sentenceA
stringlengths 2
7.69k
| sentenceB
stringlengths 2
7.69k
| label
float64 0
1
|
|---|---|---|
And, of course, the need to communicate more frequently has also reflected the deviation from standard liquidity management practices. By extensively communicating about future refinancing operations and the general orientation of our liquidity policy, we have aimed to facilitate and accelerate the process of learning by banks about how we intend to implement monetary policy under the current conditions of market stress. Challenges for monetary policy implementation under stress As I will explain below, the current turmoil has also confronted us also with more general communication challenges, but let me first elaborate on some of the challenges that our liquidity management policy has faced during the recent turmoil. In normal times, the soundness of a central bank’s operational framework and the experience of both the central bank and market participants ensure that the implementation of monetary policy works smoothly. However, as I mentioned earlier, under stress conditions some of the principles usually guiding the implementation process may function differently. In this respect, particularly important for a central bank is the case of changes in the determinants of short-term interest rates. In normal times, the behaviour of the overnight rate is fairly well understood. In a system with reserve requirements, the possibility to average reserve holdings over a maintenance period supports a stabilization of short-term interest rates, because day-to-day fluctuations of liquidity conditions can be smoothed out over the remainder of the period. | I recall that not too long ago (about 18 months or so) Stanbic Bank took the very bold step of entering the community banking sector by adding Matero Branch to the bank’s network and thereby brought superior banking services to the bottom end of the market. This was later followed by the opening of the Solwezi Branch, in what is now regarded as the new Copperbelt. Ladies and Gentlemen, what has particularly caught my attention is that Stanbic Bank expansion has gone in tandem with the introduction of ATM services to these markets via the ‘state-of-the-art’ Stanbic Auto Bank to improve service delivery to our people. This is commendable. Mr. Chairman, Ladies and Gentlemen, one of the major concerns that the Financial Sector Development Plan, and the Bank of Zambia in particular, have identified is the spectre of the unbanked public that hangs over the Zambian economy. The problem with having a greater number of our population being left out of the banking system is that it discourages the culture of saving and removes the un-banked population from the formal structure of the financial system. This ultimately leads to reduced funds being available in the economy for investment purposes. Mr Chairman Sir, The opening of Mazabuka Stanbic branch is therefore particularly significant because it will not only address the problem of catering for the un-banked population, but also tap the tremendous business growth potential that this town offers. | 0 |
What this means is that we now have, in this time zone, a robust financial infrastructure for US dollar transactions that can accommodate, among other things, a US dollar bond market in this region. You do not have to wait until New York opens before you can achieve finality of settlement of your US dollar transactions in bonds or, indeed, in any US dollar denominated financial assets, if they are lodged with our CMU in Hong Kong. Furthermore, any Asian currency with an RTGS payment system, if it is linked up with our system, will be able to achieve PvP or payment versus payment for the two currencies in real time. We already have PvP for Hong Kong dollar versus US dollar transactions the first in the world. I have, as you are probably aware, drifted into the positioning of the Hong Kong bond market for meeting future challenges. We have, through our efforts in the development of the financial infrastructure, put ourselves in a position to play the ideal host to the bond market of the region, or of this time zone. I hope members of our financial community can leverage on this position of strength and bring issuers and investors of US dollar bonds to Hong Kong. Further development of the bond market is largely in their hands. As central banking officials, we in the Hong Kong Monetary Authority have done what we can appropriately do, in the provision of this public good a robust financial infrastructure. | In fact, the unemployment rate in Spain for persons with only a primary education has increased in 2008 by almost 8 pp, as against 5 pp in the case of those with a secondary education and only 2 pp in that of persons with a further education. The data also show that not only are the largest increases in the unemployment rate among groups with lower levels of education, but that these groups also have the highest unemployment rates. BIS Review 18/2009 5 Yet we should not only strive to improve the educational attainment of our workers before they start working. We should also promote training within the firm. If we managed to make our labour market institutions more like those of other developed countries, we would also do away with labour market arrangements that hinder workplace training and do not give employers any incentive to improve their firms’ human capital. We urgently need a debate between all political, economic and social agents to convince them of the need for reforms. The government and the parties who support it, the opposition parties, trade unions, employers, academics, researchers and the media should all participate. And we should not forget those who the reforms would benefit most: unemployed workers and employers who still do not exist, but who would be able to if there were a significant structural change in labour market institutions. | 0 |
Subsequently, the SNB had to make very substantial interventions in the foreign exchange market to enforce the minimum exchange rate. In order to support the minimum exchange rate, we introduced negative interest on sight deposit account balances at the SNB. At first, the situation quietened down again. However, this proved to have been the calm before the storm. Due to growing expectations that there would be a further substantial BIS central bankers’ speeches 1 relaxation of monetary policy in the euro area, the euro weakened again significantly in the first half of January 2015. In the wake of this downturn, pressure on the minimum exchange rate increased enormously. Unlike the situation in 2012, when the monetary policy stance in the US and the euro area remained unchanged, it became evident that this time the minimum exchange rate could only be enforced through permanent currency interventions of rapidly increasing magnitude. In other words, the minimum exchange rate of CHF 1.20 per euro was no longer sustainable. Adhering to the minimum exchange rate would have led to an uncontrollable expansion of our foreign currency holdings and, thus, of our balance sheet, potentially to a level several times Swiss GDP. The risks associated with a balance sheet expansion of this scale would have been out of all proportion to the benefits of the minimum exchange rate for the Swiss economy. In particular, an expansion of the balance sheet would have severely impaired the SNB’s ability to conduct monetary policy in future. | Andres Lipstok: Monetary policy will not become a prisoner Article by Mr Andres Lipstok, Governor of Bank of Estonia, published in the newspaper Postimees on 24 March 2011. * * * Governor of Eesti Pank and member of the Governing Council of the European Central Bank Andres Lipstok says that avoidance of excessive inflation in the euro area and alleviation of inflation expectations are the best measures that the Eurosystem’s central banks can take to support the economy. Estonia has been a full member of the euro area for almost three months now. The adoption of the euro in Estonia was technically smooth and the society’s approval of the changeover has increased. The smooth changeover created suitable grounds for paying attention to what really matters – how to help ensure the stability of the euro in the future. In other words, the focus is now on the key issue – maintaining price stability in the euro area. Euro-area price stability is not an abstract and foreign concern for us. We were aware of how the reference interest rate on housing loans or the euro’s exchange rate against the dollar influence our daily lives already before the changeover. However, what people have not realised is how much the general inflation developments in the euro area affect the society’s behaviour on the whole. Surveys indicate that general developments in the euro area have a greater impact on the inflation expectations of people who live in the single currency area than one might assume. | 0 |
Compared with those published in September, the December staff projections contained an appreciable upward revision in the average inflation rates for 2023 and 2024 to 6.3% and 3.4%, respectively, and also envisaged inflation averaging 2.3% in 2025 (the last year of our projection horizon), above our 2% medium-term target. Importantly, the ECB/Eurosystem staff projections incorporate a number of financial indicators that reflect market expectations of our future monetary policy. A key indicator here is the risk-free yield curve, which is strongly influenced by investors’ views o n the future path of our key interest rates. The risk-free yield curve also plays a central role in the transmission of monetary policy to the economy, because the financing conditions of economic agents (households, firms, governments) are often linked to medium and longterm risk-free interest rates. This is why the staff projections use as an input the path of both short and long-term interest rates implied by the curve. It is also why the ECB, like many other central banks, typically accompanies its decisions on (short-term) interest rates with communication on how it intends, or expects, to set the latter – and other policy instruments – in the future, as this improves its ability to steer the yield curve and thus attain the desired overall monetary policy stance. Therefore, the inflation path in the December staff projections was a clear indication that the financial conditions prevailing before that meeting were inconsistent with a timely return of inflation to our 2% target. | However, China’s reopening may temper inflation through its impact on supply bottlenecks. Indeed, the end of the zero-COVID policy will avert production distortions caused by restrictions. In the recent past, the COVID-induced production stoppages in China were key factors behind the bottlenecks and inflationary pressures and, therefore, the reopening could be seen as net deflationary. All in all, it is difficult to disentangle the net effects of all these factors on inflation and close monitoring will be needed. The resilience of euro area growth and its composition In the second half of 2022 the euro area economy proved more resilient than expected and the slowdown in the fourth quarter of last year was less severe than anticipated . This has occurred in a context on which a significant reversal of previous supply shocks (bottlenecks and energy prices) was observed, households and firms had plenty of buffers (in particular the household savings built up during the pandemic), the post-COVID rebound in demand continued to generate positive effects and monetary policy had not yet been fully transmitted. However, there is much uncertainty about the continuity of these factors. In particular, the sharp decline in European gas prices reflects unusually mild weather, energy-saving measures and strong inventory levels, which mitigate supply risks for next winter. However, 12 Ko lerus, Diaye and Sabo ro wski (2016) “China’s Footprint in Global Co mmodity Markets”. International Mo netary Fund. | 1 |
Interest rates must be raised before overly large imbalances accumulate. The motive would be to reduce the risk of a recession and low inflation during the period following a fall in asset prices. If the central bank is successful, it is not possible to demonstrate afterwards that one has been right. A further argument is that it is difficult to determine what change in the interest rate is required to achieve the desired objective. However, the advocates of the more ambitious strategy, where monetary policy more explicitly takes asset prices into account, claim that although it is difficult to judge whether a bubble is involved, this is not more difficult than estimating potential growth, for instance. If one extends the target horizon, the inflation target may in itself motivate tightening monetary policy, despite the fact that this would mean that inflation fell below the target level for a period of time. Based on purely theoretical reasoning, the target horizon is the entire future. The problem is that forecasts become more uncertain the further ahead they look. Many central banks with a strict inflation target policy therefore talk as though the forecast and target horizon were the same. It is difficult to take a clear stand in favour of one of the strategies. None of the arguments can be dismissed. As always, this proves that monetary policy is more of an art than a science. | Japanese companies can also take advantage of Singapore as a hub for knowledge and market intelligence. Over the years, we have developed a network of institutions that have a deep reservoir of knowledge on China, India and Southeast Asia. Our businessmen are also familiar with these countries. We are now building up links with the Middle East. 46. Japanese companies based in Singapore can enjoy not only benefits from the JSEPA, but also 10 other FTAs that Singapore has concluded with major economies like the US, South Korea and Australia. I would like to highlight the Comprehensive Economic Cooperation Agreement (CECA) between Singapore and India as it is the first comprehensive FTA that India has signed with any country. Conclusion 47. The rise of China and India will shift the global economic centre of gravity from West to East. Remaking our economies cannot be an occasional exercise. Governments must respond boldly and continuously to the imperatives of our changing times. Likewise for companies. This is the only way to ride the rising Asian tide. 48. Thank you. I will be happy to take your questions. BIS Review 83/2005 5 | 0 |
Perhaps the most important part of this deregulation process was the Second Banking Directive, which became effective in 1993 and which introduced the single banking license, enabling European banks to operate in any EU member state without the need for local authorisation. In fact one of the first European institutions that benefited from this regulation was the Nordic financial institution Nordea, which was established through cross-border mergers in 1997. Today, Nordea has substantial activities in four of the Nordic countries, and also constitutes a significant part of the financial system in all these countries. Measured in terms of lending, Nordea constitutes the largest bank in Finland, the second largest in Denmark, the third largest in Norway and the fourth largest bank in Sweden. The transformation of the banking sector towards a more globalised one has become apparent in the current financial crisis. We have experienced several severe financial crises also before cross-border banking became a notable feature of the financial sector, including the Swedish banking crisis in the early 1990s. But this time around dealing with the crisis became even more challenging because of the banks’ presence in several jurisdictions, creating a need for cooperation between several national authorities. Why do banks become multinational? How can we explain the increase in cross-border banking, in particular in retail banking? The deregulation of previously strictly-regulated markets made crossborder banking possible. | Recent bank surveys also show that following clients abroad is still an important element in banks’ internationalization strategies. 14 Another issue is what determines the location choice of a bank that has decided to expand abroad. From what has already been said it is quite clear that we see a similar pattern as in all international transactions – geography matters. Presumably this is mainly due to the fact that geographical proximity is related to familiarity with language and customs, which puts foreign bank at less of a disadvantage vis-à-vis local banks. But it could also be due to the higher costs associated with operating activities that are located very far apart. 15 One might expect, however, that recent advances in communication and information technology would change the premises for cross-border banking. New technology allows banks to provide financial services over the Internet and would therefore seem to reduce the advantages of local presence, at least for certain services. Take for instance the online savings accounts by which banks can attract retail deposits from foreign markets without any physical presence at all. At the same time, improvements in communication technology may lower the costs of operating activities located far apart and therefore reduce the advantages of geographical proximity between headquarters and the foreign branches or subsidiaries. Whether this is likely to lead to more or less local presence by foreign banks is difficult to say, but it clearly is a factor that contributes to making banking more globalised. | 1 |
There is, of course, also the ESRB’s role in the new regulatory framework connected to the CRD/CRR. In addition, I also think that the ESRB more or less by construction is well |8 placed to help its members tackle mainly national problems, by using peer pressure and working against inaction bias in various ways. This may be very important, not least when vulnerabilities emerge due to problems that are mainly beyond an individual authority’s own control. One may wish that we would have come even a little bit further in this area at this point, but it is important to realize that it takes some time to set up the necessary internal framework and processes. But by now the ESRB has that kind of machinery in place. The next step is to start using it. Even if we have a much more complete supervisory framework in place today, both nationally and at the EU and euro area levels, I think the role for the ESRB as the EU’s macroprudential overseer is becoming more and more important. At a high level, there is in particular an increasing need to keep a truly systemic perspective, capturing all financial sectors, their interlinkages and dynamics. The EU banking sector is facing structural problems, non-bank financial institutions are becoming more important, CCPs have taken on a systemically important role and the low interest-rate environment is, among other things, challenging the insurance industry, and the EU financial sector does not seem to become less interconnected. | It is about innovation, inclusion, and inspiration. Everything we do in FinTech must always have a larger purpose – to improve the lives of individuals, to build a more dynamic economy, to promote a more inclusive society. This is the FinTech spirit. And over the next five days of this Festival, may you find that spirit and may you be inspired to break new ground, and seek a better, newer world. Thank you all for your support. Have a great FinTech Festival! 9/9 BIS central bankers' speeches | 0 |
The firming in economic activity, in short, is due both to natural healing and past and present policy support. 2 BIS central bankers’ speeches In this regard, it important to emphasize that we did expect growth to strengthen. We provided additional monetary policy stimulus via the asset purchase program in order to help ensure the recovery did regain momentum. A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course. We also have to be careful not to be overly optimistic about the growth outlook. The coast is not completely clear – the healing process in the aftermath of the crisis takes time and there are still several areas of vulnerability and weakness. In particular, housing activity remains unusually weak and home prices have begun to soften again in many parts of the country (Chart 15 and Chart 16). State and local government finances remain under stress, and this is likely to lead to further fiscal consolidation and job losses in this sector that will offset at least a part of the federal fiscal stimulus (Chart 17). And we cannot rule out the possibility of further shocks from abroad, whether in the form of stress in sovereign debt markets or geopolitical events. Higher oil prices act as a tax on disposable income, and the situation in the Middle East remains uncertain and dynamic. | And the Bank of England is similarly mandated to pursue "price stability as defined by the (symmetrical) inflation target, and without prejudice to that objective to support the Government's economic policy, including its objectives for growth and employment". Now the exact words of these mandates differ - to varying degrees. What's more we all have our own procedures and processes - in terms of the composition of our decision-making bodies for example, or the form and frequency of our policy meetings, or of our arrangements for public accountability. And our approaches to fulfilling our mandates vary from one central bank to another - some of us, for example, have a more precise target, or tolerance range, for inflation, or some provide a more explicit role for monetary aggregates within the analytical framework and so on. And much is sometimes made of these various differences. One can in fact spend many happy hours debating the finer pros and cons of one formulation as against another, and that can be a productive thing to do in pointing up the issues, though I think in the end my own conclusion is that circumstances alter cases - there's no unique best buy. But I think that we need in any event to be careful that in pointing up the differences between us we don't exaggerate them. Because I have to say that in my experience - at a more fundamental level we are all trying to do the same thing. | 0 |
Before I move on to my personal reflections on the situation in the Swedish economy, I would like to say that I make the same assessment of the economic outlook in Sweden as that made by the majority of the members of the Executive Board at the latest monetary policy meeting. This assessment is that there will be relative low inflationary pressures and slow growth in the period ahead. It was expected that the Swedish economy would slow down at the end of last year, but the slowdown was more severe than we believed it would be. In the December forecast the Riksbank predicted that growth would decline and that there was some probability of a further repo-rate cut in February. In February, our assessment was that the slowdown in growth in late 2011 had been even more severe. This was because the indicators for exports, among other things, suggested this. I therefore voted with the majority to cut the repo rate by a further 0.25 percentage points. Since then, we have learned that the outcome for GDP growth in the last quarter of 2011 was even worse than we expected at the time of the monetary policy meeting in February. This is largely because exports were even weaker than expected. However, we have also received outcomes for foreign trade in January which indicate that exports strengthened again after the turn of the year. | This applies, for example, to the need for consolidation and which strategy is best for finding solutions to the debt crisis in the euro area as quickly as possible. The question of what role the central banks should play in counteracting an excessive expansion of credit and indebtedness is also often debated, and the members of the Executive Board of the Riksbank also have different opinions about this. I don’t find this strange at all, on the contrary it is entirely natural. Hopefully, this debate will contribute to constructive solutions going forward. Thank you. BIS central bankers’ speeches 13 | 1 |
These resources are to be found in the Exchange Fund, the use of which, as you know, is governed by the Exchange Fund Ordinance. Under this Ordinance, the uses to which the Fund may be put are quite specific. Section 3(1) of the Ordinance states that the Fund “shall be used primarily for such purposes as the Financial Secretary thinks fit affecting, either directly or indirectly the exchange value of the currency of Hong Kong and for other purposes incidental thereto”. Section 3(1A) further provides that “the Financial Secretary may, with a view to maintaining Hong Kong as an international financial centre, use the Fund as he thinks fit to maintain the stability and integrity of the monetary and financial systems of Hong Kong”. Under section 5B of the Ordinance, the Financial Secretary has delegated day-to-day decisions on the use of the Exchange Fund under these sections to the Monetary Authority. The clear indication here is that the use of the Exchange Fund must be for systemic purposes. The guiding principle in considering whether to provide lender of last resort support to an individual authorised institution is therefore whether the failure of that institution, either by itself or through spreading contagion to other institutions, would damage the stability of the exchange rate or the monetary and financial systems. It is neither possible nor necessary to give an exhaustive list of all the instances that might be covered by this principle. | Preconditions for Lender of Last Resort Support The basic precondition for lender of last resort support is the systemic risk that would, in the judgement of the HKMA, arise from the failure of a troubled institution if it were deprived of liquidity assistance. This is the basic precondition, but not the only precondition. The institution in question would also need to satisfy a number of further conditions designed to demonstrate that lender of last resort support is genuinely being sought as a last resort, and that such support would not amount to throwing good money after bad. To be specific, the additional preconditions are: • First, the institution would need to have a sufficient margin of solvency. As a measure of sufficiency, we would generally require the institution to demonstrate that it maintains a capital adequacy ratio of at least 6% after making adjustment for any additional provisions that might be necessary. • Secondly, the liquidity support extended to the institution would need to be adequately collateralised. • Thirdly, the institution should have sought other reasonably available sources of funding before seeking lender of last resort assistance. • Fourthly, the shareholder controllers of the institution should have made all reasonable efforts to provide liquidity or capital support as a demonstration of their own commitment to the institution. • Fifthly, there must be no prima facie evidence that the management is not fit and proper, or that the liquidity problem is due to fraud. | 1 |
In practice it is often interpreted as stabilising resource utilisation around its normal level. I think that is a fairly reasonable interpretation and it is not easy to argue for anything entirely different. At the Riksbank we approach the concept of a well-balanced monetary policy by forecasting such things as inflation and resource utilisation for different monetary policy actions. After this we try to select the course of action associated with the best possible forecast outcome; in other words the forecasts where inflation is best stabilised around the inflation target and resource utilisation around a normal level. This may sound simple and obvious but in practice is not that easy. In the first place, the best measure of resource utilisation is far from obvious and we Executive Board members may have slightly different opinions on this. 9 We are constantly working to improve the measures of resource utilisation and this is important. But as I see it Implications, Wiley 2003. Lars Nyberg discusses the balance sheet channel in more detail in the speech “After the crisis – new thoughts on monetary policy” published on 6 December 2010. 9 For a more detailed discussion of how resource utilisation can be measured, see the speech “Potential GDP, resource utilisation and monetary policy” by Svante Öberg held on 7 October 2010, and the article “The driving force behind trends in the economy can be analysed using a production function” in the Monetary Policy Report of October 2010. | Barbro Wickman-Parak: Many dimensions to well-balanced monetary policy Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at Swedbank, Stockholm, 26 January 2011. * * * Today, I will give an account of my stance at the latest monetary policy meeting in December. This will be a rather brief account, however, because I also want to find time to take up several important but difficult-to-assess factors in the recent monetary policy debate. For example, I would like to discuss different measures of monetary policy expectations and the risks that the development of household indebtedness and housing prices may entail in the long term. I will also say a few words about the concept of well-balanced monetary policy, and then conclude with some reflections on monetary policy decision-making. What I wish to illustrate is that no matter how well-prepared the material we base our decisions on, we are nevertheless confronted with important deliberations that are difficult to assess and which we must take a stand on. All aspects must be discussed from several different perspectives. I believe that this kind of all-round discussion leads to better monetary policy decisions. And it is only natural that this can mean we do not always agree on the repo rate decisions. Monetary policy is not an automatic reading exercise; our assessments are necessary parts of the decision-making process. Strong growth creates a need to gradually raise the repo rate Most analysts agree that the Swedish economy is growing strongly and at a surprising rate. | 1 |
6 Thus, between December 2021 and April 2023, the cost of deposits with agreed maturity increased by 0.65 pp for households and by 1.5 pp for non-financial corporations (NFCs), while the 12-month EURIBOR rose by more than 4 pp. 7 This cost of equity stands somewhat below the 7.2% seen in 2019, prior to the pandemic. 8 This ratio has fallen by around 30 pp since March 2022, at least partly in response to the Eurosystem’s gradual liquidity withdrawals. 9 Consolidated debt securities grew by 11.7% and represented 13.6% of total assets at December 2022 (10.7% in 2007). 4 2023.10 This was also the case for new lending, although it occurred more slowly in the housing segment than during past periods of monetary policy tightening. By sector, the stock of loans to NFCs and sole proprietors fell by 1.3% year-on-year in March, while loans to households dipped by 1.1%, with the stock of mortgage lending dropping by 1.6%. Credit quality Credit quality has continued to improve. In particular, the non-performing loan (NPL) ratio has maintained its downward movement, to stand at 3.4% in March, its lowest level since 2008 and 1.4 pp below its 2019 level. | In business abroad, ordinary earnings improved notably, driven by the strength of business in Latin America. Thus, the Spanish banks with the most international activity obtained ordinary profit in excess of pre-pandemic levels. 10 Between December 2021 and April 2023, the pass-through was 42% in the case of lending for house purchase and to NFCs, and 27% in other lending to households. 11 The year-on-year improvement in this ratio was driven by loans to firms (-1.8 pp, to 9.7%), while the ratio increased in loans to households (by 0.9 pp, to 5.7%). 12 The cumulative decline from the December 2012 peak is 79.6%. 13 ROA excluding the windfall tax on banking sector profits and other extraordinaries rose to 0.83% in Q1. 14 By comparison, net interest income rose by 17.2% between March 2014 and March 2019 and fell by 1.8% between March 2019 and March 2022. 5 Dividend payments amounted to more than € billion in 2022, with a payout ratio of 40%, similar to the pre-pandemic level. Also noteworthy were the rise in earnings per share and the sharp increase in share buy-backs made by some banks, the aim being to subsequently cancel the repurchased shares and reduce share capital, thus providing additional remuneration for shareholders. Solvency After falling by 25 bp in 2022, in 2023 Q1 the CET1 ratio was virtually unchanged on the same period of 2022. | 1 |
The increase in the repo rate is in line with the repo rate path expected by the market and which was used as a basis for the inflation forecast. On the one hand, the high GDP growth indicates that inflation could rise more quickly in future than we assumed in June. But on the other hand, productivity has been slightly stronger than expected, which has contributed to holding back cost developments and the rate of increase in unit labour costs. This has a dampening effect on inflation. However, there are indications that the labour market is beginning to strengthen, which should contribute to rising cost pressures. Our overall assessment was that inflation will increase and will be in line with the target a couple of years ahead, given that the repo rate is increased approximately in line with market expectations. Our assessment at the monetary policy meeting was that the upside risks and downside risks were roughly equal. Among the upside risks we mentioned were higher energy, oil and electricity prices, with a risk of contagion effects and a higher rate of wage increase following on from good growth in the economy. The downside risks included the continued strong domestic productivity growth and international price pressures. With regard to household indebtedness and house prices, we expect that the growth rates will slow down, but we have not yet seen any certain signs of this. The picture painted earlier in the year still remains largely unchanged. | Uncertainty in theory Our forecasting ability is thus very limited one year ahead and almost non-existent two and three years ahead. The best forecast we can then make is normally to assume that inflation will be 2 per cent in two and three years’ time. But that is not much help when shaping monetary policy. At the same time it is reasonable to assume that monetary policy will actually affect inflation two and three years ahead and that we therefore need forecasts as a basis for monetary policy. So what can we do to manage the uncertainty in monetary policy? In a linear model, where inflation depends on the interest rate and an uncertainty term with a mean value of zero, where the parameters are known and constant, and with a quadratic objective function (loss function), the uncertainty does not matter with regard to which interest rate should be chosen to minimise the loss function.10 It is enough to take into 8 Prior to 2007 we first based the forecasts on a constant repo rate and then on estimated market expectations. It is possible that we could have made better forecasts with a different interest rate assumption. To be able to comment more strongly on forecasting ability, one should actually base the calculations on longer periods of time. One should also compare with the historical series available at the time the forecasts were made. 9 The figure is based on the period 2005–2010. 10 See, for instance, L.E.O. | 0 |
