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However, at the beginning of the 1970s, the exchange rate cooperation collapsed because of the tensions that had built up due to high, variable inflation in and between the participant countries and that had largely originated from the growing US budget deficit. Efforts at the time to establish a new credible anchor for inflation failed. The following two decades were marked instead by high inflation and low growth in many economies. BIS Review 40/2004 1 From the end of the 1970s the pendulum started to swing back slowly, and an increasing number of economists again highlighted the importance of price stability for economic stability and long-term growth. Attempts to fine-tune the economy via economic policy to stabilise growth had resulted in burgeoning central government debt in many countries, partly because of the inability of politicians to tighten policy sufficiently during booms. The economic debate at the beginning of the 1980s centred therefore on the need for regulations and fixed limits to avoid this. In Sweden, a last big devaluation in 1982 would first enhance the competitiveness that had been eroded for many years as a result of high inflation. However, it was intended that once the devaluation had got the competitive sector on its feet, the fixed exchange rate would thereafter serve as an anchor for an inflation rate in line with other countries. The demands that this imposed on fiscal policy proved politically impossible to live up to, however. | Basel III also envisages the implementation of a long-term liquidity ratio so that banks maintain stable funding profiles, tailored to their assets and activities. In that way, banks’ dependence on short-term funding markets is structurally reduced, since that proved to be a very disruptive weakness in the 2008 financial crisis. The design of this ratio is at a relatively early stage, as the preliminary proposal published in 2010 is being revised. It is expected that, early next year, a consultative document will be available, and that the regulations will have been finalised before 2015, with this entailing a simplification of the original rule. Further, it will be necessary to agree on certain aspects of relevance for Spanish banks, such as, in relation to liquidity requirements, the treatment of high-quality mortgages or matters pertaining to asset encumbrance. This ratio is expected to come into force in 2018, although in the case of the EU, the Commission will have to submit a legislative proposal before 2016. I shall now move on to certain elements relating to the review of capital requirements. This is part of a broader project: to attempt to ensure that the benefits of risk-adjusted regulations, such as Basel III, are not achieved at the cost of introducing excessively complex regulations which, in addition to other problems, yield results that cannot be compared from one bank to another. The Banco de España is in favour of simplifying the current regulations, striking a balance between simplicity, comparability and risk-sensitivity. | 0 |
4. https://www.jstor.org/stable/289972 Gennaioli, N and Shleifer, A (2018), ‘A crisis of beliefs: investor psychology and financial fragility’, Princeton University Press Graeber (2011), Debt: the first 5,000 years, Melville House Hudson (2018), ‘… and forgive them their debts: lending, foreclosure and redemption from Bronze Age finance to the Jubilee year’, ISLET-Verlag Dresden Kahneman, D and Tversky, A, (1973), ‘On the Psychology of Prediction’, Psychological Review, 80(4) Keynes, J M (1936), The General Theory of Employment, Interest and Money. Lovell, M (1986), ‘Tests of the rational expectations hypothesis’, American Economic Review, Vol. 76, No. 1. https://www.jstor.org/stable/1804130 MacGregor, N (2010), A history of the world in 100 objects, Allen Lane Malmendier, U and Nagel, S (2015), ‘Learning from Inflation Experiences’, Quarterly Journal of Economics, Volume 131, Issue 1. https://doi.org/10.1093/qje/qjv037 Mian, A and Sufi, A (2014), House of Deb:, How They (and You) Caused the Great Recession, and How We Can Prevent it from Happening Again, University of Chicago Press Shiller, R (2000), Irrational Exuberance, Princeton University Press 15 All speeches are available online at www.bankofengland.co.uk/speeches 15 Shiller, R, (2007), ‘Understanding recent trends in house prices and home ownership’, Proceedings of the Economic Policy Symposium at Jackson Hole, Federal Reserve Bank of Kansas City. https://www.kansascityfed.org/publicat/sympos/2007/PDF/Shiller_0415.pdf University of Chicago (1995), ‘Economics dynasty continues: Robert Lucas wins Nobel Prize’, The University of Chicago magazine, December 1995. https://magazine.uchicago.edu/9512/9512Journal.html Williams, A, (1987), ‘The formation of price forecasts in experimental markets’, Journal of Money, Credit, and Banking, Vol. 19, No. | I might equally have talked about cyber risk or the impact of a credit correction in China. It is of course the job of policymakers like me to assess and address potential vulnerabilities like these, and we report on them regularly. But to me the bigger point is that at some point, in some way a correction will be triggered when the future, for whatever reason, does not match up to expectations of those who have lent and borrowed and bought assets. Our fundamental task is to ensure that when that happens, the correction can be absorbed and does not lead to a ‘great crisis’, as it did 10 years ago, with all the social and economic loss that entails. 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 References Aikman, D, Nelson, B, and Tanaka, M (2015), ‘Reputation, risk-taking, and macroprudential policy’, Journal of Banking and Finance, Vol. 50. https://doi.org/10.1016/j.jbankfin.2014.06.014 Aliber, R and Kindleberger, C (2005), ‘Manias, Panics, and Crashes’, Wiley Bank of England (2014), Financial Stability Report June 2014 Bank of England (2016), The Financial Policy Committee’s approach to setting the countercyclical capital buffer: a policy statement Bank of England (2017), Financial Stability Report November 2017 Bank of England (2019), Stress testing the UK banking system: key elements of the 2019 annual cyclical scenario Bernanke, B (1983), ‘Nonmonetary effects of the financial crisis in the propagation of the Great Depression’, American Economic Review, Vol. 73, No. | 1 |
Mortgage bonds that were difficult to sell could be converted into a liquid asset, which meant that the measure simultaneously helped the situation on the mortgage bond market. About the same time, the Riksbank also made it easier for banks to borrow from the Bank by accepting additional types of securities as loan collateral. Covered mortgage bonds issued by an institution with close links to the counterparty could now be used as collateral to a greater extent than in the past. This measure is also helping the situation for mortgage bonds. … a shortage of dollars the second The next problem to address was a general shortage of financing opportunities in US dollars. Since the Swedish banks are not counterparties to the US Federal Reserve (Fed), they cannot be sure of benefitting from the Fed's liquidity injections. In late September, mutual currency arrangements with the Fed were established by the Riksbank and several other central banks. With these swap facilities the Riksbank can borrow US dollars against Swedish kronor. The Riksbank then offered its counterparties large loans denominated in US dollars. The loans are granted against collateral at an interest rate determined by auction, though no lower than a minimum rate related to the expected policy rate in the United States. General measures to promote liquidity Since the beginning of October the Riksbank has been implementing measures to support SEK liquidity, aimed at securing bank funding, facilitating the supply of credit and improving the functioning of the financial markets. | I usually look at these five economic variables when trying to gain an impression of a country’s overall macroeconomic development and I will return to them often during my speech. During the 1970s a number of events occurred that had serious consequences for the Swedish economy. Oil prices rose substantially in 1973, which led to much higher inflation than could be considered justified by the actual oil price. Internationally, this became the start of a long period of low growth. In Sweden the government invested in economic stimulation to bridge over the coming economic recession. The central wage agreements signed for 1975-76 were therefore at a very high level, which together with wage drift and increased employer contributions meant that the wage costs per hour BIS Review 21/2006 1 rose by a total of 38 per cent. Sweden’s competitiveness thus deteriorated substantially. Our labour costs per unit produced in industry in relation to the corresponding costs in other countries rose by around 25 per cent between 1974 and 1977. At that time, Sweden had an exchange rate regime with a fixed exchange rate. After World War Two, almost all western countries’ currencies were pegged to the United States dollar, which in turn had a fixed price against gold. The system came into force in 1944 and was called the Bretton Woods System. | 0 |
This was especially true in the United States, where the task of containing inflation was still pending and history teaches us that the process has never been easy. In fact, in the last few weeks, some of the risks that we identified in the face of a process of interest rate hikes in the developed world have materialized. Doubts about the financial situation of some banks in the United States have opened up a major channel of uncertainty. 8 So far, its impacts have been contained. In fact, the central scenario of this Report considers that there will be effects on growth in the developed world and this will have repercussions on our economy. But these are impacts of a much smaller magnitude compared to episodes such as the Global Financial Crisis of 2008. Now the effects are associated with lower confidence and, therefore, with a contraction of credit levels and tighter financial conditions, a consequence of the search for safe assets worldwide. Since the most recent focus of uncertainty originated in the banking sectors of other economies, it is important to review what is happening in our country. The first thing to reiterate is that the Chilean banking system is subject to adequate regulation and supervision, which makes situations such as those that triggered the current uncertainties in international banking very unlikely to occur. This does not mean that the Chilean economy, including the banking system, is immune to a further deterioration of the external scenario. | A review of the national accounts shows that the level of consumption over the last three years was ultimately much higher than we had thought: almost $ billion more. Moreover, the speed of the economy's adjustment has been slower than expected. In the projection scenario that I will now share with you, the improved performance in early 2023 leads to an upward revision of this year's GDP growth projection. However, the economy will continue adjusting in the coming quarters. Therefore, for 2024 our projection is corrected downward. With this, the cumulative growth between 2023 and 2024 does not differ much from what was forecast in the December Report. Total inflation will continue to decline in the coming quarters. According to our projections, it will return to single digits during the second quarter. However, I want to be emphatic in pointing out that this does not mean the inflationary problem has been solved, much less inflationary convergence is assured. Our goal is to bring inflation down to 3% in two years. Higher inflation is very costly for everyone. The global economic outlook has turned more difficult since early March. For the Chilean economy, this will imply facing lower external demand and tighter global financial conditions. Overall, the current scenario is associated with a higher degree of uncertainty than usual. On the one hand, there is the risk of a sharper deterioration of the external scenario, with more profound implications for Chile. | 1 |
May they share these approaches and concerns. Their confidence in the lasting benefits of globalization will be fully justified as a new world, born from the opening of economies, the unification of markets, and the universal availability of information and knowledge, has an immense potential for high-quality growth. May they also validate their own message of confidence by a clear demonstration of their sense of universal responsibility and solidarity. BIS Review 43/1998 | Estimates from our recent survey indicate a sharp drop in the use of cash over the last 15 years. Estimates of the exact level of cash use vary according to data sources and methodology. However, it is fair to say that cash is still an important means of payment. Notes and coins will also remain important as symbols of money. I believe that there have been two very important factors behind the rapid transition to electronic payment services in Norway. Banks have cooperated on standards and payments infrastructure while competing on the supply of services, and banks have charged for the use of payment services. Prices that reflect relative differences in production costs encourage users to choose the most cost-effective services. Research (by Humphrey, Kim and Vale) has shown that a BIS Review 140/2008 1 relatively high price per transaction for paper-based payment services and a low price for electronic payment services have accelerated the trend towards an increasing share of electronic transactions. Without incentives for consumers or merchants to move to more efficient instruments, banks and other payment service providers will more likely be left trying to improve on old solutions. Payment systems are networks for the exchange of values between payers on the one hand and beneficiaries on the other. In two-sided markets like this, the benefit to existing users increases when new users join up. | 0 |
To be sure, such willingness has not been entirely voluntary. Neither has the pace with which openness is being pursued. For relatively small domestic markets, there is understandably a lack of attraction for the large and sophisticated international financial intermediaries. And so there may be special privileges or incentives offered, at the risk of creating structural distortions in the financial system, as enticement for the esteemed presence of the household names of international finance. More important, individual jurisdictions have been, whether of their own free will or under pressure, pursuing financial openness, not just in respect of the financial system, but also in respect of the international mobility of capital. This they do so, in some cases, perhaps prematurely, by reference to their ability to manage the associated risks to monetary and financial stability on a continuous basis, in keeping with the demands arising from the changing scene, and changing risks, of international finance. As a result, the path towards financial openness has not been a smooth one, and diversions, although of a defensive nature, have been rather frequent lately. This is an aspect to which I shall return later. Let me turn first to how financial openness has been manifested in the dynamics of financial intermediation in Asia: this is the fourth characteristic of Asian finance that I wish to talk about. High public-sector and private-sector savings, less developed financial systems and financial openness have affected financial intermediation in two ways. | While the recent joint staff report on the events of October 15 certainly revealed that much has changed, it is also important to recognize that both private and official sector efforts to ensure a healthy and efficient Treasury market have been ongoing for some time. 3 One obvious example is the Treasury Market Practices Group, or the TMPG. Set up in February 2007, the 1 What I have to say today represents my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. 2 See Regulation and Liquidity Provision, remarks at the SIFMA Liquidity Forum, September 30, 2015. 3 Joint Staff Report: The U.S. Treasury Market On October 15, 2014. BIS central bankers’ speeches 1 TMPG is a group of market professionals committed to supporting the integrity and efficiency of the Treasury market. 4 A core purpose of the TMPG is to develop and update a set of best practices related to trading, settlement and risk management, thereby establishing a set of behavioral norms to which market participants are expected to adhere. Most recently, the TMPG updated its best practice guidance to address automated trading, and published a companion white paper on the subject. | 0 |
In my view, this notion is nothing more than a financial analyst’s fantasy. In fact, over the last six months, we have seen constant confirmation of the anti-inflationary stance of monetary policy with, for example, the FED actually establishing a quantitative definition of price stability for the first time (in fact, identical to the one used by the Eurosystem). Sixth remark. Our immediate priority is therefore to construct or reconstruct the mechanisms and structures of a sound and efficient financial intermediation framework. That is why, at the euro area level, the financial union project is fundamental. At the global level, the FSB’s role is crucial in developing a robust technical, regulatory and prudential architecture, adapted to the interconnection of our economies. Seventh and last remark: fiscal policy and debt management. Here, I would say that we are all guilty of a certain degree of ambiguity, both at the market level and at the political level: • on the one hand we want public debt markets that are broad, deep and liquid, because they form the base on which our entire financial system is built. In particular, government bonds are the safest and the most liquid assets. They act as reserves of value for a large number of investors, starting with the central banks themselves which hold them as foreign currency reserves or as monetary policy collateral. • And on the other hand we want solvent States, i.e. | This will offset the impetus to consumption and investment provided by the near-zero interest rates. 7. Some academics believe that the effectiveness of the quantitative easing policy in the US is also undermined by the fact that the US property market has not yet bottomed out and US households need to continue to de-leverage. Many policy measures introduced in the US recently aim to reduce the pain of households in a falling property market and slow down the process of foreclosures. Even though property prices have already fallen significantly, more than 50% in some places according to anecdotal reports, potential buyers still prefer to wait as they fear that prices may fall further once the huge stock of foreclosed properties are put back to the market or when interest rates return to more normal levels. In other words, while measures to slow the downward adjustment of the property market are well-intentioned and have their political merits, they could prolong the time needed for the market to reach a new equilibrium or find the so-called clearing price. In my view, this may delay a true recovery of the property market and create a negative drag on the repair of US 2 BIS central bankers’ speeches households’ balance sheets, making the recovery of consumer confidence farther and farther away. 8. Finally I would like to share with you a few policy lessons learnt from the latest crisis: (a) Households, companies and governments alike must avoid excessive leverage or borrowing. | 0 |
An incentive for further structural reforms a/ The Euro is, per se, also a strong catalyst for structural reforms in all non-financial domains in Europe : a single currency facilitates the full comparison of prices, taxes and earnings. I think that the euro could encourage "cross-fertilisation" of best practice through stronger co-ordination of Member States' structural policies in areas such as labour markets, education and training, job creation incentives, effective welfare safety nets, etc. It is the reason why the European Council, meeting in Luxembourg in December 1997, explicitly mentioned structural policies among the items selected for reinforced co-ordination. The Lisbon European Council made a further contribution to the necessary medium-term strategy for structural reform in the Union. The emphasis put on deepening the single market, the setting of indicators allowing comparisons of best practices among the Member States, the fact that the Broad Economic Policy Guidelines will examine the structural issues closely : all these developments are going in the right direction. BIS Review 11/2001 5 All European countries must resolutely carry on the structural reforms they have already initiated. It must be acknowledged that a lot has already been done, in particular with implementation of the single market. However, continental Europe is still experiencing levels of unemployment that are too high, despite the fact that the jobless rate has been declining significantly in most of its economies for three years. | We also allow for the wage Philips Curve to be non-stationary: it moves over time, and it is absolutely normal to do so. Reference wage values, social preferences, jobs’ characteristics, skill endowments and even Central Banks’ targets, they all change over time – hence, the impact of wage gaps on inflation cannot be the same in different time periods. The preliminary finding of our model is that inflation does not increase close to or above its target level until the wage gap is closed. For Philips Curve to work, the loss of welfare from a negative wage gap has to be fully compensated first – as a stock measure, not as a flow. The policy recommendation from here is that countries which closed their wage gap should be much more prudent in further wage increases – because they will be seen in inflation much faster and larger than in the recent past. And for countries which have not closed their wage gap the implication is 3/5 BIS central bankers' speeches that inflation will remain subdued until this happens. I fully agree with the IMF’s recommendation that central banks in NMS with their own currencies should be alert to the inflation risks of higher wage growth, while bearing in mind that raising policy rates could trigger capital inflows and exchange rate appreciation – which could further deepen current account imbalances. While the real monetary policy stance may differ between euroarea and emerging Europe, there is broad heterogeneity even among emerging Europe. | 0 |
At the recent Brookings-Yale conference looking back 10 years after the crisis, both former Federal Reserve Chairman Bernanke and Vice Chair Kohn expressed the view that too much weight was given to the predictions of the Fed's workhorse model FRB/US.6 Some of you might observe that model uncertainty is a well-developed field, and certainly staff of the Federal Reserve Board and the Reserve Banks all appreciate the importance of using a diverse set of models with different transmission mechanisms, estimation approaches, and solution methods. Further, the Great Recession has generated considerable interest in approaches that allow for nonlinear reactions and fat tails, as Marco Del Negro will explore this afternoon. While I am incredibly sympathetic to the idea that more sophisticated modeling can improve judgment and decision-making—especially as I spent much of my career working on such technical issues—this approach has limits. If one had to summarize the message of the Superforecasting book in one line, it would be the well-known quip, "Forecasting is hard, especially about the future. "7 To illustrate some of the learnings from the book, I invite you to consider a standard problem: What is the probability the U.S. economy will be in a recession over some period of time? This is similar to the focus on binary outcomes in the IARPA tournaments. One simple, wisdom-of-the-crowd-based approach to this question would be to poll you all right now given a specific time frame. Rather than disturb your lunch, we can instead consider using the wisdom of the market. | Bandid Nijathaworn: Risk management and Pillar II implementation Opening address by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the FSI-SEANZA Regional Seminar on the Implementation of the Supervisory Review Process (Pillar II) of Basel II, Bangkok, 21-24 April 2009. * * * Distinguished Speakers; and colleagues from SEANZA central banks and regulatory authorities, Let me begin by extending a warm welcome to all of you to Bangkok, and on behalf of SEANZA members, I would like to express our appreciation to all the speakers, as well as the FSI, for their contributions to make this FSI-SEANZA Regional Seminar on the Implementation of the Supervisory Review Process possible. This is all the more so as this seminar had to be rescheduled from last year, and in this regard, let me express our commitment that the Bank of Thailand stands ready to facilitate you and ensure that your experience here will be a fruitful and enjoyable one. Ladies and gentlemen, The current global financial crisis underscores the need to strengthen risk management and risk-based supervision, so that we can deal more effectively with the increased complexity arising from both financial product innovation and increased interconnectedness between financial institutions. As for the current crisis, while many causes have been identified, what has become very clear is that financial institutions, capitals were not adequate given their risks, and this had allowed over-leveraging by financial institutions as well as by their customers, leading to over-indebtedness and asset price bubbles. | 0 |
There are millions of women in Asia involved in a wide range of economic activities from the home, making handicraft, assembling parts for international brand names and working in the fields. They work for a small income, and generally in difficult circumstances. Deliberate actions to integrate the informal economy into the formal economy will give this segment of society increased opportunities. In many countries, the success of various national and international socio-economic reform programs have resulted in women becoming an increasing part of the formal economy. Through the concerted efforts of women’s rights movements, economic policy intervention and gradual shifts in cultural norms, women today have more opportunities for education, careers and political representation. However, in many instances the increase in participation in the formal economy has not come with a commensurate level of sophistication in financial literacy. As a result, women continue to face special challenges in their endeavour to be active participants in the economic system. Challenges women in Asia face in financial literacy Let me now turn to discuss some of the challenges faced by women in Asia in their endeavour to become more financially literate and financially independent. Firstly, with the socio-economic environment in Asia changing rapidly, there is greater uncertainty and volatility which represents a challenge even for financial experts. The financial system has also become more complex, with new risks emerging. This increased sophistication thus makes it increasingly difficult for those who are less financially literate to make sound decisions. | Secondly, the advances in technology has led to a proliferation of financial products and services. There needs to be a greater understanding of the basic concepts and practices of banking, insurance and equity so as to know how to make choices from the wide range of financial products available, and to assess the respective risks, costs and returns. Also important is the basic principles of debt management, wealth management and personal budgeting to be able to understand the importance of long-term savings in funding future requirements. Financial literacy involves being able to identify and understand the opportunities for income generation, access to funding, and learning how to make the most of the range of financial products 2 BIS Review 64/2004 available. It also involves learning how to manage financial risks in an environment where the financial infrastructure may be under developed. This may relate to the laws and procedures in the country. Also important is the need to be able to recognize illegal schemes and other exploitative practices such as predatory lending. Thirdly, while women in Asia are being less stereotyped and given greater opportunities for entering into the economic mainstream, nonetheless the working conditions for women in many countries have tended to be less favourable. The exploitation of labour in the informal sector in some instances are particularly bad, not only for women, but also for children and minority groups. Women who are disadvantaged in this manner have found it difficult to escape from the trap of indebtedness. | 1 |
Some argue that raising the minimum wage, despite its costs, can potentially promote investment and improves labour productivity. Some prefer to provide direct fiscal incentives for firms to invest. Others see public investment as holding the key. The jury is still out as to how successful these approaches will prove to be in catalyzing an investment up-cycle, and ultimately alleviating the labour market issue. Fortunately, the currently conducive macroeconomic environment is already providing ample incentives for businesses to invest. Financing costs are currently low. Strong baht facilitates imports of capital goods. Firms stand to gain more from AEC integration if they carry out their planned investment in a timely manner. Collective efforts by all will also generate positive externalities, and can go a long way in easing the labour shortage problem for all parties. BIS central bankers’ speeches 3 One fundamental force that may exacerbate the labour shortage problem is the demographic change. Slowly but inexorably, the Thai society is aging, as the total fertility rate is consistently lower than the replacement rate. The number of people aged 65 and above will double in less than 10 years. As projected by NESDB, by 2030 the working-age population will fall from the current rate of 68 percent to just over 60 percent, making Thailand’s old age dependency ratio slightly higher than the Asian average. The government can help manage this demographic transition by speeding up the reform of immigration policy, and simplify registration procedure. | The committee recognizes that, in the current environment where growth prospects differ wildly across regions and monetary policy in advanced economies remains ultra-loose, pressure from capital inflows may persist in the medium term. All available policy options are therefore open to considerations. Substantial preparation work has been ongoing to ensure that the right measures can be readily implemented should the situation warrant. Investors seeking long-term presence in Thailand should be reassured that productive capital inflows are still highly valued, and any introduction of measures will be carefully designed to minimize unintended consequences. After all, the goals of these measures are to preserve the financial and economic integrity, the very reason that attracts investors to Thailand in the first place. Structural Impediments Ladies and gentlemen, Macroeconomic stabilization and demand management policy can only get us so far. The ultimate determinants of long-term growth are tied to the supply side of the economy, namely the deployment of effective capital and labour inputs. It is a pity that the supply-side issues are often overlooked in policy discussion, and action is often limited to structural ‘reform’ that comes too late. By addressing the structural issues early and preemptively, the long-run growth benefits are likely to be more substantial. So let me venture out of my familiar territory, and devote the rest of my talk to discuss one key structural issue facing the Thai economy – the labour shortage. Unemployment is persistently low in Thailand, and is not very sensitive to the business cycles. | 1 |
