Sudies. Denmark,” January 2006. 8 “Global E-Government Readiness Report 2005. From E-Government to E-Inclusion”, United Nations, 2005. The payments can be effected by logging on to My.eCitizen portal at http://my.ecitizen.gov.sg. 9 “E-government today and tomorrow”, Public Sector Technology & Management, Vol. 3.1, January/February 2006, s. 60. BIS Review 23/2006 3 efficiency of the administration and the public sector. Of the long and constantly supplemented list of online services offered, at least a few solutions are worth mentioning here. For instance, tax offices in Sweden and Estonia provide citizens with their annual tax amounts (calculated on the basis of all the information received during the year), to be confirmed via text message, over the phone (via IVR 10 ) or online. 11 The Finns, on the other hand, having changed their place of residence, do not have to visit the office personally, but simply log on to the website and enter the new data. For confirmation of authenticity, the certificate contained the mobile phone SIM card is used. | 1 |
The best way to secure this favourable prospect is to continue with the implementation of the necessary reforms in markets and institutions and with the adoption of best practices on the basis of a free exchange and competition of ideas and social values. References: Aghion, P. and P. Howitt (1998), “Endogeneus growth theory”, Cambridge, Mass. The MIT Press. Aghion, P. and P. Howitt (2005), “Appropriate Growth Policy: A Unifying Framework”, Schumpeter Lecture, Nice, September, revised December. Alesina, A. and F. Giavazzi (2006), The Future of Europe, Reform or Decline, The MIT Press, Cambridge, Mass. Alesina, A. and L. H. Summers (1993), “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money, Credit, and Banking, vol. 25(2), pp. 151–162. Aristotle (ca. 350 BC) Nicomachean Ethics, translation by H. Rackham, Harvard University Press, Cambridge, Mass., Revised edition 1934. Arnone, M., B. J. Laurens, J.-F. Segalotto, and M. Sommer (2007), Central Bank Autonomy: Lessons from Global Trends, IMF Working Paper, WP/07/88. BIS Review 43/2007 9 Bassanini, A. and R. Duval (2006), “Employment patterns in OECD countries: Reassessing the role of policies and institutions”, Social, employment and migration working paper series No 35 (OECD, Paris, June). Baufield, E. (1958), The moral basis of a backward society, New York, Free Press. Blanchard, O. (2004), “The economic future of Europe”, The Journal of Economic Perspectives, vol. 18, pp. 3-26. Blanchard, O. and J. Wolfers (2000), “Shocks and institutions and the rise of European unemployment. The aggregate evidence”, Economic Journal, vol. 110-1, pp. 1-33. | Europe’s “monetary constitution” builds on the experiences of a long historical process of trial-anderror, often with painful economic consequences, which led to the insight that in order to “safeguard the currency” (Bundesbank Act of 1957) and “defend the savings” of the people (Banca d’Italia mandate), the management of the currency should be entrusted to an independent central bank, with the primary objective of maintaining price stability, and which should not be allowed to directly finance the public sector. The extensive empirical evidence collected over many years and for a wide range of countries broadly and unambiguously confirms the beneficial effects of central bank autonomy for inflation performance.6 Chart 9 clearly demonstrates that countries with more independent central banks have enjoyed lower average inflation without experiencing lower average economic growth (Blinder, 1998). Recent studies show that central banks in most countries (not only in advanced economies but also in emerging market and developing countries) have been granted higher degrees of autonomy over the past twenty years (Arnone, 2007). In addition, in the low-inflation environment currently prevailing in industrialised countries, those central banks endowed with a larger degree of independence are succeeding in maintaining price stability, as recent work at the ECB has demonstrated (Moutot et al., 2007). | 1 |
One example is the Bank of England, which has created new liquidity instruments that are proactively aimed at affecting financial institutions’ risk-taking. These instruments can be described as a cross between typical standing facilities for monetary policy and crisis facilities. The development of new types of liquidity instrument will probably make it even more difficult in the future to draw boundaries between monetary policy measures and measures to promote financial stability, as well as between crisis tools and tools for normal conditions. It thus illustrates the importance of the Sveriges Riksbank Act giving the Riksbank sufficient flexibility to be able to change the Swedish liquidity framework on the basis of Swedish needs, both with regard to monetary policy targets and financial stability aspects. 