Second, this finding implies that monetary policy, which typically affects the level of slack by steering financing and credit conditions in the economy, also retains significant influence on inflation outcomes. Third, domestic slack has not been the only disinflationary factor. To understand the drivers of low inflation, we thus need to look further afield – for instance, at shocks that have driven a wedge between the underlying relationship between inflation and economic slack in recent years. Cost and mark-up shocks Cost and mark-up shocks are forces that may have reinforced the disinflationary pressures exerted by economic slack during the crisis, while offsetting the inflationary pressures generated by the gradual reabsorption of slack thereafter. In the Phillips curve framework, such shocks would materialise as downward shifts of the curve that counteract upward movements along the curve on account of the compression of slack. One such force is a shock to the cost structure of firms, deriving, for instance, from fluctuations in import prices. The fall in oil prices to historically low levels between 2014 and 2015 is a prominent example of this type of shock as it directly reduces firms’ production costs, as confirmed by ECB staff analysis.5 According to the same analysis, the drag of global factors on inflation has, indeed, more than compensated for the improvements in domestic drivers. Changes in firms’ ability to charge mark-ups over their own production costs can further blur the observed relationship between inflation and economic slack. | You have clearly argued in favour of indicating who voted for what and why. Now it seems that these will be more like summary accounts indicating the primary arguments. My opinion has not changed. I do indeed believe that demands are higher today in terms of transparency. The ECB was once right at the forefront in this regard, when it introduced its monthly press conferences. Now, though, we are lagging way behind when you see what other central banks are doing. That’s why I believe that publishing accounts that summarise the general course of the discussion would be helpful. I personally would also be in favour of indicating how people voted. That would require all members of the Governing Council to explain how their own arguments and their own voting behaviour were in line with the ECB’s European mandate. What about the argument that individual central bankers would then be put under pressure? I think the concerns that the pressure would become too great have been exaggerated. Someone who takes on a job like that must be capable of withstanding pressure. Nobody will be put in prison for voting for an interest rate rise in the euro area. People shouldn’t be that sensitive in this regard. I was in favour of OMTs because they were – and still are – the right response for Europe, despite the fact that many in Germany are opposed to them. The OMT programme has made a significant contribution to the easing of the euro crisis. | 0 |
Second, the recent data suggest that the downtrend in the inflation rate may be coming to an end. For example, the core personal consumption expenditures deflator rose at a higher rate over the past three months than during any other 3-month period since mid-2012. Third, measures of longer-term inflation expectations, whether discerned from financial asset prices or from surveys of households or professional forecasters, remain well anchored at levels consistent with our 2 percent objective. This is important because inflation expectations are a major determinant of the inflation process. As long as inflation expectations stay well-anchored, it will be hard for inflation to fall further. Putting these factors together along with my forecast of a gradual pickup in real economic activity, my outlook is for inflation to drift back toward our 2 percent objective over the medium term. However, much like the case of the real growth outlook, there is significant uncertainty around this forecast. Monetary policy So what does this all imply for monetary policy? As you are aware, at last week’s FOMC meeting we made no changes to our monetary policy. In particular, the Committee decided to continue to purchase long-term Treasury securities and agency mortgage-backed securities 4 BIS central bankers’ speeches at a monthly pace of $ billion and $ billion, respectively. | First, we want to be assured that there are no glitches operationally with somewhat higher transaction volumes than in previous tests, that we can accept cash from a larger array of counterparties, post collateral in the tri-party repo system and reverse the transactions each day smoothly. Second, while the limited size of the operations during this exercise will prevent the operations from having a significant impact on market rates, we will observe how the facility impacts individual 6 During the testing phase, a ceiling will be placed on the maximum amount that can be invested per counterparty. BIS central bankers’ speeches 7 investor demand relative to other market rates. Additionally, we can see how sensitive that demand is to changes in market conditions such as quarter-end that increase the demand for safe assets. These observations will give us some insight into how the facility could affect the entire constellation of money market rates. Only by testing and learning will we be able to assess how best to use the facility. In conclusion, let me turn back to the economic outlook and the role of monetary policy. I do believe that we are making progress towards our objectives of maximum sustainable employment in the context of price stability. The economic fundamentals are improving and I expect that the healing process will continue in the coming months and years. At the same time, it is important to recognize that the financial crisis generated significant headwinds that are only slowly abating. | 1 |
I don’t think we have the evidence to say that better financial education is enough to escape such a trap. But it surely can’t hurt. A recent study using data from the OECD Programme for the International Assessment of Adult Competencies, or PIAAC, found that rates of financial literacy – defined as the ability to answer relatively straightforward financial questions4 – were lower here than in other advanced economies. According to a recent, UK-specific survey by a private-sector firm, less than half of adults and barely a third of teenagers actually know what an interest rate is. And we also know that the less financially literate tend to face higher debt costs than others and more often face financial distress.5 If financial education can make any difference at all to these problems we have a duty to try and improve it. Conclusion The Bank of England has a direct interest in improving and broadening the teaching of economics. There’s an appetite for it. According to a recent poll, three quarters of the public believe economics should be taught in schools.6 Yet only around a third of schools offer children the option to study economics from the age of 14.7 We hope our online teaching materials will help fill some of the gap. However, we also hope that our “EconoME” package can help with financial literacy. I think economics is fascinating and very valuable. But you don’t need to be an economist to understand the basics of personal finance and their importance for people’s lives. | But it is, at least, a job that requires very little investment in training or equipment: the only “capital” a rag collector will need is a pushcart, which might sell for $ Yet, despite saying they’d very much like to own their own, nearly all these rag collectors instead rent their pushcarts, at a cost of $ a month. They therefore spend in a matter of 3-6 months what it would cost to own the thing outright. This is an enormous, and self-imposed, effective rate of interest – an annual rate of somewhere between 200 and 400 per cent.3 1 Gathergood (2013). Laibson (1997). This would cover any depreciation costs, which the owner of the cart would have to bear. But these are likely to be only a small part of the rental cost. 2 3 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Mullainathan and Shafir document many such examples. And they go further: they claim, supported by the result of interesting experiments, that the tendency to over-weight the present, at the expense of the future, is itself increased by financial stress. The more cash-strapped people feel, the more prone they are to taking decisions that make the situation worse. Financial distress isn’t just the partial result of wanting things sooner rather than later: according to Mullainathan and Shafir it can also be the cause of it. The result can be what the authors describe as a “scarcity trap”. | 1 |
Generally speaking, the greater the depth of financial mediation, the larger the relative size of the banking sector in the economy and the higher the level of private sector debt, the more vulnerable the economy, the greater costs of any financial crisis and thus the higher the ensuing requirements as regards quality of banking regulation and strictness of supervision. Therefore, effective prevention of financial crises is an increasing priority for economic policy makers of countries with greater depth of financial mediation. Still, the depth of financial mediation differs systematically, for example, between the founders of the EU and recent entrants. For example, in the case of the Czech Republic, if the worst comes to the worst we can revoke the licence of a major bank, take its liabilities onto the government balance sheet and sell its viable business, as we have done in the past, without increasing our government debt-to-GDP ratio above two or three hundred per cent, provoking a sovereign debt crisis and starting the vicious circle known to many European economies. Most developed European countries do not enjoy such freedom. On the other hand, many segments of our financial industries are still underdeveloped and their space for growth is rather high. I do not believe we have reached the point at which one should question the benefits to the economy of increasing the depth of financial mediation. | Even if property prices do fall further, there is a strong incentive for homeowners to continue to service their mortgages. The main problem loans we have seen so far have been in the corporate sector and in trade finance. Some companies have run into unavoidable problems because of the regional situation while others may have over-extended themselves. However, it is worth noting that the corporate sector in general in Hong Kong has avoided the excesses seen in the rest of the region. In general, companies in Hong Kong are not highly leveraged compared with their counterparts in the region and have not poured resources into an indiscriminate build-up of fixed assets. The banks have also tended to follow more prudent lending policies than those elsewhere and are better protected by their ability to take and realise good collateral. We do not therefore expect to see the collapse of asset quality that has occurred in some regional economies where corporates and the banks have also had to contend with massive exchange rate depreciation. The local banks in Hong Kong also have the benefit of the cushion provided by their high capital adequacy ratios. This means that even if the banks do have to make higher provisions this year, it will be their profitability rather than their solvency that is affected. While lower profitability is by no means welcome, it is not, by itself, a cause for concern in terms of the stability of the banking system. | 0 |
Analysis of Corporate Bond Liquidity. FINRA Office of the Chief Economist. BIS central bankers’ speeches 3 deterioration in funding liquidity also increased the degree of systemic stress as firms were forced to sell assets, which depressed their prices, undermining the solvency of firms throughout the financial system. As I noted earlier, while funding liquidity can be considered as its own distinct subject, it does have a direct link back to market liquidity. If firms that trade and invest in securities cannot obtain funding liquidity, this will likely lead to less transactions volume, thinner markets and less overall market liquidity. It is also likely to lead to less pricing efficiency resulting in wider and more persistent disparities in the prices of similar assets. Without access to funding, leveraged players, such as hedge funds, will find it more difficult to react to transient dislocations in market prices by engaging in arbitrage – that is, buying the cheaper and selling the more expensive asset. Without a reliable source of short-term funding, market functioning can become impaired, which can further disrupt funding and market liquidity. This can be seen by looking at the relationship between the volume of dealer-funded repo backed by U.S. Treasury securities versus the size of Treasury bid-ask spreads (Exhibit 11). 6 During times of financial crisis – such as in 2008 – sharp deleveraging of dealers’ repo books coincides with an increase in Treasury bid-ask spreads. However, during non-crisis periods, this correlation is quite low. | Because mutual funds are not natural providers of intraday liquidity, 5 their rapid growth may have contributed to the decline in secondary market trading activity. Fixed-income market liquidity may also be declining for cyclical reasons. Dealer inventories have historically been sensitive to changes in the size of credit risk-premia and term-premia (Exhibit 10). Finally, the effects of unconventional monetary policy on rate expectations and corporate bond issuance may also be affecting market liquidity. This is an area in need of further study. To reiterate, the evidence that market liquidity has diminished is mixed. But even if one agrees with the position that market liquidity has diminished, concluding that tougher regulatory requirements are the most important factor would be premature at this stage. The available evidence and common sense suggest that the changes in the regulatory regime are likely important, but we need to do considerably more work before we reach a definitive conclusion on their relative contribution. Furthermore, even if additional evidence supported the conclusion that market liquidity has declined due to the increase in the regulatory burden on the major securities firms, this decline would still need to be weighed against the benefits of a more resilient and robust financial system. During the last cycle, market liquidity was plentiful prior to the financial crisis. But, as the financial system became stressed and several large systemic firms teetered on the brink of failure, market liquidity quickly dried up. | 1 |
MAS is currently working with industry to unlock more investment flows into infrastructure via capital markets. This includes developing an infrastructure debt takeout facility to facilitate the transfer of infrastructure debt from banks to institutional investors. A group of banks and investors has agreed to conduct a “proof of concept” pilot transaction in September this year. In the promotion of FinTech, MAS has been updating its regulatory framework to ensure that it remains conducive to innovation while providing the necessary safeguards. We have proposed a regulatory sandbox for FIs and non-financial players to experiment with FinTech solutions while limiting the consequences of product failure. We have issued guidelines to enable start-ups and SMEs to more easily access securities-based crowd-funding. We will soon be issuing new guidelines which will provide clarity for FIs leveraging on cloud services to fulfil business and operational needs. Finally, the financial sector continues to create good jobs and build relevant skills. Last year, the financial services sector created a net total of 4,500 jobs. There is a compositional shift towards front office and higher value-added jobs. Demand for talent is strong in sectors such as asset and wealth management, corporate banking, and insurance. Demand is also strong in compliance roles, and technology related fields like cyber security and application development. But there is consolidation in back office jobs, such as roles in lower-skilled IT infrastructure management, operations, and support. Under the national SkillsFuture programme, MAS introduced new initiatives last year to help finance professionals deepen their expertise and acquire new cross-functional capabilities. | Looking ahead, the transition to a greener economy will entail a sharp reduction in aggregate energy dependence, from around 60% today to 10% in 2050 in a zero-emissions scenario. However, this same policy, as well as the digitalisation of the economy, will increase the EU's need to import so-called “critical raw materials”. These materials (such as rare earths, palladium or cobalt) are considered critical by the European Commission due to their economic importance, the difficulty in replacing them with other materials, the high import concentration and other supply-related risks. 5 For example, China controls about half of global rare earths mining capacity and 85% of the refining capacity. Russia is the EU’s main supplier of these raw materials (accounting for 18% of the total value of such imports in 2019). According to the European Commission, the demand for some of these critical raw materials could increase more than fivefold by 2030, which will cause the EU's external dependencies in this field to increase dramatically in the near future. A second vulnerability concerns export concentration. This is a key aspect for the European economy, which has historically maintained a strong trade surplus, and whose exports have compensated some of the recent large terms of trade loss stemming from high energy prices. In this regard, EU exports of various pharmaceutical and chemical products and some high-tech manufacturing goods are highly concentrated in the US and the UK, and are also characterised by relatively low domestic demand. | 0 |
These have had the aim of supporting the economy during the outbreak, and in so doing to minimise the potential for longer-term damage or scarring to the economy’s potential. On the monetary side the MPC likewise deployed its full range of monetary tools in March as the pandemic intensified. In March the Committee cut Bank Rate in two steps to a new low of 10 basis points and launched a new Term Funding Scheme with additional incentives for SME lending (TFSME for short). And against a backdrop of accelerating market dysfunction – brought on by the “dash for cash” – the MPC announced an additional £ of gilt and corporate bond purchases, to be carried out at a record pace of £ of gilt purchases per week (Figure 4).3 In June the Committee voted for a further £ of gilt purchases. And in August we gave new forward guidance. The size and pace of the asset purchase programme launched in March reflected its twin objectives – both to provide stimulus to the economy by lowering longer term interest rates, and to counteract any tightening of monetary and financial conditions that might result from the deterioration in gilt market conditions.4 Those twin objectives were successfully met. Orderly functioning was quickly restored to the market – market functioning indicators, which had been flashing increasingly red, rapidly turned back to green as pricing and liquidity metrics like bid-ask spreads returned to normal levels (Figure 5). | In my view, that now points to a gradual withdrawal of some of the stimulus we provided to the economy in more difficult circumstances last year – not so much as to undermine the recovery, but to keep it on a low inflation path, consistent with the Committee’s remit. 7 10 See Sentance (2009a) and Sentance (2009b) for a more detailed discussion. BIS Review 99/2010 References Eurostat (2010) “Regional GDP per inhabitant in 2007”, Press Release 25/2010 – 18 February 2010 Lee, N. (2010) “No city left behind”, published by the Work Foundation, July 2010 Sentance, A. (2009a) “Monetary policy in turbulent times” Speech at the Agricultural Engineers Association Annual Conference, Institution of Civil Engineers in London on 21 April 2009 Sentance, A. (2009b) “Energy and environmental challenges in the new global economy” Speech at the British Institute of Energy Economics Sustainable Energy Seminar, London on 21 September 2009 BIS Review 99/2010 11 | 0 |
28 All speeches are available online at www.bankofengland.co.uk/speeches 28 (7) ln Where ∝ = ∗ ∗ 1 0 person does belongs to ethnic group person belongs to white ethnic group From Table 3, the mixed ethnic group does not have a statistically significant pay gap. All other ethnic groups do have a significant and negative pay gap, varying from -6% and -7% for Indians and Chinese through to -20% and -13%, respectively, for workers from a Bangladeshi and Pakistani ethnic background. In other words, once we account for compositional effects, a more consistent pattern of negative ethnicity pay gaps emerges, although the size of the gap varies significantly across different ethnic minority groups. Table 3: Conditional granular ethnicity pay gaps for specification (7) Ethnicity Mixed ethnic Indian Pakistani Bangladeshi Chinese Any other Asian background Black/African/Caribbean/Black British Other ethnic group Observations Coefficient (compared to coefficient for White) Pay gap, per cent Number of observations for ethnic minority groups 0.0186 2% 3,022 -7% 10,480 -13% 3,521 -20% 1,235 -6% 1,797 -13% 3,893 -13% 10,222 -8% 4,623 -0.82 -0.0774*** (-10.29) -0.144*** (-13.19) -0.228*** (-12.98) -0.0617*** (-3.35) -0.139*** (-11.90) -0.135*** (-17.04) -0.0824*** (-7.34) 251,064 Source: ONS Labour Force Survey and Bank of England calculations. Note: Coefficients are recalculated into percentages as per Palmquist (1980) due to log-linear specification. | Relief for those guys I think would be really, really valuable because the burden on them, they feel that burden disproportionately because they don’t have as big an asset base to spread all those compliance costs across. And I think it has more of a real consequence because a lot of these institutions support small business lending, which I think is really important to have a vibrant economy. Maureen O’Hara: So given the two goals you said that there were for the Dodd-Frank Act, it does make you wonder how the Congo Minerals Relief Act ever got into the Dodd-Frank. But maybe we’ll leave the Congo Minerals for another night. Well, I think the issues we’ve talked about here have covered a wide range of areas, and let me turn it open to the audience here and see if we can come up with some other questions. How about you? Yes. Audience Member: You alluded to China and the concerns we had about it last year that have now gone away. Why do you think the narrative changed on that, why do you think China is doing better? Also, you know, we’re seeing more about rising inflation, so is this really about rising inflation or is it about the end of the disinflationary-deflationary scare? Thank you. President Dudley: Well I think last January, early February, the markets were under a lot of distress. There was a big flight to risk aversion and markets went down pretty hard around the globe. | 0 |
In the aftermath of the crisis, global imbalances were reduced as a consequence of the financial retrenchment and the severe downturn in activity worldwide. However, a large portion of the correction is likely to have been merely cyclical. As a matter of fact, as the global recovery is taking hold, a new widening of imbalances is starting to be perceived this year and is foreseen to continue into 2011. Indeed, the basic structural factors underlying global imbalances remain essentially in place; but the crisis has brought about some potentially important changes in the nature of the imbalances. As trade and capital flows experienced a sudden stop during the crisis, the immediate impact was deeper in those economies more open to trade – which collapsed – and those with higher net external financing needs. When trade recovered, export economies tended to BIS Review 172/2010 1 rebound strongly, but countries with large external deficits generally lagged behind. In many advanced economies, particularly in those running deficits, private domestic demand remains severely impaired by the adjustment process and the need for the private sector to deleverage. As a result of this process private sector saving rates have increased sharply and public sector balances have rapidly deteriorated. In the end, external deficits do not reflect anymore the large financing needs of the private sector – as they did before the crisis – but those of the public sector. | Miguel Fernández Ordóñez: Global rebalancing, asset prices and policy responses Opening remarks by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the Fifth High-Level Seminar of the Eurosystem and Latin American Central Banks, Madrid, 10 December 2010. * * * Good morning and welcome again. More than three years after the global financial system started to show serious signs of instability and two years after being on the verge of a global economic and financial meltdown, the world economy seems to have avoided that risk, backed by a strong and coordinated policy response. Nevertheless, the strengthening has been uneven and the risk of economic and financial instability is still persistent and significant in some regions, like the euro area. Indeed, it is hard to emphasise sufficiently the challenges ahead and how crucial the present juncture is for the future of our Monetary Union. On the contrary, Latin American economies had learned the lessons from the severe financial and economic disruptions they experienced in the not so distant past, and the challenges they currently face are more similar to those that characterised the period of strong growth prior to the financial crisis. These very different sets of present circumstances make today’s exchange of mutual experiences and policy discussion particularly interesting. The title of today’s Seminar was chosen almost a year ago, but it couldn’t be more timely: Global Rebalancing, Asset Prices and Policy Responses. | 1 |
The theme of today’s seminar – “Strategies for the Development of Islamic Capital Markets” – is most timely and relevant to Hong Kong as we are about to introduce an enhanced legal framework as a first step to promote the sustainable development of Islamic finance and we are eager to learn the other key components to form a coherent strategy. We very much look forward to the insightful views of the distinguished speakers on the latest developments of the global Islamic capital markets, the prospects and opportunities that lie ahead, and further ideas to bring Islamic capital markets to the mainstream. Growing importance of Islamic finance in the global financial scene 4. Being an international financial centre, it is important for Hong Kong to embrace Islamic finance given its rising prominence in the global financial arena. The size of the global Islamic capital markets has expanded more than 10-fold since its early phase of development in the 1980s, reaching an estimated $ trillion at the end of 2012.1 With this critical mass, Islamic finance has become an integral part of the global financial system not only catering for the needs of Muslims, but also attracting other investors and fund raisers, regardless of race and religion. Reflecting the deepening sophistication of this market, we are seeing an increasing variety of products and services, ranging from Islamic banking products and sukuk, to Islamic equities, Islamic funds and takaful. 5. This remarkable market deepening process has not been retarded by the challenging financial landscape. | On this front, a study conducted by the Hong Kong Government in conjunction with TMA earlier concluded that there are no major legal or regulatory obstacles to transactions involving wholesale Islamic financial instruments in Hong Kong. 13. However, there is a need to refine the tax regime in Hong Kong in order to provide a level playing field between sukuk and conventional bonds. Owing to Shariah requirements, structuring sukuk often involves the originator setting up a special purpose vehicle for the purposes of issuing sukuk to sukuk holders, and multiple transfers of underlying assets between the originator and the sukuk issuer in order to generate profits. These complex structures, which are not required for conventional bonds, may incur additional tax and stamp duty expenses for the sukuk issuers. 14. I am pleased to see that an amendment bill to address this issue has been introduced into Hong Kong’s Legislative Council and is now in the final stages of enactment. 3 2 Source: Institute for International Finance. BIS central bankers’ speeches The bill, once passed, will enable sukuk to enjoy tax treatments similar to those currently afforded to conventional bonds. This would be a significant milestone in the development of a sukuk market in Hong Kong. 15. Apart from providing a level playing field, equally important is the active participation of market players, including non-Islamic arrangers, issuers and investors in the Islamic capital markets, as they will be the ones who lead market development in the future. | 1 |
Work is currently being done, both in Europe and globally, towards reforming the regulatory framework for international banking operations. Until the framework for those operations is more secure, however, the wisest course for Icelanders may be to proceed with caution and adopt tighter rules on cross-border financial activities than are set forth in the minimum requirements. A clear example of this is a restriction on the accumulation of deposits in foreign bank branches. The long-term need for such more stringent rules will be determined to a degree by Iceland’s future currency and exchange rate regime. Experience shows that maturity mismatches between banks’ assets and liabilities that are not backed up by a lender of last resort represent a substantial risk. The global financial crisis has revealed a variety of weaknesses in the regulatory framework and the supervision of the financial sector. On the whole, the quantity and quality of financial 2 BIS Review 136/2009 institutions’ capital was insufficient to provide the necessary shock absorption. In particular, there should have been more unpledged common equity. The risk assessment of assets and liabilities was distorted because it was based on historical data that did not assign sufficient weight to bad states of the world. Liquidity risk was vastly underestimated, and the procyclical tendencies within the financial system were not sufficiently offset by the regulatory and supervisory framework. On the contrary, it can be argued that the interplay of regulatory provisions and financial reporting rules based on mark-to-market exacerbated these tendencies. | One of the roles of the Parliamentary Special Investigative Commission is to compile information on these topics and present an analysis of them. The Central Bank neither has the capacity nor the will to front-run that analysis. The Bank will probably need to revise its operational practices in these areas in view of experience and the Commission’s findings, as will other supervisory institutions. In addition, the Bank will soon review its precautionary rules, such as those pertaining to financial institutions’ liquidity and foreign exchange balance, in light of recent events. Various elements of payment intermediation and settlement will also be reviewed in the near future, with the aim of promoting financial stability more effectively. Because of the uncertainty still surrounding assets, capitalisation, and ownership of Icelandic financial undertakings, it is difficult to assess the main risks in Iceland’s financial system at this time. However, those risks are clearly related to asset quality, on the one hand, and foreign exchange and indexation mismatches, on the other. For this reason, among others, it is important that financial institutions maintain capital adequacy ratios well above the statutory minimum in the near future. At present, deposits form the backbone of the banks’ funding, as foreign investment in Iceland and access to global credit markets are limited. Lifting the capital controls entails a certain risk, partly because it involves liberalising capital flows while the ownership structure of the banks is still being clarified. | 1 |
Some kinds of public policies may exacerbate, rather than lessen, the tendency of the housing market to price some families out of good neighborhoods. Zoning and other land use regulations are sometimes enacted to artificially reduce the supply of housing, thus driving its price up even further. Take, for example, minimum lot size zoning which specifies a minimum amount of land per housing unit. When this regulation is binding, it reduces the number of housing units that can be built in a given area, and thus introduces artificial scarcity into the housing market, thereby raising prices. 9 Heckman (2006). 10 Deming (2009). 11 See Bayer et al. (2008), Schmutte (2015), Hellerstein et al. (2011), Aslund et al. (2011). 12 Chetty et al. (2015). 4 BIS central bankers’ speeches Zoning can also be used to promote affordable housing – to include, rather than exclude lowand moderate-income families by setting aside space for those families in exchange for the right to develop market-rate units. This is a strategy that New York and other large cities have pursued for many years, and in these cities it is easy to point to units that were developed under the program. Nonetheless, these programs are often controversial – some economists and others argue by increasing the cost of development they restrict supply. Thus, while some percentage of new units developed will be affordable, fewer new units will be developed with uncertain effects on affordability overall. | Such an environment will also make the process of adjustment and economic transformation easier. In this respect, I believe that we have the right monetary framework to best 2 BIS central bankers’ speeches achieve this. The BOT’s inflation targeting framework has served us very well since its adoption over 10 years ago. Apart from serving as an anchor for macroeconomic stability, the BOT can also undertake steps, or act as a catalyst for the necessary changes, that will serve to enhance Thailand’s competitiveness and augment economic adaptability. Most directly, the BOT can strive to enhance the effectiveness of the financial sector in serving as intermediaries of capital. Our current strategy is to broadly deliver tangible improvements in four key dimensions. First, encourage financial innovation and the expansion of available financial instruments. Second, broaden the choice available to firms and households in terms of financial services. Third, reduce the cost of these financial services. And finally, improve access to them. To this end, the BOT has embarked on a multi-pronged approach that involves a number of strategic plans. Chief and foremost is the second Financial Master Plan. This plan, which takes into account major global developments such as regional integration and global regulatory reform, will further this vision of a modern and inclusive financial sector landscape. At the same time, we are pursuing ways to improve financial system infrastructure, including through upgrades to the payment systems to promote more efficient settlement of private sector transactions. | 0 |
This will encourage the alignment of national taxonomies, building on common principles and a tiering system to cater to differences in financial systems, economic and social structures, and transition paths. Global coordination to improve climate equity Let me close with a final point on global coordination. As countries embark on different national transition paths at varying paces, a global challenge is the disproportionate impact on emerging economies. This makes it more difficult for them to control their own transition path due to economic and financial linkages2. This reality calls for a more coherent global coordination to galvanise collective actions, with stronger link to the NDCs3 under the Paris Agreement, that would help improve climate equity and mitigate risks of disorderly transitions. This would compel countries that generate transition spillovers to provide financing, technology and capacity building support to assist smaller and developing countries to adapt to climate change and take mitigating actions. This, in our view, is a step towards a more equitable and effective global mechanism to respond climate risk at a faster pace. Thank you. 1 A platform to set the direction, to discuss climate change policies and actions, to drive green economic growth, to catalyse green technology and low-carbon growth at all levels, particularly in the federal and state Governments. 2 For example, measures to cut global GHG emissions (e.g. removing fossil fuel subsidies, emission caps and carbon taxes) could lead to higher risk of stranded assets in emerging and developing countries given their heavy reliance on fossil fuels. | With this goal in sight, first we need to recognise that climate risk is a cross-cutting risk, for which risk management approaches and methodologies are largely still under-developed. Given this, there is much more to be discovered in terms of how it can be managed in an integrated manner with other financial risks. This suggests a need for an iterative process that will enable financial regulators and the industry to converge on supervisory expectations and a common framework for assessing physical and transition risks. As part of this process, we are examining the scope and specific approaches to incorporate climate-related financial risks within the Pillar 2 requirements. Secondly, the nature of climate-related risks calls for central banks and regulators to collaborate at the national level to support alignment of financial industry responses with national climate strategies and priorities. As I mentioned at the start of my remarks, central banks and financial regulators provide an important bridge between the financial sector and the Government to inform national policies, targets and strategies on the one hand, and financial sector responses to climate risk on the other hand. In Malaysia, JC3 serves as a focal point for engagements with the Malaysian Climate Change Action Council (MyCAC)1 on national climate policies. Third, effective coordination with the industry serves to maximise transition benefits and minimise downside risks. For developing and emerging economies in particular, an inclusive strategy is key to avoid macroeconomic and social dislocations as we transition to a low-carbon economy. | 1 |