Both regimes may be prone to fluctuations in interest rates in response to shocks, but with inflation targeting, which requires a flexible exchange rate even if managed to a degree, the central bank has a measure of discretion in the magnitude and timing of its response, whereas, with a fixed rate, defensive reactions must be more immediate and may hence be potentially sharper. Hong Kong context Recent criticisms of Hong Kong's currency board have focused mainly on two aspects - the implications for the competitiveness of Hong Kong vis-a-vis other economies and the problems of living with falling price levels. The remainder of this paper is directed mostly at these issues. Competitiveness Changes in competitiveness are typically measured by comparing movements in some appropriate measure of costs or prices at home and abroad, and adjusting for shifts in exchange rates. The BIS Review 17/2002 1 1 measure of competitiveness thus produced is commonly referred to as the real exchange rate. A 2 stronger real rate means higher relative prices and therefore implies weaker competitiveness. I detect two common misconceptions about the real exchange rate. Influencing the real rate The first is the belief that the real rate is amenable to control by the central bank or government and that the chosen regime for the nominal exchange rate is therefore an important determinant of the real rate. Let me explain what I believe to be some flaws in this view. | Tony Latter: Why blame the peg? Speech by Mr Tony Latter, Deputy Chief Executive of the Hong Kong Monetary Authority, at a luncheon of the American Chamber of Commerce in Hong Kong, 12 March 2002. * * * Introduction When things aren't going too well, it's natural to look for scapegoats. In the case of the Hong Kong economy, the pegged exchange rate certainly gets its fair share of that treatment. What is the basis for complaints about the peg, and how far are they justified? Before examining some of the complaints, however, let us review the monetary policy background. Monetary policy It is widely accepted that the duty of monetary policy - and that embraces exchange rate policy - is to provide that monetary environment which is most conducive to long-term growth and prosperity of the economy. This is seen to imply a desire for stable monetary conditions, but there is scope for judgement as to how this stability should be defined. The majority of regimes focus on internal purchasing power and thus aim for low and stable domestic inflation. Thus, the practice of inflation targeting has now become quite widespread and well understood. This requires an active monetary policy, necessarily impacting on domestic interest rates and money market liquidity; and, at least in the strictest form of targeting, it inevitably involves some exchange rate flexibility, even if not an entirely free float. | 1 |
BIS central bankers’ speeches 3 Basel III implementation has been proceeding on a comparable basis in advanced and emerging market countries. The Financial Stability Board has been monitoring the unintended effects of reforms on EME banks and EMEs report no significant adverse effects. 4 However, potential differences in reform implementation across jurisdictions could create challenges, particularly in countries where foreign banks are active. This underscores the importance of continued home and host coordination. I would like to briefly touch on two U.S.-specific financial regulatory issues with international implications, namely enhanced prudential standards for foreign banks, including intermediate holding company requirements for the largest institutions, and issues surrounding correspondent banking, U.S. anti-money laundering rules, and “de-risking”. Of these, the latter may have the most relevance for the EMEs broadly. The adoption of enhanced prudential standards for foreign banking organizations (FBOs) is a key element of U.S. regulatory reforms, and a significant change in supervision of FBOs. 5 The largest FBOs (with U.S. non-branch assets greater than $ billion) must hold their U.S. subsidiaries under an intermediate holding company (IHC), and meet various capital, leverage, liquidity, stress testing, risk management and corporate governance requirements. These requirements respond to a mandate in the Dodd-Frank Act for enhanced standards for the largest domestic and foreign banks. | Since the end of the Great Recession almost six years ago, U.S. growth has averaged a somewhat disappointing 2.3 percent. But growth has picked up recently, and the latest Blue Chip forecast is for growth to average slightly below 3 percent over the next year. There are good reasons to think that a period of stronger growth can be sustained. • Household balance sheets are in much improved condition, with total household liabilities well below their 2008 peak, and debt service burdens at the lowest share of disposable income in more than 30 years. Moreover, consumers are benefitting from the positive wealth effect of higher house and equity prices. • Labor market improvement has picked up pace, with payrolls gains over the last several months the strongest since the mid-1990s. Workers are finally beginning to see at least modest real wage gains. And the U.S. unemployment rate has fallen to the lowest level since mid-2008. • The recent drop in oil prices is providing a significant boost to household spending power with nearly a percentage point increase to real disposable incomes. • The housing sector is now in much better balance. The inventory-sales ratio for homes is near, or even slightly below, levels typically considered “normal,” and there has been a significant drop in the fraction of households carrying mortgage balances in excess of the value of their homes. • The fiscal restraint that has held back growth in recent years has given way to a more neutral posture. | 1 |
Norges Bank’s district branches lost their right to set the interest rate in their own district – Norway became one interest rate kingdom. And the stock of gold would no longer set an absolute limit on the supply of banknotes. A formal obstacle to the Bank’s provision of emergency liquidity to private banks in a crisis had been removed – and, as it turned out, the need for emergency liquidity would soon arise. A more complex banking system with a growing number of links to the international financial system had set the stage for financial turbulence. Just before the turn of the century, a speculative economy had developed in Christiania. Property prices soared and newly established banks willingly provided loans – often based on short-term foreign credit. The ensuing crash was to claim many victims. One day in June 1899, a delegation from one of the banks, Discontobanken, marched into Norges Bank with some very bad news: one of the country’s largest companies could not meet its payment obligations and Discontobanken was on the verge of collapse. If the bank fell, panic could ensue, triggering a domino effect in the banking system. Norges Bank, under the leadership of Governor Bomhoff, took immediate action to provide liquidity support. Credit was injected into the economy. Norges Bank soon had to take on the additional task of resolving speculative banks while at the same time protecting healthy banks from being caught in the undertow. Norges Bank was later praised for its approach. | “The spirit of the people”, said Wergeland, “demanded and created the bank … in the midst of hardship. It gave them the strength of the tired, who rouse themselves from their rest to soldier on and complete their task, and are rewarded by the sun’s benevolent smile.” 2 With the silver tax, many Norwegian citizens involuntarily became shareholders of Norges Bank. However, holding shares in the Bank proved to be a sound investment, for the shareholders and for the country. Confidence in the monetary system was painstakingly restored. The Bank also extended loans to private individuals. Acquaintances or loan sharks were no longer the only sources of credit. The foundations had been laid to enable the economy to grow and to lift living standards. In 1874, the stock of silver was exchanged for gold. The transition to a gold standard met little opposition. The proposed currency union with Denmark and Sweden, however, was difficult for many Norwegians to accept. Norway’s own currency was an important symbol. The general aversion to government officials, who had proposed the union, also weighed heavily in the debate. And under the proposal, the currency itself would be changed. People were used to counting in speciedaler, divided into 120 skilling. Although the decimal system of krone and øre was in fact far simpler, many people found it unnecessarily complicated. The proposal fell at the first vote in the Storting. One Norwegian who expressed pleasure at the apparent rescue of the speciedaler was cantor Olafsen from Romsdalen in the west of Norway. | 1 |
2/8 BIS - Central bankers' speeches Meanwhile, the high levels of government debt following the pandemic, alongside the tightening of financial conditions, represent a vulnerability and limit the space to adopt fiscal expansion measures. This setting is also subject to an extremely high level of uncertainty, stemming, above all, from the course of the war in Ukraine and its economic repercussions, which are hard to predict. However, inflationary pressures also pose a genuine risk. Whether they increase further depends not only on the course of the war, but also on internal factors, such as a possible persistent rise in inflation expectations, or higher-thanexpected increases in wages or mark-ups. More persistent inflation would require a sharper tightening of monetary policy, which would render those public or private agents in a less sound economic and financial position more vulnerable. This could have a greater-than-expected impact on their spending levels. 1. The economic policy response Against this backdrop, I would like to share my opinion on how economic policy should respond. First, I would like to underscore that the current situation is far different from that triggered by the pandemic. We then faced a temporary but highly adverse shock, in a setting free of inflationary pressures. That environment warranted a forceful monetary policy response, in order to create conditions that were conducive to an equally extraordinary fiscal expansion which would guarantee the income of households and firms and thus minimise the crisis-induced structural damage to employment, productive capacity and growth. | Yet demandside factors, linked, above all, to the re-opening of the economy after the pandemic and the depreciation of the euro, have also played a role in the increase in inflation. Overall, it is estimated that close to 75% of the increase in euro area inflation in 2022 was caused by the direct and indirect effects of energy and food prices. However, the supply shocks and the depreciation of the euro have been passed through faster than in prior episodes, prompting inflationary pressures to spread. Thus, underlying inflation (i. e. excluding energy and food) reached an all-time high of 5.2% last December. These inflationary pressures have elicited a forceful response from the main central banks, which is causing global financial conditions to tighten significantly. The war has also fuelled uncertainty regarding the security of Europe's energy supply and even made a major escalation in global geopolitical tensions a more likely prospect. These four factors have brought about a considerable slowdown in activity globally and an across-the-board downward revision to the outlook for economic growth, despite the European economy proving more resilient than expected a few months ago, particularly the labour market, where the unemployment rate stands at record-low levels. Overall, the latest European Central Bank (ECB) projections forecast an additional slowdown in activity in the short term. However, assuming the energy market rebalances, uncertainty decreases and household real income improves – as inflation progressively decelerates –, activity is expected to gradually improve in the second half of the year. | 1 |
We have witnessed a global trend of increasing food prices, which is yet to be normalized. Many food products surged in price during the exit from the pandemic. The persisting drought also has an adverse impact on production conditions and prices in this area. On the other hand, weight of food items in the global consumption basket and domestic food inflation may differ between countries. Hence, this increase in food prices can affect inflation at different rates in different countries. A cross-country comparison reveals that Turkey is among the countries in which the prices are the most adversely affected. In the table, we see that food inflation in August was considerably higher than the average of the last three years. Finally, I would like to talk about our foreign exchange reserves while evaluating our economy. The improvement in reserves is in line with our projections. Our reserves, which were USD 85-90 billion, increased by approximately USD 30 billion and exceeded USD 120 billion. Swap agreements, rediscount credits, gold ore purchases and arrangements in required reserves were the main factors contributing to this increase. Before concluding my speech, I would like to talk about the Central Bank’s views on the future of the normalization process. Although significant progress has been made in the struggle with the pandemic, virus variants have caused case numbers to rise again, which adds to uncertainty over the course of the pandemic. As you can see on the slide, many countries are now facing a new wave of infection. | Caleb M Fundanga: Integrity and professionalism in finance, industry and business Keynote speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the ACCA Professionalism and Ethics Event for Employers, Lusaka, 7 November 2007. * * * • The Chairman • Mr Sundeep Takwani, ACCA Head of Ethics and Regulation – Professional Standards • Mr Chintu Mulendema, ZICA President • Senior Government Officials • Heads of Corporates • All protocols observed • Distinguished Ladies and Gentlemen I am honoured to stand before you to discuss the matter of “integrity and professionalism in finance, industry and business”. I commend ACCA Zambia for organising this forum which allows us to discuss matters which have long been considered of primary importance in the financial sector. I am certain that the importance of this subject extends beyond the financial sector to all sectors of the economy. Mr Chairman, this event, the first in the series of ACCA professionalism and ethics events to be held in Zambia coincides with the launch of the ACCA new professional qualification, which will be first examined in December 2007. Named the ACCA qualification, it will build on the success of the current professional scheme, which has become the world’s fastestgrowing international accounting qualification. | 0 |
But it is no stranger that we should revise our view of the future development of the repo rate than that we should revise our view of growth, employment or inflation when new information is received that changes the outlook. Nor is it stranger for the central bank to revise its forecasts than for other analysts to do so. What is important is that we can motivate why we are revising our views and that we can do so in an understandable manner. This is linked to the fact that it is difficult to make forecasts, not merely for interest rates, but also for other macro economic variables. The fact that it is difficult to make forecasts for the interest rate is illustrated clearly in the development of, for instance, forward rates over time. The figure (figure 1) shows implied forward rate curves calculated on the basis of bank papers from the middle of each quarter. Expectations of the development of the repo rate have varied substantially over time when measured in this way. During the years the interest rate has gradually been cut, expectations according to implied forward rates have substantially overestimated the level of the repo rate. After we began to raise the interest rate one and a half years ago, there has rather been a tendency for the repo rate path to be slightly underestimated. It can thus be noted that market agents have had difficulty in forecasting interest rate developments. | The fact that forecasters revise their assessments is not at all strange, as new information is received all the time. This indicates that as the conditions for the real economy change and new information is received the forecasts for the repo rate path need to be adjusted. There is nothing particularly dramatic about this. It applies to all market agents, to the major banks, to the Ministry of Finance and also to us at the Riksbank. The great uncertainty factor means that all forecasters should be humble, but this should not prevent them from making forecasts. I would therefore like to emphasise once again that the repo rate path we present in the Monetary Policy Report is a forecast and not a promise. The Riksbank cannot undertake, regardless of what BIS Review 62/2007 3 happens in the economy, to follow the path published. The interest rate path is quite simply the best assessment we can make at a given point in time, given the information that is then available. New information may change the picture of the economy and then the Executive Board will have to rethink how we set the repo rate. The reason why we have chosen to publish our interest rate forecast despite the uncertainty over the future is largely because we believe this is the best way of explaining our thoughts on monetary policy. It also makes it easier for us to justify forecasts and interest rate decisions and to outline alternative scenarios for the repo rate. | 1 |
An economic activity qualifies as sustainable when it contributes to one of these objectives without causing significant harm to the others, and complies with certain minimum social safeguards. For example, economic activities with low CO2 emissions (such as solar power production) qualify as sustainable as they contribute to mitigating climate change, as do activities that have no viable low emissions alternative but support the transition by gradually eliminating CO2 emissions. This classification is the cornerstone of the European sustainable finance agenda and provides the basis for all sustainability regulation. The European Commission is currently working on completing this taxonomy, extending it to so-called “brown” and “neutral” activities. 11 Public consultation on principles for the effective management and supervision of climate-related financial risks, BCBS, November 2021. 12 Progress report on bridging data gaps, NGFS, May 2021. 13 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088). 4 Disclosure In November 2021, during the COP26, a decisive step forward was taken at international level on disclosure. The IFRS Foundation announced the creation of the International Sustainability Standards Board (ISSB), to establish global sustainability-related disclosure standards. This initiative could be of comparable importance to the creation of the International Financial Reporting Standards 20 years ago. | At global level, the BCBS has published for consultation a paper on principles for the effective management and supervision of these risks.11 In any event, the improvement in banks’ management capability will presumably have to be supplemented by the development of a regulatory and prudential framework that properly takes into account the special features of the risks associated with climate change. There are two preliminary issues here: the existence of information and common taxonomies and the development of measurement methodologies. The need for common definitions and granular data To assess climate risks correctly, first it is necessary to have common definitions and data of sufficient quality and granularity. The Network for Greening the Financial System (NGFS), of which we, among 108 central banks and supervisory authorities from all over the world, are members, published in May 2021 a report12 emphasising the importance of having common worldwide definitions and standards for disclosure of information associated with these risks. Common definitions Owing to the complexity of the matter, the progress made towards establishing a global taxonomy is, unfortunately, still limited. Not only are productive technologies characterised by great heterogeneity at any given moment in time, which affects their environmental classification, but also a dynamic approach, which recognises the progress made in reducing their emissions, needs to be adopted. I would, however, like to stress the impetus the European Union has given to this issue, through the Taxonomy Regulation,13 which sets the foundations for a common European classification of “environmentally sustainable” economic activities. The regulation establishes six environmental objectives. | 1 |
Cultivate a strong culture of innovation within to increase value-add and catalyse private investment Development institutions should be leading innovators in providing solutions to stimulate investment and entrepreneurship especially in uncharted sectors. In my view, a key part of their contribution to development has to be in evolving non-traditional approaches to encourage investments in targeted sectors, precisely because conventional approaches have not responded adequately. Indeed, they should be providing the richest environment for adaptive learning, creativity and innovation to effectively serve their mandates. Innovation is also being supported through a “test and learn” approach which allows for experimentation by financial institutions in close coordination with regulators. This approach promotes a deeper understanding of risks inherent in new solutions and products, and the appropriate ways to control them. The introduction of the regulatory sandbox in several countries, including Malaysia, to support regulatory flexibilities for the deployment of FinTech reflects such a “test and learn” approach. Development financial institutions should use technology to advance the cause of their mandate. To be innovative, development financial institutions must be able to attract and retain good leadership and talent. KfW in Germany and Business Development Bank of Canada (BDC), two global development financial institutions, were recognised as being among the top 100 employers in their respective countries in 2017. Well-designed talent strategies, and an environment that nurtures experimentation and adaptive learning with appropriate oversight and controls are key. These require bold and visionary leadership. | Expectations and directions for Malaysian Development Financial Institutions I would also like to share some reflections on expectations and directions for development financial institutions in Malaysia I am well aware that development financial institutions around the world, including in Malaysia, face unique challenges. In many ways, they have to manage and balance responsibilities that are substantially more complex than institutions with narrower profit-making mandates. In Malaysia, these institutions have embarked on initiatives over the last decade and a half to build greater financial resilience and stronger foundations for sound management. This has enabled them to pay an important counter-cyclical role during downturns, and to support economic activity in targeted segments. However, more effort is required on critical appraisal of their development impact. It is much needed to sharpen the development focus, redirect and amplify the impact of financing activities. It will also provide the impetus for them to focus on other interventions that can increase their impact. We intend to work with their leadership and other stakeholders in Government in the coming months to address a more focused delivery of mandates. In this respect, improving performance measurement frameworks and increasing transparency in the operations will be important areas of focus. We need to measure the right things, measure outcomes that matter and measure mandates that are relevant. This needs to be driven by a clear vision and strong leadership, and uncompromising governance. We expect our development financial institutions to operate with the highest level of professionalism and integrity at all levels of the organisation. | 1 |
Regarding the International Capital Standard, which aims to develop an international capital standard in order to be able to establish a comparable basis in terms of prudential requirements for all international groups, recent progress was made in Kuala Lumpur in November 2017 which should lead to, by the end of 2019, a version called “ICS 2.0” that will be used as a reference in international supervision Colleges, for a transitory period of five years. During this timeframe, each internationally active insurance group will have to ensure a compulsory and confidential five-year monitoring period based on the ICS, after which this standard is expected to become effective. Now, I will turn to IFRS17: it would be unreasonable to apply the new IFRS17 accounting framework right now. Given the obvious issue of timing, it is quite welcome that the IASB reopened the discussion and that the application of this standard has now been postponed by one year. This will primarily give us time to reach an agreement on identifying groups of loss-making contracts. We also want to bring the discussion on the 4 treatment of reinsurance contracts held to a satisfactory conclusion. At this point, there is too much room for interpretation in the standard, which could interfere with the comparability and consistent application across countries. In Europe, the current “hot topic” is the forthcoming Solvency 2 review. This review must include a full and objective assessment of the framework that has now been in place for three years. | The dilution of investment yields has reinforced risks for the industry such as a serious lapse risk if interest rates were to rise abruptly, financial losses for insurers who guarantee high technical rates compared to financial returns, or risks related to insufficient cost coverage. Among this quick review of the most salient characteristics of the environment in which insurers have been operating I would like to add that climate change risk has now become a reality and although insurers usually know how to deal with climate risks, including in extreme events, it is more than likely that further adjustments will be needed. Against this backdrop, French insurance companies have reacted in three main ways: lowering of paid interest rates in life insurance, development of alternative investment strategies and adaptation of their traditional business model including an increased business diversification. As a result, for instance, unit-linked liabilities are increasing, and the profit-sharing payments for euro-denominated contracts are decreasing. However, I note that these payments remain significantly higher for mutual undertakings: they amounted to 2.3% last year while the French average is lower, and the reserves for deferred profit sharing have been strongly reinforced and amount to approximately 6% of mathematical reserves at YE 2017, which is 50% higher than the French average. | 1 |
Behind the chair But before coming to any of those things, unbeknownst to you the prudentist has in fact used some of the Covid lockdown to check her own teeth and try out some new tools on herself before starting in on yours. I can assure you that if you employ hundreds of people whose main job is to identify the weak spots in institutions, then when you step back a take a good look at yourself it is not an easy process! Nonetheless, through a thorough check-up of the PRA we have identified some ways in which we think we can improve our work going forward, with an eye to being as effective and efficient as possible. Much of this is about internal improvements of the kind which will be familiar to many of you from your own change programmes, across areas such as flexible resourcing, organisational design, the consistency of operations across silos and how well we use data and 1/5 BIS central bankers' speeches technology. But two areas may be of broader interest: the significant change we need to make as we take on a fuller rule-making role following Brexit; and an increased emphasis we intend to place on ease of exit. Ease of exit Starting with ease of exit, this is of course a very important thing to consider when you visit the dentist – just in case they turn out to be the kind of dentist who appears in Marathon Man. | Speeches 25 Aug 2022 Welcome Remarks at the HKIMR-ADB-BIS Joint Workshop on "Monetary Policy Spillovers" Edmond Lau, Deputy Chief Executive, Hong Kong Monetary Authority 1. Good morning, Mr Park (Chief Economist and Director General of the Economic Research and Regional Cooperation Department, Asian Development Bank (ADB)), Mr Zhang (Chief Representative for Asia and the Pacific, Bank for International Settlements (BIS)), ladies and gentlemen. It is my pleasure to welcome you to this Workshop on monetary policy spillovers, jointly organised by the ADB, the BIS and the Hong Kong Institute for Monetary and Financial Research (HKIMR). We are honoured by the impressive list of panellists, discussants and speakers today, who will share their expertise on this timely and important topic. 2. Since early this year, central banks around the world have tightened monetary policy to fight raging inflation, with the US Federal Reserve (Fed) being particularly assertive as it tries to cool down the unwelcome rise in inflation and avoid inflation expectations from getting de-anchored. As global financial conditions tightened, financial markets rattled and many emerging market economies (EMEs) experienced capital outflows given their narrowing interest rate differentials against the US. The crux of the latest situation is, will such gyrations in asset prices and capital flows pose a threat to EMEs’ financial stability? 3. As far as emerging Asia (EM Asia) is concerned, the latest situation does not seem too bad. | 0 |