8 [12] Regular analysis of financial stability necessary for monetary policy decisions Let me now move on to the link between monetary policy and financial stability in the analytical work. The close relationship applies here too. As I have just described, the Riksbank needs – to fulfil its liquidity supporting role in crisis and to safeguard the stability of the RIX system – to analyse the participants, infrastructures and markets in the financial system, as well as the links within the system, also under normal circumstances. This type of analysis is also needed for our monetary policy decisions, both under normal circumstances and in a crisis. | When the Riksbank's responsibility for financial stability is formulated, it is therefore important to do so in a way that ensures that Swedish interests in affecting and receiving relevant information in the international cooperation, for instance regarding systemic risks and financial regulation, can be taken into account in a good way. Important to have a broad task and flexibility in the use of instruments What I want to illustrate with my speech today is that the Riksbank's tasks on the whole concern contributing to the smooth functioning of the financial system, by safeguarding the supply of liquidity in various ways. In addition to the responsibility for supplying cash, we are the banks’ bank both under normal circumstances and in crisis situations. We give credit to the banks during the day, we use our balance sheet to influence access to liquidity and market rates, and we can enter in as lender of last resort in an emergency situation. The Riksbank, like all other central banks, thus has an important responsibility for financial stability and this is also closely linked to monetary policy. 11 [12] But while the monetary policy task is clearly stipulated in the law, the responsibility for financial stability is not so clear. This responsibility is also shared with other authorities. It is good that there is now an inquiry that will clarify the Riksbank's responsibility for financial stability in an amended Sveriges Riksbank Act. It is important that the Riksbank's task of promoting financial stability is then given a broad wording. | 1 |
Following on from this, the higher the potential growth rate, the faster the Swedish GDP can grow without putting the inflation target at risk. A natural starting point for calculating potential growth in the economy is the growth trend for productivity and the labour supply. Productivity growth has shown tendencies towards improvement during the 1990s. It is probable that factors such as the new low-inflation rate regime and greater openness with stiffer competition have played an important role in this development. However, it is far from certain that the high rates of increase at the end of the 1990s will continue. They mirrored both a rapid growth in the private sector relative to the public sector and a strong growth in the IT/telecom sector. Nevertheless, it is probable that the long-term increase in productivity is higher now than it was during the 1970s and 1980s. The number of hours worked has also developed relatively favourably since the mid-1990s. However, this development has largely depended on demand, influenced by the fact that there were considerable unutilised resources in the economy after the crisis at the beginning of the 1990s. With regard to the labour supply, there is less reason for optimism, partly because the demographic situation will be adverse in a few years' time, with more departures from the labour force relative to entries. Nor are there clear signs that economic policy has been organised to contributed to an increase in the labour supply in future. | The assessment made by the Riksbank so far is that average working hours will show a tentative rise when economic activity improves. To summarise, there is reason for considerable concern regarding the future labour supply. If there is reason to be slightly more optimistic over productivity growth, the opposite applies to the labour supply. A number of factors, such as demographic developments, absence due to illness and the proposal for shorter working hours all indicate a decline in the labour supply over the coming decade, unless there is a change in policy. 4 BIS Review 16/2003 Future potential growth What does all this mean for the assessment of the economy's potential growth capacity right now and in the coming years? If we uncritically assume the simple model I outlined earlier, we could calculate an estimate of potential growth by simply adding together the trend values I showed in the diagram on productivity growth and the number of hours worked. I have done this in my next diagram (Figure 9). Measured in this way, potential growth was just over 1.5 per cent up to around 1992. Since then it has risen gradually to approximately 3 per cent in 2001. However, my discussion of the causes of the decline in actual growth in recent years showed that there are good reasons to believe that 3 per cent is an overestimate of the growth potential in the Swedish economy today. | 1 |
Sabine Lautenschläger: European banking union - the place to be? Speech by Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the European Central Bank, at the Biannual high-level networking seminar on economic and financial issues, organised by Danmarks Nationalbank, Copenhagen, 14 May 2018. * * * “Getting to Denmark” has become a catchphrase among those who study how societies and economies develop. And indeed, for many countries around the world, Denmark is the place to be – or rather the place to become. After all, Denmark stands for a stable democracy, sound institutions and a strong economy. And that’s not all. Denmark also stands for happiness. The United Nation’s world happiness index shows that, on top of all this, Denmark is also home to a very happy people. This has not gone unnoticed; indeed, there are many who strive to follow your example. Your idea of hygge has