In describing the FinTech projects aimed at solving each of the five problems, I will relate them to the properties of these five elements. The five key outcomes we want to achieve through our collaborative FinTech projects are: instant remittance atomic settlement programmable money tokenised assets trusted sustainability data 1/11 BIS - Central bankers' speeches FLOWING LIKE WATER - INSTANT REMITTANCE (PROJECT NEXUS) The first desired outcome is instant remittance. The advent of real-time payment systems over the last few years has made domestic payments flows seamless in many countries. Today, with PayNow, we can make 24/7 real-time transfers using just mobile numbers or unique entity numbers. But the world has not solved the cross-border payment problem. For most people, it remains slow, costly, opaque, and inefficient, relying on an archaic network of correspondent banks. According to the World Bank, the global average cost of sending remittances is a hefty 6% of the transfer value. This is particularly painful for the migrant worker who wants to send money home or the small business which wants to reach overseas markets through ecommerce. We want cross-border payments to flow seamlessly like Water. One way to do this is to build linkages across countries' real-time payment systems, just as canals allow boats to pass from one body of water to another. Singapore has been working to connect its PayNow with the faster payment systems of other countries. We connected PayNow to Thailand's PromptPay last year, the first such linkage in the world. | Project Orchid released its first report earlier this week, which identified four promising areas for application of programmable or purpose-bound money in Singapore. incorporating purpose bound money to the existing government voucher system, to streamline settlement processing – Govtech and DBS Bank are piloting this; commercial vouchers which can be used at specified outlets – Temasek, Fazz Financial, and Grab are testing this; government pay-outs to recipients who do not have a bank account – OCBC Bank and CPF Board will be conducting a trial; and disbursing grants to training providers automatically when specified conditions are met, without the need for manual verification – UOB Bank and SkillsFuture Singapore will be testing this using smart contracts. MAS and the industry will further sharpen our capabilities in programmable money. 6/11 BIS - Central bankers' speeches We will improve the user experience, strengthen security and privacy, and increase accessibility to broader segments of the population. GROWING LIKE WOOD - TOKENISED ASSETS (PROJECT GUARDIAN) The fourth desired outcome is tokenised assets. While cryptocurrencies have been the rage among the media and public, astute industry players know that the real innovation with vast potential is tokenisation. Tokenisation involves using a software programme to represent the ownership rights over any item of value as a digital token or asset. When deployed on distributed ledgers that are secured by encryption, digital assets are referred to as crypto assets. When they are used as a medium of exchange, people call them cryptocurrencies. | 1 |
The economic literature features a few factors that caused the emergence of the global labour market over the past dozen years 6 : - the collapse of the former Soviet block and joining the world economy by Central and Eastern European countries, - the reforms implemented in India and China, with the crowning achievement of China joining the WTO at the end of 2001, - a rapid advancement in the implementation of IT and telecommunications solutions in enterprise management, which has enabled the separation and standardization of a number of business processes that have been subsequently shifted to countries or locations of lower manufacturing costs, - a significant fall in the transport cost (prices have fallen by 21% in the road transport, by 30% in the air transport, whereas prices of telephone calls have plummeted by 95%), - multilateral trade liberalisation, the average customs duty has been down by ca.30%, 6 4 See also the study of the Economic Policy Committee (2005) “Responding to the Challenges of Globalization”, November 2005, and the McKinsey Global Institute (2005) “The Emerging Global Labor Market”, June 2005. BIS Review 64/2006 - the technological progress has blurred the fine line between what may or may not be traded internationally. 7 It is worth noting that the global labour market has emerged as a result of the aforesaid factors, despite the fact that restrictions to migration of the population have remained tight. | Krzysztof Rybiński: Global labour market and its limitations – reasons and effects of the emergence of homo sapiens globalus Address by Mr Krzysztof Rybiński, Deputy President of the National Bank of Poland, at the debate: “WORKERS 2020 – a vision of the labour market and the labour environment in the forthcoming decades”, Gdańsk, 10 June 2006. * * * Ladies and Gentlemen, The question about the symbol of the global labour market would most probably be answered by a majority of the Europeans with the words: “the Polish plumber”. In France, the Polish plumber has become the key culprit of the rejection of the European Constitution, with the French media showing the Polish plumber on his quest for depriving the hard-working French plumbers of their work. At the same time, the data of the French society of plumbers show that there were 140 Polish plumbers working in France at that time, with 6000 plumber jobs still remaining vacant in the country. 1 This example demonstrates how many false preconceptions concerning globalization are embedded in the media and in the public opinion. In the recent years, the process of globalization has been broadly based across all the markets: the financial market, the capital market, the market of products, services, knowledge, and the labour market. In many countries, the opportunities and threats related to the process of globalization have been observed early and their economic policy has been adjusted accordingly. | 1 |
The TFSME is designed to help bridge the supply of credit to UK firms through the Covid-19 disruption and reinforce the transmission of the MPC’s reductions in Bank Rate. It does this by providing banks with cheap funding over a four-year term (rising to six years for loans guaranteed under the BBL scheme). There has already been £ of lending from the scheme – a far more rapid pace than the previous TFS (Chart 12). 10 All speeches are available online at www.bankofengland.co.uk/news/speeches 10 Chart 11: UK investment grade bond issuance Chart 12: TFSME and TFS lending compared $ bn Loans made through the TFS (starting September 2016) 2020 2016-2019 average Loans made through the TFSME (starting April 2020) 45 19 Mar: Further BoE package £ bn 40 50 35 45 40 30 35 25 30 20 25 20 15 15 10 10 5 5 0 0 Jan Feb Mar Apr 0 5 10 May Source: Refinitiv — Deals Business Intelligence and Bank calculations. Data show UK private non-financial corporate issuance in sterling, euro and US dollar. | And the sheer scale of the balance sheet interventions necessary in recent months pose important longer term questions. About the extent to which the non-bank financial system may still be capable of amplifying instability – for example through sudden non-bank deleveraging, runs on money market funds, or rigidities in dealer intermediation. And about the appropriate balance of responsibilities between the public and private sector for dealing with such vulnerabilities. 2 All speeches are available online at www.bankofengland.co.uk/news/speeches 2 I cannot give comprehensive answers to these questions today. But, in what follows, I have tried to provide some raw material for that exercise, illustrated using seven of the most vivid ‘moments’ from my own experience of the past few weeks. Moment 1: the first rumbles of thunder In the first week of March – the week before that fateful Friday 13th – we at the Bank had decided to move all of our market operations to full split site working, to reduce the risk of Covid-19 transmission. On Friday 6 March, as I was walking across the trading floor saying goodbye, my attention was drawn to a group of our foreign exchange reserves managers staring intently at their screens and talking animatedly. A big adjustment in financial markets had already been underway for some time, as expectations of slower demand caused by the global spread of the virus pulled down on equity and oil prices, and investors moved into safer assets, reducing yields (Chart 1). Market functioning had however mostly held up well. | 1 |
Figure 8 Labor market indicators (thousand persons, percent) 200 10 180 9 160 8 140 7 120 6 100 5 80 4 08 09 10 11 Unemployment insurance (*) 12 13 14 Unemployment rate (*) Quarterly moving average of individuals who claimed and received unemployment insurance payment. This series is anticipated by 4 months. Sources: National Statistics Institute (INE), Superintendence of Pensions and Central Bank of Chile. 12 BIS central bankers’ speeches Figure 9 CPI inflation (*) (annual change, percent) CPIEFE inflation (*) (annual change, percent) 10 10 10 10 8 8 8 8 6 6 6 6 4 4 4 4 2 2 2 2 0 0 0 0 -2 -2 -2 -2 -4 -4 -4 -4 07 08 09 10 11 12 13 14 15 16 07 08 09 10 11 12 13 14 15 16 June 2014 Report Sept.2014 Report (*) Gray area, as from the third quarter of 2014, shows forecast. Sources: Central Bank of Chile and National Statistics Institute (INE). | In fact, during 2007, China’s economy grew by over 11 per cent and it made the largest contribution to global growth. India grew at more than 9 per cent and Russia at almost 8 per cent. These three countries accounted for onehalf of global growth over the past year, while several other developing countries also maintained their own robust expansions. In fact, the rapid growth in these countries counterbalanced the moderate growth in the United States and other advanced economies. The current global expansion is remarkable in several ways. First, emerging markets and developing countries are now accounting for a high share of growth – more than twothirds, compared with about one-half in the 1990s; Second, the successes arising from rapid growth are not being enjoyed by a few countries only – most countries and regions are doing better in comparison to their own past standards; and, third, the volatility of growth has declined substantially. For example, the Sri Lankan economy has grown at well over 6% during each of the past 3 years and in 2008 too, a growth of 7% or close to 7% is projected. Pakistan too has recorded an average growth rate above 7% during the last 4 years. Mr. Chairman, until the last decade, there was a clear relationship between global economic growth and the growth in advanced economies. As a matter of fact, when major economies, particularly, the USA, recorded a slow down, it retarded world output significantly. | 0 |
The underlying inflation measured as the CPIF (CPI with a fixed mortgage interest rate) is expected to be just below 2 per cent during the greater part of the forecast period. CPI inflation, on the other hand, will vary significantly, as CPI also considers changes in interest rates on mortgages, which are affected by the decisions we take regarding the repo rate. 4 BIS Review 11/2010 Inflation measured in terms of the EU harmonised index, the HICP, has recently been higher in Sweden than in the euro area (Figure 20). During the autumn, this was just below 2 per cent in Sweden, while it was negative in the euro area. HICP does not include prices of owner-occupied housing, and thus inflation measured in terms of HICP and CPIF are largely the same. The relatively high HICP inflation in Sweden is primarily due to the heavy increase of unit labour costs in Sweden over the last three years, averaging approximately 5 per cent per year (Figure 21). In addition, the Swedish krona weakened during the financial crisis, pushing up import prices. In turn, the rapid increase of unit labour costs over the last three years is primarily due to the fact that productivity fell for three years in a row, in addition to which hourly wages increased more during that three-year period than during the immediately preceding three-year period. This development will be reversed during the forecast period. | The financial crisis and wage formation The financial crisis has affected the Swedish economy in two ways. Firstly, the financial markets and the financial sector have been impacted negatively. However, in principle, this problem has now been addressed. Central banks and authorities have adopted extraordinary measures which have succeeded in getting the financial markets to function better again. The remaining areas to be addressed are that the financial sector is still dependent upon government support, that there exists a risk that new problems will arise and that a new regulatory framework is needed for the financial sector. Secondly, the financial crisis has led to a decline in world GDP and world trade. As regards Sweden, this has primarily impacted the Swedish export industry and has led to a deep recession from which it will take the country a long time to emerge. Other parts of the economy that are focused on the domestic market have coped better, due to the expansive fiscal and monetary policies being conducted, among other factors. This has led to a clear division of the Swedish economy. This is the economic background against which the social partners are to conclude wage agreements during the year. This will not be an easy task. It will require a variety of deliberations to be undertaken. | 1 |
Sometimes we have different views on the specific policy choices at hand, and you should view this as completely appropriate: these are hard questions – particularly during difficult economic circumstances such as we face today. In fact, I think we make better decisions as a committee because we don’t all think alike. But we are united in our commitment to our dual mandate of maximum sustainable employment and price stability and in our belief that preserving the independence of the Federal Reserve in making monetary policy decisions is very much in the public interest. That independence allows us to make tough decisions based on data and analysis insulated from short-term political pressures. BIS central bankers’ speeches 1 At FOMC meetings, each Committee member presents a current outlook for his or her region and for the nation. In formulating these assessments, we consult with many sources – our boards of directors, regional advisory councils, community leaders and other key stakeholders. My meeting with you and others today is part of this systematic effort to understand what is going on in the grassroots of our economy. To help me gather more information about our region, I met this morning with Fox Valve, a small business in Dover that manufactures specialized, highly engineered industrial parts. After that, I had the pleasure of participating in a roundtable discussion with members of the local MexicanAmerican business community. After this lunch, I will travel to Picatinny Arsenal to learn about its role in the state’s economic activity. | This is important because long-term BIS central bankers’ speeches 3 unemployment can cause job skills to atrophy making it more difficult for such people to find jobs in the future. While the good news is that the job-finding rates of the long-term unemployed have not yet deteriorated as many feared, we ought not to take this for granted going forward. Although energy prices have begun to rise again, total inflation, as measured by year-overyear changes of the Consumer Price Index, is still around 1¾ percent – less than half the rate in September of 2011. In recent months, core inflation has also slowed and it is now also under 2 percent. Higher energy and grain prices mean that headline inflation will likely edge somewhat higher for a few months before moving slightly lower again. But measures of the underlying rate of inflation are moderate, wage gains remain subdued, and longer-term inflation expectations are fully consistent with our longer run inflation objective of 2 per cent as measured by the personal consumption expenditures (PCE) deflator. Near term, the economic outlook is that the growth pace is likely to remain disappointing. On the positive side, motor vehicle sales in August increased solidly. Nevertheless, retail sales outside of autos and gasoline were soft in August as households continue to be cautious. One brighter spot has been the housing market. Housing starts and sales of new and existing single-family homes are trending up gradually. | 1 |
In total, approximately $ trillion of dollar-denominated securities and cash deposits are held by foreign official account holders at the New York Fed, representing about half of the world’s official U.S. dollar reserves and one-third of the world’s total official FX reserves. Reflecting the breadth of its foreign official customer base and dollar holdings, the Federal Reserve’s account platform is a centralized infrastructure through which dollar-denominated financial transactions between official institutions can occur under a single roof using the same clearing and settlement staff. This provides an important public benefit in terms of control of transactions, efficiency of execution, and confidentiality in two specific ways. First, this centralized account platform has played a critical role in the resolution of international debt crises throughout the 20th and early 21st centuries, such as the Latin American debt crises of the 1980s. Second, the centralized platform sustains a high level of operational readiness for crossborder dollar operations in support of global financial stability. By allowing direct payments between or among account holders on a shared platform, or between the Federal Reserve and account holders, the speed and efficiency of often time-critical official payments is greatly shortened and simplified. Combined with the Federal Reserve’s ownership and operation of critical payment systems such as the Fedwire Funds Service and the Fedwire Securities Service, this centralized platform supports the Federal Reserve’s crisis response capabilities in a highly dollar-based international financial system. | Successive rises in oil prices weighed down heavily on firms’ production costs and cut in consumers’ real spending power. Had our exports not held up well, Thailand’s real GDP growth would have been much lower. In addition, the direct and second-round effects from oil price increases also led to the acceleration in inflation this quarter, with the headline inflation rate reaching 8.9% for the month of June. The second negative development was on the domestic front and that was the return of street demonstration that has escalated to today’s political standoff. This development has BIS Review 118/2008 1 had significant effects on consumers’ and businesses’ sentiment, not to mention investors’ confidence that has contributed to continued net selling by foreign investors. Fortunately for Thailand, agricultural prices also accelerated in the second quarter. The rise in the prices of agricultural exports contributed to the robust export performance and at the same time partially offset the negative impact of increases in the prices of oil and other commodities imports. Moreover, increases in farm income due to the price effect coupled with strong production allowed farmers to cope with higher costs of living associated with rising inflation, providing support for private consumption which continued into this current quarter. For the remainder of this year, the recent trend in oil prices appears to be on our side, especially on inflationary pressure. | 0 |
After 1945, with the introduction of the Bretton Woods system, a number of countries’ currencies were pegged to the US dollar, which was in turn pegged to gold until 1971. In many ways, US monetary policy and nominal interest rate levels functioned as a nominal anchor, and to a large extent governed global interest rates and inflation developments. Inflation has been particularly high in times of war. The 1970s and 1980s were characterised by fairly high inflation following the collapse of the Bretton Woods agreement, the oil price shocks and countercyclical policy. From the end of the 1980s, an inflation target for monetary policy has functioned as a credible nominal anchor in a number of countries, curbing the pace of inflation. To calculate historical real interest rates, an estimate must be made of expected inflation. Figures for actual inflation are normally used. Inflation expectations may deviate from actual inflation, especially in periods when the latter is subject to considerable fluctuation. From 1870 to today, developments in global real interest rates can be roughly divided into 5 periods. In the period 1870 – 1896, the real interest rate ranged between 4 and 5 per cent, and inflation fluctuated around zero. No new major gold finds were made in this period and the economy in general was exhibiting brisk growth. The real interest rate fell to about 1-3 per cent in the period 1897 -1913, reflecting some acceleration in inflation in this period. New discoveries of gold were again made in this period. | It has served the UK well for two decades, and has led the way in many areas of innovation. But similar drivers to those behind the PSF mean it too now needs a thoroughgoing refresh to meet the next wave of challenge. Consultation on our vision recently concluded; and, although we are still processing the results of that exercise, it is already clear 3 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 3 that our proposals to boost access, resilience, interoperability and user functionality have received strong support from old and new market participants alike. So it seems likely that, in the next few years, the UK will have a new payments infrastructure for retail and wholesale payments alike. To have got this far so fast is a real achievement. But in truth the real work for the PSF has only just begun. The challenge now is to translate the high level aspirations in this document into something much more concrete. That means delivering a retail payments design that is technically feasible, secure, and aligned with the Bank of England’s settlement models. It also means identifying who will build, and pay for, the new system: no small challenge at a time when the industry faces many competing demands on its resources. Though the Bank of England has not been a formal member of the PSF, we have been an active observer of proceedings throughout the past year. And we will remain closely involved with the next stage of the Forum’s work too. | 0 |
In fact the issue of central bank independence, Ladies and Gentlemen, is as old as central banking itself, having been debated on and off over the past couple of hundred years. Many of the “transitional economies” of Eastern Europe also have adopted reforms aimed at BIS Review 136/2007 1 making their central banks more independent. 19th and 20th century economists such as, David Ricardo and John Maynard Keynes have all added their views to the subject. There seem to be consensus that central banks must be given a charter which includes a strong commitment to price stability, and the freedom and sufficient scope to pursue it. This means that while central banks may not have goal independence, they should have instrument independence. One need not dwell on the desirability of price stability. Economies work better if investment and wage decisions are not thwarted and confused by high inflation. However, the fears in some respects are associated with the financing of fiscal deficits that governments in the developing world from time to time have to run to meet, for instance, social obligations or indeed provide public goods. This indeed is a genuine fear (including others that may be identified) that this symposium must address. There are arguments that there is a fundamental conflict between independence and an obligation to finance the budget deficit – a conflict which often is resolved at the expense of price stability. | In this context, global growth lost momentum somewhat in the third quarter. This was largely attributable to special factors, such as production losses in the German automotive industry and extreme weather events in Japan. Economic expansion in the US and China remained robust. Employment figures in the advanced economies rose again and unemployment continued to decline. The growth in international trade in goods also continued. In our baseline scenario for global economic developments, we anticipate solid growth in the coming quarters. In the short term, the world economy is set to continue to expand somewhat above potential, benefiting from the clear improvement in the labour market situation and the ongoing expansionary monetary policy in the advanced economies. However, a gradual slowdown is likely in the medium term. Nevertheless, we also see significant risks to this baseline scenario, primarily in connection with political uncertainties and protectionist tendencies. These risks have considerable potential for damage. The resulting uncertainty alone can curb growth and weaken the resilience of the global economy. For instance, surveys indicate that trade tensions have prompted companies to reassess their investment plans and value chains. As far as Brexit is concerned, uncertainty remains high following the postponement of the vote in the UK parliament. The tension surrounding Italy’s fiscal policy also persists. All these risks could lead to turbulence in the financial markets, jeopardise global economic growth, and also influence monetary policy. | 0 |
This is expected to be a catalyst in the provision of end-to-end financial services, particularly in a ‘low touch’ environment. The financial industry is taking steps to ensure safe and secure introduction of e-KYC, with several banks planning to launch e-KYC solutions in the coming months with more to follow in 2021. We are also currently in the final stages of developing the licensing framework for digital banking, which we envision can enhance access to affordable and quality financial solutions, particularly for the underserved and hard-to-reach market segments. From our sandbox experience, we also observe similar digital alternatives and solutions being developed in the insurance and takaful sector. Our shift towards e-payments has also been sustained, with a 47% increase in the volume of transactions made through internet and mobile banking, and a 260% increase in active e-wallet users between August 2019 and 2020. Furthermore, good progress has been made in enabling the interoperability of e-wallet services offered by banks and non-bank e-money issuers. Looking ahead, Bank Negara Malaysia 1/3 BIS central bankers' speeches will continue to focus on fostering well-designed regulations to facilitate digitalisation and innovation in financial services. All these efforts are intended to support the financial services industry accelerate its transition to an age of digitalisation and innovation. We have high hopes for Islamic Finance to capitalise on this. In 2017, we launched the Value-Based Intermediation (VBI) initiative. | Adnan Zaylani Mohamad Zahid: Islamic finance, e-payments and fintech Opening speech by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 3rd Islamic Fintech Dialogue (IFD2020), 1 December 2020. * * * It really is a pleasure for me to join you this afternoon to be part of what I am sure will be an illuminating and stimulating dialogue over the next two days. I would like to record Bank Negara Malaysia’s appreciation to ISRA for organising this, but also more broadly, its continued contribution to the development of Islamic finance not just in Malaysia but internationally. As a prestigious research academy, it needs to produce prestigious and breakthrough research, and it needs to have events like this dialogue to further advance the knowledge and exchange of ideas and the cause of Islamic Finance. In 2011, Bank Negara Malaysia issued a 10-year Financial Sector Blueprint. One of the key agendas we wanted to drive was to promote e-payments; at the time, greater use of payment cards, internet banking and online fund transfers. Little did we expect that ‘fintech’, which according to Google Trends was still a nascent term at the time, would grow at the pace and scale we are seeing today. It appears that interest in fintech only picked up rapidly from 2015. Today, many countries, including Malaysia, have adopted it as a key development theme for their financial sector. | 1 |
This work spans (i) purely econometric studies trying to capture salient time series features of term structure dynamics; (ii) a rich finance literature studying the pricing of bonds and interest rate derivatives in a no-arbitrage framework; and (iii) a host of reducedform or structural models trying to link the yield curve to macroeconomic variables. Traditionally, and especially recently, central bank economists have been quite active in that type of research. [6] See Darracq Pariès, M., Moccero, D., Krylova, E. and Marchini, C. (2014), “The retail bank interest rate pass-through: the case of the euro area during the financial and sovereign debt crisis”, Occasional Paper, No 155, ECB; and European Central Bank (2017), “MFI lending rates: pass-through in the time of non-standard monetary policy”, Economic Bulletin, Issue 1. [7] See Gürkaynak, R., Sack, B. and Swanson, E. (2005), “Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements”, International Journal of Central Banking, 1(1), pp. 55-93. [8] See, e.g., Altavilla, C., Brugnolini, L., Gürkaynak, R. S., Motto, R. and Ragusa, G. (forthcoming), “Measuring euro area monetary policy”, Journal of Monetary Economics. For similar approaches, see also Cieslak, A. and Schrimpf, A. (forthcoming), “Non-Monetary News in Central Bank Communication”, Journal of International Economics; and Leombroni, M., Vedolin, A., Venter, G. and Whelan, P. (2018), “Central Bank Communication and the Yield Curve”, CEPR Discussion Papier 12970. [9] As a general pattern stipulated in most models, the short-term rate is typically expected to revert back to some long-term mean. | [20] Cumulating across these events, the long-term Bund rate declined by 30 basis points. This is the bar that you see on the left in Chart 7. With the help of an econometric term structure model, ECB staff have decomposed that change into the contribution of changes in average short rate expectations and the term premium. [21] Chart 7 shows that it is the term premium that accounts for essentially the entire decline in yields. On the day of the APP announcement itself (22 January 2015), the ten-year Bund rate decreased by 15 basis points, which is one of the largest daily declines in Bund yields since the inception of the euro. The second bar in Chart 7 also shows that the observed yield compression can be explained exclusively by the term premium. [22] Chart 7 Decomposed changes in ten-year Bund yields (percentage points) Sources: Based on Lemke and Werner (forthcoming). Notes: Based on an affine term structure model, the bars shows the decomposed change of the ten-year Bund yield over the indicated horizons: left bar corresponds to cumulated one-day changes associated with APP-related ECB communication between summer 2014 and 22 January 2015. The other two bars correspond to a one-day change for the indicated date. So staff analysis suggests that, at least initially, growing expectations of the imminent start of the APP were primarily reflected in a compression of the term premium. | 1 |
Together, these two studies suggest that a drop of between 9 and 10 percentage points of real GDP in the US and between 11.5 and 20.0 percentage points in the UK would have been necessary to totally erase the two countries real estate bubbles. These results highlight the unfavourable tradeoff between financial stability and output growth when “leaning against the wind” is the only instrument available to address the former. They also strongly suggest that, even if central banks had optimally followed the “inflation-targeting” principles (or the “Taylor rule”) ahead of the crisis, the higher interest rates that would have resulted would not have been sufficient to prevent the emergence of a bubble and the ensuing financial crisis. IV. How might systemic risk be reduced? The unfavourable trade-off I have just highlighted provides a powerful incentive to explore the potential of alternative instruments. This is where “macro-prudential tools” come into play. These tools focus on directly addressing the vulnerabilities to which the financial system as a whole is exposed. Their strength is that they target the problem directly at the root. Slide 7 summarizes the two main dimensions of systemic risk: the “structural” dimension, which covers the possible risks associated with individual institutions whose failure would endanger the entire system; the “cyclical” dimension refers to systemic risks which are not directly linked to an individual institution, but which stem from financial institutions’ collective responses to business or financial fluctuations and adverse shocks. “Structural tools” strive to reduce the impact of institutional failure by strengthening individual institutions. | Perhaps a society has to undergo a learning process on a broad front so that earlier mistakes yield new insights. Economic policy decision-makers like myself are, of course, no exception here. But as financial turbulence does not inevitably lead to a serious crisis in the real economy, we need to ask why it is that in certain cases output and employment do suffer severe setbacks and the attendant deflation. Much will have been gained if we can learn to tell whether or not an extensive share price fall, for example, besides being troublesome enough for many people, is likely to result in a situation with general deflation, rapidly falling output and rising unemployment. An answer to that question was suggested in the summer of 1999 by the Federal Reserve chairman, Alan Greenspan: While bubbles that burst are scarcely benign, the consequences need not be catastrophic for the economy. The bursting of the Japanese bubble a decade ago did not lead immediately to sharp contractions in output or a significant rise in unemployment. Arguably, it was the subsequent failure to address the damage to the financial system in a timely manner that caused Japan’s current economic problems. Likewise, while the stock market crash of 1929 was destabilising, most analysts attribute the Great Depression to the ensuing failures of Policy. Most things indicate that when banks run into trouble on account of financial turbulence, the supply of credit may dry up and the payment system cease to function. | 0 |