But an equilibrium can be realised through careful design, taking into consideration an institution’s internal structures and behavioural norms. Needless to say, the accepted behaviour and values promoted and demonstrated by the senior leadership will influence the business culture and values throughout the organisation. Talking about cultures and values, we should also be mindful about the need to educate and instil into the new generation of bankers the importance of integrity, ethics and professionalism. For this reason, industry training institutes like the recently established Asian Institute of Chartered Bankers play a vital role in cultivating higher standards of governance, ethics and professionalism in the financial sector. The importance of the contributions by these institutions cannot be underestimated. After all, graduates starting off their careers in the financial sector will be the leaders and captains of the industry in years to come. Good governance ultimately depends on the existence of strong and competent boards and a pool of professional senior management. To remain effective, boards are often confronted with the challenge of achieving an optimal balance between the need for continuity and the need for fresh perspective. This brings into question the issue of board composition and membership, and how talent on boards should be continuously renewed. Because financial institutions are complex creatures, longer-serving individual directors can bring a depth of knowledge and experience into the business of the financial institutions, which would consequently strengthen the ability of the board to provide effective oversight. Such continuity also encourages a cohesive board. | Jörg Asmussen: The public and the private banking union Speech by Mr Jörg Asmussen, Member of the Executive Board of the European Central Bank, at the joint conference “The Single Resolution Mechanism and the Limits of BankRegulation”, Humboldt Universität/Financial Risk and Stability Net-work in Berlin, Berlin, 8 November 2013. * * * Dear Mr Aehling [Veranstalter], Dear colleagues, Ladies and gentlemen, Intro The timing of today’s conference on “The Single Resolution Mechanism and the Limits of Bank-Regulation” could not have been better chosen as the SRM is the dominating theme in all European fora at the moment. Thank you for inviting me and I am happy to share a view on banking union from the European Central Bank with you. Banking union Looking back with the experience of the crisis, I think that many here today share the assessment that the key problem in the past was that there was too little cooperation and too much diversity – we lacked a coherent European approach to financial sector policies. But there is clearly scope for more cooperation today as, particularly after the experience of the crisis, preferences are more aligned in Europe. We all want banks that are well supervised and that can be resolved at minimum cost to the taxpayer. To achieve this, I think we need not reinvent the wheel. There are elements of the US approach that have worked and that we can usefully borrow in Europe. | 0 |
But more importantly, it comes from my current position as a policymaker from a small, open economy where the collapse of three cross-border banks was the most noticeable event in the unfolding of the financial crisis that hit the country in 2008. The combined balance sheets of these banks was 10 times Iceland’s GDP, and their combined bankruptcy, measured in terms of balance sheets, ranks second in size in the international history of corporate failures, only after Lehman Brothers. And this happened in a country that ranks among the smallest in the world. I will use the case of these banks to illustrate current problems with cross-border banking more generally and as a yardstick against which to measure current reform proposals. Cross-border banking expanded significantly in the years prior to the financial crisis, as is witnessed, for instance, by the growth in cross-border banking claims measured by the BIS International Banking Statistics. Attending this growth was a steady build-up of cross-currency liquidity risk. Such risk can take two forms: currency mismatches and maturity mismatches between foreign currency assets and liabilities. To take an example, the euro area as a whole had a more or less balanced current account position. A fact that drew less attention before the crisis, however, was that European banks had built up huge USD-denominated balance sheets that had mismatches, especially in terms of maturity. This became a major problem when there was a run on dollar-denominated bank liabilities of non-US international banks post-Lehman. | The Financial Supervisory Authority was granted broad-based powers to intervene in failing institutions, and the Government was authorised to inject capital into new domestic banks. This so-called Emergency Act thus allowed new domestic banks to be created when the old cross-border banks failed and were placed in special resolution regimes followed by winding-up proceedings. The new banking system amounted to around 1.7 times GDP, compared to 10 for the old banking system. As a result of these measures, the domestic payment system functioned more or less seamlessly throughout, and customers had continuous access to their deposits. I have expanded at some length on the measures taken when the banks failed, as there are still a number of misconceptions about the process in international discussions. There have been claims that Iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. The fact is that Iceland kept the domestic part of the banking system running throughout; otherwise, the consequences would have been dire. Some have claimed that the banks were nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time. | 1 |
Much of this reflects the inevitable correction of exuberance on the part of borrowers and lenders, the conditions for which were created by the failure to tackle the global imbalances that left most major countries with unsustainable exchange rates, unsustainable paths of consumption, saving and borrowing, and unsustainably low long-term real interest rates. Our economy too needs to rebalance as it recovers, and that affects the pace of recovery. Although the downturn in UK GDP from the peak in 2008 to the trough in 2009, at around 6%, was broadly similar to that in most other industrialised countries, our recovery has been noticeably slower, with a cumulative rise in output from the middle of 2009 of only about 3½% compared with 6% or more in many other countries. But has the process of recovery and rebalancing been derailed or merely delayed? With the right prescription we can ensure that it has been only delayed. Three factors in particular have adversely affected the pace of recovery in the UK. The first is an especially deep and protracted squeeze on the level of many people’s real take-home pay. Over the past four years, money wages have on average been rising at less than 2% a year. And higher energy and food prices, as well as tax changes and a lower exchange rate, passing through to the level of consumer prices, have all contributed to the squeeze. On average, real take-home pay is no higher than back in 2004. | Structural reforms are the familiar mantra of all international meetings. As a means of compensating for a large loss of competitiveness they are too slow acting to be effective. But in current circumstances they are, for the UK, a necessary complement to the other measures I have described. Since the crisis began real wages have fallen by almost 10% – a large but necessary adjustment to make the production of tradable goods and services more attractive than non-tradables, and to stabilise the public finances. Supply reforms can make that adjustment more palatable, and, by raising expected future incomes, they increase the rate of return on new investment and encourage spending, both investment and consumption, today. It cannot be for a central bank to design a programme of such supply initiatives, but in economic terms there has never been a better time for supply-side reform. BIS central bankers’ speeches 3 The need to rebalance the economy means that all of the policy responses I have discussed will be required to restore the economy to full health. The final part of the prescription is outside the UK’s control. Engineering a recovery while our main trading partner is in a downturn is a difficult undertaking. We would all benefit from a resolution of the problems in the euro area. The actions by the ECB have brought a period of calm to financial markets, and so bought more time. | 1 |
For example, the labour costs in the new EU member states are between five and twelve times lower than those in Sweden and Germany, while the productivity gap has declined significantly over the past 10-15 years. What is interesting in this context - and an important lesson for the future - is that many studies that have been published do not find any evidence for the critics’ claims that offshoring will lead to a mass BIS Review 60/2004 5 migration of jobs and the phenomenon of jobless growth. On the contrary, they indicate that offshoring, by promoting a better division of labour between countries, leads to cost savings and productivity gains that in turn mean that labour and investments in the industrialised nations can be transferred to more highly processed products. The consultancy firm McKinsey has estimated that each dollar invested in outsourcing to India gives the United States an economic gain of USD 1.121.14 and India a gain of USD 0.33. In the long term, this can even lead to a stronger development in employment. Thus, offshoring can be regarded, as President Bush’s economic adviser Gregory Mankiw pointed out, but was much criticised for, as a form of trade that will make production more efficient and increase GDP growth in the world economy. Offshoring is thus one means of increasing global wealth; continued multilateral trade liberalisation is another means. | If forceful measures are not taken to deal with the financial crisis and maintain financial stability, there is a risk of the crisis also having major effects on inflation and growth. The fall in output and employment can then be both deep and prolonged and that in turn can worsen the financial crisis. An efficient fixed-income market is a prerequisite for an effective monetary policy In other words, the monetary policy machinery I have described consists of two components. The first thing is to ensure that the repo rate does in fact affect the overnight market. Effects on this shortest rate must then spread to longer rates that are more important for economic activity. An effective monetary policy steering system is not enough by itself. We also need a fixed-income market that functions properly. So what are the fixed-income market’s functions? The fixed-income market caters both for those who need funds for their operations and for those with funds they need to invest for a certain period of time. As investment in the market is not risk-free, one of the market’s primary tasks is to price risk correctly. That in turn leads to an optimal distribution of risks between the markets’ participants. In this way the market contributes to an efficient distribution of economic resources. What a central bank requires of the fixed-income market is therefore not all that different from what society in general requires. | 0 |
Market perceptions of risk were falling at precisely the time risk in the system was building. There was also little market differentiation between the spreads of “crisis” and “no-crisis” banks: their average pre-crisis spread difference was a mere 8 basis points. The extent of risk mispricing is clear from the movements in CDS premia as the crisis broke. Average spreads rose by a factor of over 50 for “no crisis” banks. For crisis banks, they rose by a factor closer to 70. Adjustments on that scale are a decisive rejection of the debt disciplining hypothesis. Debtors were meant to act as a brake on risk-taking incentives. Instead they had served as an accelerator. Why? The answer again lies in incentives – the incentives of bank managers and policy authorities. These incentives matter most at crisis time. Then, it may no longer be in the interests of either bank management or the authorities to have debtors bear risk. Doing so may run the risk of making a bad crisis situation worse. As much as bank management and the authorities may pre-commit to debtor’s bearing risk ex-ante, they may be tempted to capitulate ex-post. Economists call this a time-consistency problem. Agents cannot credibly commit to stick to their guns in the midst of war. Private contracts for bank debt and public policies towards bank debt suffer from a severe case of this time-inconsistency problem. Having debtors assume pain is fine on paper. But crisis wars are not waged on paper. | Mortgage design also varies in striking ways through time and across countries and even regions; for example, in terms of the sensitivity of mortgage rates to market rates, borrowers’ ability to pay down or increase the loan balance, the ease with which loans can be modified, and the rights of junior lien holders. Reflecting this international diversity, we are very happy to have panelists from the United Kingdom, Sweden and Denmark speaking today, as well as representatives from many foreign central banks and other international organizations in the audience. This is also a particularly opportune time to think about mortgage contract design given the ongoing debate about housing finance reform in the U.S., and the future of the government sponsored enterprises Fannie Mae and Freddie Mac. But debates about mortgage design are definitely not new! In fact, 40 years ago the Federal Reserve Bank of Boston hosted a well-known conference on “new mortgage designs” 2, which included Franco Modigliani, later awarded the Nobel prize in economics, and current Federal Reserve vice chair Stanley Fischer. An interesting contrast to today – the main focus of the Boston conference was the design of mortgages to deal with a high and volatile inflation environment. The financial crisis and its aftermath have brought mortgage contract design back into sharp focus. | 0 |
Mugur Isărescu: Hard landing unlikely for Romania Interview with Dr Mugur Isărescu, Governor of the National Bank of Romania, by Mediafax news agency, Bucharest, 8 September 2008. * * * Mr. Governor, foreign analysts have placed Romania along with four other states – Lithuania, Latvia, Estonia and Bulgaria – in a group of countries heading to a hard landing. In fact the economies of Estonia and Latvia have contracted sharply, with growth plunging from levels of around 10 percent into negative territory; inflation has reached two-digit levels and the external deficit exceeded 15 percent of gross domestic product. Is it possible for Romania to witness similar negative growth dynamics? Is it fair to include Romania in that group? Reading what those foreign analysts said, I have hardly found a solid rationale that would justify Romania's being placed within the hard-landing risk zone. On the contrary. Turning now to comments, I will underline that there are some similarities among the countries in this group: GDP per capita is below the EU average, they all have registered high growth rates in the catching-up process. However, there are also fundamental differences, among which the most important in my view is the monetary policy mechanism. Three of the four countries mentioned in the group have currency boards in place, and the fourth, i.e. Latvia, has a mechanism close to a currency board. Of course, currency board has its clear benefits. | After spiking over the next few months, inflation is, we believe, likely to drop below our 2% target due to the downward pressures from a weak level of demand on wages and prices (Chart 6). But it is then likely to climb back towards the target as the economy recovers. Compared with our previous collective forecast last November, there are differences of nuance in the “most likely” and “mean” paths for growth and inflation, but frankly to my mind those nuances are small beer compared to the main risks. My take on those risks is that, on the downside, the headwinds to demand and activity could prove stronger than currently foreseen. And, on the 1 See Tucker P M W (2009e), “The Debate on Financial System Resilience: Macroprudential Instruments”, Barclays Annual Lecture, London, 22 October, 2009. BIS Review 21/2010 1 upside, that we (and our peers) could prove too slow to withdraw monetary stimulus if animal spirits revive across the economy or further spikes in inflation outturns raise medium-term expectations. Meanwhile, the data are bound to be mixed. Four aspects of the conjuncture Against that background, I shall briefly review a handful of the issues that, one way or another, the MPC will face over the coming months. A balance sheet recession? I have a good deal of sympathy for those who argue that the current downturn owes a lot to stretched balance sheets – in the private sector, public sector, and the national economy as a whole. | 0 |
One of the consequences of this prolonged cycle of high world growth is global utilization of resources (i.e., productive capacity and labor) being at its highest level in 25 years. The combination of high rates of resource utilization, large recent rises in prices of foods and fuels, and great international liquidity increases the risk of inflation acceleration, with a repercussion on the market’s expectations on the future course of policy rates. In the U.S., the evidence of a moderate deceleration of growth and of a decline in inflation has driven financial markets to project, on average, that the policy rate will remain unchanged, approaching the baseline scenario that the Fed has been communicating for some time already. Financial market expectations, however, are split between one group foreseeing cuts in the policy rate and another that now foresees rises. The main source of uncertainty originates in the future course of growth and inflation. The second quarter should feature a strong increase in measured growth, but future growth is still a question mark. About the euro zone, the market anticipates that, in order to hold inflation around the target – annual inflation below but close to 2% – the ECB will need to raise the policy rate a couple of times during the next 12 months by 25 basis points each. In the case of Japan, markets also project two rises in the policy rate over the next 12 months. | This process of monetary normalization is favored by medium- and long-term inflation expectations well anchored around the target, where agents preview that the Central Bank will do whatever it takes to prevent inflation from deviating away from the target in the policy horizon. If inflation stays too high for too long, there is the risk of it affecting medium- and long-term inflation expectations more permanently, thus making convergence with the target more difficult and costlier. As usual, future changes to the monetary policy rate will depend on incoming information and its implications on projected inflation. 4 BIS Review 87/2007 Consistently, the higher inflation rates of the past several months has prompted a revision to market expectations with respect to the future course of monetary policy, switching from a prolonged maintenance of the rate to two to three rises of 25 basis points each before year’s end. Price stability is one factor behind long-term economic growth. In order to ensure that GDP will grow for a long time more than 5% – the estimated rate of trend GDP growth – while keeping inflation under control, it is necessary to increase the rate of trend GDP growth and this does not depend on demand elements but rather on factors determining the growth in supply, such as policies and institutions that affect the increase in the amount and quality of the labor force, the amount and quality of capital stock and the productivity with which both factors are used in production. | 1 |
However, as development in this area progresses it is probable that the number of specialised macroprudential-policy tools will increase. 10 10 The Bank of England recently carried out an inventory of the tools that could be used to conduct macroprudential policy, see Bank of England (2011): Instruments of Macroprudential Policy: A Discussion Paper prepared by Bank of England and Financial Services Authority staff, December 2011. BIS central bankers’ speeches 5 But do we really need any new tools in this area? Isn’t it enough that the supervisory authority can introduce a mortgage cap for consumer protection reasons and that the central bank can raise the interest rate to stabilise inflation and resource utilisation when credit growth is high? No, I don’t think so. Referring to consumer protection seems to be an overly narrow approach in the face of a rapid growth in lending to households and rising housing prices. On the other hand, the impact of the interest rate is too wide-ranging to be effective and risks doing more harm than good. A tool such as the countercyclical capital buffers may seem to be so wide-ranging that it should be able to work in approximately the same way as the interest rate. Both tools affect the price of credit in the economy. When the banks are forced to hold more capital their funding costs increase, as they do when the interest rate is raised, and the price of credit also increases. | Traditional regulation and supervision have also found it hard to handle the tendency to rollercoaster behaviour of the financial sectors. In good times, there is almost always a tendency to expand lending and to ignore the risks this entails. However, when the downturn comes, the same players tend to run for the exits at the same time, which serves only to 8 According to the analysis, a monetary policy designed such that housing prices continued to rise in accordance with the trend in the period 2000-2004 would have entailed a repo rate around 8.5 per cent, an inflation rate of –4.3 per cent and a level of GDP growth of –0.6 per cent in 2007, that is in the year before Sweden was hit by the global financial crisis (see Claussen et al., 2011). 9 Monetary policy is also ineffectual if one wants to counteract contagion risks due to the size and complexity of the banks and their exposures to each other. 4 BIS central bankers’ speeches make the downturn worse. A vicious circle arises when a credit crunch leads to lower production and lower employment, which in turn feed back into in the financial sector by making loan losses even higher. This type of feedback effect between the financial system and the macro economy is not the province of traditional financial supervision either. This is where the concept of macroprudential policy comes in. Quite simply, financial supervision must be complemented by a much broader approach. | 1 |
Since mid-March, the liquidity supply in the Swiss franc money market has been influenced by the exceptional measures taken to manage the Credit Suisse crisis. The SNB provided ample liquidity to Credit Suisse in the form of interest-bearing loans, which led to an increase in sight deposits. Due to outflows of customer deposits at Credit Suisse, some of this liquidity also reached other institutions in the financial system. This increased the supply of liquidity in the Swiss franc money market. As Thomas Jordan has explained, it was important that the liquidity assistance to Credit Suisse did not influence our monetary policy stance. We therefore consistently continued with our regular monetary policy implementation in the Swiss franc money market. This currently comprises tiered remuneration and the absorption of sight deposits by way of open market operations. To ensure that the secured short-term Swiss franc money market rates do not fall and that they remain close to the SNB policy rate despite the additional liquidity in the Swiss franc money market, we have reduced the increased liquidity supply via open market operations. As you can see from chart 3, we have used SNB Bills and repo transactions with various maturities to accomplish this. Not only our open market operations in the money market but also our foreign exchange transactions have an impact on sight deposits. Since the last monetary policy assessment, the Swiss franc has appreciated by around 2% on a trade-weighted basis. In order to ensure appropriate monetary conditions, we have sold foreign currency in recent quarters. | I will start with the domestically focused banks before moving on to the globally active banks and, in particular, the crisis at Credit Suisse. Domestically focused banks For the domestically focused banks, the operating environment has changed markedly over the past year. Interest rates have risen significantly and there are signs of a slowdown in the real estate market. Overall, the domestically focused banks have benefited until now from the rise in interest rates. This rise has helped to restore their interest rate margins. The banks have been able to increase their profits and strengthen their capital buffers. At current interest rate levels, domestically focused banks’ profitability is likely to continue to improve. An unexpected upward interest rate shock in the future, however, would likely have a negative impact on these banks. First, in this scenario their interest expenses would increase faster than their interest income. This is because interest rates on many outstanding loans are fixed for several years. By contrast, rates on deposits are likely to react faster to a further interest rate rise. Second, higher interest rates could lead to credit losses in mortgage lending. This constitutes a significant risk for domestically focused banks because mortgages are often their main line of business. Against this backdrop, the results of our stress tests are crucial: Thanks to their capital buffers, most banks should be able to cope with such a scenario. | 1 |
First, the variation in skills demanded by employers across industries has probably shrunk in a more service oriented economy, which would assist transition where it is needed. And second, policy intervention, particularly the furlough scheme, will help to preserve viable employment going forwards, and skills specific to particular jobs or companies, which is a good thing. Ahead of its May Monetary Policy Report, the MPC will assess the impact of the extension of the furlough and related schemes, announced in last week’s Budget. My expectation would be that this is likely to reduce the peak level of unemployment over the coming months. However some rise in unemployment as the scheme tapers will be hard to avoid. Just as workers are often specialised, capital such as plant and machinery can be specialised for specific tasks. The more specialised capital is, the harder it is to redeploy. Bank staff have estimated capital “redeployability” scores for different types of assets using a similar approach to Kim and Kung (2017). Information and communications technology, machinery and buildings tend to be highly redeployable, with uses across many industries. In contrast, there are few alternative uses for aircraft. Capital may also be in the wrong location even if the pattern of output is similar, if Covid results in such a change of location, for instance related to the rise of home working. It is also reasonable to think that there is, and will be, considerable uncertainty over which changes in demand will prove temporary and which will persist (Vlieghe, 2020). | In our assessment, the supply capacity of the economy is expected to be around 1¾% lower than it otherwise would have been in the absence of Covid by the end of our forecast period. But, of course, there are risks on both sides of this assessment. The third point is that, although those sectors which are growing may require new capital, elevated uncertainty is expected to continue to reduce investment other things equal, weighing on the capital stock and productivity growth. I have just used the phrase “other things equal” to describe the likely path of investment. However other things ought not to be equal going forward in my view. I mentioned earlier that we have had a decade or more of slower growth and weaker productivity growth. And, as Chart 5 shows, although business investment did recover from a low base following the global financial crisis, it too was weak in the period prior to the Covid pandemic. This was only partially offset by growth in government investment, which has also generally been weak over the same period (Chart 6). The effect of this weakness in investment can also be seen by looking at capital services – a measure of the value of the flow of services which are derived from the capital stock, including machinery, equipment, software, structures, and land improvements. This may better capture the drivers of supply growth than looking at growth in investment alone. | 1 |