become a huge trend in countries as close by as Germany and as far away as the United States. So on many counts, Denmark is the place to be. And I for one am very happy to be here today. But I’m not here to talk about Denmark. I am here to talk about Europe, or rather the European banking union. In my remarks, I will argue that the banking union is also the place to be. Its beginnings, though, were not exactly hyggelig. In 2012, things were not going well in the euro area. | To summarise, European banking supervision allows us to take a broader view, which gives us deeper insights and improves our analysis. At the same time, there are more views around the table, which helps to counter biases, including national ones, and leads to better decisions. Banking supervision improves. And if a bank should fail, European resolution helps to deal with this in a way that preserves financial stability and saves taxpayers money. 2/7 BIS central bankers' speeches So, the banking union stands for more stability. It might thus enhance the trust markets have in banks, which in turn might lower funding costs. But there is more to it than that. The banking union also stands for consistency. We have harmonised many of the tools that we supervisors use, most notably our main tool, the Supervisory Review and Evaluation Process. So when we supervise banks, we apply the same high standards across the entire euro area. And when systemic banks need to be resolved, this too is done in a consistent manner. In other words, the banking union helps to level the playing field for banks in the euro area in terms of supervisory practices and approaches. When banks operate across borders, they do not need to adapt to 19 totally different forms of supervision, for instance. At the same time, they can engage in fair competition. They need not fear that their competitors have an edge just because supervisors in another country are more relaxed. | 1 |
These facts also indicate that the income generating activities in the fisheries sector too could be developed substantially in the coastal areas with the provision of appropriate banking facilities, particularly for multi-day boats, fishing gear and other ancillary needs such as ice plants, and storage facilities. Over the past several years, the Central Bank has also initiated several credit schemes applicable throughout the country, aimed at promoting regional development and poverty alleviation. In particular, work has commenced on a new Poverty Alleviation Micro Finance Project to cover conflict-affected districts. Approximately 3,000 beneficiary groups with more than 12,000 low-income families have already been organized within the Jaffna peninsula under this project. We have also fast-tracked the Agro-Livestock Development Loan scheme, which is another scheme that could provide increased benefits to this Province. My dear friends, during the several recent visits that I made to Jaffna, I always made it a point to meet with the Chambers of Commerce officials, bankers, Teachers, students, villagers, fishermen and many others. We received many valuable suggestions from them. In particular, we received too very useful ideas to open a Central Bank’s Provincial Office and to arrange for a Special Northern Regional Development Fund for the Northern Province. I am glad to announce today that we will implement both such initiatives in the coming months. My dear friends, I thought it may also be appropriate to use this opportunity to make a special appeal to the Sri Lankan Tamil Diaspora, living in all parts of the world. | The HSBC Bank with its global connections could now facilitate financial transactions in the North with all parts of the world, while HSBC’s presence in the Jaffna Peninsula from today onwards, would convey an important signal to the world that tangible progress is being made in post conflict Sri Lanka. I wish Mr Nick A Nicolaou, his team in Sri Lanka the HSBC and all their customers, especially the ones in this area, all success. Thank you. BIS Review 16/2010 3 Lars E O Svensson: Inflation targeting after the financial crisis Speech by Prof Lars E O Svensson, Deputy Governor of the Sveriges Riksbank, at the International Research Conference “Challenges to Central Banking in the Context of Financial Crisis”, Mumbai, 12 February 2010. * * * I thank Charles Bean, Claes Berg, Alan Blinder, Stephen Cecchetti, Chuck Freedman, Charles Goodhart, Lars Nyberg, Irma Rosenberg, Hyun Shin, Frank Smets and Staffan Viotti for discussions of these issues. The views expressed here are my own and not necessarily those of other members of the Riksbank’s executive board or of the Riksbank’s staff. Hanna Armelius and Hans Dellmo of the Riksbank’s staff contributed to this speech. As the world economy begins to recover from the financial crisis and the resulting deep recession of the global economy, there is a lively debate about what caused the crisis and how the risks of future crises can be reduced. | 1 |