Our remit from the Chancellor of the Exchequer tells us that our target is 2% inflation “at all times”, but also recognises “that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.” Economists and monetary policy makers have long understood that there is generally no conflict between stabilising inflation and stabilising output when the economy is subject to adverse demand shocks. But that there is a real choice to be made when there are adverse cost shocks: inflation can be stabilised, but only at the cost of volatility in output. From a monetary policy perspective, the rise in commodity prices and VAT are both essentially adverse cost shocks. And so, in my view, is the rise in import prices associated with the depreciation in sterling, given that it was not primarily a consequence of monetary policy actions (though the subsequent stance of monetary policy will surely have affected the extent to which that rise in import prices has passed through into consumer prices). The exercise above suggests that together they account for a rise in the level of consumer prices of 9 to 13 percentage points. Since the “excess” inflation relative to the 2% target is a little over 5 percentage points, that suggests that, in practice, we have ended up accommodating around half the impact of the shocks on inflation. | Ardian Fullani: Key policy issues for remittances in transition economies - a view point from a recipient country Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the high level conference organised by the EBRD and sponsored by Switzerland, London, 28 September 2005. * * * Remittances these days can easily classify as one of the most important sources of finance assisting the convergence of developing nations, to the point of overshadowing conventional funding like bank credit. The flow of remittances worldwide goes beyond 100 billion USD per year, with developing countries being recipients of more than 60 percent of this considerable amount. Remittances’ estimations in these countries often exceed trade inflows, or foreign financing and investment. Therefore, they have become an important device for channelling funds and resources from developed countries toward countries in need. Moreover, remittances, like foreign direct investments (FDI), are regarded as very stable and safe capital flow, helping developing countries to achieve sustainable high growth rates. In recent years, we have seen a growing awareness about emigrants’ remittances as an important financial source for development. This issue was included in the G8 meeting agenda of 2004 and in the spring meeting of IMF and World Bank earlier this year, emphasizing the growing significance of migration, and with it, of migrants’ remittances, calling for intensification of efforts to improve and identify their causes, as well as to establish an environment that could enhance the impact of remittances on development process. | 0 |
These patterns suggest that households in the area are making progress on restoring their balance sheets, but they may not have completed the process. With regard to jobs, employment losses in the area during the 2008–09 downturn were steeper than in most of New York State, although less severe than for the Unites States as a whole. As of the first quarter of 2011, the Hudson Valley had yet to see a clear upturn in BIS central bankers’ speeches 5 employment. The private sector has actually seen brisk job gains in the leisure and hospitality sector, and the professional and business service sector added jobs in the Poughkeepsie-Newburgh-Middletown metro area. And private-sector employment has held steady in the Kingston area over the past year. Both areas, however, have seen continuing job losses in retail trade and, especially, government employment. State and local government employment has declined by about 3.5 percent in the past year and has weighed down overall job growth in both areas. Unemployment rates in the mid-Hudson valley peaked at 8.4 percent in late 2009 – well below the national peak of 10 percent and moderately below the state-wide peak of 8.9 percent. Nevertheless, as in much of the region and the nation, jobless rates have not retreated much thus far and remain stubbornly high. Thus, the area was severely affected by the recession, but somewhat less so than the rest of the country. The recovery has begun, but some signs of distress remain in housing, credit and labor markets. | How quickly to remove monetary policy accommodation—is a gradual path of removal still appropriate now that the unemployment rate is 4.1 percent? 2. How far to go in removing monetary policy accommodation—will monetary policy have to move to a somewhat restrictive setting in the years ahead? 1/7 BIS central bankers' speeches 3. How should the FOMC factor fiscal policy and trade policy developments into its monetary policy decisions? I will take each of these in turn. As I see it, a gradual path of interest rate increases remains appropriate. Even though the unemployment rate is low, inflation remains below our 2 percent objective. As long as that is true, the case for tightening policy more aggressively does not seem compelling. My conclusion is reinforced by the fact that we do not know with much precision how low the unemployment rate can go without prompting a significant rise in inflation. We do not directly observe the nonaccelerating inflation rate of unemployment, or NAIRU. Rather, we only infer it from the response of wage compensation and price inflation as the labor market tightens. Also, the U.S. labor market may have more slack than the 4.1 percent unemployment rate suggests. Over the past six months, the unemployment rate has remained steady despite robust payroll gains. As the labor market has improved, more people have been actively seeking employment. As a result, the labor force participation rate has flattened out despite the ongoing aging of the workforce population. | 0 |
The telehealth market in Asia Pacific is expected to grow by 12 per cent annually to reach $ billion in 2020. In Singapore, we have been rolling out TeleRehab services for stroke patients. It delivers better health outcomes because doctors can monitor patients and make sure they follow-through on rehabilitation without the inconvenience of regular physical travel to the clinic. In the US, Kaiser – a major healthcare provider in California – already has more than half of its consultations through tele-health, and insurers have begun to accept telehealth claims. iv. In Singapore, the first tele-health trial by an insurer was launched last year, enabling policy-holders at risk of heart problems to be monitored remotely so that abnormalities can be picked up in time, and issues detected before they become critical. I encourage insurers to partner with healthcare providers and research centres to test such applications and support the implementation of Smart Health platforms. It supports an important paradigm shift towards preventive and sustainable healthcare management for policy-holders. 9. There is opportunity for insurers to go digital in other ways too. At the front end: It is frequently remarked within the insurance industry that an insurer interacts with its clients just once or twice a year- for signing, renewals and claims. Apps and social media present insurers with more touchpoints to understand and engage their clients. Telematics and IOT (internet of things) devices enable data analytics, allowing the insurer to deliver more customised and innovative products and services. | askPRU is also expected to reduce 2/3 BIS central bankers' speeches call volumes at its contact centre by 30 per cent, freeing up call centre staff to assist customers and consultants with more complex queries. Financial consultants are also equipped with PRUONE Express, a digital point-of-sale portal which uses fingerprint authentication by agents, and SmartData Capture and is able to generate a detailed quotation within three seconds, enabling agents to discuss and assess possible protection plans with their clients on the spot. Ultimately, the role of the insurance agent will continue to evolve: from selling standalone life or health insurance products, to more holistic wealth and risk management advice, and in essence to being a truly trusted advisor. Given the growing 13. demand for risk management and compliance related roles in the industry, I also encourage insurers to consider reskilling some of their agents to take on such roles. 14. Prudential‘s new office, which is designed to promote maximum mobility, productivity, innovation and healthy living amongst its employees, echoes the aspirations of Asia’s insurance consumers. It will continue to play an important role in meeting the protection needs of the next generation of Asia’s consumers. Once again, my warmest congratulations to Prudential on the opening of its new office. 1 The global record for a fastest insurance claim was set in December last year by renter’s insurance start-up Lemonade’s artificial intelligence Jim in the US, which settled a claim for the theft of a $ parka within 3 seconds. | 1 |
Firstly, our Report indicates that the Banco de España did not adopt measures that could, perhaps, have checked the sizeable increase in credit to the private sector recorded between 2001 and 2007, in particular in the construction and real estate development 12/14 sectors, and in mortgage lending for house purchases. But it should be pointed out that there were then no legal regulations that could have provided for such action and that other measures adopted in those years – the countercyclical provisions and the more severe treatment of the so-called “special-purpose vehicles” – were effective in helping withstand the first crisis, although they did not suffice to protect our banks from the double-dip recession that began in 2011. Secondly, the treatment of the most characteristic problems of the savings banks through the risk-pooling schemes contained in the institutional protection systems (IPSs) did not suffice to resolve the solvency and governance problems of most savings banks; nor was there much success with certain innovations such as equity units with voting rights, with which it was sought to resolve, or at least alleviate, savings banks’ difficulties in raising resources equivalent to capital. Thirdly, it seems clear that the Banco de España estimated that the 2009 recession would have what the economists call a “V” shape, and not a “W” shape, without anticipating the strong impact of the second recession on many credit institutions’ solvency. | Under Bond Connect, eligible overseas investors can settle and hold their Mainland bonds through CMU using nominee holding arrangement. Nominee holding arrangement is widely used by investors in international capital markets as it provides greater convenience and flexibility to investors and market participants. CMU also adopts nominee holding arrangement and provides nominee holding services for more than 200 local and international banks, trust companies and custodians through its linkages with Euroclear, Clearstream and other regional CSDs. The continued liberalisation of the Mainland’s capital account and RMB internationalisation will progressively raise demand from overseas investors for RMB asset allocation, while the Mainland has been proactively rolling out measures to facilitate overseas investors’ access to its bond market. We believe that Bond Connect would enhance overseas investors’ participation in the Mainland bond market. 5. I wish Bond Connect a great success. Thank you. 1/1 BIS central bankers' speeches | 0 |
Ex ante assessments, based on the introduction of compulsory impact studies in 2009, have remained under used as a management tool, "too often appearing as a self-serving justification for the laws they accompany". iii Ex-post assessments have also been developed in France either by public bodies or academic research, but contribute more to methodological debates than to any real objectification conducive to action. Dwindling academic research Meanwhile, what can we say about academic and economic research in this area? In the 1980s and 1990s, this was mainly influenced by the New Public Management (NPM) school of thought, which adopted management methods from the private sector, with a focus on incentives for public servants and more variable pay. The Virginia School’s Public Choice theory (Downs, Buchanan, Tullock) even proposed to turn the concept of public action on its head: individualistic officials and policies could pursue private interests rather than spontaneously acting in the general interest. I personally remember the shock that I and the whole generation of civil servants around me experienced when Jean-Jacques Laffont questioned the principle of the "benevolent state" in a presentation he made to the Economic Advisory Council (CAE) in 1999. Fortunately, Jean Tirole has since clarified and qualified the analysis in "Économie du bien commun, iv where he called for the creation of "real public service bosses", and for them to be afforded "considerable managerial freedom accompanied by strict ex-post evaluation". NPM gave rise to performance incentives based on indicators and assessments. | Nonetheless, it is too early to sound the all-clear. The ongoing price corrections on the US real estate market will probably continue to put a strain on the US economy. Ultimately, this will spill over to countries outside the US, although according to our assessment the affects will be limited. Consequently, although the SNB expects a slowing in momentum in the coming quarters, it expects the decline in economic growth to be less pronounced than in the US. However, there is considerable uncertainty attached to the current forecast. This means that market participants, and in particular the banks, also need to take less favourable scenarios into account. A clear escalation of the crisis in the US real estate market would heavily depress economic growth in the US and this, in turn, would leave a more pronounced mark on Switzerland. Moreover, real estate prices have risen appreciably in recent years in the US, as in other countries. Price corrections can already be observed here and there in the real estate markets of other countries. Further developments of this kind cannot be ruled out. We do not see any greater risks for the Swiss real estate market at the present time. As already mentioned, the Swiss big banks have reduced some of their risk positions in recent months. However, they remain exposed with regard to international developments. So far, the financial market turmoil has mainly affected the trading portfolios of the big banks, and hardly any losses have been recorded in traditional lending business. This could change. | 0 |
Although devaluation provides short-term benefits linked to the fall in export prices, in the medium term these are potentially outweighed by the negative effects, which we have tended to forget: inflation caused by higher import prices, a fall in the value of the country’s wealth and an increase in its external debt. Italian creativity, your commercial ingenuity, dating back to Venice, Genoa and Florence, all count much more than the ease of a weak lira. 2/ The second reason is the economic results. For the past 20 years, Italy and France have reaped substantial benefits from the single currency: price stability [slide], in other words a contained level of inflation that preserves household purchasing power. Before the euro, inflation sometimes reached very high levels in Europe: it averaged 8.1% in Italy in the 20 years before the euro, compared with 1.8% in the last 20 years. stable financing conditions, due to a marked reduction in interest rates and a narrowing of spreads between countries [slide]. The spread between Italy and Germany, for example, has more than halved: it averaged 5.1% over 1986–92 – a period when we had a single market without a single currency, between the Single European Act that followed the Milan European Council, and Maastricht – compared with 1.9% in 2017–18, even though it has widened again recently due to the re-emergence of uncertainties. And in France, it went from 1.9% to 0.4%. | This mix between an expansionary budgetary and fiscal policy during a period of abovepotential economic growth and the worsening global market sentiment towards emerging economies in general can enhance volatility and affect financial stability via several channels: the interest rate, the exchange rate, the inflation rate. The advance in household indebtedness can cause these risks to pass through from the macroeconomic level to the microeconomic level for debtors. Last years’ environment 5 marked by low interest rates and sustained increase in new loans favours the build-up of possible vulnerabilities concerning the sustainability of the level of indebtedness through both banks and NBFIs (Figure 26), especially for lower-income debtors. The fact that the great majority of the stock and flow of housing loans and corporate loans are variable-rate loans (Figure 27) is an aggravating factor for financial stability in the context of the start of a new interest rate hike cycle – for external reasons, domestic reasons or for a combination of reasons. The fact that the advance in household indebtedness occurs concurrently with the high economic growth rates indicates the problems of economic growth: it is unbalanced and it leads to deeper inequality between social groups. Debt service-to-income ratio for debtors earning minimum to average wage economy-wide stands higher than that for debtors earning double the average wage, notably among borrowers with housing loans (Figure 28). | 0 |
This is the stance that should, in my opinion, inform the actions of central government and other government bodies, which in Spain’s highly decentralised system of regional government have very significant responsibilities, as well as the behaviour of economic and social agents, whose attitude may determine the degree of flexibility of the productive system and of the institutional framework and the viability of the necessary reforms. We should be aware that there is very little room for expansionary demand policies here and that inappropriate use of such policies may even be counter-productive. Monetary policy ceased to be an autonomous economic policy tool a decade ago. Its primary objective is to maintain price stability in the euro area over the medium term. From the point of view of domestic requirements, the monetary and financial conditions in which Spanish households and businesses have been operating have been becoming progressively tighter and are currently more in line with the need to stem inflationary pressures in the Spanish economy. For its part, the fiscal position is in a favourable starting position since public finances were again in surplus in 2007 (2.2% of GDP) and the debt ratio stood at 36.2% of GDP, levels unprecedented in the recent history of the Spanish economy. These results reflect the strong commitment of previous governments to fiscal discipline, but also substantial growth of the Spanish economy in recent years and the buoyancy of the property market. That has resulted in strong growth in tax revenues, exceeding that seen in previous upturns. | We should all accept that in a situation like the present one in which the economy is facing a slowdown, in an adverse international setting and surrounded by risk factors, it is more important than ever that economic policies be firmly geared in two directions: first, towards safeguarding macroeconomic stability; and further, to promoting the adoption of structural measures and reforms in product and factor markets, to enhance the degree of competition in the environment in which agents take their decisions, the mobility of factors of production and the flexibility of price and wage-setting mechanisms. I believe that both strategies generate substantial synergies if they are pursued simultaneously. And in Spain we have the experience of the key role they have played in the real convergence of the Spanish economy over the last decade. And this is so because it is essential that the response of supply and demand to the changes required to rebalance the various sources of spending and the various sectors of activity should be flexible, so as to ensure that the slowdown is mild and leads promptly to a new path of high growth, in line with the economy’s potential, that is more balanced and sustainable. | 1 |
Sir Andrew Large: Financial stability - managing liquidity risk in a global system Speech by Sir Andrew Large, Deputy Governor of the Bank of England, at the Fourteenth City of London Central Banking and Regulatory Conference, London, 28 November 2005. * 1. * * Introduction Much is written today about the search for yield. Much is said about the factors that underlie it: accommodative monetary policy; savings gluts; and financial engineering which multiplies the opportunities for increasing leverage. And much, too, is said about new instruments, such as those involving credit risk transfer, or new players, such as hedge funds, that trade them. However, my main concern today is not with the search for yield as such, nor with market innovations or new players. Rather, it is with the financial vulnerabilities to which they could give rise, and what can be done to mitigate those vulnerabilities. Because it seems to me that the search for yield also highlights some less benign aspects of today’s financial system: the opacity of markets in some new instruments; the difficulty of knowing the real value of assets and contracts; reliance on models that have not been tested in the full range of economic conditions; the uncertainties over behaviour of new participants in the markets should events turn adverse; and the difficulty we have in judging just how deep markets will prove to be should a substantial number of investors decide simultaneously to try to realise their investments. | But one of the roles of, and indeed justifications for, regulation is to ensure that firms also take sufficient account of the interests of others who would be adversely affected by their failure: their own borrowers and depositors, for example, but also the customers of other banks that would suffer losses if a particular bank were to get into difficulties. In other words, one purpose of regulation is to align private choices with public welfare maximisation. Hitherto, public authorities have placed much emphasis on capital requirements as a way of achieving this reconciliation. Indeed, one reason for imposing capital requirements is to limit the risk of liquidity problems, by giving the market a level of assurance over the solvency of a firm. But this emphasis on capital has perhaps overshadowed the importance of direct liquidity requirements. Analytically, liquidity is a more difficult area. But arguably the case for prudential liquidity requirements in some form is just as strong as for capital. Liquidity cushions are a first line of defence: in times of stress they can buy time, and where organisations are solvent they can help to prevent liquidity problems turning into solvency ones. I will return to this later. But besides regulation, the public authorities—specifically central banks—have a crucial role as the ultimate providers of liquidity. They therefore need to ensure that they are properly equipped to carry out this function. | 1 |
The business cycles of Morocco and the EU are largely synchronised and the existence of various economic transmission channels such as trade, tourism, and remittances, explain why both the European and Moroccan economies are going through a challenging period in the present global context. My speech today will focus on the global financial crisis and its roots, on the ECB’s response to the crisis and on the role of emerging market economies in the world economy. The global financial crisis and its roots Let me start by briefly highlighting the origins and evolution of the current crisis. Imagine a neutral observer who looked at the financial sector about a decade ago and then didn’t look at it again until the eve of the current financial crisis. He would have found a completely different financial industry, one which over the past decade has undergone a dramatic shift of focus. He would have discovered a financial system that had moved away from its traditional role of supporting trade and real investment. He would have found a financial system in which speculation and financial gambling had run rife. He would have encountered a system transformed – a system no longer managing genuine economic risks but one actually creating and assuming financial risks – risks resulting from arbitrage and intentional exposure to asset price changes. That same observer would have realised that financial liberalisation and innovation had made our economies more productive. The securitisation of assets, for example, had great potential to diversify economic risks and to manage them efficiently. | An economic turnaround has occurred, with a soft landing after the long period of high cost inflation in Norway and a low level of activity in other countries. But inflation is too low. As mentioned, there are three main factors that have contributed to this. First, the global downturn had considerable implications for the impact of interest-rate setting in Norway. A strong krone contributed to the decline in inflation. The krone has now returned to its previous level so that the effect will be reversed. Second, low inflation in other countries and rapid changes in the international division of labour have resulted in a fall in prices for imported goods and services, even when measured in terms of what Norwegian importers pay in foreign currency. Third, intensified domestic competition also appears to have exerted downward pressure on prices. As a result of both changes in the international division of labour and increased domestic competition, there is idle labour and available real capital in Norway. We cannot rule out that adjustments will be made over a period of time and that these adjustments will encompass a large portion of the domestic economy. Thus, it is possible that the level of output that is consistent with stable inflation will increase. Inflation will remain low in 2004. However, the easing of monetary policy will gradually push up inflation. As mentioned, it may take some time before interest rates in other countries are increased to a considerable extent. | 0 |
6 BIS central bankers’ speeches Figure 2 Government bond yields, 10-year maturity Per cent 8 8 Italy 7 UK 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 08 09 10 11 Source: Reuters EcoWin. This situation is very similar to the one experienced by Argentina, for instance, when they had a “currency board” that firmly tied their domestic currency to the US dollar. In the event of a crisis there has been no central bank that could create currency – in other countries with similar problems the physical currency has run out and the only solution has been to fly in dollar bills from the Federal Reserve. Now, of course, the fundamental problem is that Italy, like Argentina, has lost competitiveness, had a deficit on its current account and built up debt until the market has gradually lost confidence and demanded higher and higher interest rates. Competiveness then needs to be restored through some form of internal devaluation. This is unavoidable, but it takes a long time and does not help the acute liquidity crisis. The situation is different in the United Kingdom. If investors are concerned over the British credit worthiness they will sell their government bonds as in the example above. | Monetary policy stimulation has less effect than normal and developments in the economy as a whole are weak. Studies show that this type of mechanism largely explains why the recovery in the United States has been, and still is, so slow.2 A financial crisis may also have other consequences. For instance, one can claim that the sovereign debt crisis we are currently in the midst of is in many ways a consequence of the financial crisis, and thus of the credit expansion that preceded it. Bank crises and sovereign debt crises are often connected. Public finances in many countries have weakened substantially because demand has fallen and in some cases also because they have needed to support a precarious banking system. Moreover, in many countries the credit expansion concealed the need for structural reforms in the labour market and in public administration, which meant they were ill-equipped when the recession came. So, all in all, there are many good reasons to try to avoid a situation where credit and lending accelerate out of control. Various perceptions of the link between monetary policy and financial stability policy So what should we do to prevent, or at least reduce the risk of, this type of development in the future? Opinion is currently divided on this question. The role central banks should play has been debated a lot, and in particular whether rate-setting should be used to subdue credit expansion. | 1 |
The key features of emerging markets in Asia are the rapid changes in the financial landscape, the disintermediation and growth of capital markets, globalisation and the increased linkages between financial markets and economies via crossborder activities, the proliferation of complex financial instruments and the increasing convergence of supervisory framework and standards such as Basel II, IOSCO, the Insurance Core Principles of the International Association of Insurance Supervisors (IAIS), and international accounting standards. In this changing landscape, we see competition along with synergy between like-institutions as well as different kinds of institutions. In savings instruments and wealth management market, we see the rapid growth of interactions between commercial banks, investment banks, and insurance companies, domestic and overseas. Indeed, different types of financial institutions have different asset-liability structure, risk profile, and therefore together help enhance the completeness of the financial system. For instance, life insurance firms tend to have natural niche in the longer end of the market, and as such, offer opportunities for financing and providing hedging instruments for long-term investment, such as for infrastructure, which is a key driver of Asian economic growth. Many of the longer-term assets have become underlying assets upon which the market for financial engineering thrives-derivatives are used to engineer and structure complex products tailor-made for various market players with different risk-return preferences. While this process brings benefit, it also brings inherent risks that need to be properly managed, as the current turmoil clearly demonstrates. | From the standpoint of the banking sector, the ultimate impact of the crisis will depend both on its scale and duration and on the effectiveness of economic policies in mitigating its effects on households and firms. Along these lines and in the case of monetary policy, in December we extended our pandemic emergency purchase programme until at least March 2022 to ensure that financing conditions are favourable. More recently, the ECB has sought to counter the rise in long-term interest rates observed in recent months, in a setting in which the macroeconomic projections are similar to those in December, with a medium-term inflation forecast some distance off our objective and below that expected before the crisis. Specifically, at the ECB we have stated our intent to use the flexibility of our pandemic emergency purchase programme to increase purchase volumes in the coming months. From the vantage of the macro- and micro-supervisory authorities, we have continued to stress that the use of capital buffers by banks is appropriate in the current situation in order to recognise credit impairment and to continue providing sound credit to economic agents. Our empirical analysis shows that the use of these buffers would give rise to a positive effect on economic growth which, in turn, would ultimately translate into likewise higher solvency levels. 5 One issue worth monitoring in the coming months will, precisely, be the capacity of, or incentives for, banks to use the capital buffers available in the face of risk-materialisation scenarios. | 0 |
It also excludes the direct effects of changes in indirect taxes and subsidies. This measure was previously called UND1X. This name referred to the fact that it was a measure of underlying inflation, but probably appeared a little too cryptic. I remember that I may have let slip that I thought it sounded like the name of a rocket fuel during my first hearing. The new and hopefully slightly less difficult name since a week ago is CPIX, where the X indicates that something has been excluded from the CPI. This takes me onto today’s second theme, namely inflation prospects, our most recent interest rate decision and our view of what monetary policy will be appropriate in the future. The economic situation and future prospects It can hardly have escaped the attention of anyone here today that we now base our forecasts on our own assessment of what future movements in the repo rate we believe will provide a well-balanced monetary policy. So before I take up the rest of the economic analysis, I shall first describe the interest rate assumption. Our analysis is based partly on the increase in the repo rate of 0.25 percentage points to 4 per cent which we decided on just over two weeks ago, and partly on the fact that the interest rate will need to be raised slightly further in the future – to around 4.25 per cent during the first half of 2008. So how did we reach this assessment? | 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 The accompanying burst of financial innovation spread the application of these technologies and supported the process of globalisation that bolstered trade, productivity and incomes. Once again, however, the hard and soft infrastructure of the financial system failed to keep pace. Lighttouch regulation, out-moded codes of market conduct, inadequate settlement and clearing infrastructure all contributed to the global financial crisis. We can draw on these experiences to help ensure that FinTech boosts growth and promotes financial stability. Not least because, following a raft of post-crisis reforms, the Bank’s regulatory frameworks are now fit for purpose. The Bank of England’s Financial Policy Committee (FPC) is mandated to assess new and emerging risks to financial stability, including those that may exist beyond the existing regulatory perimeter. And it now has the powers to treat similar risks consistently, wherever they originate. 4 With this new approach, the Bank can help build the right infrastructure for FinTech to realise its promise. The Promise of FinTech To its advocates, FinTech will democratise financial services. Consumers will get more choice and keener pricing. SMEs will get access to new credit. Banks will become more productive, with lower transaction costs, greater capital efficiency and stronger operational resilience. Financial services will be more inclusive; with people better connected, more informed and increasingly empowered. And tantalisingly, FinTech could help make the system itself more resilient with greater diversity, redundancy and depth. | 0 |
Since the remarkable work of the Pébereau Commission in 2005 on public debt, there has been a succession of plans for reform, from a General Revision of Public Policy (RGPP) under President Sarkozy, through Modernisation of Public Policy (MAP) under President Hollande, to Public Action 2022 under the current presidency. More recently, another revision of the Organic Budget Law adopted in 2021 aimed in particular to improve multi-year oversight of the public finances, by introducing a nominal public spending target in billions of euros [rather than in GDP points], as well as a three-year ministerial performance trajectory. Unfortunately, the first public finance planning act under this new framework is struggling to be adopted. The absence of an overall perspective, overlapping sectoral reforms and successive waves of decentralisation have resulted in a lack of consistency and "a loss of vision by the administration". i I am perfectly well aware of how difficult it is for politicians and our elected representatives to deal with the unrelenting pressure of urgency, exacerbated by a succession of unprecedented crises. However, the growing tyranny of "the news cycle" and of emotions tends to mask the structural challenges we face. De Tocqueville's thoughts on the Ancien Régime and the Revolution are strikingly apposite today: "[The government] seldom undertakes or soon abandons the most necessary reforms, which in order to succeed, demand a persevering energy". ii Page 8 of 19 The increased use of assessment has also been a disappointment in terms of improving public sector efficiency. | OECD (2019), PISA 2018 Results (Volume I): What Students Know and Can Do, PISA, OECD Publishing, Paris xii Borne, E., Rencontres des cadres dirigeants de l'État, speech , 17 May 2023. xiii Villeroy de Galhau, F., « Comment la France et l’Europe vont vaincre l’inflation », Letter to the President of the French Republic, April 2023. xiv Cour des comptes, La DGFiP, dix ans après la fusion, 20 June 2018. xv Baromètre - Institut-Paul-Delouvrier 2022 xvi Banque de France, Annual Report 2022, 22 March 2023. xvii Le sursaut, Vers une nouvelle croissance pour la France, working group chaired by Michel Camdessus, 2004. xviii Rapport de la Commission pour la libération de la croissance française, 23 January 2008. xix Conseil d’Etat, Simplification et qualité du droit, annual review, 25 September 2016. xx DITP, Baromètre BVA de la complexité administrative et de la confiance en l’administration par évènement de vie, 24 May 2023. xxi Commitment No. 3 of the 7th Interministerial Committee for the transformation of public services of 9 May 2023. xxii Cour des comptes, La décentralisation 40 ans après, Public Annual Report 2023. i ii | 1 |