Moreover, the effect of bank market power on financing constraints increases in financial systems that are more bank dependent. 13 This underscores the general need, as I mentioned earlier, to create a more balanced financing mix between banks and capital markets. But it also points again to the particular importance of securitisation. With well-functioning securitisation markets some of the benefits of cross-border banks – for instance risk-sharing – can be replicated by having small, local banks originate-to-distribute loans while larger, global banks securitise and market them. In 9 See for example Anna Kovner, James Vickery, and Lily Zhou, “Do Big Banks Have Lower Operating Costs?,” Federal Reserve Bank of New York Economic Policy Review, Volume 20, No. 2, forthcoming. 10 “Financial Integration in Europe”, March 2007. In line with this, Carletti, E., Hartmann, P., and Ongena, S. (2007), “The economic impact of merger control: What is special about banking?”, ECB Working Paper No 786, July, find empirical evidence that the opacity of national bank merger reviews entered elements of inefficiency in banking relative to non-financial corporate sectors. 11 For a discussion on why retail bank integration may be a particularly attractive risk-sharing mechanism, see e.g. Fecht, F., Grüner, H.P. and Hartmann, P. (2007), “Welfare effects of financial integration,” CEPR Discussion Paper No. 6311. 12 See for instance Reinhardt, D. and Riddiough, S. (2014), “The two phases of cross-border banking flows”, mimeo, Bank of England. | Positive developments in the external sector of the economy, primarily owing to expansion of exports and foreign currency inflows from the Eurobond, contributed to the generation of contained pressures in the foreign exchange market. From the macroeconomic viewpoint, 2 BIS central bankers’ speeches relative exchange rate stability during the year reflected a new equilibrium in foreign currency demand and supply. In sectorial terms, the Albanian economy development relied chiefly on growth of industry and services sectors, while construction sector continued to contract in 2010. Industry and services sectors benefited, to a great extent, respectively, from foreign demand and structural shift of the domestic demand to short-term consumption goods. In the short- and mid-term horizon, both sectors are expected to remain the main supporting pillars of the Albanian economy. Agriculture, the other important sector of the Albanian economy, marked a positive performance in 2010. Even so, based on the broader concentration of the country’s population and the great potential for development, the increase in this sector’s productivity remains a long-term priority. Money and financial markets Monetary developments in the past year were in line with the performance of the real sector of the economy, reflecting simultaneously the fully restored confidence in the financial system, improved supply and demand ratios in the financial markets and prudent liquidity management policy of the Bank of Albania. Expansion of monetary stock by 10.6% on average complied with the economy’s demand for money and did not trigger any inflationary tendencies in the economy. | 0 |
In the view of the Governing Council, the risks to the economic outlook are balanced. On the positive side, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken. Confidence may also improve more quickly than currently expected. On the other hand, concerns remain relating to a stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets, further increases in oil and other commodity prices, the intensification of protectionist pressures, increasingly unfavourable labour markets and, lastly, adverse developments in the world economy stemming from a disorderly correction of global imbalances. With regard to price developments, annual HICP inflation was, according to Eurostat’s flash estimate, -0.1% in June, compared with 0.0% in May. As explained on previous occasions, BIS Review 83/2009 1 the further decline in annual rates of inflation was anticipated and reflects primarily base effects resulting from past sharp swings in global commodity prices. Looking ahead, owing to these base effects, annual inflation rates are projected to remain temporarily in negative territory over the coming months, before turning positive again. Such short-term movements are not relevant from a monetary policy perspective. Consistent with available forecasts and projections, looking further ahead, inflation is expected to remain in positive territory, while price and cost developments are expected to remain dampened in the wake of ongoing sluggish demand in the euro area and elsewhere. | The unemployment rate fell from 12.2% to 11.5% from the end of one year to the next. Against the backdrop of quickening growth, inflation was brought further under control. The year-onyear rise in consumer prices stood at 0.3% in December 1998, after 1.1% in 1997, and thus met the objective of less than 2% set by the Monetary Policy Council. This was the lowest rate of inflation recorded since 1954. One of the main factors in the slowdown in price rises was the fall in the price of oil and other commodities. “Underlying” inflation, which reflects the fundamental trends in the economy, showed a slightly more sustained progression than the consumer price index. According to France’s National Institute of Statistics and Economic Studies, INSEE, it posted a year-on-year rise of 1.1% in December 1998, the same as in December 1997. According to the harmonized index of consumer prices (HICP), which is the measure of inflation in the euro area, France is one of the three best-performing countries in terms of inflation: French inflation stood at 0.7% as an annual average in 1998, compared with 1.1% for the euro area. In the course of 1998, the franc remained constantly above its central rates vis-à-vis the other most credible currencies of the European Exchange Rate Mechanism. The goal of a stable external value for the franc—which was the external intermediate objective of French monetary policy over the last five years—was thus achieved. This went hand in hand with the maintenance of the competitiveness of the French economy. | 0 |
Having said that, it does not mean we will abandon our efforts in rebalancing our growth engine more towards domestic demand going forward. This can also be done as the balance sheet of the private sector is still in good shape. Now I would like to turn to our second challenge: As the world economic recovery begins to find more solid footing, the exit from the unconventional measures and the return of monetary policy towards the normal level becomes an increasingly important issue. Israel, Australia and Norway are already leading the way. However, it is a great challenge for policymakers to exercise an exit strategy with appropriate pace and time so as to ensure that the exit does not create unwarranted impacts on the economic recovery. On the one hand, a premature exit can derail the recovery. On the other, a delayed exit can lead to rising inflation and asset price bubbles. On top of this, the coordination of exit policy among countries is also important. For instance, the removal of deposit guarantees should be simultaneously implemented in order to avoid a disruption which may be caused by the shifting of deposits from a country that has lifted the guarantee to another country that has not. On balance, it is expected that emerging economies including Asia are likely to recover first as our economic fundaments remain sound and the banking system is in a position to support economic recovery. | Strategic priorities to further develop the financial advisory industry The Bank has identified a number of strategic priorities to further develop the full potential of the financial advisory industry in delivering better outcomes to consumers and increasing the level of insurance penetration in Malaysia. I should say that we benefitted significantly from our engagements with the industry on the direction that we intend to take and the key issues that need to be addressed moving forward. Today, let me mention four key priorities. Our first priority is to ensure that financial advisers are highly competent and professional when they provide advice. We understand from our engagements with AFA that recruiting the right talent continues to be a major challenge given that financial advisory firms are competing with larger financial institutions for a limited pool of qualified individuals. The Bank will continue to work in close collaboration with AFA to increase the talent pool. This includes reviewing on a regular basis, the programmes and qualifications that meet the minimum standards for financial advisors and working with academia, training providers and accreditation bodies to broaden the qualifications recognized without compromising on quality. There is also a need to lift the competency requirements for financial advisers. The current emphasis has been largely on ensuring that financial advisers have sound product knowledge and the core competencies to understand and analyse their client’s needs. | 0 |
As a result, policies have gained credibility and the inflation target has become a more credible nominal anchor for economic agents. This in turn has strengthened the disinflation policy and ensured its continuity. As another development, the Turkish economy has been enjoying high rates of growth for three consecutive years in the falling inflation environment. The GNP growth rate was 9.9 percent in 2004. Accordingly, the real growth rate compared to 2001 was 25.5 percent. 6 BIS Review 38/2005 However, even more important than achieving high growth rates is that dynamics of growth in the Turkish economy are now changing. Now, growth is mainly driven by the productivity increase, comes from the private sector and increase in exports. This provides confidence regarding achieving sustainable growth rates in the future. I want to emphasize that, not only recent developments in macroeconomic fundamentals but also the commitment to prudent policies in the medium-term economic program, prospects of EU membership and the new standby agreement with the IMF help the Turkish economy to operate in an equilibrium of good expectations. Dear Participants, I want to mention that the Central Bank’s commitment to start full fledged inflation targeting in 2006 will deliver extra confidence to economic agents in terms of prudent policies. The full fledged inflation targeting regime will bring more transparency to the actions of the Bank and also enhance the communication policy that the Central Bank put at the center of its policies since the 2001 crisis. | In fact, central banks’ role in times of financial instability is not a new issue for the economic literature. The term “lender of last resort” originated in the writing of Sir Francis Baring in 1797. In his book, “Observations on the Establishment of the Bank of England”, Sir Baring referred to the Bank of 3 Aninat, Eduardo. (2003). Foreword. Challenges to Central Banking from Globalized Financial Systems. IMF. 4 Schuerman T. (2004). Why Were Banks Better off in the 2001 Recession? Current Issues in Economics and Finance. FEDNY. Vol. 10. No: 1. 2 BIS Review 38/2005 England as “the dernier resort” from which all banks could obtain liquidity in times of crises. But the concept of lender of last resort had been described and used in a more comprehensive manner by both Henry Thornton in 1802 and Walter Bagehot in 1873. Distinguished Guests, I will add a point to the discussion that the benefit of having a strong financial system in an economy eliminates the ground for conflict in policies between financial stability and price stability. Since a strong financial system increases the efficiency of monetary policy on one side, it also provides elasticity for the economy to overcome external shocks easier on another. On the other hand, it is almost impossible to attain financial stability in the long run without maintaining price stability. Furthermore, price stability attained through credible monetary policies is an advantage in times of increasing uncertainty in the financial system and financial imbalances. | 1 |
All stakeholders stand to benefit from a rich database as credit providers will have a good basis to adequately assess the credit worthiness of their existing and potential customers with a view to providing properly priced products and services. Chairperson, the Government has also created the Citizens Economic Empowerment Commission (CEEC) in order to enable small businesses with viable investment projects have access to finance. I would personally like to see an increased flow of credit to our SMEs which, as many of you know, have been routinely found to be a major source of growth in any market economy. This is more so as the larger part of our productive population, particularly those in the informal sector, is in fact employed in one way or the other in these SMEs. It is therefore strategic for us in the financial advisory arena to support our brothers and sisters who run these SMEs. By ensuring that credit flows in that direction, we can then be assured that more and more of our people who are engaged in SMEs will certainly have access to financial services like everybody else. In the process, growth generated from the SMEs can sustainably offer the much needed respite from mineral dependency. Ladies and Gentlemen, for Government initiatives to be effective there is need to integrate them into the mainstream financial system. In this regard, financial reforms must continue to evolve and be dynamic in order to address the main challenges still facing the Zambian financial markets. | The sheer size of the economy in the monetary union will encourage the use of the Euro instead of the US dollar in trade and foreign exchange transactions. This process would further be accelerated by the fact that the use of a single currency will remove the not negligible cost of transactions. According to a study conducted by the IFO Institute in Munich, “the transaction costs for the inter-European currency management may be in the order of nearly 60 billion ECUs, or nearly 1% the GNP of the European Union”. Also it is likely that central banks will use the Euro rather than the US dollar in foreign exchange interventions. In turn, this will encourage non-EU central banks to switch an increasing proportion of their reserves into the Euro. This process will take time and the Euro will not usurp the role of the US dollar in the short term. However, the trend is likely to be persistent and eventually the current importance of the US dollar in the foreign exchange markets should be replaced by the joint importance of the US dollar and the Euro. One factor which will affect the speed of this change is the outlook for the Euro based on the fundamentals of the monetary policy of the European Central Bank (ECB). Moreover, the creation of a monetary union will prevent exchange rate volatility within the united Europe, the reason being that the Euro area as a whole will be much less dependent on foreign trade. | 0 |
One issue that has led to questions and been discussed considerably is that some leading politicians have actively involved themselves in the debate and on repeated occasions expressed very specific requirements for immediate interest rate cuts and in one case even a change in our meeting schedule. The question is whether this is appropriate or even wise. This is not a new issue, and it is one I have faced on numerous occasions since I began work at the Riksbank. My point of view has always been that we have a statutory task to perform. We shall perform this independently and to the best of our abilities. The law is crystal clear; we are not allowed to accept political instructions or even advice. Moreover, even before the new legislation was in place we had chosen to design a clear framework for our work. Our target of maintaining price stability has been specified as an inflation rate of 2 per cent. We have also “tied” our actions in other ways, such as publishing forecasts and systematically following particular working methods. This enables those outside of the bank to assess our actions and motives and thereby to be sure that we are not taking BIS Review 9/2004 9 account of inappropriate considerations. Given this, over the years I have had a fairly relaxed attitude to politicians' interference in the general debate. However, this issue has further implications than such. | Meanwhile, productivity growth has continued to be higher than expected and we believe that it may rise even further in the near future. Inflation has also been a little lower than anticipated. We are expecting a low underlying inflationary pressure in the short term, but this will probably increase as economic activity picks up. However, import prices are very important to our assessment of future inflation. These have had a significantly subduing effect in recent times, but an upward turn appears probable over the coming year. All in all, our assessment is that inflation will begin to rise later this spring and gradually approach our target level two years ahead. However, we do not believe that this upturn will be particularly dramatic. Let me emphasise that the changes that have occurred since our December meeting are not particularly great. They mainly entail some signs that domestic cost pressure could be lower than anticipated. As early as December we made some adjustments to our estimates in this respect, but the signs were fairly new then and a majority of the Executive Board preferred to await further information that would make the picture clearer. Given this, the assessment was that inflation would be slightly lower throughout the forecast period than was assumed in December; a conclusion that was not particularly sensitive to the choice of BIS Review 9/2004 5 inflation measure. The Executive Board of the Riksbank therefore decided to cut the repo rate by 0.25 percentage points. | 1 |
For example, as many as 56 finance companies were closed down permanently while others, as well as the weak banks, were taken over by the authorities or consolidated. Businesses caught short by the depreciation of the currency or the austere belt tightening environment which lifted interest rates to historically high levels, had to be closed down or consolidated. It became of utmost urgency to improve confidence, strengthen the operations of financial institutions and enable them to improve and resume their intermediation role. In the view of the Bank of Thailand, the only way to bring about sustained recovery of the economy which was affected by the liquidity crunch situation, and by the concern over counterparty credit risks in the midst of the crisis, was to tackle head-on the issue of non-performing loans. In June 1998, the Bank of Thailand, in cooperation with five associations, namely, Thai Bankers’ Association, Foreign Banks’ Association, Association of Finance Companies, Board of Trade, and Federation of Thai Industries, set up the Corporate Debt Restructuring Advisory Committee (CDRAC). This was aimed to oversee and facilitate the out-of-court debt restructuring process. Its mandate was to help push ahead complicated debt restructuring cases through a framework of negotiation. The Committee also pushed through many initiatives to eliminate legal and tax obstacles to debt restructuring. Consequently, NPLs in the financial system have fallen progressively from a peak of 47% of total loans in May 1999, to the present level of about 31% of total loans. | Tanya Sirivedhin: New challenges for finance and capital markets Speech by Ms Tanya Sirivedhin, Deputy Governor of the Bank of Thailand, at the Conference on “Thailand-Finance and Capital Markets”, held in Bangkok, on 28 September 2000. * * * Today’s conference is very timely, in view of the increasing role that finance and capital markets are likely to play in the future Thai financial scene. I have identified several aspects of the challenges of “Finance and Capital Markets” which I would like to share with this audience. I hope that the open discussion of these challenges will be an important input into the work of the Thai authorities, and what we envisage to be the vision for our industry. I shall frame the challenges in three dimensions: First, the challenges from rebuilding and strengthening the business and financial industry. Second, the challenges from the adoption of best international practices. Third, the challenges from the race to catch up with the new technological frontier of e-commerce and electronic trading. Rebuilding and strengthening the financial industry The 1997 economic and financial crisis brought to light many weaknesses in Thailand’s macroeconomic and financial management. In its aftermath, measures were undertaken speedily to shore up the currency and to restore confidence in the viability and sustainability of firms and businesses, both in the financial and non-financial industry. Through the implementation of these measures, there were inevitably many casualties. | 1 |
Second, the integration of retail payment infrastructures is a more complex issue. Large value payment infrastructures handle only one type of payment instrument, the fund credit transfer, whereas the diversity of retail payment instruments makes the integration of national retail infrastructures more difficult. In addition, the transition costs are significant and the coordination problems to be solved are important. 3. The integration of retail payment infrastructures has become a priority on the agenda of the Eurosystem It is particularly important that the European banking community now focuses on the retail payment issue and takes up in particular the challenge of creating a fully integrated retail payment infrastructure. The stake is obvious - the success of the SEPA. Tools to build a SEPA for infrastructures are known by all of us, but I would like to mention them briefly: it deals with enforcing standardisation and interoperability between systems on one side, with ensuring equal access of financial intermediaries without considering national locations on the other side. The EPC expressed its commitment to deliver two pan-European payment schemes - one for credit transfers and one for direct debits- and to develop a framework for cards that will be available for clients by 2008. Furthermore, the EPC expects that “a critical mass of transactions will naturally migrate to these payment instruments by 2010 such that SEPA will be irreversible through the operation of market forces and network effects”. | In particular, I will focus on what has already been done in this area and on what remains to be done. I will start by underlining the importance, for the European financial integration, of the development of efficient and safe payment infrastructures. Then, I will assess progress made in this field since the launch of the euro. I should mention immediately that my assessment is mixed. On the one hand, I consider that the situation is favourable for large-value payment systems. On the other hand, I can’t yet make the same positive assessment concerning retail payment systems. As a consequence, I will end my presentation by elaborating on the further developments needed to strengthen the integration of retail payments. 1. Payment infrastructures are a necessary driver for financial integration Payment infrastructures cover all procedures and systems used by financial intermediaries to exchange payment orders issued by economic agents. Accordingly, they play a fundamental role for the smooth functioning of the economy as a whole. Indeed, provided that they allow financial transfers to take place between economic agents in an efficient and safe way, payment infrastructures are a key support to one of the core functions of money, namely money as a means of exchange. In the EU, infrastructures processing payments in euro consist in a number of arrangements, which are of different nature. For example, the exchange of payment orders in euro between financial intermediaries can be handled within multilateral systems or within the framework of correspondent banking bilateral arrangements. | 1 |
And the closure of the steelworks down the road a little over a year ago was a further blow to Teesside, with the loss of 2,200 jobs. 1 Yet it is not all doom and gloom. There are more people in work in the North-East today than at any time in its history. Over 48,000 more people have found jobs over the past 12 months. And the North-East alone has contributed 20% towards the overall fall in national unemployment over the last year. Or, if you like, the increase in employment over the last year is 7 times that at Nissan’s Sunderland plant alone. Despite the media headlines, the North-East has been one of the most dynamic areas of job creation in the country recently. Underpinning this above-average jobs performance has been above-average productivity growth in the region. So it is particularly appropriate to be here today at the Materials Processing Institute, which has been a global centre for research on the iron and steel industry since 1945. The Institute has contributed importantly to Teesside having a high concentration of high value-added industries, such as chemicals and processing, which have boosted jobs and productivity in the region. Today, I want today to discuss the economy, at both a national and regional level. I want to discuss what monetary policy can and, as importantly, cannot do to support the economy, nationally and regionally. | This is currently around 12% lower than immediately prior to the EU referendum. Indeed, uncertainty about the outcome had already caused the exchange rate to depreciate ahead of the vote, such that it is now 17% lower than a year ago. The Bank’s contacts in financial markets attribute this fall in sterling to expectations that the UK’s future trading arrangements, and hence income-earning capacity, will be materially less favourable than at present. Whatever the precise explanation for sterling’s fall, its near-term impact on inflation and growth is likely to be significant. It will provide some support for net exports in the short-term. But it will also cause a sharp rise in import prices, and in time consumer prices, over the course of the next few years. That will in turn tend to depress inflation-adjusted household incomes, and hence consumer spending, over this period. It is unclear at present how the disconnect between the relative optimism of households and some companies, on the one hand, and the relative pessimism of financial market players and the other half of companies, on the other, will be reconciled. Is this a case of skittish financial market players over-sensitive to economic risks that may never materialise? Or sluggish consumers insensitive to the weaker economic prospects that lie ahead? Only time will tell. In the meantime, however, the MPC needs to form its own judgement on prospects for inflation and output. These were set out in the November Inflation Report. | 1 |
4 BIS Review 34//2005 Transparency Fifth, a very important reason why I believe Basel II will contribute to financial stability involves greater transparency. The exercise of market discipline should be considered a vital element of successful prudential policies. In particular, in order to ensure responsible and prudent behaviour by bank managers, supervisory action is not sufficient. Majority and minority shareholders, depositors and debt-holders should also have the capacity to evaluate banks and reward or penalise them according to how prudently they are managed. As mentioned earlier, Basel II, via the third pillar of the framework, provides for greater transparency. This should serve to curb excessive risk-taking in advance, and should reduce surprises that arise from opacity that can result in a shock to the financial system. Risk-based supervision Sixth, the assessment of risk has begun to play a predominant role in supervisory procedures. Banking supervision traditionally sought to ensure the solvency of banks by emphasising an accounting review of their financial and capital position. There is certainly still a role for this type of review, particularly in assessing asset quality and ensuring proper provisioning and risk concentration policies. The traditional approach is no longer sufficient, however. Today it is necessary for supervisors to place a greater emphasis on anticipating problems. It is vital to complement the traditional accounting approach with a greater emphasis on the analysis of the risks that affect banks and the management and control systems that mitigate such risks. | Basel II will not only help banks to measure and allocate the provisions and capital necessary to withstand expected and unexpected losses, but it will also help supervisors and market participants to ensure that banks have done so in a way that will maximise the likelihood that they can continue to operate, even in the most difficult of circumstances. BIS Review 34/2005 3 Sound corporate governance The second reason I believe Basel II will promote financial stability is that it promotes more effective corporate governance. Risk management must be based on a strong foundation of corporate governance. A bank can have the most sophisticated measurement tools in the world, but if it is poorly governed, it will be vulnerable to financial and operational weaknesses. The Basel Committee recognised this when it developed the qualifications that banks must meet in order to adopt the most advanced approaches under Basel II. While much attention has been paid to some of the more complex quantitative aspects of Basel II, I believe the most important qualifying criteria are those that address how the bank’s risk management framework is governed. Banks that adopt Basel II will be expected to have a comprehensive and sound planning and governance system to oversee all aspects of their risk measurement and management process. The board of directors, senior management, and audit and other control functions will be expected to exercise their duties in a rigorous manner. I believe that better managed banks under Basel II will be safer, sounder, and more resilient. | 1 |
The activities will be largely focused on drafting of the new law and the new bylaws on payment services and payment systems – in cooperation with the Ministry of Finance. The new regulation will entail transposing the latest European legislation in this area and setting grounds for significant changes to our payment landscape. Opening the door to fintech companies will provide opportunities to strengthen competition in the payment services market, and thus to enrich the offer of new, innovative and easily accessible products at a competitive price. Reflecting on the scope of this project, we have had in mind that, inter alia, the recent global economic crisis has clearly demonstrated that macroeconomic stability does not necessarily 1/2 BIS central bankers' speeches ensure financial stability. It acknowledged though that financial instability has long-term adverse effects on economic growth and macroeconomic stability. This explains the large step taken by the EU - a banking union set up on two pillars: the single supervisory mechanism and the single resolution mechanism. Undeniably, countries heading towards the EU and the European Monetary Union will have to work hard to harmonize the supervisory setup as well as other institutional and structural elements relevant for the smooth financial sector functioning. Therefore, the second component addresses the banking regulation and supervision and aims to improve our supervisory capacities. | It is thus no exaggeration to say that those present at a similar dinner six years ago felt quite optimistic about the prospects for the European economy, within Monetary Union, although the Union had only just taken its very first steps and euro banknotes and coins had not even begun to circulate. We now have the benefit of the experience built up in the intervening period. The euro has meant tangible benefits in terms of savings on transaction costs for citizens, eliminating exchange rate risks within the area, facilitating market integration and it has provided an environment of economic and monetary stability. The ECB has attained high credibility in a short period of time which is undoubtedly a result of the clarity of its objectives, the effectiveness of its strategy and the soundness of its decisions. Nevertheless, it is a fact that the European economy has not managed to repeat growth figures close to those seen in 2000. It has been prone to bouts of notable sluggishness, highlighting - in addition to the effect of an unusual series of adverse shocks - the structural shortcomings holding back activity and employment. We have therefore seen that, despite the favourable effects a monetary policy unequivocally geared to price stability has on economic prosperity, the full effectiveness of its contribution requires an ambitious reform agenda in other economic policy spheres. | 0 |