Several reports have made the case for rethinking local economic policies, including Michael Jacobs’ work as part of the IPPR Commission on Economic Justice.1 The Government has put “place” centre-stage in its own policy agenda.2 I discuss ways in which analytical techniques and data might help in shaping those policy choices. Some areas of public policy can only operate at the national rather than local level, such as monetary policy. Even then, however, a local perspective can be important for better understanding the economic issues people face and for building understanding and trust among those people. That is why the Bank of England has recently augmented its own local initiatives, as I will discuss. Other central banks are following suit. 1 2 IPPR Commission on Economic Justice (2018). See also Collier (2018). Department for Business, Energy and Industrial Strategy (2017). 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 In his recent book, Raghu Rajan blames neglect of the Third Pillar of society – community – relative to the market and the state (the first two pillars) for rising societal disconnection and mistrust.3 Rajan is right. Economic policymakers, including central banks, have a pivotal role to play in resurrecting that Third Pillar, in making economic policy local, to better support our economies and societies. Here is how. Mapping the Economy Let me begin with some simple mapping of the economy. The most widely-used metric of economic success is Gross Domestic Product (GDP). | 26.06.2018 Taking up of office by the Governor of the Banco de España Pablo Hernández de Cos Governor Honourable Ministers and Authorities, ladies and gentlemen, dear colleagues and friends, I believe today calls, above all, for a round of gratitude. First, I wish to thank Ministers Calviño and Montero for their presence here today. May they rest assured I am firmly committed to maintaining the close and loyal collaboration traditionally offered by the Banco de España to the Ministries for the Economy and Finance. I also wish to thank the previous minister, Román Escolano, for his presence at this ceremony, and for his proposal and defence of my appointment before the Parliamentary Committee for the Economy and Competitiveness. And my gratitude extends to the representatives of the Committee accompanying us today. I undertake to make every effort to improve the capacity of the Banco de España to face the challenges addressed during the Parliamentary Committee hearing. Ministers, as I am surrounded above all by colleagues, I trust you will allow me to continue in a more informal tone. As you know, including a three-year tour at the European Central Bank, I now have two decades behind me at the Banco de España. Professionally speaking, this is, then, my home. It is a real honour for me to have been appointed governor. | 0 |
If clearing houses are not themselves to become a new manifestation of the too-big-to-fail problem, clearing house risk management will need to be transformed. For example, the setting of margin to cover risks to the clearing house relies on real-time information on aggregate exposures to counterparties and products. Common standards for data, LEIs and PIs, make that a more realistic prospect. A fourth dimension of the reform agenda is to make the resolution of the world’s largest financial firms easier and speedier. The resolution of complex firms is rarely either. Reconciling competing claims on Lehman Brothers’ asset pool has already taken insolvency practitioners three and a half years and thousands of man hours. It will take many more years before it is complete. Homogenised information systems, which can be aggregated across business line and counterparty, could transform this resolution process. This relies on effective and timely information systems on the key counterparties and the key risk exposures. Counterparty traceability, like counterfeit drug traceability, is central to containing the panic once failure occurs. For both, a common language is key. (c) Mapping the network The maps of the financial world being used and developed by regulators today broadly resemble those used and developed by cartographers in the 15th century. Large parts of the geographic globe were at that point uncharted territory, a source of fear and foreboding. Today, large parts of the financial globe are similarly uncharted or cast in shadows. They too are a source of regulatory fear and foreboding. | The result in many cases has been substantial changes in retail banking services: for example, the selling off of business units, the closing down of branches, the expansion into fee-based business, such as MPF and insurance services, the development of more cost-effective modes of service delivery, such as the ATM network and the Internet, and the imposition of specific fees and charges on services that did not incur fees and charges in the past. Consumers also need to react to the changing environment – for example, through making use of delivery channels such as ATMs, telephone banking or the internet that reduce the cost of using banking services. Cost minimisation also provides the incentive for consumers to shop around, and new technology in the form of the Internet enhances the means of doing so. With the shopping around comes awareness of what else is on offer, and greater expectations on the part of the consumer. Less positively, there has been disruption and anxiety, which has been reflected in the steadily growing number of complaints and protests, and in the greater political attention being paid to this subject. What is the stance of the HKMA? We do not, as I have already said, regulate fees and charges. But we seek to ensure that there is transparency in the provision of services, particularly in the setting out of fees and charges. | 0 |