But even the World Trade Organisation, despite the critical importance to the world economy, and especially its poorer citizens, of opening up trade, has found it difficult to arouse sufficient “sympathy”, to use Smith’s word, to get agreement on constraints on our future behaviour. But let us not be pessimistic. The three principles of institutional design may be helpful in thinking about future collective decisions in areas as diverse as health, education, pensions and taxation, just as they were in constructing a new monetary policy framework. But that is for others to take forward. Conclusions I recognise that the success of central banks in keeping inflation low and stable over the past decade may owe something to good fortune as well as to good policy. But, as the legendary football manager Bill Shankly used to say, “it’s strange, but the better we play, the luckier we get”. What really matters, however, is that we as central bankers acknowledge that we owe everything to the design of the institutional framework. As I have argued this evening, a central part of Adam Smith’s legacy is an appreciation of the essential role played by social institutions. So it is appropriate that it was another son of Kirkcaldy who, over two hundred years later, created the new institutional framework for the Bank of England in 1997. As Niccolo Machiavelli wrote in The Prince, “Nothing brings a man greater honour than the new laws and new institutions he establishes”. | Now I too share the privilege of speaking in the Kirk where Gordon Brown’s father used to preach to the people of Kirkcaldy. Double trouble, you might think. I am particularly mindful of the controversy which Greenspan’s lecture stirred in the world of Smith scholars: “an unseemly battle is being fought over the soul of Adam Smith”, as one remarked. It is a sign of the resurgence of interest in Adam Smith that at almost every point on the political spectrum one can find people who claim Smith as their own. But, in a lecture in 1926 to commemorate the 150th anniversary of the publication of The Wealth of Nations, the economist Jacob Viner wrote, “Traces of every conceivable sort of doctrine are to be found in that most catholic book, and an economist must have peculiar theories indeed who cannot quote from the Wealth of Nations to support his special purposes”. 2 My intention today is certainly not to propose “peculiar theories”, but to examine the importance of social institutions in a market economy. Self-interest explains many economic decisions. But a market economy also requires social institutions. 3 They represent collective agreements about how to constrain our actions. Some social institutions constrain our individual actions. For example, a market economy cannot flourish in a world of anarchy in which we suspect that everyone else will cheat. If I lend you money it is in both our interests that there be some mechanism by which repayment can be enforced. | 1 |
The above reasoning is of a highly principle nature and it would require further analysis and better models before anything more concrete can be said regarding the manner in which monetary policy should be formulated when financial imbalances are present. However, I am prepared to make a few observations on the subject. To start with, there are probably many asset bubbles that monetary policy should not directly attempt to counteract, particularly those not associated with strong credit growth. Furthermore, Swedish monetary policy can hardly prevent stock market bubbles as these are primarily affected by international factors, in particular international stock market developments. If, on the other hand, credit growth were to develop in an unsustainable manner at the same time as housing prices were increasing rapidly, in my opinion, it would be reasonable for monetary policy to take this into consideration, even if short-term inflation may be low. Such considerations characterised the formulation of monetary policy during the years 2005– 2007, when the development of housing prices and loans to households restrained the Riksbank from cutting the repo rate as much as would have been the case if monetary policy had only been guided by inflationary assessments for the next two years. It is, of course, difficult to determine which role this played in counteracting the development of the housing market. At any rate, prices undeniably rose rapidly. | Lars Nyberg: In the wake of the financial crisis Speech by Mr Lars Nyberg, Deputy Governor of Sveriges Riksbank, at the HQ Bank, Stockholm, 18 November 2009. * * * I would like to start by expressing my gratitude for having been invited to discuss a few of my thoughts about what may follow in the wake of the financial crisis. Make no mistake, the crisis is not behind us yet. Many balance sheets in many countries must be adjusted before the world’s banking system can be given a clean bill of health. But the acute phase is hopefully over, giving us reason to reflect not just over why developments took the turn that they did – many others have already written volumes about this – but also over what should be done to prevent these mistakes from being repeated. Much of this discussion deals with regulation and supervision and, just like after every crisis, many political initiatives are being proposed, some better than others. This is what I intend to talk about today. But there is also reason to reflect over the interplay between financial stability and monetary policy. The current crisis has indisputably demonstrated that monetary policy and financial stability overlap in many important ways that we in the central banks previously may not have entirely considered. I intend to devote the main part of my speech to this issue. | 1 |
Henrique Meirelles: Good governance in the Brazilian financial system Speech by Mr Henrique Meirelles, Governor of the Central Bank of Brazil, at a seminar organized by the International institute of Studies of State Law (IIEDE – Instituto Internacional de Estudos de Direito do Estado), Sao Paulo, 5 September 2008. * * * 1. It is my pleasure to take part of this event dealing with an important and often overlooked topic: corporate governance in the Brazilian financial system. This is an especially dear issue for the Central Bank and particularly for me. 2. To start, I would like to mention that monetary stability is a precondition for good corporate governance. In the inflationary environment Brazil experienced for decades, the requisites for good governance vanished under the prevailing unpredictability and monetary confusion. There is no room for a transparent, disciplined and fair relationship among parties involved in a firm when predictability and stability are absent. In this sense, the main contribution of the Central Bank to corporate governance is to reaffirm its permanent commitment to inflation targeting in the conduction of monetary policy. 3. The Brazilian Institute of Corporate Governance defines governance as “the system by which corporations are managed and monitored, involving relationships between shareholders, board, management, independent auditors and statutory audit committee”. Good practices of corporate governance focus on increasing the company’s value, facilitating its access to capital and contributing towards its stability and soundness. | But I don’t think that one can realistically argue that we should consciously put the economy as a whole at risk of excess demand pressure and accelerating inflation in order to try to bring about a weakening of sterling against the euro. Yet that in substance is what the witnesses for the prosecution would be asking us to do. Now, even if you accept my case that macroeconomic stability, in the terms in which I’ve described it, is the right objective, there is nevertheless a more technical - but still serious - charge to answer. Some of those who agree in principle nevertheless argue that we are simply exaggerating the macroeconomic risks. The charge in this case is that we don’t in fact need interest rates at their present level, certainly not at any higher level, to maintain macroeconomic stability. That would be a technical judgement on which even the best informed experts might legitimately disagree: in fact as you may have noticed even the members of the Monetary Policy Committee themselves disagree, more often than not, at the margin. Now is not the moment for me to launch into that technical debate - just a day before our monthly policymaking meeting. In fact, strictly speaking according to our MPC “purdah” rules I ought not to be here at all. But you can find a detailed description of the technical debate, in the minutes of our policy meetings and in the Quarterly Inflation Report, either in our printed publications or on the Bank’s website. | 0 |
In this respect, I must stress that the Basle Committee, as illustrated by the new Capital Accord, is encouraging banks to use more sophisticated and accurate risk measurements techniques. In addition, supervisors might help –and obviously they are already helping- to spread the idea that financial institutions should round out their current range of risk management tools to include extensive use of stress testing. This technique offers a better reflection of the varying situations of institutions and of the diverse perceptions that institutions have of exceptional events. The application of stress testing techniques and their results are thus inherently more diversified than those resulting from methods based on the value-at-risk approach. These are only examples of options to help improve the functioning of markets. There is probably some merit in an overall review of regulatory, accounting and tax rules and regulations, as well as of codes of good conduct and good practices, and of structural developments of market themselves, to identify possible amendments and improvements that could help protect and enhance the behavioural and conceptual diversity of modern financial markets. In conclusion, let me stress the important role played by central banks in preserving monetary and financial stability in an increasingly globalised world. The recent years have shown the benefits of monetary stability in terms of growth in a globalised world. It is of course closely linked to central bank’s independence, which is no longer a matter of debate. | All empirical studies confirm that much can be gained by embracing good governance and it is an essential component of crisis prevention efforts. Good governance is equally vital in both the public sector and the corporate world, and its merits are relevant in all countries. Recently, corporate governance issues have been prominent on the world economic agenda as financial markets have been recovering from scandals that came to the fore following a period of excesses in equity markets. In order to increase confidence in the markets, it is imperative that the corporate world adhere to the principles of good governance. Good governance in the public sector is also an essential tool for strengthening institutional capacity, which is fundamental BIS Review 42/2003 1 for economic and social development. The Fund has an important role to play in this field and we welcome the increased emphasis it has given to the issue of governance. Transparency and International Standards With the world economy having suffered a confidence crisis, it is important to continue to promote greater transparency and accountability. Various studies have demonstrated that transparency and adherence to international standards lead to easier market access and lower borrowing costs. There is much to gain by applying these simple principles. It is also important to continue developing international standards and codes that enhance transparency and facilitate comparison between countries and regions. | 0 |
Globalisation, with increased trade and mobility between different countries, has been one reason why we have had favourable economic development, including low and stable interest rates and low inflation.2 If conflicts in the world were to result in globalisation slowing down, this would probably have negative consequences for both Sweden and the global economy. If trade decreases and the mobility of labour and capital deteriorates, the conditions for economic growth will also deteriorate. Greater protectionism means slower development in, for example, information and communication technology, a sector that has been a strong driving force behind the pressure for change and productivity improvements in various parts of the economy. Several of the factors that have dampened price pressures in recent decades thus risk becoming less important in the future. Risks increasing in the financial system Despite the global financial crisis 2007-2010 and the pandemic 2020-2022, GDP has grown significantly in recent decades. Higher incomes and wealth have also led to the financial sector becoming a larger and more important part of the economy. Furthermore, rapid technological developments combined with globalisation have paved the way for new players and services within the framework of what is commonly referred to as FinTech. While this is essentially positive, it has also exposed the financial system to new risks, while many more traditional risks remain. The bank collapses in the United States and Switzerland are concrete examples of this. | 20 [30] However, the interdependence between monetary and fiscal policy is not reflected in the monetary and fiscal policy frameworks. The frameworks are designed so that the two policy areas function independently of each other. The Riksbank has a high degree of autonomy and a mandate that prioritises price stability. The budgetary policy objective of fiscal policy is to ensure that fiscal policy is stable over time, which in practice means that government debt should be sustainable in the long term. This approach is based on the view that fiscal policy has little impact on inflation; that monetary policy has negligible fiscal consequences; and that a fiscal policy mandate that stabilises government debt and budget deficits is sufficient to support the central bank's inflation target.38 Central banks' difficulties in bringing inflation up to target without relatively drastic measures after the financial crisis may indicate that this view has been too simple. A fiscal policy that is expansionary when inflation is too low and contractionary when it is too high makes it easier to achieve the inflation target.39 It may of course be politically easier to conduct an expansionary fiscal policy, but it is important that it is symmetrical so that the national debt does not risk becoming too large. | 1 |
This is why the developments we are seeing today are receiving so much attention. Many of these issues were discussed before and after the crisis in the 1930s. Then, as now, emphasis was put on the importance of price stability, and monetary policy had therefore a prominent role in economic policy. For this reason, it can be interesting to look back at how economists in those days viewed the role of monetary policy. However, due to the mass unemployment that resulted from the depression in countries such as the United States at the beginning of the 1930s, the theory published in 1936 by Keynes in his work “The General Theory of Employment, Interest and Money” came to dominate thinking in the area right up to the 1980s. The crisis had been preceded by steep rises in asset prices and a sharp expansion in credit, but without any increase in inflation. Those economists that had advocated a long-term focus on price stability and had a clearly non-activist view of the ability of policy to reduce fluctuations in the economy were considered by many to share the blame for the fact that the depression in the United States was so severe and protracted. In simplified terms, we can say that the dominant view among economists in the Western world at the beginning of the 1900s was that economic policy should be aimed fully at holding prices stable in the long term. | Caleb M Fundanga: The Bank of Zambia and the insurance industry Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the end of year cocktail party for the Zambia State Insurance Corporation Limited clients, Lusaka, 1 December 2004. * * * The Master of Ceremony The Registrar - Pensions and Insurance Authority The Board Chairman-Zambia State Insurance Corporation The Board Chairman-Zambia State Insurance Pension Trust Fund Madam Managing Director - Ms Muyenga Distinguished Invited Guests Ladies and Gentlemen Good Evening! I wish to thank the Managing Director of Zambia State Insurance Corporation Limited - Ms Muyenga, for inviting me and my wife to be the Guest of Honour at this end of year cocktail party. Despite the fact that the Bank of Zambia is not directly associated with the insurance industry, this function gives me a rare opportunity to say something about the relationship between the Bank of Zambia and the insurance industry. In the past few years, the Bank of Zambia has taken keen interest in the operations and performance of the insurance companies and pension funds. This is because insurance companies and pension funds have a direct impact on macro-economic variables, since most of them are leading players in the Government securities market. Whenever the Government wishes to raise funds, it is these institutions together with commercial banks that provide them. | 0 |
In the long run, however, inflation cannot be explained solely as a function of nominal exchange rate movements, as it reflects, on the one hand, rises in wages and prices in excess of those in other countries and, on the other, changes in the real exchange rate, which stem from developments in underlying economic conditions such as terms of trade. Inflation that remains above target levels for a protracted period can only be explained by weaknesses in economic structure and policy, particularly monetary policy. In the short run, however, under- or overshooting of the nominal exchange rate can cause swings in the inflation rate, particularly if inflation expectations are poorly anchored to the target and exchange rate movements are significant. In trade-weighted terms, the króna has fallen by 5.8% year-to-date and just over 7½% since November, when it last peaked. The depreciation seems to stem from several causes. It appears that net foreign currency inflows from trade in goods and services have been at a low ebb in recent months. While seasonal factors are at play here, it could also be that foreign currency subject to repatriation requirements is not being returned to Iceland in full. This situation is being investigated by the Bank’s Capital Controls Surveillance Unit. In addition, firms and municipalities have been paying down foreign debt. In many instances, they are forced to do so, as they have no access to refinancing from abroad and would otherwise default on these loans. | Honoured guests: I have spent considerable time on economic developments and prospects, monetary policy, and the capital controls, as these are the topics of most importance to the Central Bank at present. But as the Minister of Economic Affairs said in his speech today, we are faced with formulating long-term policy concerning our currency, our monetary policy framework, our financial system structure, and the substance and institutional framework for our financial stability policy. Other opportunities to discuss the substance of these matters will present themselves in coming months. I would like to mention two points in the context, however. The first is that we must carry out these tasks very carefully and make good use of the time that we have. Some issues are more urgent than others, but in some areas the discourse is far from being fully developed, and the topics are in a state of flux in the international arena. This applies, for example, to the subject of how and to what extent separation is achieved between the financial system infrastructure and support systems that the Government will always try to keep functioning – such as payment intermediation and general depositors’ access to their bank accounts – and leveraged speculation on the part of the banks’ owners and customers. It also applies, but to a smaller degree, to the structure for monitoring and responses to risk in the financial system as a whole. | 1 |
Inflation risks Let me start by looking at some of the factors that create risks for the inflation outlook and explain why I’m nevertheless fairly optimistic that inflation will moderate over the next few years. Of course, oil prices do pose an inflation risk. The price of oil has just about doubled over the past two years, from the low $ range to around $ per barrel recently. Higher oil prices are reflected in higher “headline” inflation. And they have been passed through to some extent to core inflation as well, but, unless they rise further, the effect on core inflation should begin to dissipate next year. Another risk relates to labor compensation, which is the single largest component of business costs. Recently, one measure of compensation per hour jumped abruptly. Here, too, though, I am not terribly worried because a good part of the jump is probably accounted for by one-time events, such as bonus payments and the exercising of stock options. This interpretation is supported by readings from an alternative measure of labor compensation, the Employment Cost Index, which excludes these items and has recorded only modest increases. I’m also quite encouraged by several developments that portend a moderation in inflation going forward. For example, even with the recent revaluation of the Chinese renminbi, the dollar has increased by 7½ percent against major currencies so far this year, which should take some of the pressure off of import prices. | Finally, while business investment in equipment and software rose strongly last year, by almost 14 percent, the level of investment is still not as high relative to GDP as we’d expect, given favorable economic conditions and firms’ healthy balance sheets. Economic growth has been solid for a few years now. And, with the very low level of interest rates, borrowing costs can’t be the problem. Moreover, profit margins have been high for some time, so firms are certainly not strapped for cash. The shortfall might be due to business caution, perhaps related to reverberations from 9/11 and subsequent terrorist threats and actions or perhaps to the corporate governance scandals and the adjustments required by the legislation that followed them. Alternatively, the investment shortfall might reflect the perception by businesses that productivity gains can be realized at this stage that do not require major new investments in equipment and software. Whatever the explanation, the consequence of these drags is that the Fed had to keep interest rates exceptionally low for a long time just to get respectable, but not stellar, economic growth. In fact, the federal funds rate was lowered all the way to 1 percent and held there until the middle of last year. Since then, the FOMC has raised the funds rate nine times to 3¼ percent, but it still remains in a range normally considered stimulative. Bond rate conundrum Increases in the federal funds rate typically lead to increases in longer-term interest rates. | 1 |
• Beside the geographical advantage, the Thai baht has gained wider acceptance in trading transactions with our neighbors. The use of local currency in regional trade has lowered financial transactions costs for businesses, especially in the current period of foreign exchange volatility. In this connection, the Bank of Thailand has relaxed capital account regulations to further support the use of local currency in the GMS region. • To support regional connectivity, Thailand also offers Treasury Centers and International Headquarters as platforms for businesses to improve efficiency in financial and resource management. Some Japanese multinational firms have already been granted licenses and I am glad to learn that many more have expressed interests for setting up a Treasury Center as well as an International Headquarter in Thailand. On the financial side, Japan and Thailand have continued to strengthen our financial linkages. In Thailand, there are currently a total of 26 Japanese banks’ representative offices, 2 full branches, one locally incorporated bank and one subsidiary, which was just recently inaugurated. Japanese non-bank financial institutions providing personal loans, nano-financing and insurance services also maintain a strong presence in our Thai market. 4 BIS central bankers’ speeches Looking around in the region, we are proud to be the country with the most active and most comprehensive Japanese financial service providers. Indeed, Japanese financial institutions have taken the lead to use Thailand as a strategic foothold for spreading their wings in the region. | 01.07.2022 Closing ceremony of the academic year 2021-2022 Centro de Estudios Monetarios y Financieros (CEMFI) Pablo Hernández de Cos Governor Good afternoon Rector and colleagues. And good afternoon class of 2022. It is a pleasure for me to participate in this graduation ceremony together with Carlos Andradas, Rector of the Universidad Internacional Menéndez Pelayo, and Rafael Repullo, Director of the CEMFI. I would especially like to thank Carlos Andradas for being here today. As you know the main activity of the Universidad Internacional Menéndez Pelayo takes place in the summer in the delightful, charming and vibrant city of Santander (you can take this description at face value, with no need to apply a haircut due to my own origins in the region). So I greatly appreciate his coming to Madrid to participate in this graduation ceremony. The partnership of the CEMFI with the Universidad Internacional Menéndez Pelayo, dating back to 2006, has been instrumental in improving our ability to attract first-rate students and the quality of our graduate programme, and I am very grateful for this. Our society needs this constant drive for excellence, especially in the present circumstances. These are difficult times. Following the COVID-19 pandemic and its economic consequences, the Russian invasion of Ukraine last February has provided a further negative shock, heightening uncertainty and worsening inflationary pressures and growth prospects. This is a particularly challenging environment for economic policy. | 0 |
Banking system and supervision The Albanian banking system has faced numerous challenges over the recent years and has succeeded in overcoming them, always maintaining sound parameters of liquidity and capitalisation. Even in 2011, banking system activity was conducted in an unfavourable context of international financial markets and the sluggish demand for loans and economic growth at home. Regardless of these factors, banks in Albania remained well capitalised and healthy. Economic growth slowdown was reflected in moderate performance of crediting and increase in non-performing loans, whereas bank liquidity condition improved. During 2011, prudence for monitoring the banking system was heightened for early identification of potential risks, and the regulatory framework was consolidated. Stress-test results show that the banking system remained stable and resilient to large shocks on macroeconomic indicators and parameters. Following, I would like to focus on several main indicators of the banking system in 2011, as this system remains the main actor of financial intermediation in Albania. Banking system highlights At end-2011, the banking system assets accounted for about 85% of GDP, from about 81% at end-2010. Financial profit of the banking system was downward, with a significant increase in provisioning expenses playing a determinant role. In the framework of absorbing any potential losses from credit risk, the banking sector increased the provisioning by about 52.4% from a year earlier. By contrast, net operating profit was up by about 7.7%, which shows that the banks have generally achieved a stable net profit and volume from their core activities. | Besides the mitigation of imported inflation, the cancelling out of the effect of regulated price increases in the previous year and the lack of any further increase in them are factors impacting on the downward trend of the annual inflation rate. From the viewpoint of macroeconomic factors, the annual inflation volatility was induced by supply-side factors, while the demand-side inflationary pressures remained low. Anchored inflation expectations prevented transmission of supply shocks to the cost structure of the Albanian economy, dwarfing the effect of the supply shocks only on the first round effects. On the other hand, below-potential growth of the Albanian economy led to an incomplete utilization of production capacities, generating moderate pressures on wages and production costs in the economy. Also, the sluggish aggregate demand reduced businesses’ ability to dictate prices in the economy and hence their profit margins remained at historically low levels. These developments were also reflected in the performance of core inflation, which fluctuated around the lower half of the Bank of Albania’s target band. Finally, the Bank of Albania prudentially supplied the economy with liquidity and monetary expansion was in line with the economy’s needs for monetary assets, thus preventing the generation of inflationary monetary impulses. Bank of Albania’s monetary policy maintained its expansionary nature in 2011, responding to the performance of inflationary pressures balance and taking into account the contained fiscal stimulus. | 1 |
Mr. Yam talks about the implementation of financial policies in the HKSAR. Address by the Chief Executive of the Hong Kong Monetary Authority, Mr. Joseph Yam, at a symposium in commemoration of the 9th anniversary of the promulgation of the Basic Law of the HKSAR in Hong Kong on 10 April 1999. __________________________________________________________________________________ Ms Ko, Ladies and Gentlemen, 1. I am very honoured to be invited today to address this Seminar. The Basic Law is the constitutional instrument of the Hong Kong Special Administrative Region (HKSAR). The legal protection offered by the Basic Law has, to a very great extent, contributed to Hong Kong’s monetary stability during the political transition and has enabled Hong Kong to withstand the severe challenges brought about by the unprecedented financial crisis. I would like to take this opportunity to examine the implementation of financial policies in the HKSAR. I shall discuss with you the two main areas relating to financial policies under the concepts of “one country, two systems” and “Hong Kong people ruling Hong Kong” as well as the legal protection offered by the Basic Law. The first of these is the monetary autonomy enjoyed by the HKSAR. The second is the monetary relationship between Hong Kong and the Mainland. | But let us not only write reports and elaborate ever more sophisticated thoughts, let us act, starting with comprehensive and effective regulation in the US, as has been done in Europe, and as the UK is on its way to doing with its proposed new set of rules that would bring a broad range of cryptoasset activities into the scope of financial services regulation. This is obviously good news, as long as this proposal ensures consistency with existing legislation, notably in Europe. To that end, I suggest the FSB to monitor closely the implementation of its own recommendations on cryptos, as the Basel Committee does on banking regulations. More broadly, big techs did not make the breakthrough in traditional banking activities that many had expected: why is that? Regulatory constraints certainly stand as a first explanation, especially since they were tightened following the great financial crisis. Both lending and deposit-taking are highly regulated in most advanced economies, and big techs tend to set up partnerships with banks in these countries rather than create a fully-owned subsidiary for instance. In addition, the low-rate environment that prevailed until recently may have been unfavourable to new banks – as their business model relies strongly on the value of sight deposits –, and an ageing population in advanced economies may have preserved loyalty to incumbent banks and insurance companies which benefit from high public trust. | 0 |
Another initiative of the Bank of Thailand to promote digital payment services is the Thai standard QR code for payment. The Standardized QR Code makes epayment seamless across platforms regardless of which bank or non-bank service provider merchants and consumers are using. In just eight months since its implementations, more than two million merchants in Thailand now accept epayment through QR code, and this figure will continue to grow. Having a common standard for QR code will indeed generate benefits beyond payment convenience. The common standard will help ensure that no incumbent service providers has an advantage of locking merchants with their QR formats, and allow new and innovative payment service providers to easily enter the market. The standard will also help facilitate the move towards information-based lending for SMEs as their payment transaction information can be consolidated. Given that the payment standard was developed together with five global credit card companies using EMVCo, it could serve as a platform to enhance financial connectivity in the region. Thai banks and payment service providers have begun to work with partners in our neighboring countries to facilitate cross-border payments using the standardized QR code. This standardized QR code was a product that went through the Bank of Thailand’s regulatory sandbox. Going forward, there are a few high-impact 7/10 technologies or applications which are being developed and tested in the Bank of Thailand’s regulatory sandbox. The first one is an extension of our standardized QR code to include other means of payment, including credit card. | If given enough authority, rules can induce symmetric behaviour. It remains to be seen how the discretionary fiscal measures adopted in response to the crisis can be wound down and reversed to support fiscal sustainability in the longer run. Since the ECB has started to gradually phase out its extraordinary liquidity support measures, fiscal authorities should also start to withdraw stimulus to safeguard public solvency over the medium term. To support this, we have the right mechanisms in place in Europe. Governments will have to comply with and, as experience shows, even re-enforce the fiscal rules enshrined in the Stability and Growth Pact. Concluding remarks: some lessons From this quick overview, I draw two lessons for monetary policy. The first lesson to be learned is that central banks need to broaden – not restrict – their overview of the economy. Monetary data are critical in warning against risks that are slow to appear in inflation forecasts. Monetary analysis at the ECB consistently sent early signals that risk was broadly under-priced, when inflation was quiescent and measures of slack were moderate. BIS Review 22/2010 3 The second lesson is that price stability is the only anchor which can pin down the economy in turbulent times. It is not sufficient to guarantee financial stability, but it is certainly necessary to prevent financial instability. Increasing the level of inflation that central banks should aim at would be a step in the wrong direction. | 0 |