It is possible, however, that the risk comes mainly from the borrowers’ balance sheets, that they may continue to repay lenders but reduce other spending in the economy making the downturn and the eventual losses in the financial system worse. In that case, action to reinforce lender resilience will not address the risk or only do so ineffectively and inefficiently. 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Borrower-based tools Against that background, let me say a little more about the FPC’s housing tools and how they have operated in practice. The FPC’s housing tools In the five years after the financial crisis, housing market activity and house price growth was very subdued. But by 2013 both price growth and mortgage transactions began to pick up rapidly. In 2014 in the UK, house prices grew by 9% in the year to Q1 – twice as fast as incomes.5 Mortgage approvals had risen from around 50,000 per month in June 2012 to over 70,000 in January 2014. And, very importantly, the share of those mortgages at high loan-to-income (LTI) ratios was rising. The aggregate debt to income ratio for UK households had fallen from its crisis peak but remained high relative to historical averages and international comparators. To be sure, we had not reached the rate of increases in house prices relative to earnings and in mortgage debt that we had seen before the crisis and in other episodes in the UK. | As you know, the Governing Board adopted the expert group's conclusions and indicated to the Federal Council that, based on the profit figure following revaluation, an amount corresponding to half the gold holdings could be earmarked for purposes other than monetary policy. The possible uses for the sales proceeds have been the subject of much political debate. None of the proposed solutions have succeeded in attracting a consensus among the population or in the Federal Parliament. On 16 December, the parliamentary debate was concluded without an agreement being reached. Thus, a sum of CHF 21.1 billion, corresponding to the proceeds of the gold sales, has been included in the usual profit distribution procedure. Some people fear that, following this transfer, the National Bank will no longer have sufficient currency reserves. I have a word of reassurance for them. This issue has been examined in depth and has been discussed by our Bank Council. Our currency reserves total CHF 60 billion – an amount which may be considered appropriate by comparison with other industrialised countries. BIS Review 30/2005 3 But nor are these reserves excessive. Furthermore, it is important that the currency reserves evolve over time, in tandem with the size of our economy. This is why, in accordance with Article 99 of the Constitution and Article 30 of the National Bank Act, the SNB has adopted a provisioning policy that provides for gradual growth in its currency reserves. | 0 |
In part, this is out of simple self-interest, since the international effects of Fed policies can spill back onto the U.S. economy and financial markets. In part, too, it reflects a sense of special responsibility we have given the dollar’s role as the international reserve currency. We are and will remain attentive to the risk that the onset of Fed policy normalization could bring a new round of market pressures on EMEs. Yet I think there are good reasons to think that this adjustment will prove manageable and not be very disruptive. First, many EMEs appear to be better equipped today to handle the Fed’s prospective exit from its exceptional policy accommodation than they were during past tightening cycles. This reflects the fundamental reforms that EMEs have put in place over the past 15 years, as well as the hard lessons learned from past periods of market stress. Among the positives are: • The absence of pegged exchange rate regimes that often came undone violently during periods of acute stress; • Improved debt service ratios and generally moderate external debt levels; • Larger foreign exchange reserve cushions; • Clearer and more coherent monetary policy frameworks, supporting what are now generally low to moderate inflation rates; • Generally improved fiscal discipline; and 4 BIS central bankers’ speeches • Better capitalized banking systems, supported by strengthened regulatory and supervisory frameworks. | For example, the preparation of the draft law “On bankruptcy”, a commendable effort by the Ministry of Justice represents a significant development and unique opportunity to render the resolution of a financial obligation as an enforceable, predictable, and efficient process. Concluding, I would like to underline that reducing the level of non-performing loans is closely related to the magnitude of financial intermediation by the banking sector. The need to redirect private investments towards new sectors in the economy, the small market size, problems related to the low quality of financial reporting by private entities, and slowdown of economic growth rates in Albania have dictated an unstable private demand for loans . Therefore, it is important to find, in addition to macroeconomic policies, new alternatives to boost domestic demand, promote optimism in the economy and contribute positively to businesses and consumer expectations. The acceleration of economic growth would provide the conditions for faster and steadier improvement in the level of non-performing loans. Thank you! 2 BIS central bankers’ speeches | 0 |
The pace of the further steps will take into account actual activity and inflation data with some optionality and gradualism, but we should at least move towards the neutral rate ii. And let me stress this: we will carefully monitor developments in the effective exchange rate, as a significant driver of imported inflation. A euro that is too weak would go against our price stability objective. More structurally, a key question is whether we are heading towards a fragmented International Financial System, at the expense of smooth trade and financial transactions? Despite the challenges, (I) we shouldn’t abandon, as a “creative frontier” on the horizon, the idea of cooperative multilateral International Financial System and (II) we should definitely develop the international role of the euro as a realistic step forward. ** Page 2 sur 7 I. We shouldn’t abandon, as a “creative frontier”, the idea of a cooperative multilateral International Financial System 1. The reasons why the topic of a renewed IFS has progressively faded to the background Since the 1970s, not much has happened to the international financial system. While the Bretton Woods system with fixed exchange rates and a gold anchor disappeared when the convertibility of the USD into gold came to end, the new international monetary system remained based on the USD. This dollar-based system gradually incorporated greater exchange rate flexibility. It allowed for a boom in trade and capital flows. | This new technology has not only created a demand for new or improved payment services, it has also provided payment service providers with new channels through which their services can be supplied. The growing number of mobile payment services is an example of this. A number of challenges for the banks Banks have dominated the retail payments market for a long time and they still have a strong position. They are the “factories” of the retail payments market. They are usually BIS central bankers’ speeches 1 large scale and sell standardized payment services. However, they have to meet a number of challenges. One challenge relates to the fact that banks operate on a vast scale providing payment services that can be used in a broad variety of situations. In an environment that quickly changes and where tailor-made payment solutions are increasingly demanded, it is a tall order to meet such a variety in demand. We should also remember that the core business of banks is financial services including payment intermediation. They are not technology firms even though they are heavy users of technology. Innovation in payment services is usually not a question of inventing a wholly new payment process from account to account. Rather it is taking some service that is already out there and offering a new way of accessing that service. As an example, many mobile payment services and electronic wallets are just new ways of initiating card payments. A recent example is Apple Pay. | 0 |
Secondly, how do we at the Bank of England fulfil our role to maintain the stability of the financial system? And finally, highlighting some of the key areas that are currently active on our agenda. As you see, we have to extract from the global canvas the issues that pose the greatest threats and to then focus on them. International cooperation is the key to this, and events such as today’s conference with its range of distinguished speakers and attendees from across the globe can only help this process. 4 BIS Review 49/2003 | Even though, there were recent indications of a possible slowdown of momentum, the risk remains of a further build-up of imbalances followed by a significant price correction in the residential real estate market 5. Against this backdrop, it is important that banks use prudent credit standards to limit potential default risks and are well-capitalised so they can withstand such potential losses should they arise 6. The third challenge is specific to Switzerland’s systemically important global banks. Like their peers abroad, they will have to adapt to new supervisory requirements that address “too big to fail” issues and the resulting moral hazard. In the past, systemically important banks enjoyed an implicit bailout guarantee by their governments. Not only did this lower their refinancing costs, but it also led to various distortions in the areas of leverage, excessive risk taking and compensation. A wide range of measures will address problems caused by institutions that are too big to fail. These include a systemic risk capital surcharge, recovery plans and organisational measures. The systemically important banks will have to adjust to these measures. This process will take time and will not occur overnight. Implications for the Swiss National Bank I have discussed the challenges that arise for Switzerland as a financial centre from the SNB’s perspective. Our mandate is to maintain price stability, while taking due account of the development of the economy. To ensure that we can always conform to this mandate, we need a stable banking system. | 0 |
Achieving such goals would imply a very complex and politically sensitive process. This is why, as a first and more realistic step, we suggest starting by a stock-taking exercise whereby investors would have a clearer view of divergences and potential discrepancies between the various EU legislations. It is also worth noting that in the field of financial market infrastructures, Eurosystem initiatives have turned out to be powerful catalysts for harmonization. For instance, significant progress has been made in the standardization of corporate actions through the Target2-Securities project without having to adjust the respective legal frameworks. Finally, and I know this is a topic where Olivier will be happy to pick up, more regulatory convergence can be achieved without changing the current institutional architecture but via increased cooperation between European Supervisory Authorities (ESAs) and national authorities. I thank you for your attention. BIS central bankers’ speeches 3 | ‘Too large’, and central banks may find themselves accused of usurping the role of financial markets, harming innovation and inducing imprudent behaviour; fuzzying the boundary between monetary and fiscal policy, providing a ‘dangerous temptation for … the political class’1; or giving unmerited financial rewards to reserves holders.2 ‘Too small’, and central banks may be criticised for being asleep at the wheel3 at times of crisis; failing to play their part in ensuring an adequate supply of risk-free assets in the economy to maintain financial stability during peacetime4; or hampering the effectiveness of monetary policy transmission.5 Chart 1: Central bank balance sheets compared Source: Individual central banks’ published data, IMF The Bank of England has found itself on both ends of this debate in the past 10-15 years. Before the financial crisis, our balance sheet was modest, at 4% of GDP. Since then, and in direct response to the crisis, that figure has risen to around 30%: a more than seven-fold increase. Other regions have seen similar, or in some cases much larger, expansions (Chart 1). But by the UK’s own standards this is truly exceptional. You have to go back to the end of World War 2 or the early 18th century to find anything even approaching the same highs (Chart 2). | 0 |
Workplaces are being relocated in search for employees – outsourcing and off-shoring For the purpose of this speech, a simplified definition may be adopted, under which outsourcing means relocating orders, services, production, employment or, in broader terms, a business process to another company (irrespective of its location), whereas off-shoring means relocating a business process abroad (irrespective whether to another company, or within the same enterprise). 9 There are, however, not too many hard data which would allow for an assessment of the scale of outsourcing/off-shoring. Until now, there have been only estimates and fragmentary research results available on this subject, limited to some countries only. However, the data on global trade in goods and services and foreign investment proves the growing scale of this phenomenon. Over the past 15 years, there were significant changes in the share of particular regions in the global trade, with the decline of the UE share accompanied by increasing shares of the developing countries, including Asian countries. In global terms, foreign trade as percentage of the GDP increased from the average 19% of the GDP in the period from 1980 to 1989, to 25% between 2000 and 2004. 9 6 Where off-shoring takes place within the same company, the English name captive o ff -s h o ri ng is used. BIS Review 64/2006 Table 3. Shares of individual regions in global trade. | The BNB complies with the guidelines and requests issued by the ECB and pursues the necessary measures for the implementation of the ECB’s legal acts under Regulation (EU) №1024/2013, including by issuing the necessary administrative acts. In this relation, the ECB exercises control over the implementation of all SSM guidelines and standards in the BNB’s work, including with regard to the supervisory review and evaluation process and on-site supervisions. The ECB is conferred specific direct powers towards less significant institutions, in relation to the process of license issuance and revocation, approvals of acquisition and disposal of classified holdings in credit institutions, the issuance of general recommendations, guidelines and instructions, planning and carrying out of on-site inspections, including assuming at any given point in time of direct supervision over less significant institutions. For the purposes of supervision of less significant banks, a structure has been set up with the ECB’s SSM, in which the BNB participates. Within this structure, the issues of supervision over less significant institutions of the SSM participating Member States are discussed. The participation in the Single Supervisory Mechanism also includes providing the ECB with all the information needed for the performance of the ECB’s tasks, including information subject to banking and professional secrecy. The ECB collects fees for conducting its supervisory activities and this principle will accordingly apply to the banks in Bulgaria. 2. Participation in the Single Resolution Mechanism The participation in the SRM follows from the participation in the SSM. | 0 |
iZettle, another Swedish company, has a service that converts your smartphone into a card terminal. There are several other innovative payment services on the market and under development. 9 There is a growing interest in this issue in the central bank world. For instance, the Bank of England has begun to study this question, as has the Bank of Canada, see http://www.bankofengland.co.uk/publications/Pages/speeches/2016/886.aspx and http://www.bankofcanada.ca/2016/06/fintech-financial-ecosystemevolution-revolution/ 7 [10] In the first case, with accounts in the Riksbank, the e-krona would be fairly similar to the central bank money that we currently have in our payment system. These e-krona would not be lost if, for instance, the consumer lost his or her telephone, if that is where they are stored. The amount of central bank money can also change rapidly and at the pace determined by the demand from the general public. It is possible, although it does not need to be the case, that this would make it more difficult for the Riksbank to carry out the fine-tuning operations that we use to steer the short-term rate, that is, the starting point for interest-rate setting in Sweden. If we instead have a digital unit that can be transferred decentralised between two people, other complications will arise. Could such a solution be compatible with the regulations on counteracting money laundering and terrorist financing? How would we prevent digital units of value being copied, that is, counterfeited? Convey e-krona directly to the general public or through the banks? | As you may know, after a while Stockholms Banco began issuing more banknotes than they had cover for in precious metals. After a while, distrust of Stockholms Banco began to spread and people wanted to redeem their banknotes for precious metals. We now had Sweden's first bank run, which one might say was Sweden's first financial crisis. Stockholms Banco was taken over by the Riksdag (Swedish parliament) and later became the Riksbank. It must be said that the banknotes were very popular and highly-valued as long as people trusted in their worth. Compared with coins, they weighed very little and could easily be carried around. They were also considered to be worth more than the corresponding amount in coins. It was not until 1904 that the Riksbank was given a monopoly on issuing banknotes. Prior to this some commercial banks issued their own banknotes. The banknote monopoly meant two things. Firstly, it resolved the trust problem. Unlike commercial banks, a central bank like the Riksbank cannot normally go bankrupt. The holder of a banknote issued by the Riksbank can always be certain that it has a worth corresponding to its nominal value. Secondly, the banknote monopoly established a unique payment standard that is set by the state; in Sweden the legal tender is banknotes and coins issued by the Riksbank. The use of having a uniform standard for payments, and having this standard accepted by all, saves time and energy for individuals to expend on other things. | 1 |
Could that then have some impact on the feasibility of continued price stability in Sweden? Yet another risk is, of course, that the international price of crude oil does not fall back as most observers expect. It is not the oil price as such that is primarily important for the analysis but rather any impact it may have on other prices in the economy, for example wage increases. The discussion in the euro area has, moreover, highlighted the international crude oil price’s interaction with exchange rates. Risks of these types have to be weighed against the probability of a faster correction of existing imbalances in the world economy, for instance the US current account deficit, the level of stock markets and the dollar’s exchange rate. Assessing the likely course of such adjustments is exceptionally difficult. Instead of attempting to predict such a course, which may be impossible, one needs to be alert to signs that it is appearing. Concluding remarks The picture I have painted of the Swedish economy is fairly bright but it is accompanied by a number of clearly identified risks. It looks as though the favourable trend can continue but our economy is now in the cyclical phase that calls for heightened attention. The conceivable risks have to be assessed and weighed up by us on the Executive Board. | However, the indications are that overdue payments pose a huge problem for businesses in general and in particular for VSEs: at end-2014, outstanding payment claims amounted to EUR 600 billion, of which some EUR 420 billion were owed by private sector firms… and the remainder by the public sector. This requirement should of course apply equally to the public sector, both at national and local level. Various surveys and qualitative assessments show that the situation has stopped improving in the past few months, and that payment times are no longer falling, and in some cases may even be increasing again. Long payment times are not just a financial problem for VSEs, they also place a brake on their expansion, as they spend too much time chasing up overdue invoices, time that could better be devoted to growing the business and investing. The government is acutely aware of this issue and, in conjunction with the Observatory for Payment Times, is taking decisive action to resolve it. The Banque de France intends to help reduce these difficulties by drawing attention to all the solutions available to help small businesses. It will work actively with the Observatory for Business Financing, as well as through its day-to-day contacts with credit institutions and financing companies, to help develop financial products that can better reduce this obstacle to VSE growth. The determined efforts that the Banque de France intends to undertake or to participate in, will of course benefit greatly from your input here today at this symposium. | 0 |
The combination of eliminating the implicit public subsidy and increasing capitalisation will reduce distorted pricing by banks and shift activity to market based finance. Choice and competition – real market forces – are increasing. Recognising that “markets do not always clear” has spurred several initiatives. Reform is improving risk transfer by untangling the complex web of derivatives and creating simple, comparable and transparent securitisations. The Bank is helping to change the plumbing of markets so that they are more resilient to the failure of individual counterparties, and we are working to understand better the dynamics of market liquidity given changes to regulation, trading strategies and the rise of asset management. 6 BIS central bankers’ speeches The Bank has also overhauled the way we provide liquidity by expanding the range of collateral as well as the number and types of counterparties. And recognising that the instability of markets may mean they occasionally seize up, the Bank now stands ready to act as a Market Maker of Last Resort. And the third lie? In order to help restore trust and fairness, financial reform is re-building real markets. Earlier this year, we published the Fair and Effective Markets Review. It identified multiple root causes of misconduct in FICC markets that contributed to an ethical drift and an abdication of responsibility. A good start has been made in addressing these shortcomings including through changes to compensation regimes, clarifying the responsibilities of senior management and overhauling the structure of some markets to reduce opportunities for abuse. | First, each bank holding company will be asked to evaluate the credit losses that are likely to occur under an adverse economic environment. These losses would then be evaluated relative to the bank holding company’s ability to absorb those losses. Second, if this analysis indicated that the banking organization was likely to fall short of wellcapitalized in the stress environment, the bank holding company would be able to obtain additional capital via mandatory convertible preferred stock purchased by the Treasury. Third, if the stress scenario were actually to occur, generating losses that depleted common equity capital below what is deemed adequate, then the mandatory convertible preferred would be available to be converted into common equity. The government’s mandatory convertible preferred investment is, in some sense, contingent capital that is available to be converted into common equity only as needed. I believe this program is very important if we are to break the adverse dynamic that I outlined early. As I mentioned earlier, many bank holding companies don’t have an incentive to raise sufficient capital to ensure that they can handle a very bad outcome. That is because such capital-raising would severely dilute existing shareholders. This implies that, left to their own devices, banks might end up being undercapitalized in a stress environment. The risk of this outcome makes these banks (and their counterparties) very cautious in terms of their behavior. | 0 |
Looking at the wider prudential framework let me mention two specific areas where the European Commission is currently reviewing the existing EU regulation. The first area relates to deposit guarantee schemes. Although the deposit guarantee directive of 1994 was useful in setting common minimum requirements for national schemes, the current level of harmonisation is low, with different levels of protection and different structures in place across the EU. This is not only inefficient but may hinder further integration. As many of you will already be aware, the European Commission is currently undertaking a wide-ranging review of Deposit insurance arrangements, and I would encourage it to be ambitious in this respect. The second relates to the work being carried out by the Commission with the aim of ensuring that EU financial services legislation and supervisory practices do not pose barriers to cross-border mergers and acquisitions. Consolidation processes should be market-driven phenomena that respond to market needs, such as economies of scale, IT synergies, the benefits of diversification, access to a larger client base, etc. I think that supervisors do have a crucial but limited role to play in fulfilling their responsibility to ensure that banks are not taken over by shareholders that are not suitable on prudential grounds. But this is as far as we should go. The Supervisory framework Let me now turn to the supervisory framework. I believe that we need to think in terms of a European system of banking supervision. I am not talking about a single European supervisory authority. | This is the first and most important challenge of the Basel Committee in the next few years. As part of this process we will adhere to the published schedule for our fifth quantitative impact study. And I believe that we already have the tools at our disposal to deal with any issues that arise from the QIS5 exercise, or that arise during this period of implementation. To be sure, a key element is not to add further details to Basel II, but rather to focus on achieving a quality implementation of the new Framework. Therefore, I do not anticipate any significant change to the Framework during the period bankers and regulators are tackling initial implementation challenges. But the main challenge is the cross border home host cooperation. On this point I would not underestimate the work and efforts that supervisors are devoting to this issue. One final related point. The staggered implementation, specially the timetable differences with EEUU raises transitional crossborder issues that will need to be managed through greater collaboration between the EU and US supervisors, but I can assure you that both sides are even more committed to this than before, and that our efforts will be redoubled in this respect. Ultimately, I hope that this commitment and effort will promote even more effective implementation. A second related challenge is to enhance the cooperation with non-G10 supervisors. | 1 |
Lessons from the crisis In the aftermath of crises, corporate governance standards and practices often come under scrutiny. For instance, after the Enron/Worldcom failures, critics pointed to the lack of independence of auditors and Audit Committees, and to deficiencies in accounting standards. After the bursting of the dot.com bubble, attention was drawn to the severe conflicts of interest by brokers and analysts. The recent financial crisis has been no different. Indeed, reviews by international bodies and national agencies have found that weak corporate governance played a role in this crisis. For instance, the OECD report on "The Corporate Governance Lessons from the Financial Crisis"1 noted that "the financial crisis can be, to an important extent, attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies." While many of the corporate governance failures that have been uncovered so far affected financial companies, many of the structural weaknesses may also be common to large and complex listed firms. It is therefore relevant for Boards of other companies to reflect on these findings. Let me briefly highlight a few common themes. The first relates to the quality and composition of Boards. Research shows that although having a good balance of directors with a range of skills and experience that are relevant to the business of the firm is an essential foundation for good corporate governance, this was also often the most neglected. | François Villeroy de Galhau: Financial stability in the age of digital industry Introducing speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Paris Europlace International Financial Forum, New York City, 18 April 2016. * * * Ladies and gentlemen, I would like to introduce this third round table by presenting the latest issue of the Banque de France Financial Stability Review entitled “Financial Stability in the Digital Era”. This new edition of the FSR addresses a very topical issue in the financial world, the impact of digitalisation and how to regulate such changes where necessary. I am keen to hear today’s exchange of views. In this FSR, we have gathered contributions from prominent academics, practitioners and policy-makers in order to shed light on the impact of innovation on financial stability. I would like to express my sincere thanks to all the contributors who have provided their views and analyses on such a technical and forward-looking topic. I cannot list all the contributors just now but I would like to give a special mention to Ms Karen Gifford who is with us today. The contributions presented in the FSR are very diverse in nature. The aim of the FSR is to help readers form an opinion; it is not designed to convey the explicit message of the Banque de France. The core aims of our Review are to exchange ideas, explore a given theme from various angles, and juxtapose different analyses and opinions. | 0 |