Interest rates were assessed by the Executive Board of Norges Bank yesterday. Interest rates were left unchanged. Norges Bank’s key interest rate, the sight deposit rate, therefore remains at 7 per cent. According to Norges Bank’s assessment, with an unchanged interest rate, the probability that inflation two years ahead will be higher than 2½ per cent is the same as the probability that it will be lower. A sharp rise in labour costs is contributing to a relatively high rise in prices for goods and services produced in Norway. A persistently strong krone will contribute to keeping down prices for imported goods. The strong krone will have consequences for activity in the internationally exposed sector. Together with prospects for low inflation internationally, the strong krone is the most important force acting as a counterweight to the sharp rise in domestic costs. 4 BIS Review 51/2002 | The amendments made in the Law of the Central Bank of Turkey in 2001 have been a turning point and instrumental for the efforts to maintain macroeconomic stability. With these amendments, achieving and maintaining price stability is stated as the primary objective of the Central Bank and the Bank acquired its instrumental independence. In fact, the independency has given the Bank the opportunity to set its policies for longer terms, free of political cycles and pressures. As an assurance given to the public to ensure the long term price stability objective, the independence of the Central Bank of Turkey together with its transparent and effective communication policy have increased the credibility of the monetary policy. Besides, the new monetary policy framework implemented first as implicit and then as full-fledged inflation targeting regime together with the floating exchange rate regime have contributed a lot to the decline in dollarization since 2002, as the literature 10 suggests. In this respect, we can observe the findings of the portfolio approach in Turkey very clearly. To be more specific, the volatility of exchange rates has increased due to floating exchange rate regime on the one hand and inflation and its volatility have declined significantly on the other. | 0 |
But this task has also become a pressing one since, as euro area membership precludes using the devaluation tool, reform of the employment institutional framework is vital for increasing productivity, and thus for restoring competitiveness and raising our growth rate. Lately, those convinced of the importance of this reform have grown in number. But among those showing reluctance, a new argument has now arisen which seeks to play down the need for reform because, they say, it will take time to bear fruit. I have two counter-arguments here. First, Spain has moved so far away from the various employment institutional framework models in the developed countries that a rapid approximation to them could have more immediate effects than in other countries. Admittedly, a reform of this type would not swiftly lower our unemployment rate to the average European level, which is below 10%; but a reduction in the unemployment rate, no matter how modest at first, would have most favourable consequences for domestic and external confidence in the Spanish economy. What’s more, even if it is thought that results will only emerge gradually, slowness in taking effect is no argument for delaying this reform a minute longer; rather, it is an excellent reason to adopt it immediately so as to be able to enjoy its effects as soon as possible. Regarding fiscal consolidation, there is little to say and much to do. | The government is expected to rein in local government spending, tighten curbs on residential property purchases, and seek to reduce excess industrial capacity. But the slowdown is likely to be measured and the risk of a “hard landing” has narrowed. A Goldilocks economy but three grumpy bears may not be far away A striking feature of the global economy is how subdued inflation has been despite broad-based economic expansion and highly accommodative monetary policies. This benign inflation environment provides the runway for very gradual monetary policy tightening and credit conditions remaining accommodative for longer. Many analysts have characterised the current configuration of healthy growth, low inflation, and easy financial conditions as a Goldilocks scenario: a global economy that is chugging along, not too hot, not too cold. And financial markets see this happy scenario as self-reinforcing, sustained, and accommodated over multiple years. This has supported high equity valuations, low bond yields and narrow credit spreads. But as David Skilling reminded us recently, the Goldilocks story is not complete without the three bears. The absence of the bears does not mean they do not exist. They could return any time. There are unseen risks out there – that we ignore at our peril. Each of us will have our own list of three bears. Let me share with you what I see as the three bears that might return to spoil Goldilocks’ happy stupor. My “papa bear” is inflation; “mama bear” protectionism; and “baby bear” financial instability. | 0 |