Finally, I will place the challenges that face us within a long-term perspective. 1 Youssef Cassis, Les Capitales du Capital. Histoire des places financières internationales 1780–2005, Geneva (Éditions Slatkine, Pictet & Cie) 2005, 47–48. 2 Cf. www.ville-geneve.ch/histoire-chiffres/place-financiere/ and www.geneve-finance.ch/en-ch/overview/geneva -financial-center. 3 Cf. www.geneve-finance.ch/en-ch/overview/facts-figures. BIS central bankers’ speeches 1 Close interactions between the SNB and the Swiss financial sector As an independent central bank, the SNB’s mandate is to ensure price stability, while taking due account of economic developments in Switzerland. It also has the task of contributing to the stability of the financial system. Banks, and the financial sector in general, contribute to the prosperity of our nation. On the one hand, financial intermediation, wealth management and the various other financial services provided by the financial sector are vital for an efficient economic environment. On the other hand, the same activities create employment and value added, both directly and indirectly. They are thus a source of economic prosperity. The activities and goals of the SNB and the financial sector, apparently unrelated, are however closely interlinked. The connections between the two were particularly apparent during the recent financial and European debt crises. The SNB and the financial sector need one another, as I will now show (cf. chart 1). Banks need the SNB to conduct their various business activities, since the SNB acts as the bank of banks. First, banks use the currency issued by the SNB as the numeraire in their daily business. | In order to meet these challenges, we have had to use unconventional instruments for the implementation of monetary policy. Our current monetary policy is based on two pillars. These are designed to dampen upward pressure on the Swiss franc. The first pillar is the negative interest rate on sight deposits at the SNB. The second pillar is our willingness to intervene on the foreign exchange market as required. The SNB monitors developments in the foreign exchange market and their potential effects on the Swiss economy very carefully. At a global level, interest rates have been on a downward trend for more than two decades (cf. chart 4). This development reflects, on the one hand, an overall decrease in inflation. On the other, quantitative easing programmes implemented by various central banks in response to the financial crisis have brought global interest rates close to zero. In an interconnected financial world, it was impossible for Swiss interest rates to diverge from this strong and persistent downward trend. Very low global nominal yields have reduced the interest rate differential between foreign and Swiss interest rates. By the end of last year, the spread between short-term interest rates on assets denominated in euros and those denominated in Swiss francs had almost vanished. As I mentioned earlier, interest rates have traditionally been lower in Switzerland than abroad. However, during the financial crisis, foreign interest rates decreased to a greater extent than their Swiss counterparts. | 1 |
But what does strike you is a broader point: that it is normal to have simpler requirements for the smallest banks. And as our early research indicates, the most sophisticated capital and liquidity requirements may not be as important, relative to sound governance, for small firms as they are for large ones. KISS I am conscious that we are all at the moment very much focused on the Covid crisis. This is a hard time for the economy and for many of the firms that we oversee. There are also, as ever, many issues du jour for us to debate – dividends, the MREL Review and resolution topics, buffer usability, and mortgage risk-weight floors to name just a few. There is the small matter of coming to the end of the Brexit transition period and finalising our new relations with our neighbours. And further afield we face a world of heightened geopolitical and trade tensions. So this is not an easy time. But while doing everything we can to manage the risks we face, we also need to keep an eye to the future and to opportunities. With that in mind I hope that the short sketch I have provided today will trigger a debate about the merits or otherwise of introducing a simpler regime for small UK banks and building societies. If it does, we will progress to a discussion paper in the Spring and take it from there. In the meantime, a surprising new acronym has entered the PRA lexicon: KISS. | Second, the new model, which relies to a great extent on national supervisors, will not entail a decrease in the workload or, therefore, in the staffing needs of the participating countries’ authorities, or in the importance of their work. This will also be the case for the Banco de España. And third, the Banco de España has already made the necessary changes in the organisation of the Directorate General Banking Supervision, to adapt its structure to the 4 BIS central bankers’ speeches needs and arrangements that the SSM requires. Moreover, it has also begun to implement the changes needed in its working methods and systems in order to contribute, as effectively as possible, to the operation of the euro area’s new supervisory structure. But we are still at the early, founding stages of the SSM. And foreseeably for some time, even for some years, adjustments and changes will have to be made to the different components of our supervisory arrangements, both in terms of organisation and of working procedures and staffing levels. Thank you. BIS central bankers’ speeches 5 | 0 |
Mojmír Hampl: Central bank independence in practice - the case of the Czech Republic Speaking points by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at the Annual Research Conference of the Central Bank of Ukraine, Kiev, 1 June 2018. * * * Ladies and Gentlemen, Before I begin my talk in earnest, I would like to thank the organizers for inviting me to this inspiring event. It is an honor to participate in such a distinguished panel. And it is a particular pleasure for me to visit Kiev, one of the great historical pivots of Europe and also a city with immense economic potential. The latter, I believe, can be said about Ukraine in general. The topic of this panel and the entire conference is monetary-fiscal interactions. This is an important issue, and I am convinced that a good working relationship between the central bank and the government is imperative for the proper counter-cyclicality of economic policy. My intention today, however, is to offer a related but cautionary tale. I will talk about central bank independence, with an emphasis on the experience of my own country. Few economists nowadays doubt the importance of central bank independence for achieving price stability. For example, the latest meta-analysis of this research question summarizes 300 empirical estimates from dozens of studies and finds strong evidence that independence is crucial for delivering low inflation (Iwasaki and Uegaki, 2017). This finding holds for both developed and emerging economies, as the authors clearly show. | But many economists in this stream of literature, most prominently Alex Cukierman, stress that it is not enough to have independence enshrined in the central bank’s charter. Legal independence is a necessary condition for actual independence, but not a sufficient one. I would say that actual independence is a state of mind of central bankers. This state of mind, then, determines the outcome of monetary policy and is imperative for providing price stability. So how can actual independence differ from legal independence? The key condition for actual independence is the de facto impossibility to dismiss central bank board members. In fact, the charters of almost all central banks around the world (including the National Bank of Ukraine and the Czech National Bank) allow for board members to be dismissed under some very specific conditions. But the applicability of these conditions varies widely, depending on custom and – crucially, I believe – the central bank’s standing in society. This observation brings me to an important point I want to make. Even if a central bank is actually independent from the government, it cannot over the long term act in direct contradiction to the preferences of society. For example, if the population is not averse to modest inflation, the central bank will have a hard time imposing an ultra-low-inflation environment, with all the associated costs and benefits, over the long run. The experience of the Czech National Bank, perhaps, serves as a case in point, although in the opposite direction. | 1 |
We will aim for close cooperation with the FSOC and other authorities for macro-prudential oversight. The case for macro-prudential oversight So what exactly is macro-prudential oversight? In many respects, it is the missing link between the different approaches of a central bank – which has such an important stake in stability at a macro level – and a financial supervisor – concerned with the financial soundness of individual market participants. The de Larosière report argued pointedly that before the crisis, supervisory arrangements, whilst concentrating on the supervision of individual firms, were placing too little emphasis on the stability of the financial system as whole. Indeed, until the late 1990s, the dominant view 2 BIS Review 156/2010 in policy circles was that if individual institutions were financially sound, the financial system as a whole would also be necessarily sound. We now know that relying only on micro-prudential supervision to ensure financial stability suffers from the fallacy of composition. What is true for a part, or even for all parts, is not necessarily true for the whole. Amongst other elements of systemic risk, inter-linkages between institutions, correlated and concentrated exposures to risk, as well as herding behaviour may contribute to a destructive dynamic between institutions, markets and infrastructures. This would ultimately threaten the stability of the whole system. Putting macro-prudential oversight into practice Putting macro-prudential oversight into practice raises two questions: who should be charged with macro-prudential oversight and how it should be performed? Let me start with the question of “who”. | Jean-Claude Trichet: Macro-prudential oversight and the future European Systemic Risk Board Keynote address by Mr Jean-Claude Trichet, President of the European Central Bank, at the European Banking Congress, Frankfurt am Main, 19 November 2010. * * * Ladies and Gentlemen, It is a pleasure for me to participate in the European Banking Congress. We are meeting at a very important time for Europe’s financial system, of which so many senior representatives are assembled here. This is also a very important time for the European economy and for the governance of the euro area. Looking at the current situation, we have to be very clear as to what the issues are and where the solutions lie. As its name suggests, Economic and Monetary Union has two attributes: one is “Economic” and one is “Monetary.” The “Monetary” attribute refers to the ECB, its mandate and its independence. I will come to this in a moment. The “Economic” attribute comprises the fiscal regime enshrined in the Stability and Growth Pact; the national frameworks of economic policy; and the system of mutual surveillance. The developments we are currently witnessing in Europe’s economy have to do with its “Economic” functions. They have essentially three origins: unsound fiscal policies in a number of member states; inappropriate macroeconomic policies in a number of member states; and overall an inadequate system of surveillance by all member states. This is the triangle that provides the perimeter of the current situation. | 1 |
Nevertheless, inflation remains very high and its convergence to 3% is subject to risks. Hence, we have communicated that the monetary policy interest rate has peaked in this cycle but that it will remain at its high current value until the macroeconomic situation shows a clear convergence of inflation to 3%. 7 . Keeping a low and stable inflation is not only desirable for the real economy, but also very important to develop fix income local currency market, which in turn, positively affect the real economy in the long run on a virtuous cycle. On the other hand, tight monetary policy, fiscal consolidation, and higher real exchange rate will also alleviate the external imbalance. The role of central bank in pursuing these macro-adjustments is instrumental to the development of a sound and deep local financial market. 3. Financial Policy developments of the Central Bank of Chile: Building a sound regulatory framework and an up-to-date infrastructure As I mentioned earlier, a deeper and properly regulated financial system contributes to financial stability, inclusion and increases welfare. Even though significant progress has been made in this regard, there are still challenges ahead to further strengthen our financial system. Let me now briefly explain how the Central Bank is contributing to the goal of improving the functioning of the financial market and keeping the resilience of our financial system. The financial policy agenda of the Bank has been quite active in recent years. | “Recent developments in the Chilean Financial System and Challenges ahead” Rosanna Costa, Governor of Central Bank of Chile Chile Day – December 12 and 13, 2022 – London, United Kingdom Good morning distinguishes authorities and dear friends. I am going to talk about the recent developments in the financial system in Chile and the view of the Central Bank of the challenges ahead. Introduction In December of last year, the former Governor of the Central Bank of Chile (and nowadays the Minister of Finance) presented in this very same forum in London about the developments and prospects of the Chilean economy. By then, our country was going through a process of strong recovery from major shocks that affected our economy: first the social unrest of 2019 and then the pandemic of Covid-19. Therefore, the discussion last year focused on the aftermath of the pandemic and the different measures that were adopted by the Central Bank and the government to mitigate its effects on the real economy. Since July 2021, the Central Bank has been hiking the monetary policy interest rate, due precisely to strong pickup of household consumption driven by governmental aids and pension funds withdrawals. A year ago, the Central Bank also raised a note of caution for 2022 and 2023 due to the weakening of the capital markets, identifying several factors including the reduction of long-term savings due to pension withdrawals and its impacts on access to long-term financing for companies and individuals, risk of fiscal deterioration and persistent uncertainty, among others. | 1 |
With respect to stock prices, the S&P 500 index has recovered by more than 50 percent from the trough reached in March. But this should be put in context. The S&P 500 index is still about one-third below its recent peak in October 2007. Moreover, compared with its level ten years ago, the S&P 500 index is down by about 20 percent. The shock to household net worth seems likely to have several important implications for household behavior. The shock creates a risk that the household saving rate could increase further. For example, during the period from 1990 to 1992, the household saving rate averaged about 7 percent of disposable personal income, considerably higher than the 4.3 percent average rate during the first half of this year. If the household saving rate were to rise, then consumption would rise more slowly than income, making it more difficult for the economy to develop strong forward momentum. In addition, it seems likely that some workers will respond to the wealth shock by postponing their retirement. This suggests that the labor force participation rate may rise once labor market conditions improve. This would tend to push up the unemployment rate, all else being equal. The second force that could restrain the recovery is the fiscal outlook. The fiscal stimulus that is currently providing support to economic activity is temporary rather than permanent. This has to be the case if we are to ensure that fiscal policy is on a sustainable path over the longrun. | For example, as the recession has pushed up the unemployment rate, the demand for office building space has declined; as the recession has led to a reduction in discretionary travel, hotel occupancy rates and room prices have declined; and as retail sales have weakened, this has reduced the demand for prime retail property space. The decline in commercial real estate valuations has created a significant amount of “rollover risk” when commercial real estate loans and mortgages mature and need to be refinanced. The slump in valuations pushes up loan-to-value ratios. This makes lenders wary about extending new credit, even in the case when these loans are performing on a cash flow basis. This means that more pain likely lies ahead for this sector and for those banks with heavy commercial real estate exposures. 2 BIS Review 122/2009 For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession – making many less creditworthy. Second, some sources of funding for small businesses – credit card borrowing and home equity loans – have dried up as banks have responded to rising credit losses in these areas by tightening credit standards. Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough to accommodate more than a small fraction of the demand from this sector. | 1 |
In essence, the CDS protection is not really being used to insure against default but to reduce market price volatility. Let us now turn to a second example of a bank hedging its corporate lending. Banks lend to a broad range of companies. In many cases they would be expected to hold these loans on their books until maturity (as opposed to selling them off to other investors). In order to reduce its measured outstanding credit risk, a bank may choose to purchase off-setting CDS protection, probably on a portfolio of loans. By so doing, the bank can make greater use of its internal credit risk limits and may get regulatory capital relief. In most cases, another leveraged market participant (bank or hedge fund) would write the CDS. (In some cases the insurance provider may be an unlevered institution, for which most of the concerns below would be reduced.) In the first example, the pension fund was concerned about short-term price swings. In this second example, the bank should be concerned to protect itself against clusters of defaults. But if the risk management of the ensuing portfolio of loans and CDS is not done with serious attention paid to the joint risk profile of the corporate borrowers and the providers of the CDS protection, the true net risk position might be worse than it appears. That could fool regulators as well as the bank’s own risk management function. | Accordingly, you have instructed the various appropriate authorities and bodies to combat it and reduce its effects on the society, while maintaining the momentum of development achievements. The package of the various procedures, introduced by the government at the beginning of this year, is an appropriate preliminary step aimed at addressing inflation sources that directly affect the society segments who are less able to bear its impacts. As for the monetary policy, the Saudi Arabian Monetary Agency (SAMA) has taken steps to control excess domestic liquidity by increasing rates of reserve requirements many times. However, because of the dominance of the fiscal policy over the economy, the greater burden falls on reviewing spending priorities and its programming to be in harmony with the absorptive capacity of the national economy and its ambitious development objectives. It is hoped that these procedures, along with reviewing the expansion in government spending, will achieve the targeted goals, and inflation will resume its pace and stabilize at appropriate levels in the near future. Custodian of the Two Holy Mosques, The world is experiencing a crisis that threatens economic growth and financial stability in several major countries of the world. This crisis has prompted authorities in these countries not only to take unusual measures to protect their financial stability but also to review their supervisory and control regulations of the financial system, while economic policies are being affected by competitive goals, namely, maintaining economic growth, controlling inflation and maintaining financial stability. | 0 |
By engineering artificial expectations of stability, the regime had led market participants to disregard the possibility of exchange rate devaluations, leading to mispricing of risk, insufficient hedging and ultimately to misallocation of financial and real resources. Governments that found themselves in this position had very limited ability to mitigate the economic damage that was to come, but the policy choices that accompanied the exchange rate change often compounded the problem. Japan's experience provides another example, though the context was different. There is a perception in parts of Asia that the Japanese government's decision to let the yen appreciate in the late 1980s was principally responsible for Japan's so-called “lost decade” of low growth. And, Japan, viewed through this prism, is cited as an example of the perils of letting an exchange rate move up in response to changing fundamentals. The reality is more complex. The problems of the Japanese economy in the 1990s were largely due to the aftereffects of the collapse of the real estate and asset price boom of the preceding decade, a boom fueled in part by efforts by the monetary authorities to limit the appreciation of the yen. The size of the negative shock to demand from the collapse of the bubble was very substantial, and the capacity of the government and the central bank to mitigate the damage was constrained by the weakness in the banking system. A more forceful macroeconomic policy response, however, might have brought about a quicker recovery. | These developments have spurred the necessity of our having to better understand and perform more analysis on banking risks. After all, banks do live and prosper by accepting risks, but these risks have to be managed with proper care. As we have all seen, well-managed banks have tended to stay resilient to the banking crisis and provided a backbone for restoration of financial stability. We must therefore, continuously adopt new techniques and technologies in risk analysis to ensure appropriate risk management of all financial institutions in the future. Of course, prevention is always better than the cure. As financial regulators, one of our main tasks is to provide a prudential framework ensuring the overall improvement of risk management of financial institutions. In the case of Thailand consolidated supervision as well as prompt corrective action will be introduced under the new Financial Institutions Act. Study is also on the way to prepare ourselves for the implementation of the BIS New Capital Regime, and we look forward to their conclusion for an explicit framework that will complement our current practices where we ask the Board to understand the nature of their organization’s business activities and risk appetite in order to provide an adequate internal control system to monitor and mitigate risks. Risk-based supervision represents yet another endeavor to tackle the effectiveness of risk management of financial institutions as transaction testing may no longer be an effective approach to examine the ever-more complex financial institutions of today. | 0 |
Koop (2018), ‘An economist’s guide to climate change science’, Journal of Economic Perspectives 32(4), pp. 3–32. Hardin, G. (1968), ‘The tragedy of the commons’, Science 162(3859), pp. 1243–1248. Nordhaus, W.D. (2018), ‘Projections and uncertainties about climate change in an era of minimal climate policies’, American Economic Journal: Economic Policy 10(3), pp. 333–360. Böhringer, C., J.C. Carbone and T.F. Rutherford (2016), ‘The strategic value of carbon tariffs’, American Economic Journal: Economic Policy 8(1), pp. 28–51. For a critical assessment of the significance and effectiveness of a carbon tax and other instruments, see IMF Fiscal Monitor ‘How to mitigate climate change’, October, pp. 3–13. Page 3/12 But if it is not part of the SNB’s remit to intervene in these issues, why are central banks interested in climate risks? Why are central banks interested in climate risks? To fulfil their mandate, central banks must understand how climate change risks influence the functioning of the economy and the financial system – and hence price stability and financial stability. Economists classify climate risks into two categories: physical risks and transition risks. Physical risks include the direct material effects of climate change on income and production capacity. For example, severe storms can damage factories and transport infrastructure and disrupt value chains that are essential to international trade. In the first instance, physical risks cause supply shocks. These shocks result in a drop in production in the affected sectors and tend to engender temporary price increases. | Its principal mission is to ensure price stability in the medium term, while contributing to the stability of the Swiss financial system as a whole – two key conditions for our country’s prosperity. After all, can economic agents be expected to plan their spending, savings and investments sensibly and manage their liabilities if prices fluctuate widely? If they go up, the value of savings goes down. If they go down, debt suddenly becomes more costly to service, especially as wage levels tend to move in line with prices. In short, a financial system that can withstand shocks is essential for a wellfunctioning economy and the successful implementation of monetary policy. 7 Bank of England (2018), ‘Transition in thinking: The impact of climate change on the UK banking sector’, September, pp. 27–29. Page 5/12 Measures taken by the SNB In its assessment of the economic and monetary situation, the SNB endeavours to take into account all relevant risks, including those linked to the climate. Economic forecasts for both the international and Swiss economies factor in the effects of climate events that depart from the norm. More broadly, the SNB regularly updates the tools and methods it uses to analyse monetary developments and financial stability, in terms of both data sources and the structure of the models. We continually adapt our models to integrate new economic realities and structural changes, particularly those induced by climate change. | 1 |
To put this into perspective, the percentage of employment accounted for by firms under high financial pressure2 would rise by 1.6% following the interest rate increase, from 9.1% before the hike. Household income is primarily being supported by labour market developments – given the year-on-year increase of 3.6% in the number of persons employed and of 5.1% in hours worked – and, to a lesser extent, by the government policy support measures. However, high inflation is driving a significant decline in real disposable income. Indeed, in 2022 H1 households’ disposable income increased by 4.2% year-on-year in nominal terms, which transforms into a 3.1% fall once developments in the private consumption deflator are taken into account. Bank lending to households has held stable in recent months. However, a distinction can be drawn between the performance of mortgage lending (growing consistently at rates of just over 1%) and that of consumer lending (shrinking at rates of around 4%). Unlike firms, in 2022 households are not accelerating the growth of their bank deposits, which have been on a sustained growth path (above 5%) since 2021. Together with cash, they account for 40% of households’ total financial assets. Simulations have also been carried out on the potential impact on household income of the rise in energy prices and interest rates, which is notably uneven across income percentiles. The upturn already observed in energy prices would generate an increase in the median household's energy expenditure as a proportion of its budget from 10% to more than 12.5%. | We also need to encourage equity financing rather than debt funding. 5/ Improve European economic governance The second idea I would like to share with you relates to economic governance in Europe. I believe we need to make progress towards a more economically integrated euro area. This is essential, regardless of whether or not the United Kingdom remains in the European Union. Naturally, I would like it to stay in. My point is not purely institutional. It is not about “more Brussels”, it is about more growth and employment. Indeed, economists estimate that the current lack of coordination between national economic policies has cost Europeans between two and five percentage points of GDP growth since 2011. Contrary to the case of monetary policy, the aim is not to fully integrate all of our economic policies at the European level, but to achieve a “full coordination” of fiscal and structural policies. For this, we need to have shared economic goals, and a true “collective strategy” for the euro area, in which each country has a role to play to improve everyone’s situation. This requires trust based on a clear pact: national reforms and, not or, European coordination. This full coordination also rests on the setting up of a strong and legitimate European institution: a euro area Finance Minister backed by a European Treasury system and subject to greater democratic accountability. This Finance Minister would be in charge of defining the collective strategy, supervising its decentralised implementation by Member States and handling crisis management tools. | 0 |
In the context of investment policy, climate risks are not fundamentally different from other financial risks – they too can trigger or amplify market fluctuations, which influence the attractiveness of certain assets. By opting for broad coverage of entire markets, the SNB takes into account the complexity of the many different risks. We regularly review changes in the risk landscape and factor them into our investment policy where necessary. Furthermore, as an investor the SNB has long had in place a clear set of exclusion criteria for companies that violate Switzerland’s fundamental norms and values. For instance, it does not invest in companies that systematically cause 1 Relevant documents are available on the SNB website: www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates Page 3/6 Berne, 12 December 2019 Andréa M. Maechler News conference severe environmental damage. Given the monetary policy requirements of our mandate, we are convinced that the approach we have chosen is appropriate. Foundation of the BIS Innovation Hub In October, the SNB announced that it was collaborating with the Bank for International Settlements (BIS) to establish the BIS Innovation Hub Centre in Switzerland. This Hub Centre, which is scheduled to commence operations at the beginning of 2020 alongside the Hub Centres in Hong Kong and Singapore, will initially focus on two projects. The first will examine the integration of central bank money into a distributed ledger technology infrastructure, with a view to facilitating the settlement of tokenised assets between financial institutions. | Since then, many banks have been benefiting from higher exemption thresholds and have an incentive to take on liquidity via the money market. As expected, this demand for liquidity led to higher trading volumes and a slight rise in SARON and other short-term repo rates in the week following the introduction of the new calculation basis (cf. chart 4). The SNB was active in the repo market from time to time in order to keep SARON close to the SNB policy rate. The Swiss franc repo market functioned smoothly throughout the transition, not least thanks to the state-of-the-art and reliable money market infrastructure. The SNB trades using the same infrastructure as the banks on the interbank market. This is particularly helpful as it ensures that the SNB’s operations are highly effective. Transitioning from Libor to SARON SARON is currently establishing itself as the leading reference interest rate for financial products in Swiss francs and is replacing Libor. As you know, the UK’s financial regulator will only be supporting Libor until the end of 2021, so it is important that the transition process on the market take place now. Over the last few years, the National Working Group on Swiss Franc Reference Rates (NWG) has put forward recommendations on how to proceed with replacing Libor. Market participants must now act decisively to implement these recommendations. A SARON-based swap market is especially important for the financial markets. Swap markets are used to hedge interest rate risk (e.g. | 1 |
Zeti Akhtar Aziz: The development of the Malaysian bond market Remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of the Electronic Trading Platform by Bursa Malaysia, Kuala Lumpur, 29 April 2008. * * * Let me first of all thank Bursa Malaysia for inviting me to say a few words on this occasion of the launch of the Electronic Trading Platform. This initiative marks another important advancement in the development of the Malaysian bond market. The Electronic Trading Platform will take over the function that was previously performed by the Bond Information and Dissemination System (BIDS). Bank Negara established BIDS ten years ago, in 1997 to provide market information on domestic debt securities. BIDS was developed as a centralized database that provided information on the terms of the issue, details of trade done and the relevant information on the various debt securities, to facilitate increased transparency and efficiency in the bond market. BIDS therefore aided the price discovery process thereby promoting secondary and primary activities in the bond market. BIDS was revolutionary in its time as authorities in other jurisdictions subsequently launched similar initiatives in their respective markets. This Electronic Trading Platform is a significant enhancement to the mechanism in the development of a more vibrant bond market. Indeed, this development is timely because the Malaysian bond market is now at the threshold of its next stage of development. Several factors have brought the development of the bond market to this threshold. | And finally, these developments have been continuously reinforced by the strengthening of the financial infrastructure, the settlement system, the legal and regulatory framework to ensure the robustness and vibrancy of the bond market. Malaysia has benefited immensely from the development of the bond markets. As an important source of financing, it contributes to the economic growth process. It also allows for more efficient mobilization and allocation of financial resources. With greater efficiency in the intermediation process, it reduces the cost of financing. It also allows for the increased diversification of risks both for issuers and investors. In addition, it enhances financial stability through potential diversification, increased transparency and greater market discipline. The development of the bond market also enhances the transmission mechanism BIS Review 53/2008 1 of monetary policy. Finally, and most importantly, the more developed bond market has enhanced our resilience to the implications of increased volatility in the international financial markets. The Malaysian bond market has several distinguishing features. Firstly, it comprises both the conventional and Islamic bond market. Secondly, the secondary and repo market is now growing in significance. Turnover volume in the secondary market has been steadily increasing over the years marking the active participation in the bond market by investors. In 2007, total annual turnover volume increased by 46% to RM777 million. There is also an increased diversity of instruments being issued ranging from asset-backed bonds, bonds bearing features such as stepped-up coupons and "floaters" and pass-through ABS. | 1 |