In addition, the effect of the leverage ratio is further magnified by dealers’ inability to “net” across similar transactions on a bilateral basis with different counterparties for accounting and capital purposes. Netting is generally allowed so long as the transactions have the same counterparty and settlement date.22 The “same counterparty” requirement could in theory be met via the implementation of a central counterparty (CCP). However, for several money markets that are important to the transmission of monetary policy, no CCP has been implemented to date. For example, there is still no CCP in the United States for the repo market, and there is also no CCP for foreign exchange swaps. The regulatory capital benefit from the implementation of a CCP for the repo market might be reduced by regulatory requirements for some arrangements, such as those associated with the provision of committed liquidity to the CCP. The implementation of a CCP raises other important policy issues that would need to be carefully considered. The fourth and final development: money markets have been impacted by increasingly large shifts in the Treasury’s cash management practices, as well as the cash management of a number of foreign official holders of dollar reserves. | Later in 2013 economic activity should gradually recover, as global demand strengthens and our accommodative monetary policy stance and significantly improved financial market confidence work their way through to the economy. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring. Today, we have also decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the sixth maintenance period of 2013 on 9 July 2013. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed, and at least until the end of the second quarter of 2013. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. The rates in the three-month longer-term refinancing operations, to be allotted until June 2013, will be fixed at the average rate of the MROs over the life of the respective longer-term refinancing operation. Let me now explain our assessment in greater detail, starting with the economic analysis. Following a contraction of 0.2%, quarter on quarter, in the second quarter of 2012, euro area real GDP declined by 0.1% in the third quarter. | 0 |
BIS central bankers’ speeches 5 | But potential measures must be balanced against the risk that the interbank market will cease functioning more quickly if there are signs of financial turmoil in the future. There is also a risk that a temporary extension of the collateral a central bank accepts can reduce the banks’ incentives to hold sufficient amounts of what are normally considered eligible assets. If the central bank takes over some of the functions of the shortest interbank market, there is also a risk that banks which are essentially creditworthy will suffer liquidity problems as the access to short-term financing in the interbank market will disappear. Although there is still the possibility to borrow from the central bank, collateral is required, while the interbank market usually provides loans without collateral. Even though we have not needed to take a stand in these considerations in an emergency situation, we do of course discuss the issues and monitor developments closely. Conclusion The financial turmoil has meant that several central banks have had problems stabilising the overnight rate at the target levels. The uncertainty has also contributed at times to difficulties for some banks in obtaining funding on the interbank market. Several central banks have therefore taken measures beyond the normal to stabilise the overnight rate and to reduce the pressure on the slightly longer interbank rates. In Sweden there has been no reason to take any extraordinary measures. The Swedish interbank market has on the whole functioned smoothly. | 0 |
This implied that capital accumulation was not associated with technological change and hence TFP growth. Indeed, in the catching-up economies capital flowed disproportionately into the non-tradable/services sector, which was in general experiencing significant productivity losses.2 Specifically, capital accumulation was highest in the construction and real estate sectors, closely followed by retail, transport and leisure. There seem to be two explanations why this happened. First, in some sectors the falling marginal product of capital was counterbalanced by rising profit margins, meaning that total compensation from investing in these sectors remained high.3 This was principally the result of an incomplete single market and a lack of competition – for example, in network industries such as utilities and telecommunications – which allowed 2 See European Commission, 2014, “The drivers of total factor productivity in catching-up economies”, in Quarterly Report on the Euro Area, Vol. 13, Issue 1, April 2014. 3 See European Commission, 2013, “Catching-up processes in the euro area”, in Quarterly Report on the Euro Area, Vol. 12, Issue 1, March 2013. 2 BIS central bankers’ speeches incumbent firms to charge excessive rents and distorted price signals. The capturing of rents by firms in these sectors may have affected productivity growth not only by channelling resources away from more productive uses, but also by creating a drag on incentives to become more efficient in other sectors. | As the economy continues to adjust to these changes, the situation is still uneven across different sectors. In addition to the above-mentioned oil industry, passenger transportation and international travel still remain below pre-pandemic levels as well. When restrictions were toughened, public catering and entertainment companies faced a decline in the demand for their services. Nonetheless, a lot of industries are demonstrating steadily higher output and sales than before the outbreak of the pandemic. Specifically, there has been a surge in the demand for durable goods (computers, telecommunication devices, and household appliances) and online trade and delivery services. The lockdown period boosted the demand for countryside housing and better housing conditions in general. These uneven trends across both industries and regions are also described in the Regional Economy report released by our regional branches before the quiet period. The situation in the labour market also evidences that the economy has not only recovered, but is generally returning to its pre-pandemic growth path. The number of vacant jobs is at its peaks. High demand for labour resources is demonstrated by companies in construction and transport, a whole range of manufacturing enterprises, and in trade. These are the industries that started to bounce back earlier and were recovering faster and where demand exceeds prepandemic levels. A further expansion of output is possible through a restoration of the inflow of labour migrants, but — first of all — through an increase in labour productivity. | 0 |
1999-00351 DIR, or Heikensten, L., “The Riksbank’s inflation target – clarifications and evaluation” Sveriges Riksbank Quarterly Review No. 1, 1999. BIS Review 87/2006 3 Ultimately, it is the inflation forecast in relation to the target that decides monetary policy. How quickly the target should be attained is also decided by developments in the rest of the economy. The economic situation Let me go on to say something about the monetary policy situation and the prospects for inflation and economic activity. It is the inflation assessment on which we based the decision to raise the repo rate by 0.25 percentage points at our most recent monetary policy meeting on 29 August that I intend to discuss. An account of the discussion held at the meeting is contained in the separate minutes published last week. We observed in the Inflation Report published in June that economic activity in Sweden had strengthened, largely because of strong international developments, high productivity and expansionary monetary policy. Our assessment was that these factors would also continue to stimulate the economy. GDP growth this year was therefore expected to be high, which was supported by both the national accounts figures for the first quarter and the economic indicators for developments during the second quarter. There were also signals from the labour market that economic activity was continuing to improve, with an increasing demand for labour. We could also note that inflation had begun to increase, after having been strikingly low. | The inflation target and consideration of the real economy The Riksbank has the statutory objective of maintaining a low and stable inflation rate, or of “maintaining price stability” as it is expressed in the Sveriges Riksbank Act. We have specified this task as ensuring that CPI inflation is around 2 per cent a year, with a tolerated deviation interval of +/1 one percentage point. As long as confidence in the inflation target is not threatened – or, as it is usually expressed, as long as the nominal anchor for setting prices and wages is not at risk – we also have the opportunity to take into consideration how the real economy, such as production and employment, develops. Although the latter has not been written into the Act, it was stated in the preliminary work to the new Sveriges Riksbank Act that came into force in 1999 that it was natural that the Riksbank should support the economic policy objectives of sustainable growth and high employment without neglecting the long-term price stability objective. This was considered a natural consequence of the Riksbank being an authority under the Riksdag (the Swedish parliament). It was therefore considered unnecessary to specify any further objective than price stability in the law text. There were probably also some fears that statutory objectives for the real economy could give the wrong impression – that monetary policy could also govern long-term developments in growth and employment, for example. | 1 |
Consequently, any further strengthening of the euro strengthens the case for more policy action by the ECB aimed at bringing inflation closer to 2%. Is there a risk of global currency wars? Each country wants to overcome the crisis as quickly as possible and the easiest way is to weaken its currency and thus improve the position of its exporters. These issues have been discussed many times, including among the G20. Countries have agreed that the exchange rate should not become a target for monetary policy. As long as the exchange rates are driven by the various countries’ internal situations and domestic monetary policy actions, this is not a currency war but an adjustment of exchange rates to the current policy, stemming from their economic developments. This assumes, of course, that exchange rates will adapt in a flexible way to the changes in economic conditions and monetary policy. It was thanks to the weakening of the zloty – among other things – that Poland has come out of the 2009 crisis unscathed. For many people, this is an argument against the joining the euro area. Poland’s future is linked to the euro area and the future of the euro area is linked to Poland. The euro area without Poland – one of the largest EU countries – will not be complete. That is why Poland is welcome to join. But it is up to you to meet the entry criteria, laid down in EU law, and, in doing so, decide when to join. | The ECB has had to use different instruments at different stages of the crisis. Now the economic and financial situation in Europe is significantly better. Financial fragmentation has receded, Member States have made significant efforts towards economic convergence and the governance of the euro area has been strengthened. We are gradually moving out of the BIS central bankers’ speeches 1 crisis phase into a different environment, with the focus shifting from solving the crisis to ensuring stable economic growth and inflation close to 2%. It requires a different approach and different instruments. The developments beyond our eastern border are the big topic of debate in Poland at the moment. Could the conflict between Russia and the Ukraine affect Europe and its economy in any way? The impact on trade or the financial system has thus far been limited. But this situation does give rise to uncertainty, so it can be regarded as a potential negative factor that could hinder economic growth in Europe, and that is part of our risk assessment. What about the strong euro? Aren’t you worried it could cause problems for European exporters and hinder the recovery? The ECB doesn’t target the exchange rate. Our primary mandate is price stability, and within this mandate, the exchange rate of the euro is among the factors determining the level of inflation. And indeed, the strong euro is contributing to the current low inflation. | 1 |
One of the fundamental tenets of risk management is that banks need to create provisions to absorb expected losses and to have sufficient capital to absorb unexpected losses. Accordingly, capital and provisions are an essential part of any supervisory framework. I believe Basel II reinforces the need to implement sound policies in both areas. In this respect, it is important to analyse provisions and capital over at least one complete economic cycle. Moreover, a range of potential future scenarios, with an emphasis on stress scenarios, should be considered, taking into account past experience and current conditions. Indeed, Basel II requires banks adopting the more advanced approaches to credit risk to apply a forward-looking approach to credit risk management by meaningfully stress testing their credit portfolios. Gaining room for manoeuvre and shoring up finances during good times in the business cycle is not only prudent policy, but is also consistent with sound risk management. Many would say that risks increase during bad times, but I believe this is only partly true. In my view, the exposures of banks, and therefore their risks, actually increase during economic upturns. These risks may not materialise until times of difficulty, but the seeds are generally planted during good times. In sum, when designing their capital and provisioning strategies, managers should have the aim of strengthening banks during good times and should remember that the imbalances that foster financial instability usually build up during the best parts of the economic cycle. | Finally, both big banks are in the process of finalising their Swiss emergency plans, in which they have to demonstrate that they would be able to maintain their systemically important functions without interruption in a crisis. Credit Suisse and UBS have taken important measures in this context over recent years. For instance, they have both established Swiss subsidiaries to house their systemically important functions. According to FINMA, further efforts by the big banks are required to ensure their plans are finalised by the statutory deadline of end-2019. 1 Domestically focused banks I would now like to turn to the domestically focused banks. The mortgage and real estate markets remain the biggest source of risk for these banks. Imbalances persisted on these markets in 2018. Both mortgage lending volume and prices for single-family houses and privately owned apartments continued to rise at a moderate rate in 2018. In the residential investment property segment, transaction prices fell slightly in 2018. Nevertheless, the risk of a price correction in this segment remains particularly high. On the one hand, this is due to strong price increases in previous years. On the other, the further rise in the number of vacant dwellings suggests that the brisk construction activity in rental apartments may have led to an oversupply. The risk appetite of domestically focused banks in this environment remained high. Mortgage growth at these banks continued to be robust at around 4.2% last year. Banks’ current lending policy in the residential investment property segment should be viewed as particularly risky. | 0 |
Such risks have also been one of the arguments in favour of opening the Riksbank to scrutiny and of promoting a policy that is as clear as possible. An open debate and good opportunities to scrutinise the Bank appear to me to be the best antidote against an introverted and exaggerated inflation-fighting perspective. Having said that, though, I think that there is every reason to object to the recurrent interpretation that the low inflation is an expression of an excessively hawkish stance on the part of the Riksbank. Firstly, for a large part of the period in question monetary policy has been guided by a measure of underlying inflation UND1X, and so policy should first and foremost be evaluated in terms of this measure, in accordance with the Bank’s clarification in 1999. UND1X inflation has averaged 1.9 per cent since 1995, which is undeniably quite close to the target. (Figure 5). The fact that CPI inflation during this period has been lower – 1.4 per cent – is mainly due to the sharp decline seen in the general level of interest rates, partly because a low-inflation environment has been secured. Furthermore, ten years may be too short a period over which to assess policy, at least when a number of those years have involved an adjustment from one regime to another, as in Sweden’s case. Another way to approach this issue is to study the episodes when inflation has undershot the Riksbank’s target. That has mainly happened on three occasions. | The downward revision for the coming year is not due to any change in the assessment of economic prospects, but rather to a number of specific factors that have resulted in higher competition in the world market and in Sweden. But as the cyclical upswing continues and firms’ costs increase, there is still assumed to be a gradual rise in inflation. In the main scenario, which is based on an unchanged repo rate in the coming two years, both CPI and UND1X inflation is expected to be on target two years ahead. The annual averages for inflation will be low throughout the forecast period, however. Allow me in this context to briefly say something about the fact that the weak price developments in the recent period have caused the word ”deflation” to reappear in the media, often in the form of an eye-catching headline. There is always reason to keep the risk of deflation in mind, since falls in the general price level are sometimes associated with considerable problems in the economy. It is important, however, to ascertain whether the subdued price developments are a result of weak demand or due to positive changes on the supply side of the economy. At the moment there is no doubt that the latter is the dominant factor. | 1 |
The final decision will take into account the macrofinancial situation at the time. That said, irrespective of the decision adopted, the recommendation for prudence in this area must remain in force as long as the current uncertainty persists and until a solid economic recovery takes hold. Recognition of the increase in credit risk Third, I would also like to refer to the increase in credit risk generated by the pandemic in lending to households and firms and its recognition by banks. In this connection, national and international organisations1 have issued various statements to clarify the effects of COVID-19 on financial reporting by banks, in many cases providing greater flexibility to the regulatory framework and the prudential impact of such reporting. The measures focus on clarifying the existing accounting regulations for an appropriate calculation of credit risk impairment of financial assets in 2020, distinguishing temporary from permanent effects and recognising the role of public measures in sustaining lending. 1 Banco de España, ECB, European Banking Authority (EBA), European Securities Markets Authority (ESMA) and the Committee of European Auditing Oversight Bodies (CEAOB). 5 The aim of these measures is to prevent provisions from behaving excessively procyclically and mechanically as a result of automatic reclassification to non-performing of exposures affected by temporary shocks. That is to say, they seek to avoid a downward adjustment to the volume of credit in response to the COVID-19 crisis, and also to moderate the impact on profitability. | If the real interest rate is low, even bad investments appear to be profitable and the banks' credit assessment process will not function properly. A large number of borrowers will then experience unsatisfactory profitability, particularly if the interest rate then increases slightly, and will be unable to pay their loans. The bad experiences from the time before and during the crisis led to the Riksbank later being given a very independent role to determine the key interest rate within the framework for monetary policy. Parliament set the objective for what should be achieved, namely price stability. The Riksbank then specified this as an inflation target, whereby the inflation rate would normally be within an interval of 1 to 3 per cent a year. Interest rate decisions are made by the Executive Board of the Riksbank, which is intended to ensure that there can be no external influence. The predictable and independent interest rate policy means that the banks and other financial agents have been given a firm foundation on which to base their risk assessments, which reduces their risks of suffering unexpected losses. Avoiding being wise after the event It is dangerous to use regulations to limit competition in the banking sector. Almost forty years of regulations had led our banks to almost entirely lose one field of competence they must have to accomplish their task to society – to assess credit risks and allocate credit where it can have the most positive effect on economic developments. | 0 |
In terms of foreign exchange market efficiency, Hong Kong is the fifth FX activity centre supported by a unique network of real time gross settlement systems in USD, Euro, RMB and the HKD. Hong Kong has a high standard of market transparency, disclosure, prudent supervision and without exchange controls which is crucial for centralized treasury functions. 18. A unique advantage of Hong Kong, which is difficult for other centres to match, is its proximity to Mainland China and status as the premier offshore RMB centre. For managing treasury activities denominated in the RMB, we have the largest offshore RMB liquidity pool exceeding RMB 1.1 trillion, a vibrant CNH market with daily settlement exceeding RMB 800 billion, the deepest offshore RMB (or Dim Sum) bond market, the unique access to the A share market through the Shanghai Hong Kong Stock Connect (which will soon be extended to include the Shenzhen Stock Exchange), and critical market infrastructure such as the CNH HIBOR fixing benchmark for pricing RMB financial products and the development of related risk hedging instruments. 19. We, of course, cannot afford to be complacent. Our study has also identified room for improvement in particular in the tax regime for corporate treasury activities. Hong Kong’s tax system has many strengths: tax rates are low and the tax regime is simple with no tax imposed on dividends and capital gain. Hong Kong is also probably the only major jurisdiction in Asia without an interest withholding tax. | Global growth is being driven by rapidly growing emerging economies. In the euro area, activity has slowed in several of the largest economies, and there are prospects that the downturn may persist for somewhat longer than previously envisaged. Unemployment is high and rising in a number of countries. In Spain and Greece, unemployment now exceeds 25 percent, and among young people, more than half are jobless. The economic situation is better in the US, but growth is moderate. Oil prices have fallen somewhat in the course of spring, but are still at a high level. With key rates close to zero, several central banks have adopted unconventional measures to stimulate growth and support inflation. Measures that change the composition and size of a central bank’s balance sheet differ from the usual monetary policy operations in that instruments other than the key rate are deployed to influence market rates and economic activity. The ECB and the central banks in the US, the UK and Japan have implemented such balance sheet policies to directly influence long-term interest rates and thus funding costs for enterprises and households. The Japanese central bank also introduced new measures this spring. The central bank will double the monetary base by the end of 2014, mainly by buying more Japanese government bonds, in order to boost inflation, reduce real interest rates and promote economic growth. The improvement in global financial markets reflected the measures implemented by the ECB through 2012. | 0 |
We do this while never neglecting our obligation with the stability of the payment system. Therefore, in the past several weeks we have also contributed to alleviate liquidity stress. Our commitment is to continue to walk this road to the extent that circumstances so dictate. Our economy is not immune to episodes occurring elsewhere in the world and that is what we have been experiencing. However, we are on a good stand to deal with very adverse environments, and it is the commitment of the Central Bank Board to ensure the best possible performance of the Chilean economy in times of turmoil and uncertainty at their highest. With that in mind, we have established a monetary/foreign exchange policy scheme – as well as an international liquidity position – that will help us soften the potential repercussions of the current problems of the world economy. Thank you. 4 BIS Review 123/2008 | With respect to bond market development, we have taken a more active role both in the primary and the secondary market. This is because the bond market is where we operate monetary policy through liquidity injection and absorption in order to align short-term interest rate with the policy interest rate. Therefore, the more developed and efficient the bond market is, the more effective the monetary management would be. Besides, a vibrant domestic bond market is essential for a robust and efficient financial system, which is a solid foundation for long-term economic stability. In the primary bond market, while meeting with the sterilization needs, the issuance of BOT bonds and bills are also designed to promote the bond market. In particular, we coordinate closely with the MOF on issuance schedule to provide regular and predictable supply, reduce auction frequency and consolidate issuance to reduce the number of issues in order to BIS Review 118/2008 5 facilitate secondary market trading. The BOT bonds have helped widen investor base and contributed to the growth of mutual fund industry, as retail investors are seeing this as an alternative to banks’ deposit. Other than the issuance of BOT bonds and bills, we also introduced floating rate notes to add diversity to the products in the market as well. With respect to secondary bond market development, developing the private repo market has been one avenue that the Bank has adopted to enhance a more liquid bond market. | 0 |
A high standard of professionalism, laced with strong ethical values and integrity also form the prerequisites to create a new cadre of Islamic finance scholars. The pursuit for intellectual diversity and professionalism among scholars is best demonstrated through Shariah interpretations and lines of reasoning that evolve with peculiarity of circumstances, demonstrating a high degree of tolerance and respect of other Shariah school of thoughts. It is only by having talents with these ingrained ethics and characteristics that we could elevate Islamic finance to greater heights in our endeavour to improve the wellbeing of the ummah. Tonight, as we commemorate this prestigious award, let us celebrate this year’s and past years’ winners for their contributions to drive the Islamic finance agenda forward. It is not just their academic and working credentials that merit them this award, but it is also their relentless pursuit of al-falah (success) through their drive, knowledge and wisdom. I believe that this year’s RAIF winner and past winners have paved the path for future talents of 2/3 BIS central bankers' speeches Islamic finance to embark on breakthrough ideas and thinking. It is for this very reason, that this year’s award is conferred to the visionary talents that had made impactful and significant contributions to Islamic finance. | Under the terms envisaged in the current Law on the Management, Supervision and Solvency of Credit Institutions, this cost will be borne by the banks, in accordance with the legally established keys and procedures. As to the total cost of the exercise for the ECB and the supervisory authorities as a whole, I am not yet in a position to provide it. But the cost is high. 4. Assessment of the exercise from an overall standpoint First, I do believe that having conducted such an exercise in such a short period of time is an achievement in itself. Never to date has a stress test and an asset quality review been combined at the European level. It is a challenge of the first order, since banks from 19 countries with different supervisory models and different regulatory frameworks were involved. However, thanks to a sound methodology and with rigorous quality assurance processes set in place, both by the ECB and by national authorities, we were able to ensure that the results of the exercise met high standards and were reasonably comparable across banks from different countries. Moreover, the Comprehensive Assessment is, undoubtedly, a major step forward in terms of transparency, significantly increasing the amount, quality and consistency of the information available about the position of European banks. 5. Minimum levels of capital required. | 0 |