As always, what I have to say reflects my own views and not necessarily those of the FOMC or the Federal Reserve System.1 In terms of the economic outlook, the situation does not appear to have changed much since the last FOMC meeting. Some recent activity indicators have been on the softer side, pointing to a relatively weak fourth quarter for real GDP growth. But this needs to be weighed against the strength evident in the U.S. labor market. I continue to expect that the economy will expand at a pace slightly above its long-term trend in 2016. In other words, I anticipate sufficient economic strength to push the unemployment rate down a bit further and to more fully utilize the nation’s labor resources. 1 Antoine Martin, Jamie McAndrews, Jonathan McCarthy, Paolo Pesenti and Joseph Tracy assisted in preparing these remarks. BIS central bankers’ speeches 1 Turning to inflation, we continue to fall short of our 2 percent objective for the personal consumption expenditure (PCE) deflator. But I take it as a positive sign that the core PCE inflation rate – that is, excluding food and energy – has been quite stable despite the downward pressure being exerted by lower energy prices on the prices of non-energy goods and services, as well as the drop in non-energy import prices from a firmer dollar. Going into more detail, U.S. economic activity has areas of both strength and weakness. On the stronger side of the ledger, domestic demand is doing reasonably well. | Looking at the post-war period, whenever the unemployment rate has increased by more than 0.3 to 0.4 percentage points, the economy has always ended up in a full-blown recession with the unemployment rate rising by at least 1.9 percentage points. This is an outcome to avoid, especially given that in an economic downturn the last to be hired are often the first to be fired. The goal is the maximum sustainable level of employment – in other words, the most job opportunities for the most people over the long run. Some of you may be wondering whether the risk of a recession isn’t already quite high? And, if so, doesn’t this imply a need for special care in adjusting monetary policy? After all, the current economic expansion is more than six years old – a bit long in the tooth by post-war standards. Even so, recession risk did not play a major factor in my thinking. Economic expansions don’t simply die of old age. They primarily end either because monetary policy is kept too loose for too long, thereby necessitating a subsequent sharp tightening in monetary policy to prevent a significant inflation overshoot, or because some large adverse shock hits the economy that the central bank cannot easily offset. Mitigating the first risk of being forced to choke off the expansion argues for getting started with policy normalization now rather than holding off. With respect to the second risk of unanticipated shocks, this is obviously very difficult for the central bank to insulate the economy from. | 1 |
However, they soon realized that there was a serious issue that was brewing; some danger lurking. Then, gradually people realized that a major calamity was taking place in the financial markets of the world. The crisis gathered momentum and then people also realized that the problem was highly complex; little by little, the major triple A rated banks also started to feel the impact. Banks realized that they have to change positions, and they started doing that. Some of the biggest banks in the world, who were highly rated for many many years, and held in esteem all over the world as being institutions that could never be in danger, began to feel the pinch. Then, we heard about the European Central Bank, the Federal Reserve and the Bank of England pumping money into the mortgage markets in order to save the markets. We also heard about Northern Rock. The Bank of England had to put in well over 30 billion pounds, that is, more than double the GDP of Sri Lanka, just to save this one institution. The rescue even led to the nationalisation of the Northern Rock Bank: an outcome unthinkable just a few months ago! Then came Bear Stearns, and the writedowns of the major banks. | When the bubbles burst after the global financial crisis of 2007, governments stepped in to support growth and some of them were called to rescue ailing banks. In this way, private indebtedness turned into public indebtedness, with disastrous fiscal consequences even for countries that had run fiscal surpluses prior to the crisis, such as Ireland and Spain, and even more for those that had not, such as Greece. A further shortcoming of the Maastricht framework was the inability to deal with what is now being called the “bank-sovereign nexus”. When systemically important banks run into trouble, governments are expected to step in and provide fiscal support to contain the spillovers. Beyond that, banks are typically the largest holders of government debt from their respective sovereigns. These ties, or nexus, between banks and their governments can lead to a dangerous downward spiral Another effect of this downward spiral, under way since the euro area crisis erupted in 2010, is the fragmentation of capital markets. The bank-sovereign nexus has led to a situation whereby cross-border lending of banks has gone down significantly, as banks retreat more and more to their domestic markets, encouraged by their shareholders and, sometimes, by BIS central bankers’ speeches 3 national banking supervisors. The crisis is undermining a key achievement of the euro, the integration of capital markets. A fundamental problem of the Maastricht Treaty was its over-reliance on the assumption that market discipline and peer pressure would provide sufficient incentives for national policy-makers to conduct sound fiscal and economic policies. | 0 |
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