There is huge overlap between the areas of interest of, and information required by, and available to, both the supervisor and the central bank. Second, rescue or liquidity crisis will normally involve and require the immediate BIS Review 55/1997 -8- provision of liquidity, which can only be done by the central bank. This is facilitated by internalising the supervisory body within the central bank. Others argue the reverse. First, since the finance of any large rescues involves government funding, the politicians have a direct interest and involvement in financial regulation. This may undermine the independence of a central bank if it also plays a supervisory role. Second, it is argued that an independent central bank in its conduct of monetary policy and being responsible for banking supervision may be perceived as too powerful. Third, the failure of a central bank in its supervisory duties will harm its credibility in its conduct of monetary policy. There is an inherent conflict between supervision and monetary policy. Central bank assistance to bail out problem banks tends to be inflationary on the money supply. The arguments are finely balanced. Whether the regulatory power should be centralized or diffused will depend very much on the legal, constitutional and historical background for each financial system. Conclusion Regulation is an art, not a science. It involves complicated trade-offs between competing interests. As Walter Bagehot said over 120 years ago, money will not manage itself. The regulation of money will be debated in the years to come. | This is an impressive outcome, made possible only by commitment, enthusiasm and exceptional cooperation that has been shown by the project team and all our partners who are here today throughout these last two years. I am well aware of the numerous logistical and communication challenges that had to be overcome by the team and the industry, and the persistence that it took to break long-held perceptions before we were able to build momentum in our outreach efforts to deliver these results. So let me on behalf of Bank Negara Malaysia, join Faris in extending my congratulations to all who contributed to this important initiative. We are especially grateful to the World Bank for working with us to bring the Greenback Project to Johor Bahru – the first champion city in Asia, and for providing technical support in the project’s design and implementation strategies. It goes without saying that we could not have done this without the exceptional support of Yang Berhormat Datuk Bandar and your team at Majlis Bandaraya Johor Bahru. The city of Johor Bahru has been an exemplary host for the first Greenback Project in Malaysia. Johor Bahru can be proud of serving as a role model for promoting transparent, efficient and affordable remittance services that are contributing to more inclusive financial services for all individuals and businesses. | 0 |
No one knew how large the losses would be and whether the reserve capital would suffice. Funding ran short. Because what financiers in the market would want to give loans to a bank that appears unsteady? And who would want money in an account in this bank? I am sure you will remember the pictures of the queues outside Northern Rock’s branches in the United Kingdom. To restore confidence, the state and the taxpayers in many countries had to inject capital and go in as owners of the banks. This would not have been necessary if the banks had held more capital when the dark storm clouds gathered in summer 2007. The Basel Committee has taken note of this. The current capital requirements are being raised substantially. If I may go into technical details, the new regulations require that the BIS Review 159/2010 3 banks should have a Tier 1 capital corresponding to at least 6 per cent of their assets, or more correctly their risk-adjusted assets. The risk adjustment means that for each asset one recalculates the value, depending on whether the value of the asset can be regarded as certain. One sign of this might be, for instance, that the value of the asset has varied a lot. The higher risk an asset is believed to entail, the more capital needs to be allocated. At present, the minimum requirement for Tier 1 capital is only 4 per cent of the total riskweighted assets. | Market risk is the risk that the bank’s assets will vary in value in a way that was not anticipated, and this makes it difficult for the bank to get hold of capital without making a loss. For example, fluctuations in interest rates and exchange rates can affect the value of the assets. In addition to these risks, there are what are known as operational risks. This can involve, for instance, a technical system failing to function, or a human error that puts the bank at great risk. Some of you may remember how the British bank Barings collapsed in 1995 as a result of speculation and unchecked risks taken by a single employee. Risk management is about protecting oneself against such undesirable and unexpected outcomes. In short, one wants to take calculated risks. According to earlier agreements within the Basel Committee, the banks have the possibility to develop models themselves to calculate the size of their risks and this is an opportunity most of the major banks have used. Over time, their risk calculation models have become increasingly sophisticated. But during the crisis it turned out that not even the most advanced models managed to capture the real risks. Sometimes it was not the model that was inadequate; there was a lack of available data for assessing the risk. In many cases there was quite simply not enough historical data, as the financial instruments were such fresh inventions. You may have heard of various types of complicated derivative, such as CDOs, CDSs and so on. | 1 |
Even though the liberalization policies were adopted independent of the EU perspective, they helped to facilitate Turkey’s attempt to apply for full membership, by providing a solid basis for lasting progress. On the other hand, member countries of the EU have tried to make some adaptations in their banking regulations to integrate financial systems. Competition among them has increased. A universal banking system is accepted. Banks either have increased their assets or have merged with other banks in order to be strong in a market where competition is intensified. New financial products are created every day. Technology is used intensively in order to reduce costs and serve customers better. In parallel to these developments many reforms have been made in order to develop the Turkish banking system. Some amendments were made to the Banking Law to harmonize it with European standards, and now we are in the process of preparing a new Banking Law. These changes will require some banks to strengthen their financial situation and bring their credit risk and equity participation ratios closer to the EU norms. Within the process of becoming more deeply integrated with the European financial markets, the Turkish banking system will now face new competition. The CU agreement has naturally affected Turkish banks and changed the dimensions of competition. But Turkish banks seem ready in many ways for this new and larger competitive environment. Today banks in Turkey are made more dynamic by a high-technology electronic infrastructure, high-quality services and well-trained manpower. | 17 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 17 You’d expect all this to lead to matching reallocations in employment – job shedding in the weaker sectors and regions, strong rates of hiring where demand has picked up the most. And in the DMP survey that is indeed what you do see (Chart 21). But it hasn’t yet happened to the same degree as in firms’ reported sales – nor, if we extend the series backwards with other sources of data14, to the same extent as after the financial crisis, whose impact on firms’ output was also highly uneven. Chart 21: Employment reallocation has picked up but still looks lower than after the financial crisis Sources: Decision Maker Panel, Bureau Van Dijk (based on Companies House data) and Bank calculations. For similar reasons, and again both on the demand and supply side, I would expect these imbalances to subside somewhat as the economy recovers. The underlying dispersion in demand is more likely to narrow than widen further. We’ve already seen some signs of that across sectors, with “social consumption” recovering faster than areas of spending since the economy re-opened (Chart 14 again). In the meantime, the reallocation of jobs, which should also reduce these strains, is likely to continue and may even pick up for a while. However, I’m more uncertain about this process, and the implication for costs in aggregate, than about the transitory nature of goods-price inflation. | 0 |
As you all know, Hong Kong has one of the most developed and healthiest mortgage markets in the region with a delinquency ratio reported at only 0.04% in October 2009 2. Hong Kong’s leadership in advancing innovations in sound mortgage risk 1 IMF Global Financial Stability Report, October 2009. 2 HKMA Monthly Statistical Bulletin. 2 BIS Review 3/2010 management practices over the years, including through the role of the Hong Kong Mortgage Corporation (HKMC), provides many useful parallels and lessons that can be drawn for Malaysia. Cagamas is very pleased to have established a strategic partnership with HKMC in 2007 which will allow us to avail of HKMC’s significant expertise to provide the banking industry in Malaysia with expanded options for effectively managing mortgage risks. We are encouraged by the strong turnout from among members of the board risk management committees, senior management and risk managers at this event today. Your roles are critical in bringing visibility and attention to the key risk issues in mortgage financing within your institutions in order to ensure that the associated risks, both present and foreseeable, are identified and effectively controlled. It is particularly useful to bear in mind that vigilance is needed to be alert to problems that can quickly arise in business segments that may not have presented difficulties in the past. By acting proactively to avoid controllable risks, material future losses can be avoided at far lower costs to banks and the society at large. | Ooi Sang Kuang: Managing risks in mortgage financing Welcoming address by Mr Ooi Sang Kuang, Deputy Governor of the Central Bank of Malaysia, for the talk on “Managing Risks in Mortgage Financing”, Kuala Lumpur, 13 January 2010. * * * It is my great pleasure to welcome all of you today to this dialogue on “Managing Risks in Mortgage Financing”. This event is jointly organised by Bank Negara Malaysia and Cagamas Berhad to review and exchange perspectives on developments in the area of mortgage financing. At least two factors make this a highly topical subject at this particular time. Firstly, the dramatic events of the global financial crisis have shed the spotlight directly on the mortgage market, prompting many questions to be raised about current practices in mortgage financing. These questions have challenged traditional assumptions that mortgage lending is generally a safe and low-risk activity, and drawn attention to the blind spots that we need to be concerned about. Secondly, the current accommodative stance of monetary policy coupled with the increasing intensity of competition in the mortgage market calls for greater vigilance by banks in monitoring risks in the mortgage portfolio. Expectations of faster and stronger recovery prospects for Asia, and that Asia will begin the process of unwinding of accommodative policies ahead of the rest of the world, could also lead to strong capital inflows and asset price increases. These combined conditions require banks to carefully monitor any changes in the direction of risks emanating from the housing market. | 1 |
Ravi Menon: Regional safety nets to complement global safety nets Welcome remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the opening ceremony of the ASEAN+3 Macroeconomic Research Office (AMRO), Monetary Authority of Singapore, Singapore, 31 January 2012. * * * Director, AMRO, Wei Benhua, Counselor, AMRO, Yoichi Nemoto, Head, Civil Service and Permanent Secretary (Finance) Peter Ong, Distinguished guests, ladies and gentlemen. Good morning. Genesis of the Chiang Mai Initiative 1. Twelve years ago, we took the first steps in a momentous journey that has led us here today. 2. It was the aftermath of the Asian Financial Crisis. The Crisis had ravaged several economies in the region and was a wake-up call to all of us. Rapid economic growth was not enough. To sustain growth and foster stability, sound macroeconomics and strong financial supervision mattered. Asian economies had to get their domestic acts together. And they did, with painstaking reforms over the last 15 years. So, when the Global Financial Crisis hit Asia in 2008/2009, Asian economies were shaken, but did not keel over. 3. The Crisis taught us another lesson: had the region better harnessed the resources it had available, it might have been in a stronger position to deal with the crisis. It was this conviction that provided the impetus for the first proposals for a regional financing arrangement. 4. | As of April 2020, we have seen 117 cross-border financing deals amounting to USD 11 billion. Chongqing enterprises raised USD 7 billion in Singapore, while enterprises in Sichuan, Shaanxi, Qinghai, Xinjiang, Guangxi and Yunnan obtained nearly USD 4 billion of financing. Cross-border loans from Singapore grew 67% y-o-y to reach RMB 5 billion this year. Our financial institutions continue to establish in each other’s markets. A Chongqing-based FinTech, Whalet, obtained a licence in Singapore to conduct crossborder remittance this year. I am also pleased that Vickers Venture Partners, a venture capital fund focusing on deeptech, will be establishing a Qualified Foreign Limited Partnership Fund in Chongqing. Let us continue to build on the progress we have made. I suggest three areas where Chongqing and Singapore can work closer together to strengthen links between the Western Region and ASEAN. one, trade digitalisation; 1/4 BIS central bankers' speeches two, green finance; three, disaster risk insurance. Digitalising the International Land-Sea Trade Corridor COVID-19 has reinforced the importance of digitalising trade. We have seen how restrictions imposed to contain COVID-19 created severe trade disruptions. Part of this is because trade processes are complex and still largely paper-based. Minister Josephine Teo spoke about the CCI’s New International Land-Sea Trade Corridor (CCIILSTC). Let us make the ILSTC fully digitalised end-to-end: this will be the first of its kind in the world. A digitalised ILSTC will: improve efficiency and reduce cost; build trust in documentation and verification processes; and enable better risk management, reduced fraud, and lower costs. | 0 |
As the post-pandemic recovery became better established last year, these risks receded – and the need to maintain an ‘ultra-accommodative’ stance receded with them. What’s more, the risks themselves became more symmetric, especially as Bank Rate moved away from its lower bound, and concerns about monetary policy transmission and downward nominal rigidities diminished. As a result, the case for ‘buying insurance’ using monetary easing via QE fell away. By its nature, an asymmetric ‘risk management’ approach to setting monetary policy designed to protect against skewed downside risk is inevitably somewhat over-stimulative should those downside risks not materialise. The challenge is then to manage the impact of this insurance premium, and ensure that it does not lead to departures of inflation from target. Just to be clear, I don’t see this insurance premium as being an important driver of inflation’s rise above target over the past year. That rise follows from new shocks to the UK economy, which I will discuss in a moment. Rather than in the form of inflation, the insurance premium to protect against downside risks through risk management has been paid in complicating what was anyway set to be a challenging process of monetary policy normalisation. By the autumn of 2021, the need to start tightening the monetary policy stance was becoming more evident as those new inflationary shocks mounted. That process was always likely to prove challenging. | A more integrated capital market would provide deeper, more liquid equity markets in which a wide range of corporates could issue equity and risks could be shared more widely. More broadly, areas where reforms could improve borrowers access to market-based financing could include: public platforms, such as, “mini-bond” markets for SMEs, which have enjoyed some success in Italy in particular; pan-European private placement markets which channel funds directly from non-bank investors, such as, insurers and pension funds to mainly medium-sized companies (currently only Germany and France have private placement markets of any notable size) and encouraging the emergence of simple, transparent and robust securitisation markets. 1 Increasing the scale of cross border capital flows across Europe brings benefits. But it is not without risks. One does not have to go back to where I started today – in the late 1950s – to find examples of the power of cross border flows to amplify crises when it all goes wrong. That is why they have to be built on the foundation of sustainable economic policies, good regulation and robust institutional structures. The nature of capital flows matters too. Europe was not short of cross border flows before the crisis. But they were concentrated in interbank lending and in debt often held by highly leveraged investors. Inter-bank lending can of course be a very dangerous way to share risks between economies, particularly if the banking system is highly leveraged. | 0 |
Scepticism towards far-reaching parallels between theory and practice So how do the monetary policymakers view the relationship between monetary policy theories and the practical implementation of monetary policy? We can gain one indication from a survey carried out a while back. In this, a questionnaire was sent to all of those who are or have been members of the Executive Board of the Riksbank since it was first created in 1999.7 The questions concerned, for instance, how the members view different hypotheses within the research into monetary policy decision-making by a committee. As far as I know, this is the only such survey carried out on a monetary policy committee. An equivalent study is now under way in Norway. Some of the questions concern the link between the way monetary policy is often described in academic research and how monetary policymakers view it with the eyes of a practitioner. For instance, the following question was included: “Would you consider – using your own judgement or, for instance, the Riksbank’s analysis resources – stating in terms of a figure how much importance you would normally place on stabilising resource utilisation in the economy in relation to stabilising inflation (that is, stating your λ)?” A total of nine persons out of the twelve who responded to the survey replied that they would not consider this. These members were given a number of alternatives to select as the reason for their response. | To do that, it has involved not only the stakeholders in the euro area, but also those in other countries of the European Union, Poland obviously included, as well as Iceland, Liechtenstein, Norway and Switzerland. Communities outside the euro area will thus have the opportunity to participate in euro payment systems, and will be able to adopt SEPA standards and practices, thereby contributing to the establishment of a single market for payment services. The EPC plans first SEPA products to come on the market at the beginning of the next year. Therefore, today’s Bank Forum is an excellent opportunity for an in-depth discussion on the role and place of the Polish payment infrastructure in the SEPA world. Ladies and Gentlemen, I am pleased to present you the discussants of our panel, in alphabetical order: Mr. Ryszard Drużyński, Vice President of Raiffeisen Bank Polska, Mr. Krzysztof Kalicki, President of the Management Board of Deutsche Bank Polska, Mr. Ronnie Richardson, President of the Management Board of Kredyt Bank, Mr. Witold Zieliński, Vice President of the Management Board of Citibank Handlowy. I would like this discussion to be broad and dynamic, that's why feel free to join it. First, I would like to draw your attention to the fact that changes ahead of us are needed to move towards a more integrated payments market, which will bring substantial economic benefits. The SEPA will not only introduce more comparable services, but will also foster competition and drive innovation. | 0 |
In these systems, there is a sharp disconnect between the behaviour of individual agents and the behaviour of the system as a whole. Aggregating from the microscopic to the macroscopic is very unlikely to give sensible insights into real world behaviour, for the same reason the behaviour of a single neutron is uninformative about the threat of nuclear winter (Haldane (2015)). The simple aggregation of “micro-founded” models, rather than being a virtue, may then be a cause for concern. The emergent dynamics of these systems are likely to exhibit significant degrees of uncertainty and ambiguity, as distinct from risk (Knight (1921), Shackle (1979)). This uncertainty is intrinsic to complex systems, and makes forecasting and prediction in these systems extremely difficult. There is unlikely to be any simple, stable mapping from shocks through to outcomes, from causes to consequences, from stick to rocking horse. Indeed, in these systems you do not need any shocks to generate variability in the system. This, too, stands in sharp contrast to existing macro-economic orthodoxy, which tends to emphasize the identification of exogenous shocks as a key factor in understanding system dynamics. If I had a pound for every time I had heard someone in the Bank of England say “it all depends on the shock”, I could have long since retired. Yet in complex systems, it is simply not true. There is no simple link between either the size or source of disturbance and its downstream impact on the economy or financial system. | It has helped entrench Hong Kong as a testing ground and pilot market for China’s continuing financial reform and liberalisation. There is clearly immense scope for us to leverage on our key strengths as a close business partner, a capital formation centre and a financial intermediary for the Mainland economy in the development of Islamic finance. There are opportunities for us to extend our reach to potential Islamic investors and financiers in the Middle East and Asia. The addition of Islamic finance as a new asset class in our financial system will add value to Hong Kong as a thriving financial centre and a leading financial services hub in Asia. As a major financial centre, Hong Kong – with its flexible and innovative market participants and its responsive government – has always stood ready to adapt to and embrace new ideas. Even if the current financial environment appears unfavourable to the development of Islamic finance in the short term, this is, at worst, a temporary setback as future prospects remain promising. We at least do not intend to be put off by temporary difficulties from our goal of making Hong Kong an Islamic financial hub. Indeed we believe that this is a good time to do the groundwork of installing the necessary legal, taxation and market infrastructure. 4 Source: World Federation of Exchanges. | 0 |
We therefore take our AML/CFT efforts very seriously, that include the surveillance and investigation work of our Financial Intelligence Unit in the Commercial Affairs Department. 5 In the last two years, more than 15 government agencies had come together to perform a comprehensive assessment of our ML/TF environment and the adequacy of measures. This culminated in a National Risk Assessment (NRA) report published in January. It is the first time that we have taken a consolidated and comprehensive look at the overall ML/TF risks to Singapore. What did we find? For one, the results largely validated the prevailing instinctive sense that high-risk sectors are primarily the cash intensive and internationally oriented ones, such as casinos and remittance agents. The NRA also revealed emerging risk areas BIS central bankers’ speeches 1 like virtual currencies and large-value precious stones and metals dealings, and we are looking into addressing the potential risks associated with these sectors. 6 Put simply, the NRA has been a useful “health-check” of the ML/TF risks facing Singapore, by highlighting areas that warrant more resources and attention. As with the importance of having regular medical “health-checks”, we intend to update the risk review regularly, every two to three years, to ensure that our understanding of Singapore’s ML/TF risks is current and accurate. 7 A better understanding of risks should also translate into more targeted mitigation measures. | But let me highlight one change. 2 BIS central bankers’ speeches 12 When banks first started their ML/TF risk assessments, the focus has largely been around processes to identify and deal with customers with high ML/TF risks. This level of risk assessment is necessary but insufficient now. Just as how a bank should look at the credit risk of its overall loan portfolio and not just of individual customers, ML/TF risk assessments can also benefit from the same approach. We will therefore require financial institutions to assess ML/TF risks at the institution level, to complement individual transaction level checks. This will in essence be the banking industry-equivalent of what the government has done in the NRA. There are several banks that already have such a practice in place, so this requirement will level-up the industry as a whole. 13 Other changes in our impending consultation document will include formalising the need to screen one’s customers, tightening the threshold for enhanced measures on cross-border wire transfers, and providing a risk-based approach for politically exposed persons. Details of these and other amendments will be laid out in the consultation paper. Overall, we do not expect the revisions to require major changes to existing processes, and I welcome your inputs during the consultation. An effective supervisory regime 14 However, even the best regulatory framework is futile, if it is not backed by effective supervision. As I have alluded, MAS’ supervisory approach is premised on “prevention is better than cure”. | 1 |
As one can see in the chart, the relative minimum wage in Malta is the fourth highest in the euro area, and this may impact the incentive to acquire additional skills or pursue more advanced education. It is worth reflecting on the experience of other countries in this respect. For example, Slovenia increased the minimum wage by 23% in 2010. The IMF, in its reaction to this increase, remarked that this will “hurt employment in labour intensive sectors and put upward pressure on the general wage level, exacerbating already high unit labour cost compared to regional peers. The increase is also likely to reduce incentives for workers to increase their human capital by compressing the wage differential between unskilled and specialized low-skilled workers.” 1 From discussions I have had with officials from the Central Bank of Slovenia, it is their considered opinion that the IMF as well as the Commission were right in their assessment. Indeed, a major reason for Slovenia’s increased fiscal gap and loss of competitiveness can be laid at the door of this large increase in minimum wage a few years ago. A similar picture emerges from the experience of Greece and Cyprus that also had significant increases in minimum wages, while labour market inflexibilities have contributed to the loss in competitiveness in Spain and Italy. The most sustainable way to raise living standards is through structural reforms along with investment in education and physical capital (that is, through the promotion of investment in human and fixed capital.) | For example, in Ireland and Spain, banking sector difficulties have necessitated bail-outs by the governments concerned. This led to sovereign downgrades which in turn increased the government BIS central bankers’ speeches 1 borrowing costs, in some cases to unsustainable levels. All these problems were compounded by instability in financial markets and volatility in sentiment. Chart 1 shows that prior to the formation of the monetary union yields started to converge – regardless of the fiscal position or economic fundamentals – and then stabilised within a fairly narrow band during the first years of the euro until the crisis of 2009. Many countries failed to reduce the debt to GDP ratio during this period as shown in Chart 2. The market’s focus and sentiment changed drastically in 2009, by giving full recognition to the importance of fiscal sustainability, such that yield spreads widened sharply. Market complacency turned into market volatility, and it is only lately that this has been somewhat mitigated after the announcement of the OMT programme, a subject that I will come back to later. Fiscal excess and inappropriate banking practices were not the only causes of the crisis. There was also an erosion of private sector competitiveness, as shown by the relative increase in unit labour costs in several of the weaker economies (see Chart 3). In many countries, the deterioration in competitiveness was the result of wage increases that were not matched by higher productivity. | 1 |
The concept of the "efficiency frontier", part of a nascent research field that is little used in France, may provide a partial answer to this question. viii It involves comparing the relationship between each type of public spending and one or more international performance indicators (for example, the PISA scores for education) between different countries. However, this remains a little-known, insufficiently operational concept with recurring methodological difficulties for comparing public spending between different countries. Page 10 of 19 How to interpret fiscal multipliers? Another area of economic research providing a greater body of work is the calculation of fiscal multipliers. The effect of a fiscal measure on the economy varies depending on the channel used (public expenditure or tax), how it is financed (whether debt is used or not), whether there is a short- or medium-term time horizon, and, obviously, according to the type of spending concerned. However, we are struck by the disparity and fragility of estimates of the same multiplier, which can double in size, depending on the method used. This means there is a risk that everyone uses these concepts in a way that serves their political preferences: certain people advocate tax cuts while others want to increase spending. In truth, few people possess the wisdom to put these multipliers into perspective and analyse them in greater detail, instead of betting time and time again on – supposedly self-financing – fiscal stimulus measures. | It is planned to finalize the studies on the Financial Sector Assessment Program, which were started at the beginning of 2006 with the 4 BIS Review 68/2006 coordination of the Undersecretariat of the Treasury in order to contribute to the ongoing reform process of the Turkish financial sector, by the end of the year. The Financial Sector Assessment Program process in Turkey is expected to contribute to the development of the financial sector in terms of institutional infrastructure. Furthermore, the resistance of the sector will be analyzed on an international platform via stress tests to be applied to banks within the framework of the Program. Distinguished Guests, Proper and effective implementation of macroeconomic policies, in other words, the achievement of macroeconomic stability, is the sine qua non of financial stability. It is very important for the banking sector, which should be able to cope with the Basel II process in the near future, that the improvement of the infrastructure of the financial system continues and that efficient control and supervision is carried out. As firms will contribute to stable growth with the funds that they obtain from banks, the compatibility of the corporate sector with the Basel II process is of great importance as well. In this framework, determined implementation of current economic policies, increased confidence in financial markets, the establishment of risk culture and the adjustment of economic actors’ risk perceptions according to dynamic conditions will strengthen the stability in financial markets. | 0 |
Given recent experience, a decade would seem to be a reasonable timeframe to provide sufficient time and space for any illegal actions or violations of the firm’s culture to materialize and fines and legal penalties realized. As I will argue below, I also believe that this longer vesting portion of the deferred compensation should be debt as opposed to equity. 6 I noted earlier that improving a financial firm’s culture will take sustained determination and commitment from its senior leaders. Deferred compensation can play a useful role in reinforcing buy-in of senior leadership to this endeavor. As I discussed last November, an important element of a Title II resolution under Dodd-Frank is that there is sufficient long-term unsecured debt at the holding company level to recapitalize a failing bank. I indicated in my remarks that it would be useful if a meaningful component of this debt was contributed by the senior management and the firm’s material risk-takers. That is, if a bank ran into solvency problems, this component of deferred compensation would be used to recapitalize the restructured bank. The goal is to incent senior management and the material risk-takers to focus on maximizing the long-term “enterprise” value of the firm, not just the short-term share price. In this framework, I would expect the relative size of the debt component of deferred compensation to increase as one moved up the management ranks to the senior managers of the firm. | All of these elements need to be aligned with the desired culture. Through our supervisory process, we have seen that a number of firms have started this process by developing or refining employee surveys and 360 feedback processes to target issues of behavior and 2 BIS central bankers’ speeches culture. Some firms are incorporating case study discussions into training programs to highlight ethical dilemmas and decision-making. Some are revamping senior level promotion criteria to reinforce what are the desired characteristics and behaviors of leaders. These efforts are at various stages in terms of their depth, breadth and maturity. Supervisors will need to see how these frameworks evolve, and more importantly, see evidence of how these efforts yield results in the form of more open and routine escalation of issues, consistent application of “should we” versus “could we” in business decisions, rigor in identifying and controlling of conduct risk, and how compliance breaches factor into compensation. Measurement and accountability for progress in developing a healthier culture across the industry is paramount to us as supervisors and central bankers. An important measurement of progress is employees’ assessment of their firm’s culture. To this end, we encourage the industry to harness the various individual efforts that have been initiated at a number of firms in order to develop a comprehensive culture survey. This anonymous survey would be fielded across firms each year by an independent third-party and the results shared with supervisors. | 1 |