Moreover, our vote, regardless of the size of our economy and banking sector, has the same weight as the vote of any other central bank in the euro area. Furthermore, in the person of Mr. Radoslav Milenkov, the Bulgarian National Bank has a representative in the Steering Committee of the Supervisory Board of the ECB’s Banking Supervision, which includes representatives of only five national supervisory authorities. This is a position that is taken on a rotational basis, but the fact that we receive it at the beginning of our membership is an extremely important sign. These developments in recent years alone have led me to draw the following conclusion: the BNB and our banking sector are very strong examples of institutional development in an 1 environment of still serious institutional deficits. The recipe for this is simple: the right decisions in the right strategic context. The right actions in the banking sector have included major reforms in the sector, including the central bank governance model and the banking supervision, and the right context is the sector's accession to key euro area institutions such as the Single Supervisory Mechanism and the Single Resolution Mechanism. The practical result is the solid capacity, resources and expertise built to solve the challenges facing the sector and the economy. They have been tested and convincingly demonstrated in recent years. The BNB was one of the first central banks to initiate a large-scale anti-crisis package of more than 8% of GDP at the outset of the Covid pandemic. | Speech by the BNB Governor, Mr. Dimitar Radev at the forum of the Association of Banks in Bulgaria on the occasion of the 30th anniversary of its foundation, 13 June 2022 Dear Ms Chairperson, Dear Mr Deputy Prime Minister, Dear Members of Parliament, Dear colleagues and guests, Thank you for the invitation. Please accept most sincere congratulations by the BNB Governing Council on the 30th anniversary of the Association of Banks in Bulgaria. I would also like to take this opportunity to thank you for your many years of support and partnership. They were demonstrated not only in our operational work, but also in solving strategic tasks for the sector and the country's economy. The ABB was founded at the beginning of a period of dramatic political, economic and social change in the country. Since then, the banks in Bulgaria and the sector as a whole have gone through various phases and periods, some of which particularly turbulent. Unlike in the beginning, the sector and the Association are now much more consolidated. People like me, contemporaries of the events of 1992, remember that there were over 70 banks in Bulgaria at the time, 47 of which became founders of the association. Today, there are 24 ABB member banks (full and associate), with a total of 25 banks and bank branches in Bulgaria. We do not need to go so far back to assess the huge changes in the sector. It is enough to take the period of the last 5 years. | 1 |
Time, spirit of cooperation and BIS Review 34/2010 3 good global citizenship, as well as maintaining policy and risk focus will be essential for all of us going forward. Thank you. 4 BIS Review 34/2010 | 2 To help on the supply side the Bank has developed an education outreach strategy with three components: 1. econoME: which includes free lesson plans and supporting materials for teachers to use in their classrooms; 2. Bank Ambassadors: colleagues below the director level at the Bank who volunteer to visit schools across the country to explain the Bank of England’s role; and 3. School visits by senior Bank and policy committee members: to spark young people’s interest in economics and to inspire them to pursue a career in related fields. Let me say a bit more about why we are doing this. 1 May 2017 survey conducted by ING and the Economics Network, available at: https://www.economicsnetwork.ac.uk/research/understandingecon 2 See Haldane, A “Everyday Economics”, Birmingham 2017 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 The first objective is to help young people understand the economy and to make better informed personal financial decisions. The econoME lessons are designed for 11-16 year olds and cover: - The economic factors that influence personal decisions; - How to make informed decisions; and - How such decisions collectively influence the economy. An array of econoME resources, designed in close collaboration with teachers and education specialists, support these classes. The materials include lesson plans, presentations, videos, activities and real life case studies. And they can be used by non-specialists with no prior economics training. | 0 |
It is pleasing to note that the leasing sector has a bright future in Zambia as evidenced by its growth. Since the liberalisation of Zambia’s financial sector, the contribution to private sector credit of leasing companies has increased. In the period December 2001 to December 2006, total leases increased from K67,161 million to K206,972 million, representing an average annual growth rate of about 25.2 %. At the same time, the performance of the leasing sector was satisfactory as on average, leasing companies maintained adequate capital and reserves relative to their risk profiles and the sector has been consistently profitable. Notwithstanding this improved performance of the leasing sector, I am aware of a number of constraints the financial sector in general is facing, including the low financial intermediation, limited access to financial services for the rural population and low-to-middle income earners, high cost of funds, lack of product diversity and underdeveloped money and capital markets. To redress these impediments to economic growth and as an integral part of the pro-poor growth strategy, the Government’s objective is to enhance financial intermediation and improve access to financial services both in urban and rural areas. To this end, a five year Financial Sector Development Plan (FSDP) was prepared in 2004. This Plan aims at promoting the development of a financial system that is stable, sound and market-based to support efficient resource mobilization, which is necessary for economic diversification, sustainable growth and poverty reduction. Currently, the key recommendations of the FSDP are under implementation. | new autos 20 Other G7 16 Total G7 (%) Level, end 2019 = 100 140 130 New autos 120 12 110 8 Dec 19 Jun 20 Dec 20 100 4 90 0 80 -4 70 -8 60 -12 Jun 21 Contributions to percentage change on 2019 Q4. Sources: OECD Quarterly National Accounts, Refinitiv Eikon from LSEG and Bank calculations. Apr 19 Oct 19 Apr 20 Oct 20 Apr 21 50 Oct 21 Sources: Refinitiv Eikon from LSEG, US Bureau of Economic Analysis and Bank calculations. In addition, and even if the pandemic itself has receded, some of the shifts in spending it produced have proved more enduring. Working from home is still much more prevalent than before the crisis, reducing spending on travel and some other local services as well. For the same reason some of the geographical shifts – away from city centres and towards the suburbs and countryside – have also lasted longer. Third, “zero-covid” policies in some Asian countries have meant that, even though vaccination rates have risen significantly, restrictions continue to be imposed in response to local outbreaks of the virus5. Coupled with the continuing strength in demand, these have contributed to significant congestion on shipping routes, 5 There were two major port closures in the summer in China, after some workers tested positive. | 0 |
Villy Bergström: The Riksbank’s role in the economy Speech by Mr Villy Bergström, Deputy Governor of the Sveriges Riksbank, to the Swedish Shareholders Association, Jönköping, 28 February 2001. * * * Some time ago, the British journal The Economist wrote that the world’s central banks were now at the height of their power. It is easy to get that impression when you see the enormous amount of interest devoted to the central banks in the daily press, the broadcasting media and economic journals. This applies to the Riksbank in Sweden, to the European Central Bank – the ECB – and, especially to the U.S. central bank, the Federal Reserve with Alan Greenspan in the foreground. During the autumn electoral campaign in the United States, a number of newspapers put forward the view that it would not make any difference whether Al Gore or George Bush was elected as President - it was in any case Greenspan who was in control. When Greenspan surprisingly cut the American instrumental rate by 0.5% in January between two ordinary monetary policy meetings of the Federal Reserve’s decision-making body, the decision was applauded with headlines such as “Greenspan saves the world again”. This type of statement is simply ridiculous. The importance of monetary policy cannot be compared with the Government’s general policies or with the office of President. However, things have gone so far that the central bank is regarded as a second government in many countries. These comparisons are, of course, unreasonable. | However, it is first when private consumption has accelerated in recent years that GDP growth has increased so strongly that unemployment has also fallen. Many factors have led to households starting to consume: Cuts in public finances no longer burden household budgets – instead lower taxes have increased disposable income. Unemployment has fallen at the same time as real wages have risen markedly. Finally, household net wealth has increased due to increasing property and share prices up to summer last year. However, household’s expectations about the future seem to play a crucial role for household’s propensity to consume. In the last few years, investments in the business sector have increased quite strongly in volume while it is only just recently that investments in housing construction have started to increase. The strong growth we have seen in recent years is higher than that sustainable in the long term. The Riksbank makes the assessment that annual increases in production of 2- 2.5 per cent are possible in the long term. The amount that GDP can increase is determined by the increase in productivity and by how much employment can increase. The larger increase in production in recent years is primarily due to there being a lot of unused resources in the economy after the problem years in the early 90s, when there was a substantial drop in production. While the productivity of the business sector has increased, it has primarily been increased employment that has created scope for growth. | 1 |
Monetary policy response The CBRT has been clear about its approach in responding to inflation resulting from factors beyond its control: Monetary policy will tolerate the first round effects, but will promptly respond to any deterioration in overall pricing behavior. I want to emphasize that the policy pursued since September 2007 should be interpreted in this context. In September 2007, the Monetary Policy Committee (MPC) decided to initiate the rate cuts, which had already been signaled earlier in the year. Accordingly, policy rates were lowered by 225 basis points between September 2007 and February 2008 (Table 2). Table 2: Monetary Policy Committee (MPC) Decisions in 2007 and 2008 Dates for MPC Meetings Decision on Interest Rates Interest Rate January 16th, 2007 February 15th, 2007 March 15th, 2007 April 18th, 2007 May 14th, 2007 June 14th, 2007 July 12th, 2007 August 14th, 2007 September 13th, 2007 October 16th, 2007 November 14th, 2007 December 13th, 2007 January 17th, 2008 February 14th, 2008 March 19th, 2008 April 17th, 2008 No Change No Change No Change No Change No Change No Change No Change No Change -0.25 -0.50 -0.50 -0.50 -0.25 -0.25 No Change No Change 17.50 17.50 17.50 17.50 17.50 17.50 17.50 17.50 17.25 16.75 16.25 15.75 15.50 15.25 15.25 15.25 Source: CBT. In the January 2008 Inflation Report, we indicated that uncertainties in the global economy, hikes in electricity prices, and risks to price setting behavior had compelled the CBRT to be more responsive to incoming information. | Consequently, the contribution of energy items to year-to-date CPI inflation reached about 0.9 percentage points. 2 BIS Review 62/2008 Figure 3: Subcomponents of CPI (First Quarter Percentage Change) 10 2006 2007 2008 Energy Goods exc. Food and Energy 8 6 4 2 0 -2 -4 Food Services Table 1: Contribution to First Quarter CPI Inflation (Percentage Points) CPI Food* Energy Goods exc. Food and Energy Services 2008 3,09 2,31 0,86 -0,74 0,65 2007 2,36 1,93 0,22 -0,39 0,60 2006 1,25 1,41 0,38 -1,20 0,66 * Food: Food and non-alcoholic beverages. Source: TURKSTAT, CBT. Distinguished Guests; The decline in services inflation came to a halt in the first quarter of 2008. Elevated food and energy prices have been exerting upward pressures on the prices of catering and transport services. Rents and other services, on the other hand, have continued to decelerate (Figure 4). BIS Review 62/2008 3 Figure 4: Subcomponents of Services Index (First Quarter Cumulative Percentage Change) 5 2006-2007 Average 2008 4 3 2 1 0 Rent Transport Services Restaurants and Hotels Other Services Source: TURKSTAT, CBT. Distinguished Guests, Global uncertainties and their reflections on the domestic financial markets have led to exchange rate movements, which in turn affected March inflation especially through the prices of fuel and high-tech consumer durables. | 1 |
I will pick out a few of the highlights for discussion. First let me note that the “stress” so far has not involved any actual exit from accommodative policies in the advanced economies. The change in the outlook was initiated by speculation about the possibility that the FOMC might start to slightly reduce the rate at which it is adding stimulus! It would have been a more severe stress if policy rates had actually been changed. Many firms for whom maturity transformation is a major part of their business model will actually be better off if the short-term rates at which they fund themselves are relatively unchanged while longer-term rates rise. Have markets got it wrong? If so then in my view that was not obviously in the price reactions since May (although the extent of the fixed-income sell-off may turn out to have been overdone, especially for the UK) – rather it was the expectations that had become embedded prior to May which had become overly certain even if, at that time, it supported the intent of monetary policy in both the US and Europe. It is important to remember that monetary policy is about decision making under uncertainty. Considerable uncertainty. Policy makers get surprised by economic developments just like everyone else, and that news is often visible to the market before the authorities can even think about the right responses, let alone respond to them. | The difference in credit growth between households and non-financial enterprises is a good illustration of Norway’s dual economy. Over the past few years, credit growth has been far higher for households than for enterprises. The level of household credit growth has remained high recently in spite of increased unemployment and a downward revision of the prospects for economic growth. An important reason for this is the sharp rise in house prices in recent years. Low investment demand is reflected in credit to non-financial enterprises, which has declined to a very low level. Developments in prices for commercial property compared to house prices also indicate that the situation is better for households. The current level of vacancy in commercial premises is very high. Although lower interest rates will, in isolation, stimulate investment, a substantial share of the vacant premises will probably have to be filled before renewed growth can be expected. Developments in mainland enterprises have been characterised by low output growth, falling investment and declining profitability in many industries. In order to boost returns on invested capital, enterprises have taken steps to reduce costs, primarily by reducing their workforce or relocating parts of their production abroad. There are some positive impulses, however. Interest rates are low, and equity prices have increased sharply since the trough in February 2003. The krone has depreciated and there are signs of a global upturn. Wage growth has moderated and cost inflation is likely to be lower than in the years from 1998 to 2002. | 0 |
James D Rogers: Inauguration of the Sierra Leone Stock Exchange – a significant milestone Welcome address by Dr James D Rogers, Governor of the Bank of Sierra Leone, at the inauguration of the Sierra Leone Stock Exchange, Freetown, 27 July 2007. * * * Mr Chairman Your Excellency The President Honourable Vice President Honourable Minister of Finance Honourable Ministers Honourable Members of Parliament Distinguished Ladies and Gentlemen I am extremely delighted to welcome all of you, and in particular His Excellency The President and the Honourable Vice President to this inauguration ceremony the Sierra Leone Stock Exchange, a project pioneered by His Excellency The President and into which much time and resources have been invested by the Bank of Sierra Leone over the past several years. In 2002 the first step was taken with the establishment of the Stock Exchange Technical Committee (SETC) under the Chairmanship of the Deputy Governor of the Bank. I wish to note that the present Deputy Governor is the second Chairman of the Committee, and has professionally steered us to this point. I want to particularly thank His Excellency The President for accepting our invitation to launch this project. During his administration, His Excellency has given support, encouragement and advice to the Bank in every sphere of its activities, and I wish on behalf of the Board and Management to express my thanks and appreciation to him. | The constraints imposed by such a financial infrastructure, and the inadequacies and inefficiencies attendant thereto, provide key justification for the development of the capital market which will play the lead role for mobilizing domestic and foreign investment, as well as engendering low cost, efficient, financial intermediation. While in our financial sector development we have taken steps to improve the payments system, supervision of banks, strengthening their capital base, and enhancing efficiency in general, we have also put strong emphasis on ensuring the emergence of a comprehensive financial sector, that will meet the demands of an emerging market economy such as ours. BIS Review 107/2007 1 In the process of developing the capital market, we have worked with private sector and external development partners, especially the First Initiative and the Commonwealth Secretariat, to put in place a robust legal and regulatory framework that will facilitate the process. Through the Resident Consultant provided by the First Initiative, we have defined the system of regulations that would guide the operations of the capital market, and the stock exchange in particular, in all facets of its operations. We have ensured that these are consistent with acceptable international standards, and I can now confidently say that our stock exchange will operate with adequate safety and protection of the interests of the investing public. No one therefore should entertain any fears in transacting business through our stock market. The process of developing the legal framework has been participatory and transparent. | 1 |
In fact, Singapore companies have already entered into many businesses in India, including IT, telecommunications, hotels, township development, professional services, port management and other infrastructure projects. Earlier this week I visited the Information Technology Park in Bangalore - a development led by a consortium of Singapore companies with Indian partners. It is quite a sizeable park - 28 hectares - with its own power generation and even sewerage treatment plants. The Park has attracted many tenants to Bangalore, and will be expanding further in the third phase of its development. Other Singapore companies such as Singapore Telecommunications, Parkway Holdings and the Port of Singapore Authority have also invested in India. To-date, investments by Singapore companies in India amount to $ I expect this figure to rise strongly, as the Indian economy continues to open up and the business environment becomes more conducive. Economic cooperation is best led by the private sector, which can operate on a commercial basis and react quickly to opportunities. But governments can do much to support the private sector. Governments set the tone and framework for economic liberalization and integration. They should promote cross border economic activities, dismantle trade and investment barriers, harmonise regulatory standards, and jointly agree on steps to enhance our business environments. These government efforts make a lot of difference to the commercial calculations of the private sector, and catalyse the flow of people, goods and investments. 30. India and ASEAN have been actively engaging each other for several years. | Lee Hsien Loong: Connecting India and Singapore Keynote address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the Standard Chartered Bank’s Singapore Conference, Mumbai, 16 January 2004. * * * Introduction I am delighted to be here today to address the Standard Chartered Bank’s Singapore Conference. We stand on the threshold of a major transformation in Asia. With a combined population of 3 billion people, Asia is the largest and most promising region in the world today. It includes Japan, not fully recovered from its post-bubble malaise, but still the second largest economy in the world, with deep capabilities and advanced technology. It includes South Korea, which took painful measures to open up its economy and restructure its chaebol-centred industrial system. And it includes Southeast Asia, whose countries have put behind them the trauma of the Asian Financial Crisis, and are growing and attracting investments again. The biggest stories in Asia are China and India. It has been projected that China’s GDP could overtake Germany in the next four years, Japan by 2015, and the US by 2039. India too is opening up and growing strongly, and could become the 3rd largest economy in the world within 30 years. Globalisation plays a big part in Asia’s vitality. It has resulted in more Foreign Direct Investments (FDI) into Asia, and created jobs and prosperity for Asians. | 1 |
Mr. Yam discusses the causes of and solutions to the recent financial turmoil in the Asian region Speech by the Chief Executive of the Hong Kong Monetary Authority, Mr Joseph Yam, JP, at a symposium in commemoration of 50 years of central banking in the Philippines organised by the Bangko Sentral ng Pilipinas, Manila on 5/1/99. Introduction I am delighted to be here today to help commemorate this important anniversary in such distinguished company. Having recently had my own fiftieth birthday, I can confirm that fifty years is a very venerable age, and I offer my heartiest congratulations to all those involved in central banking in the Philippines over this past half-century. The turmoil of the past eighteen months has made us all feel older and wiser, and it is appropriate that the Bangko Sentral should make use of this anniversary to provide us with an opportunity to review recent events and, more important, to look to what lies ahead. The topic of this session is “Causes of and Solutions to the Recent Financial Turmoil in the Asian Region.” I welcome the way in which causes and solutions are placed here in a regional context, because the nature of the problem in front of us is such that lasting solutions can only be found through wider co-operation, particularly among geographical neighbours. In fact, I should like to go one step further by suggesting that, if the turmoil we see around us is regional, the crisis we face is an international one. | I shall look first at the immediate and palliative responses, and then focus more on the longer term preventive measures, since the most effective solutions lie not in short-term fixes, but in building healthy domestic and international systems that minimize the possibility of future turmoil. Immediate and palliative responses are often necessary to cope with a shock to the system, particularly when the scale and nature of the shock are beyond expectations, even by the most pessimistic, as is the case with the financial turmoil of the past 18 months. These responses include, first, rescue packages mounted either independently by individual economies, if they have the necessary resources, such as Japan, or through the assistance of international financial institutions, such as the IMF, involving the provision of external financial resources. These packages are having some effect, and in some countries - Thailand, for example - have already helped stimulate recovery. It is vital that individual economies get themselves back on their feet if they are to move on and meet the challenges of and derive the benefits from continued global economic growth and development. The IMF and other international financial institutions have an important role to play in this, in mobilising international financial resources, from both the official and private sectors, to assist those who have stumbled and fallen, very much as victims of the internationalisation of financial markets. | 1 |
This means that consumption will not increase as much and that an expansionary fiscal policy will have little or no effect (see for example Barro and Redlick, 2011). 7 IMF, World Economic Outlook, October 2010. 8 BIS central bankers’ speeches economy recovered relatively quickly following the crisis of the 1990s. However, Michael Bergman of Copenhagen University has shown that budget consolidation in Sweden between 1994 and 1997 actually had a negative impact on GDP and consumption and also led to an increase in unemployment.8 Given this it is reasonable to expect that cuts in the euro area and the United States will lead to reduced demand on export markets that are important to Sweden, and to lower resource utilisation. Risk of an impact on the exchange rate The fact that countries with weak public finances may be forced to implement fiscal tightening in what appears to be a weak economic climate has consequences for monetary policy. We can expect more central banks abroad to conduct an expansionary monetary policy in order to counteract the dampening effect of fiscal tightening on demand. However, as policy rates in many countries are already close to zero there is limited scope for further policy-rate cuts. Many central banks are instead expected to leave their policy rates unchanged for some time to come. | Climate change has been among the focus areas of management since 2006. Our work on financial risk as a result of climate change is incorporated in the investment strategy and the financial objectives of the GPFG. The Ministry of Finance is now working to introduce a new behavioural criterion for companies’ climate emissions in the guidelines for observation and exclusion. Such a criterion must then be managed in line with the highest defined threshold for exclusion. BIS central bankers’ speeches 1 It is important that the overriding principle for Norges Bank’s investment management continues to be that the GPFG is a responsible investor with a financial objective. If the GPFG is increasingly used as an instrument for pursuing objectives other than financial ones, it may reduce the clarity of the GPFG’s role as a financial investor. If the GPFG investment scope is subject to considerable restrictions, it may entail increased risk or lower returns. The management of the GPFG has been successful to date. The total return since the establishment of the GPFG amounts to more than NOK 2 500 billion, or about 40 percent of GPFG capital. Through its management, Norges Bank will continue to promote its overriding objective: to safeguard the Fund’s assets over time. Thank you for your attention. 2 BIS central bankers’ speeches | 0 |
We have had examples of this in Sweden and it could also happen in some other countries. How can euro adopters prepare public finances for asymmetric shocks? This was a major issue in the Swedish debate ahead of the euro referendum. Despite the fact that there had been reforms in the public-finance framework in Sweden in the 1990s, the Riksbank and others argued that more should be done before joining the euro area. 2 BIS Review 53/2003 Essentially two things are required: First, there is a need for sufficient margins in the public finances. In practice, this means that debt levels should not be too high. If the economy enters a downturn that does not affect the rest of the euro area to the same extent, it is important that there is scope to conduct more expansionary policy. If the scope is there, one can be reasonably sure that it will be used. It is more difficult to handle the second, opposite situation - upturns and over-heating tendencies. What is then required is a framework that stimulates or even forces political decision-makers to act in time and to take decisions that might be difficult in the short run but that are correct in a longer perspective. Here we drew some inspiration from our monetary policy set-up. Fiscal policy could be guided by clear targets that are defined in terms of countries’ output gaps. Alternatively, national inflation targets could be introduced. | I am looking forward to learning from what I hope will be both an open-minded and a constructive dialogue about the future of monetary and macroprudential policies. Thank you. BIS central bankers’ speeches 1 | 0 |