Lastly, judging from the performance of macroeconomic factors, economic growth was also sustained by a stimulating financial environment, more favourable performance of our trading partners, improved balance sheets, and a more optimistic view of enterprises and households on the outlook. All the above reasons fuel the optimism on the perspective of economic growth in the next year and onward. Albania has reached, among others, an important milestone on its path to development and integration: the expected opening of accession negotiations with the European Union. These negotiations should surely be viewed as an important development anchor and an additional guarantee for both domestic and foreign investors. The year just ending confirmed the stability of the Albanian banking sector. It may be considered as a special year in view of important structural changes in the system, which are expected to be finalised in the next year. Banking activity continued to expand, and the banking sector continued to be well capitalised, liquid and profitable. The NPL ratio continued to improve, hitting a new record low for the last eight years, standing at 12.89%, in September. Meanwhile, deposit growth was channelled mostly into investments in securities and less into lending. Certainly, the appreciation of the exchange rate and the lost loans write off provided a statistical effect on the indicators of credit performance. Also, credit in the national currency continued to prevail over the foreign currency credit. Nonetheless, the overall level of credit to the economy is still far from its potential and the opportunities for expanding lending abound. | Nor are they likely to choose a robot to look after their young children or elderly parents (tempting as that can sometimes sound). When it comes to forecasting the economy, I can quite believe a thinking machine might over time displace me. But it is less likely an “Andy Robot” will be giving this lecture to the TUC even a decade from now. Even if this diagnosis is right, it nonetheless may suggest a fundamental reorientation in the nature of work could be underway. We may already be seeing early signs of that in the move towards part-time working, temporary contracts and, in particular, self-employment. Some have speculated that these seismic shifts could result in the emergence of a “new artisan” class : micro-businesses offering individually-tailored products and services, personalised to the needs of customers, from healthcare and social care, to leisure products and luxuries. This really will be Back to the Future. Yet the smarter machines become, the greater the likelihood that the space remaining for uniquely-human skills could shrink further. Machines are already undertaking tasks which were unthinkable – if not unimaginable – a decade ago. The driverless car was science fiction no more than a decade ago. Today, it is scientific fact. Algorithms are rapidly learning not just to process and problem-solve, but to perceive and even emote (Pratt (2015)). As digital replaced analogue, perhaps artificial intelligence will one day surpass the brain’s cognitive capacity, a tipping point referred to as the “singularity” (Stanislaw (1958))). | 0 |
Similarly, the Kwacha depreciated against the Pound Sterling and Euro by 3.6% and 8.3%, respectively. This was partly on account of the US dollar appreciation following the strengthening of the US economy during the latter part of the year. The Pound and Euro weakness moderated on the back of optimism that their economies would continue to rebound. The Kwacha, appreciated against the rand by 10.7% to an average K0.5596/ZAR, reflecting the slowdown in mining output, following continued labour unrest in the South African mining sector. In the first quarter of 2014, the Kwacha depreciated by 10.0% to K6.09 per US dollar. This development was largely attributed to a high demand due to a higher growth in imports relative to exports, as well as investor sentiments associated with the tapering of quantitative easing in the United States of America coupled with falling copper prices on the global markets. Similar weakening of currencies was observed in most emerging market economies such as Ghana, South Africa and Turkey. It should be noted that the Bank of Zambia has continued to implement a market determined exchange rate and has intervened in the market to smooth out volatility and accumulate reserves. According to a recent study conducted by Professor John Weeks of the University of London, there is strong evidence that, the Bank of Zambia’s participation in the foreign exchange market to minimise volatility in the exchange rate has in general been effective. | This growth was mainly driven by expansions in the transport, storage and communications; BIS central bankers’ speeches 1 construction; community, social and personal services; financial institutions and insurance as well as manufacturing sectors. In line with the expansion in real GDP, per capita GDP has increased from 332 US Dollars in 2000, to 655 US Dollars in 2005 and 1,784 US Dollars in 2013. We are, however, alive to the fact that more growth is required in order to have a lasting dent on high poverty levels and even more important, there is need to do more to make growth more inclusive and equitably distributed among the citizens of our country. Distinguished Participants, to ensure sustainable economic growth, the Government has been pursuing appropriate macro-economic policies. To this effect, inflation has declined from the double digits of the early 2000s to single digit levels as recorded in recent years. Annual inflation slowed down to 7.1% in December 2013 from 7.3 in December 2012, although it was 1.1 percentage points above the end-year target of 6%. This outturn reflected higher non-food inflation which was moderated by lower food inflation. Higher non-food inflation was largely due to higher fuel prices, coupled with pass-through effects of the depreciation of the Kwacha against the US dollar. During the first four months of 2014 inflation rose to 7.3%, 7.6%, 7.7%, and 7.8% in January, February, March, and April, respectively. | 1 |
Another example is the execution of payments; transactions that used to take 3 to 5 days to process can now be completed in 3 to 5 seconds, and for less than one-tenth of the original cost. Although banks have generally been slow to innovate, they have sought to stay ahead of the game by partnering with or acquiring FinTech firms. According to a recent PwC report, over 54% of banks surveyed have already established partnerships with FinTech firms, and 82% expect to increase such partnerships in the next 3 to 5 years.7 Central Bank of Kuwait - Public عام- بنك الكويت المركزي -6- While banks can potentially manage the onslaught by the FinTech firms, the real challenge will be posed by the Big Techs. What would happen when the likes of Facebook, Amazon, Whatsapp, and Alibaba start competing with banks to provide financial services? These technology giants come with large and captive user bases, low online acquisition costs, and a better understanding of their customers through their utilization of big data. Moreover, they don’t face the same regulations and associated costs that banks do. Tech firms have had their eyes on the banking industry for quite some time. Over 20 years ago, Bill Gates compared banks to dinosaurs that could be bypassed and argued that “we need banking, but we don't need banks anymore.” That was an early warning for the industry. | Today, the global banking industry is at a major inflection point, facing several internal and external challenges that are coming * Keynote speech delivered by H.E. Dr. Mohammad Y. Al-Hashel, Governor, Central Bank of Kuwait at CBK International Banking Conference: Shaping the Future, September 23rd 2019, Four Seasons Hotel, Kuwait City – Kuwait. Central Bank of Kuwait - Public عام- بنك الكويت المركزي -2- together to create a perfect storm. Certainly, the industry will not be able to weather this storm by holding on to the same course it has pursued for decades. Rather it must reinvent itself for the future. That is why CBK is organizing this event under the theme of ‘Shaping the Future’. We believe that all stakeholders in the banking industry need to take a proactive role in shaping the way banks operate in the future, rather than continuing along the well-trodden path, no matter how well that path had previously served them. Taking this opportunity, I would like to share a few thoughts on our vision for the evolution of the banking industry. I will begin with a brief overview of the major challenges that the industry faces today. Second, I will reflect on the key areas that banks will need to focus on in order to stay relevant. Finally, I will touch upon the role that enabling stakeholders need to play to support the banking industry through its transformative journey. | 1 |
Few are those who can define it and fewer still those who can measure it. Yet it has entered the popular lexicon and with good reason: the one thing we do know is that productivity is crucial to our pay and living standards over the longer run. Productivity is what pays for pay rises. And productivity is what puts the life into living standards. History, distant and recent, makes this only too clear. It is no coincidence that productivity, pay and living standards have moved in lock-step over the past millennium – flat-lining for the first three-quarters before sky-rocketing in the final quarter - as each new industrial revolution has dawned (Chart 1). Pay and living standards have increased over fifteen-fold since 1750. Productivity explains why. More recent experience has been more painful. Since 2008, productivity in the UK has essentially flat-lined. This is almost unprecedented in the modern era, a “lost decade” and counting. And it has been mirrored, as in the past, in a lost decade for pay too (Chart 2). Inflation-adjusted pay has stood still since the crisis, something also almost unprecedented in the modern era. 1 This prolonged pause has become known as the productivity problem. In the UK, the problem is a big one by any historical standard. And it is cold comfort that the UK shares this problem with much of the Western World and a decent chunk of the emerging market world. | Indeed, in a perfect world we might wish to see workers moving from higher-productivity to lower-productivity firms to enable good practices and processes to be effectively diffused from the upper to the lower tail. 39 The US job-to-job flow data are more comprehensive than those in the UK at picking up job moves within a given quarter. This methodological difference means that estimated US churn rates will be stronger than those in the UK, but this can only explain part of the gap between the UK and US job-to-job transition rates. 40 We combine the ASHE and BSD data for this analysis. 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 Table 4 shows a matrix of transition probabilities for workers between four quantiles of the probability distribution for companies. 41 All of these probabilities are conditional on a worker moving in the first place and so sum horizontally to one. Two points stand out. First, there is a high degree of stickiness in job moves. Workers tend to move between jobs in the same productivity quartile. In the upper and lower quartiles, around 40% of jobs moves are within-quartile. The second point is that there is rather limited evidence of technological diffusion being supported by jobs flows from firms in the frontier to the long tail. The probability of a worker for a company in the upper quartile moving to one in the lowest quartile is around 20%. | 1 |
Lars Heikensten: Monetary policy and potential growth Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, to the Swedish Economics Association, Stockholm, 28 March 2003. * * * Let me begin by thanking you for the invitation to come here to the economic association. As a former secretary of this association it is a particular pleasure to be invited here. My intention today is to discuss a broader question than I normally have reason to take up, namely the Swedish economy's capacity for long-term growth. The greater the economy's capacity for long-term growth, the better the development in welfare. And here I am not thinking merely of material aspects, but also of the possibilities of providing young people with a good education, elderly people with good quality care and the environment with a long-term sustainable development. The long-term potential growth rate is also important for monetary policy. A high potential growth rate allows the economy to grow rapidly without inflation accelerating. I shall begin with a brief description of the intellectual framework the Riksbank uses with regard to potential growth and how this affects the shaping of monetary policy. After that, I shall discuss two factors determining potential growth, namely productivity and labour supply. Finally, I shall round off with some conclusions. My hope is to be able to contribute to initiating continued discussions and in-depth analyses in this field, both among researchers and more policy-oriented economists. | In December last year we held a Stakeholders Workshop at which the drafts of the Revised Companies Act, the Securities Bill, the Bankruptcy Bill and the Collective Investment Schemes Bill were tabled for discussion by all stakeholders. These pieces of legislation are now being finalized and would be presented to the next Parliament for enactment. The Other Financial Services Amendment Act 2007 will serve to provide the legal basis for the operation of the stock exchange until the enactment of these legislations. We have also invested in training of personnel to guarantee the professional conduct of operations, and in this regard, we have collaborated with relevant institutions and professional bodies to make sure that the codes and practices underlying the operations of the market meet established standards. Today, as we inaugurate the Sierra Leone Stock Exchange we note with pride and confidence that we have achieved a significant milestone in the development of our financial system. In the coming weeks we will commence actual operations. In this regard, I wish to solicit the support and cooperation of all institutions and the general public to work towards the success of this venture. In closing, I wish to thank all those who have helped us in getting to where we are today, and seek your continued assistance as we traverse this very difficult terrain. | 0 |
This comprises a programme to purchase public debt on secondary markets, subject to compliance with specific conditions, as part of the financial support programmes of the European Financial Stability Facility and its successor, the European Stability Mechanism. Since the start of this crisis the ECB has adopted a series of conventional (short- and medium-term liquidity provision, changes in the deposit rate) and non-conventional measures (long-term liquidity provision, debt purchases) aimed at preserving the sound functioning of monetary policy, which is tantamount to saying the transmission of the policy rates the ECB wishes to maintain at all maturities. These measures have also been useful in buying time for governments to correct the macroeconomic imbalances and the shortcomings in the institutional design of the euro which are, in part, at the source of the current fragility. The Outright Monetary Transactions are a further example of this type of non-conventional measure. The new initiative is aimed at making sovereign debt markets work normally again, as their yields bear indirectly, but significantly, on households’ and firms’ financing costs. The aim is fully compatible with the ECB’s mandate, as the President of this institution has stressed on various occasions. Evidently, the announcement of this programme has had a stabilising effect. | The projected tax revenue for 2013 is subject to downside risks because it is based on the assumption that the revenue targets for 2012 will be achieved. However, on the information currently available, it cannot be ruled out that revenue performs worse than expected in 2012. If this risk materialises and is not countered by appropriate action in the remainder of the year, that would make it difficult to achieve the targets set for 2013, compounding the possible effects of a bigger decline in GDP than that assumed in the budgetary programming. Expenditure On the expenditure side, the weight of three items should first be underlined: Social Security system contributory pensions, unemployment benefits and the interest on government debt. In 2012, these three items are equivalent to 20% of GDP and will account for approximately 36% of total public spending. In 2013, these percentages will foreseeably increase significantly. 6 BIS central bankers’ speeches Noteworthy among the measures considered on the expenditure side are: the freezing of civil servants’ and public-sector employees’ salaries, although they will recover their December extra payroll, which, together with not filling vacancies, will result in a very low increase in personnel costs in relation to serving employees of around 0.1%. Real investments are reduced by 46%, whereas the interest burden increases by more than € billion. In the Social Security system, spending on contributory pensions, sickness and other benefits will grow by slightly more than 5%, factoring in the raising of pensions by 1%. | 1 |
In this respect, African countries may have to consider the utilisation of domestically generated resources such as international reserves’, pension funds as well as the enhanced use of stock markets in raising financial resources required to finance development in Africa. However, it is important to stress that the effective utilisation of 1 IMF World Economic Outlook Database, April 2009. BIS Review 126/2009 1 resources will be dependent on the credibility of the institutional frameworks within which these resources are deployed and the quality of the projects themselves in terms of their economic and social returns. Sources of development finance (a) International reserves The global economy has witnessed an unprecedented accumulation of foreign exchange reserves in the last ten years, particularly in developing countries and Africa has been no exception. According to the IMFs currency composition of official foreign exchange reserves (COFER), between 2001 and 2008 total world reserves increased by 227 percent from $ 2,049.6 billion to $ billion while emerging and developing country foreign reserves grew by 418 percent from $ 818.1 billion in 2001 to $ 4,237.7 billion in 2008. The rapid build up in foreign reserves resulted mainly from high commodity prices and increased portfolio and foreign direct investments in emerging and developing countries. Most developing country central banks approach foreign reserve asset allocation with a view of preserving capital and liquidity. This normally means that central banks invest in low risk, highly liquid assets with short-term investment horizons. | For instance, in 2007 total foreign reserves held by African countries amounted to $ billion translating into an average of 9.2 months of import cover for each country. In the same year the African Development Bank (AfDB) raised funding from international capital markets amounting to UA724 million $ million) at a weighted average cost of 6-month US Dollar LIBOR minus 32 basis points. 2 The amount raised by the AfDB accounted for a mere 0.3% of the total reserves for African countries as at 2007. Hence, an allocation of some of African countries’ foreign reserves to fund African development institutions in which most of the countries are members would greatly enhance 2 2 African Development Bank Annual Report, 2007. BIS Review 126/2009 the capacity of these institutions in the provision of development finance, thereby assist the continent’s development programmes and poverty reduction efforts. In summary, it is important for African countries to consider alternative ways of making use of foreign reserves in the financing of development using resources that are already available, including the direct use of foreign reserves in financing development and making available part of the reserves to African multilateral development institutions to augment the resources available in the financing of African development. (b) Pension funds African countries need stable sources of development finance and as long-term investment vehicles, pension funds seem intuitively to be one potentially good source of domestically generated financial resources. | 1 |
And the Australian terms of trade have risen by 40% since 2000, providing a substantial boost to the growth rate of real incomes. Nothing could be more damaging to the prospects of developing and developed countries alike than the abandonment of further trade liberalisation. But protectionist sentiments are abroad again, even with high employment rates around the world. In Europe they are concealed as cries for “national champions”; in Latin America as populism; in the United States as complaints about unfair competition. But the damage that protectionism can wreak is clear – the experience of the Great Depression should be enough to ring alarm bells. If that is to be avoided and we are to maintain widespread support for an open international trading system, it is in all our interests to establish clear rules for what we will and won’t do in areas where our 2 BIS Review 126/2006 decisions affect stability elsewhere. And if those commitments are to be upheld, we will need international institutions. The role of international institutions was thrown into sharp relief last week by the visit to Beijing of the new US Secretary of the Treasury, Hank Paulson, and a high-level team for a “strategic economic dialogue” with the Chinese Government. | Central banks probably invest greater resources than any individual agent into studying the economy, assessing the economic situation and making forecasts. Reasonably, central banks should also know more about their own intentions than any other agent. It is therefore possible to construct theoretical cases where a lower degree of transparency is preferable to a higher degree. But on the whole the research appears to indicate quite clearly that a high degree of transparency is something the central banks should aim at. It is easy to agree with this conclusion. Here I think that the demands on a public authority in a democracy have great importance. Then I believe that in practice there are limits as to how transparent a central bank can be. In some respects it is quite simply difficult to be open and clear. This applies, for example, to how much emphasis the central bank places on stabilising the real economy relative to stabilising inflation. In theoretical models this is usually represented by a special parameter in the central bank’s so-called goal function. However, placing a value on this parameter which is then published would probably be 2 Morris, S. and H.S. Shin, (2002), "The Social Value of Public Information”, American Economic Review 92, 1521-1534. 3 Svensson, L.E.O., (2006), “Social Value of Public Information: Morris and Shin (2002) Is Actually Pro Transparency, Not Con,” American Economic Review 96, 448-451. BIS Review 40/2007 3 very difficult in practice. | 0 |
This is confirmed by Phillips curve estimates. As you can see from the right-hand side chart on slide 3, ECB in-house estimates using a variety of slack and inflation expectations measures suggest that core inflation today is well below what historical regularities would suggest. Of course, a number of factors – such as changes in the slope, weak productivity growth or second-round effects of past low inflation – might be at work here. But in the current context this is unlikely to be the whole story. For one, there is considerable uncertainty around the slope of the Phillips curve. As we heard this morning, some estimates show that the curve has flattened in recent years. ECB research, by contrast, found evidence that inflation has become more responsive to slack lately, but with notable heterogeneity across euro area Member States.7 Blanchard, Cerutti and Summers have not found much change at all during the crisis.8 Second, our Phillips curve estimates show that even once we control for past low inflation and weak productivity growth, there is still a considerable part that cannot be explained by the model. These analyses therefore do offer one useful conclusion: that slack may be larger and that structural unemployment may perhaps not have risen by as much as some estimates suggest. This also means that policymakers should be careful in attaching too much weight to notoriously unreliable and hard-to-estimate measures such as the NAIRU. | Other scratches also need early and effective treatment to avoid becoming scars. For example, insofar as investment is being affected by post-crisis legacies, such as the debt overhang in parts of the private and public sector – the famous Fisher-Minsky-Koo channel of debt deflation – history suggests that effective deleveraging nearly always involves a combination of growing out of debt and writing down debt – which is to say, structural policies are also key.15 And action also at the EU level is crucial. Efforts to complete the Single Market, for example, would incentivise more firms to invest and grow as they have a larger market to serve and exploit economies of scale. Progress with the Capital Markets Union (CMU) would likewise help to raise productivity by facilitating capital reallocation. Conclusion So, to conclude, the evidence suggests that hysteresis as it is often understood – meaning rising structural unemployment – has not yet materialised meaningfully in our economy. We see more scratches than we see scars. And unlike “classical” hysteresis, these scratches are currently reducing price pressures, warranting our currently very accommodative monetary policy stance. We can be confident that this stance will have the desired effect. The ongoing broadening of the recovery, together with the gradual disappearance of downside risks, increases the chances that those who want to work more will be able to do so. This, in turn, will create the necessary price and wage pressures for a return of inflation towards levels closer to 2%. | 1 |
I invite our guest to share his vision on aspects such as economic policies development in Europe, economic and social trends, euro convergence and the reform steps needed. His lecture will provide an excellent occasion for all of us to get a better grasp on what lies ahead for the Union and for the Euro Area. I hope that Prof. Sapir’s lecture will offer each of you a better view of what lies ahead. I am sure he will willingly answer your questions. I invite Professor André Sapir to take the floor and I wish you a rewarding debate. Thank you. 2/2 BIS central bankers' speeches | Dimitar Bogov: Challenges of countries from South-Eastern Europe in the current economic and financial turbulence in the euro area Opening speech by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia, at the NBRM conference on the occasion of the 20th anniversary of the monetary independence of the Republic of Macedonia, Skopje, 27 April 2012. * * * Dear Deputy Prime Minister, dear ministers, distinguished Governors, Your Excellences, dear guests, colleagues and friends It is an honor to greet you and wish you welcome to this conference, which is a part of the activities for marking the 20th anniversary of the monetary independence of the Republic of Macedonia. The last two decades of monetary independence, the Republic of Macedonia has faced, and in our opinion, successfully addressed many challenges. Our twentieth anniversary takes place in exceptionally turbulent developments of global economy, particularly marked by events triggered by the euro area debt crisis. This means that as the other central banks from the region, we face a new challenge. Taking into account the timing of the conference, its topic came quite spontaneously, and therefore we consider that it will raise interesting discussion of current issues of the central banks of the South-Eastern Europe and beyond. | 0 |
Cyber criminals and hackers often probe for and target the weakest links in the system to gain access to the critical IT assets. Within an FI, the weak links could also manifest in the carelessness or lack of cyber-security awareness by individuals or lax processes, on top of vulnerabilities in adopted technology systems. 1 http://www.csoonline.com/article/3054570/security/symantec-zero-days-doubled-in-2015-more-companieshiding-breach-data.html. 2 http://www.pwc.com/gx/en/issues/cyber-security/information-security-survey.html. BIS central bankers’ speeches 3 18. Banks therefore need to take a holistic approach to address cyber risk. A system of cyber-intelligence exchange to identify potential vulnerabilities and frequent testing of the robustness of cyber defences are key to this effort. 19. MAS has been working closely with the ABS in both of these areas. The ABS Standing Committee on Cyber Security (ABS SCCS) was created to raise overall cyber awareness, to share cyber intelligence and build resilience among financial institutions. 20. Some of the recent initiatives which MAS has collaborated closely with the ABS SCCS include: • ABS Penetration Testing Guidelines. These set out the industry best practices for the conduct of penetration testing. The results of members’ penetration tests have been shared with the ABS SCCS members to engender collective learning. • Cyber intelligence and information sharing through various channels, such as the global Financial Services Information Sharing and Analysis Centre. Given the interconnectedness of the financial eco-system, such information sharing is critical. Enhancing risk management in outsourcing arrangements 21. The third topic is Risk Management of Outsourcing Arrangements. | In addition, the local banks’ all-currency liquidity coverage ratio (LCR) are already above 100%, well ahead of Basel’s implementation timeline of 1 January 2019. 11. However, we should not be complacent. Banks should continue to improve risk management processes, and watch out for risks arising from new and emerging trends such as persistently low interest rates, increasing interconnectedness between financial institutions and markets, and the growing use of sophisticated technology. 2 BIS central bankers’ speeches 12. Stress tests will become an increasingly important and integral part of risk management in the financial sector. • For individual participating banks, the results facilitate discussions with MAS on their resilience to plausible adverse scenarios, planned responses, and actions to mitigate risk management gaps identified from the exercise. • For the banking sector, the stress test results help to identify common vulnerabilities across FIs, such as exposures to a particular sector or country. This helps banks enhance their risk mitigating responses. 13. To make the exercise more useful, MAS encourages banks to compare the IWST results against their internal stress tests and sensitivity analyses and to assess whether the differences in scenarios and corresponding results reflect particular risk exposures faced by the bank. 14. In addition to prescribed scenarios, MAS has also been working with participating banks to conduct reverse stress tests. This involves banks describing scenarios under which their solvency could come under threat, thereby providing further insights on the risks that could impair the financial system. | 1 |
This growth has been faster than growth in the global stock of bonds outstanding over a similar period, which grew from roughly $ trillion to $ trillion over 2005 – 2012. While funds typically have a number of tools available to them to manage liquidity risk, some investors may not fully appreciate that their ability to redeem, at or close to, current market 6 BIS central bankers’ speeches prices could be compromised by large simultaneous withdrawals by other investors. In a recent survey, the Bank and Financial Conduct Authority found that, in aggregate funds assumed that, over a one-day horizon, they could liquidate corporate bonds of a value equivalent to 2.9 times average daily US corporate bond trading volume. A great deal of thought internationally and in the UK is now being given to these issues, and to understanding whether or how systemic risk could arise from these channels. To the extent that it can, there will need to be much more work on policy options. A more system wide approach to stress testing could be one promising avenue for development. This would be in line with the Financial Stability Board’s advice last month encouraging the appropriate use of stress testing by funds to assess their ability individually and collectively to meet redemptions under difficult market liquidity conditions. A second avenue worth exploring is better data on funds, including the development of more comprehensive metrics that capture the degree of any mismatch of the liquidity of underlying assets and the liquidity offering. | Market making means the temporary transfer of risk to intermediaries to smooth out imbalances of supply and demand. But market makers have to be able to bear the risks. Pre-crisis, market makers funded their inventory with short-term borrowing and very small amounts of loss absorbing capital. As a result, when exposed to a severe stress, market makers simply disappeared from the scene. So liquidity is a good thing. It does play a key role in the functioning of effective markets. And financial market intermediation and engineering can help ensure the price is as low as possible, consistent ultimately with an asset’s underlying characteristics. But taken too far, these can create the illusion of liquidity rather than liquidity itself and expose the system to risk when the illusion disappears. We should not in particular refer to metrics of the pre-crisis period to see what some “good” level of liquidity looks like. Some markets may indeed not function as smoothly or cheaply as they did in the run up to this crisis. But that may well be the counterpart of less poorly priced liquidity risk in the system. Promoting true liquidity That is not to say that nothing can be done in this area. First, we should ensure that regulatory changes are coherent. Regulators have dealt with the under-pricing of liquidity risk in part by remedying inadequate capital requirements. | 1 |
François Villeroy de Galhau: Paris 2020 Climate Finance Day Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Paris 2020 Climate Finance Day, Paris, 29 October 2020. * * * Ladies and Gentlemen, It is always a pleasure to be here each year. A lot has happened over the past months as well as in the last hours. Covid provoked an unprecedented fall in French GDP in the first and second quarter and its second wave will trigger another drop in the fourth quarter, though hopefully one that is less severe. A short-term view could argue there is a trade-off between supporting a quick recovery, and fighting climate change. I believe the contrary: reconstruction is an opportunity to accelerate the transition to greener growth. It cannot be a mere restart: due also to climate, we need to be Schumpeterian. The Banque de France and ACPR are as committed as ever and delivered on what we announced last year, in spite of the Covid-19 crisis we “walked our talk” (1). But we have also observed, thanks to our experience, a number of methodological impediments to data and reporting practices. Going forward, we must tackle these issues in order to better assess and disclose climate-related risks (2). *** 1. The Banque de France/ACPR lived up to its promises on climate 1.1. | Many necessary data are still simply missing To foster data availability within the financial sector, in summer 2020, the NGFS launched an ambitious workstream to identify and map lacking data (financial and non-financial) relevant to climate risk analysis. We actively look forward to the publication of the preliminary results in the course of 2021 (that is: a detailed list of data items that are currently lacking, but which are needed). 2.2. Current disclosures are often hardly comparable However, the available data should also be comparable enough to be processed easily on a large scale, with reliable results. To solve this issue, regulations should be more specific and prescriptive towards climate-related reporting from financial firms as well as corporate firms, including SMEs (with proportionality). This is why we need harmonised and relatively granular reporting standards. France and the EU are at the leading edge and have already implemented targeted disclosure requirements (art. 173 in France / upcoming “Disclosure regulation”– SFDR –, to be implemented next March in Europe). However, this is still not enough, as the data disclosed currently lack homogeneity and comparability: this is a major loophole of the implementation of article 173 in France, for instance. We are not yet able to assess and compare the results of financial institutions in our public reports. 2/3 BIS central bankers' speeches I strongly believe that the EU should keep its first-mover advantage in climate data standardisation. | 1 |
Subsets and Splits