Let me start at home, so to speak: at the SNB. People frequently call for the SNB to abolish the negative interest rate in order to significantly ease the pressure on pension funds. But if we think things through, would that actually happen? If there were no negative interest rate, the franc would be even more attractive internationally and would appreciate. That would slow down our economy considerably, and unemployment would rise substantially. In this gloomy scenario, long-term interest rates would therefore Page 5/8 barely increase at all. Instead, the downturn in economic activity would cloud the outlook for Swiss companies – with adverse consequences for share prices as well. So you see, under current circumstances the earnings outlook for the pension funds would not improve significantly if the negative interest rate were to be abolished. On the contrary. Higher unemployment would impact on the economy and the pension system, as it would have the effect of reducing value added and hence the contribution base. At present, it would therefore not be in the pension funds’ interest to abolish the negative interest rate. So if it is not possible in the current situation for the SNB to abolish the negative interest rate, could it not at least use the income derived from it to alleviate some of the pressure on the pension system – for example by distributing this income to the pension funds as ‘compensation’? In our view, this would not be a good idea either. | At the same time, we will also explore data analytics tools for processing the data collected in order to generate useful analyses for furthering our capability to understand and assess the ML/TF risks at the sectoral level, as well as to provide feedback to individual regulatees where appropriate. These will hopefully lead to an evolution and re-shaping of regulatory interface between the HKMA and market practitioners to enhance AML/CFT surveillance capability of all. Regtech for prudential risk management and compliance 23.Another area of focus is on Regtech for prudential risk management and compliance. The often-analytical nature of prudential risk management has created room for technology to im 4/4 BIS central bankers' speeches | 0 |
Dear ladies and gentlemen, I hope that this project will deliver long-term results, and will strengthen the regulatory and operational frameworks at the Bank of Albania, an institution that makes substantial contribution to the sustainable economic development of Albania. On behalf of the Bank of Albania, let me iterate our readiness and commitment for the successful implementation of the Twinning Project, as we strive with professionalism and responsibility to achieve its objectives. Concluding, I would like to thank the European Commission, for its support in securing funding for this project. I am certain that the Commission will continue to support future initiatives of the Bank of Albania, as we deal with approximation challenges and endeavour to progress toward the European family. I would also like to thank the EU Delegation to Albania for their support and valuable suggestions during the design and consultation phases of the project, as well as the General Directorate for Financing and Contracting, for their insistence throughout the design and selection process for compliance with all EU procedures related to fund management. Special thanks go to Banca d’Italia, an institution that has constantly supported us with their invaluable experience. I believe that the experience and dedication of Mr Gola is an added guarantee in this regard. | At the end of the process, Banca d’Italia and Deutsche Bundesbank were selected to implement Bank of Albania’s project. Banque de France and National Bank of Romania are also part of the team for certain components of the project. We feel privileged, certainly, by this close partnership with these two major central banks. Relations with these two institutions date back to quite early in the history of the Bank of Albania. 1/2 BIS central bankers' speeches Whether multilaterally or bilaterally, they have assisted for many years the Bank of Albania achieve its objectives and operate like a modern and reliable institution. I am therefore optimistic about the success of this next project, irrespective of the relatively tight agenda and deadlines. Now, let me briefly introduce you to the main components of this project. It will involve eight departments at the Bank of Albania and will address important issues, grouped as follows: 1. Banking Supervision and Financial Stability 2. Monetary Policy and Statistics 3. Internal Audit 4. Payment Systems 5. Other central banking functions such as human resources and European integration For each component, measurable results have been envisaged, which will be translated into regulatory documents, guidelines and specific recommendations related to policies. All outcomes will aim to approximate the final product at a higher level to standards and models of the European System of Central Banks. | 1 |
The ASEAN platform, will build on NatCatDAX’s efforts in Thailand, Indonesia and Philippines, and extend the coverage to other countries to further enhance data availability in ASEAN. 18. Second, Risk Advisory. On the demand side, ASEAN member states have varied needs, due to differences in economic assets, population size, types of hazards and exposures faced, and the stage of development of their respective disaster risk financing strategies and markets. On the supply side, there is a wide range of disaster financing solutions such as insurance, reinsurance, index-based products, parametric covers, insurance-linked securities (ILS) and regional pools; and many solution providers, ranging from private insurance and insurance-linked securities markets, multilateral development banks, and international organisations. ADRFI can connect both sides together, and play the role of analysing countries’ needs, harnessing risk advisory expertise of stakeholders, and structuring optimal and cost effective disaster risk financing strategies under this risk advisory pillar; and 1 9 . Third, Capacity Building. This pillar will focus on enhancing knowledge of disaster risk financing strategies and solutions, and equip policy makers with a good understanding of regulatory, legal, administrative and technology pre-conditions to deploy effective disaster risk financing solutions. ASEAN Secretariat will work with knowledge partners such as the World Bank, Asian Development Bank, Insurance Development Forum 4 and the insurance industry to develop and implement a 3-year training road map to address ASEAN’s knowledge gaps. 20. | ASEAN Disaster Risk Financing and Insurance Programme Today, I am pleased to announce the official launch of Phase 2 of the ASEAN Disaster Risk Financing and Insurance Programme. ADRFI Phase 2 will be impact-focused, 11. and targeted at strengthening ASEAN’s capabilities in ex-ante risk financing and risk transfer strategies. ADRFI Phase 2 was approved by the ASEAN Finance Ministers at the ASEAN Finance Ministers Meeting in April 2018 and the 3-year detailed Plan of Action was subsequently endorsed in April this year. 12. To drive ADRFI Phase 2 forward, the Plan of Action will be implemented by a dual programme office, to be led by the ASEAN Secretariat and the NTU-ICRM. The dual programme office will adopt an open architecture structure to support global collaboration with stakeholders including policy makers, governments, multilateral development banks, international organisations and the private sector. 13. Allow me to provide an overview of ADRFI’s 3 focus areas over the next 3 years. These are: (i) Risk Assessment, as I mentioned earlier (ii) Risk Advisory; and (iii) Capacity Building. Leveraging on their respective strengths, ICRM will lead the Risk Assessment and Risk Advisory pillars, while ASEAN Secretariat will lead the Capacity Building pillar. 14. These are upstream activities which will strengthen ASEAN’s disaster risk management capabilities, and complement the downstream public and private disaster risk financing solutions, such as the SEADRIF. Let me elaborate further on the 3 key focus areas. 1 5 . First, Risk Assessment. | 1 |
Firstly, we understand that the industry is in the midst of finalising a recent independently-conducted Customer Satisfaction Index (CSI) that will be a means to gauge the insurers’ performance against the enhanced insurance industry’s Customer Service Charter which was introduced in January 2018. This survey includes minimum service standards that reflect the guiding principles for good customer service. The results of the CSI survey is expected to be finalised by end-2018. I would urge you to familiarize yourself with the Customer Service Charter of your principal insurers and use it to guide you in your dealings with customers so as to ensure good customer experience. Secondly, the Bank is at a fairly advanced stage of finalising the policy document on fair treatment of financial consumers. This will address the Bank’s increased expectations on financial institutions, including insurers, to cultivate a culture of fair dealing and responsible behaviour. The onus will be on insurers to ensure agents observe new standards to exercise due care, skill and diligence in dealing with financial consumers. We should expect principal insurers to accord greater emphasis on the importance of (1) providing clear and concise product information to customers to enable them to make informed choices, (2) offering products that are appropriate to the customers’ needs and financial circumstances, and (3) providing individualised advice that is in the best interest of the consumer. Let me conclude. | The monetary policy mandates of the Federal Reserve are clear: We must foster monetary and financial conditions that support maximum employment and price stability. Since January 2 BIS central bankers’ speeches 2012, the Fed has set an explicit goal for inflation of 2 percent, as measured by the price index for total personal consumption expenditures, or PCE. So, how are we doing with respect to this 2 percent target and our Zimbabwean risks? Despite many earlier predictions of unacceptably high inflation, total PCE inflation has been hovering around just 1 percent since early 2013. Other inflation measures, notably, the wellknown Consumer Price Index (CPI), are also well below their related benchmarks.1 Forecasters often look at core inflation, which excludes volatile food and energy prices, because it is a better predictor of where overall prices are headed than is total inflation. Our progress toward the inflation target is not noticeably faster by this metric either. Core PCE inflation was just 1.1 percent over the past year and has been at this rate since last spring. Most private sector forecasts and survey measures of inflation expectations have remained well anchored and do not ring any alarms of high inflation. Expectations embedded in asset prices tell a similar story. Sophisticated models that extract inflation expectations from the yield curve show that investors’ inflation expectations at the three-year horizon are below 2 percent and will be below 2 percent for several years. All told, the risk of high inflation seems very low. | 0 |
These surpluses have declined in the past few years. Oil and gas production passed its peak more than a decade ago. We may find once again that these resources have been underestimated. But the oil price collapse and developments in the Norwegian economy in the past few years have reminded us of an inescapable fact; we must drive forward a larger non-oil tradable sector. We need more legs to stand on. The needed structural adjustments in the Norwegian economy will have to be dealt with against the backdrop of more global challenges. Demographic changes and sagging productivity growth may point towards persistently low growth in advanced economies. Protectionist tendencies and reduced trade in goods and services could put an additional drag on growth. We must also make changes to consumption and production methods in order to reduce greenhouse gas emissions. This evening I will take a closer look at these challenges. Is low growth here to stay in advanced economies? In the long term, there are two factors that determine how quickly an economy can grow: the 2/9 BIS central bankers' speeches supply of labour and labour productivity. Chart: Working age population The decline in the working age population is weighing on the growth outlook for many countries. The large post-war cohorts are leaving the labour force, and the consequences of a long period of low fertility rates are becoming increasingly clear. At the same time, the proportion of the population who are employed remains low in many countries. | It will therefore be essential to better understand the factors that still constrain the recovery in this market and why investors are shying away, despite proven good performance and very few defaults on European ABSs. The regulatory treatment of ABSs, in particular the BIS central bankers’ speeches 1 proposed regulatory capital charges for banks and insurers, could be a factor, as could a lack of secondary market liquidity and the relative opacity of the loans packaged in an ABS. In this respect, let me also mention the Eurosystem’s ABS loan-level initiative. In November 2012 the ECB informed the public about the implementation of loan-level data reporting requirements for asset-backed securities as part of the Eurosystem’s collateral framework.1 The ABS loan-level initiative makes use of the European DataWarehouse, the single loanlevel data repository for the handling of loan-level data reporting, which became operational on 3 January 2013. As a consequence, for residential mortgage-backed securities and for asset-backed securities whose cash-flow-generating assets comprise loans to SMEs, the reporting requirements became mandatory as of 3 January 2013. Commercial mortgagebacked securities must comply as of 1 March 2013, and other asset classes (auto loans, consumer finance loans, leasing receivables) as of 1 January 2014. While the ECB launched this initiative in the context of its collateral framework, a positive externality is that the initiative should also support the revival of this market segment by increasing its transparency and therefore investor confidence. | 0 |
The Islamic financial system in Malaysia operates in parallel with the conventional system. Following the establishment of Islamic banking was the establishment of takaful or Islamic insurance to provide the coverage for Islamic housing mortgages. As these two segments progressed, Malaysia expanded its implementation approach by allowing the conventional banking institutions to offer Islamic banking products and services on a window basis. To preserve the integrity of the system, BIS Review 3/2004 5 firewalls between the conventional and Islamic funds were put in place. It was made mandatory for the Islamic banking operations in these institutions to be separated from the conventional banking operations, either electronically or through other designated means. This move created more players in the Islamic financial system and provided the platform for the establishment of a vibrant Islamic money market. The Islamic money market served as a platform for the Islamic financial institutions to manage their short-term portfolio adjustments. Recognising the importance of the capital market, Malaysia initiated the development of a private Islamic financial securities market in the early nineties. The Islamic financial system today has emerged as an important component of the overall Malaysian financial system that contributes to the growth and development of the Malaysian economy. Malaysia has also adopted legal reform, self-regulation and measures to encourage market-based regulation. New measures have been introduced to further improve the level of governance among banking institutions. | Cambodia is considered a small open economy, one which realized average GDP growth of about 10% from 2005 to 2008 and gradually increased the level of international reserves to a level which can ensure 3.8 months of imports. The financial system in Cambodia, which is dominated by the banking sector, is considered strong. This is reflected in figures from the end of 2007 which show that total banking assets increased by 53.6%, bank deposits rose by 59.4%, and loans to the private sector went up by 52%. However, with the global financial crisis that has affected most of the continents, Cambodia’s total banking assets declined a bit in the last quarter of 2008 and the economy is expected to have very little growth in 2009. The National Bank of Cambodia still manages its reserves in a conservative manner, with principle strategies prioritized by: first, safety; second, liquidity; and third, returns. This conservative strategy is appropriate in light of the current financial turmoil. But with gradual increases of reserves, one’s portfolio should be well diversified and reserve managers should have a solid risk management and analytical skills. Therefore, capacity building needs to be continuously strengthened. BIS is the best counterpart in capacity building for central banks, especially for the National Bank of Cambodia. Every year BIS provides on-site training to our reserve managers and I hope the BIS continue providing this kind of training and cooperation in the future. | 0 |
Some have suggested tiered remuneration for different holding amounts in order to influence incentives and ensure appropriate integration into the monetary system.10 In the case of stablecoins, central banks don’t directly control interest that might be paid on these instruments. However, incentives created by remuneration policies could have important influences on the structure and relative demand for private and public digital currencies. Depending on how the regulatory and policy environment for financial innovation evolves, stablecoins could be issued by banks or other regulated entities that could have access to interest-bearing accounts at central banks. In this case, the rate of remuneration stablecoin issuers earn on their accounts might influence the rate paid to stablecoin holders, and the role of the instruments in the broader monetary ecosystem.11 Of course, implementation issues are not the only important consideration for remuneration of digital currencies, but it should be one consideration. Choices about the remuneration of new central bank liabilities, like CBDC, and of the accounts of private stablecoin issuers, could have an important influence on the incentives created by monetary policy implementation frameworks. Given this, central banks should take a holistic approach to considering the impact of their remuneration policies on the ecosystem of both private and public currencies. Pillar 2: Liquidity supply This brings me to the second pillar of interest rate control: liquidity supply. In order for central banks’ remuneration rates to effectively achieve interest rate control, central banks supply reserves in appropriate quantities to achieve the interest rate target. | In some environments, this requires central banks to forecast demand for liabilities and execute open market operations to supply needed reserves. In recent years, the demand for many central bank liabilities has become higher and less predictable. However, most central banks have been operating with abundant liquidity surpluses, which has limited the impact of this reduced predictability on implementation.12 As central banks embark on balance sheet reduction, however, understanding demand for liabilities may become more important. The demand for digital currencies is not well understood, as these are instruments for which there is no precedent or experience. For a CBDC, central banks would have to understand the behavior of the demand for this new liability. If stablecoins were to be issued by commercial banks, it would also be important to understand drivers of growth in these coins and how that growth might affect banks’ demand for reserves. Trend growth in these central bank liabilities could be quite different than it is for other liabilities, such as cash or reserve holdings of traditional banks. And, the variability in demand could potentially be high, driven by shifts in the market environment or in response to geopolitical developments or other exogenous events. This variability could be amplified if digital currencies were available internationally, potentially leading to larger flows. The variability could create new challenges for supplying the appropriate amount of reserves to the banking system to ensure that administered rates continue to control rates, and could lead to a need for larger liquidity surpluses to ensure interest rate control. | 1 |
44 For MPC, this is a quarterly Inflation Report; for FPC, a semi-annual Financial Stability Report; for the PRA, an Annual Report. 6 BIS central bankers’ speeches policy regime is one of “constrained discretion”. 45 Each of these constraints can, in turn, be seen as an institutional response to the behavioural biases discussed earlier. Behavioural biases in policy So let me now link these institutional features to each of the behavioural biases. And let me also try to provide some evidence on how successful these features have been in leaning against these biases. With elements of this policy framework still fledgling, it is too early to reach definitive conclusions on some of its features. Preference biases The policy frameworks of the MPC, FPC and PRA Board share the feature that targets are set ex-ante in legislation by Parliament acting on behalf of society. The policy mandates of the MPC, FPC and PRA are those of the principal (society), not the agent (the Bank). The Bank is not setting its own exams. Nor, ex post, is the Bank marking its own exams. For example, if the MPC fails to meet its 2% inflation target by one percentage point in either direction, it is required to write an open letter to the Chancellor, setting out why this happened and how the MPC intends to respond in returning inflation to target. And the Bank’s regular policy reports set out the MPC, FPC and PRA’s intended actions and are subject to Parliamentary scrutiny. | Durmuş Yilmaz: Press conference for the presentation of the Inflation Report Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the press conference presenting the third issue of the Inflation Report, Central Bank of the Republic of Turkey, Ankara, 28 July 2008. * * * Distinguished Guests and Members of the Press, Welcome to the press conference for the presentation of the third issue of the 2008 Inflation Report, one of the most important communication tools of the full-fledged inflation-targeting regime that we have been implementing. In this conference, I would like to give you a short summary of our evaluations and the Central Bank’s inflation forecasts in the Inflation Report which will be posted on our website later today. 1. Inflation developments Esteemed Members of the Press, I would like to start with a general assessment of inflation developments in the previous period and share with you the factors impeding the disinflation process in the first half of the year. Distinguished Guests, In April, both the Open Letter and the Inflation Report issued by the Central Bank of Turkey presented a detailed explanation for the factors impeding the disinflation process. The source of inflation has not changed in the past quarter. In the second quarter of 2008, prolonged increases in food, energy and other commodity prices continued to exert significant upward pressures on headline inflation. | 0 |
In some market segments, especially in more complex ones, a large share of trading volume is attributed to HLIs. However, measured by assets under management, the HLI industry is still small compared to traditional investment funds and the trading books of large international banks. Because of its modest size, its 14 See also The President's Working Group on Financial Markets, 2007, recommendation 5. BIS Review 74/2007 5 heterogeneity and its absence from the field of financial intermediation, the HLI industry is no direct threat to financial stability. Nevertheless, there are two channels through which a shock occuring in the HLI industry could be transmitted to systemically relevant banks. First, banks are exposed to HLIs in their role as counterparties and creditors. Second, in periods of stress, banks may suffer from a lack of market liquidity and a decline in prices, and this may be aggravated by HLIs. Potential regulatory measures should therefore focus on the link between the HLI and the banking industry. Of particular importance is that banks simulate their risk exposures to HLIs and the liquidity situation in periods of stress. We encourage the private sector to take the initiative and come up with measures which will enhance market discipline and strengthen banks' resilience to losses from HLIs and adverse market situations. At present, we do not see a need for direct regulation of HLIs. | At the regional level, it plays a significant role as an anchor and is the vector of a culture of stability. The increasing role of the euro at the international level is due to the development of its use as a financial instrument and as a medium of exchange (A) and of its role as an anchor for exchange rate regimes (B). A The euro is an essential financial instrument and a key medium of exchange · • The use of the euro as a financing and an investment currency on the capital markets has increased. In the first half of 2004, the euro accounted for almost 36% of the gross issuance of long-term international debt securities, compared with 24% in 2002. The share of the US dollar was down from almost 50% in 2002 to 39%. • Another significant development is the emergence of a corporate bond market in the euro area, whose volume has increased significantly in the last few years. The outstanding amount of quoted shares issued by euro area residents was EUR 4,035 billion in 2004 as against EUR 3,118 billion in 2002. • As a settlement currency, the role of the euro is expanding. In 2003, between 50% and 60% of goods and services traded between the euro area countries and the rest of the world were settled in euro. This is true for both exports and imports. | 0 |
James D Rogers: Accountability, transparency and governance in Sierra Leone Keynote address and statement by Dr James D Rogers, Governor of the Bank of Sierra Leone, at the Second Audit Risk and Governance Africa Conference, Zanzibar, Tanzania, 17-20 July 2007. * * * Mr Chairman, Conference Organisers, Distinguished Ladies and Gentlemen, I wish firstly to thank the conference organisers for their kind invitation to deliver the keynote address at this conference on this very topical and important subject. My remarks will be in six parts. After an Introduction, the First Part will consider the Meaning and Scope of Accountability, Transparency and Governance. The Second Part will examine the relationship between Governance and Development. Part Three will present Aspects of Governance in Sierra Leone. This will be followed by General Remarks in Part Four. Part Five concludes. Introduction Accountability and transparency have occupied a very high lead in discussions of state management. Hardly would a speech be delivered, at domestic or international gatherings, articles written, in the popular press or in professional and academic journals, on issues of state management, without at least an allusion to, if not an extensive treatment of, these concepts. Indeed, serious examination of these concepts takes us into the complexities of governance, aid conditionalities and effectiveness, international economic cooperation, sovereignty of developing countries, economic development, achievement of the millennium development goals, and associated issues. It is within the context of these considerations that a fuller analysis and understanding of these concepts can be obtained. | The beginning of the 21st century is being shaped by a greater ideological debate about the nation-state and global governance, about the legitimacy of the use of power, and about public policy at the local, regional, national and supranational levels, all against a backdrop of huge inequalities in wealth, income and power that divide the world." Conclusion There certainly are governance challenges in Africa, which must be addressed. Fortunately, action is in progress with respect to many of these. Weak administrative structures, outmoded legal systems, poor financial management, corruption and impunity can only further stifle and impede the attraction of investment, the provision of public services, and alleviation of the plight of the bulk of our populace. The extant approaches to resolving these problems, as championed by the international donor community, may not be adequate. We must consequently continue the international BIS Review 109/2007 7 development dialogue in a bid to find more acceptable modalities for improvement in governance that will recognise, respect and incorporate legitimate concerns of aid recipients. 8 BIS Review 109/2007 | 1 |
In particular, we invest in green because we see it as a driver of long-term value, in addition to wanting to do the right thing. Contrary to some perception that investing in green undermines return, our experience shows that many green investments that are good for the environment can also be good for investors over the long term. I see the application of green and ESG in investment as just another balancing act that investors have to perform. Exactly where and how to draw the line depends on the specific circumstances at hand. While some green bonds may produce slightly lower yield or returns as compared with the conventional bonds, I truly believe that time has come for asset owners to take a more progressive and proactive stance in supporting green finance. I don’t think there is much disagreement amongst the stakeholders on whether green finance can make a difference in promoting long-term environmental sustainability. The big question is whether the 1/2 BIS central bankers' speeches stakeholders, especially the asset owners, be they pension funds or sovereign wealth funds, want to make a difference by taking concrete steps to invest in green finance. We in the HKMA are prepared to play our part and I sincerely hope our peers will join us in owning and pursuing the goal of supporting green finance. 8. Ladies and gentlemen, we have today a rich agenda and the presence of many distinguished speakers. | Norman Chan: Welcome remarks - 2018 Green and Social Bond Principles Annual Conference Welcome remarks by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the 2018 Green and Social Bond Principles Annual Conference, Hong Kong, 14 June 2018. * * * Financial Secretary, Martin, distinguished guests, ladies and gentlemen, 1. Welcome to the 2018 Green and Social Bond Principles Annual Conference, co-organised by the Hong Kong Monetary Authority (HKMA) and the International Capital Market Association, supported by the Hong Kong Financial Services Development Council. 2. Today’s conference is the flagship event in the world of green finance, and rightly so. Since the publication of the Green Bond Principles (GBP) in 2014, it has become the de facto global standard for green bond issuance. These days, a majority of the green bonds issued globally follow the GBP framework, and many major markets base their local green bond standards on the GBP. In this Conference, we will have the opportunity to hear more about the latest enhancements to the GBP, and how green standards have been developing in different parts of the world. 3. Today’s conference is notable also because of its location. As Martin said, it is the first time that the conference is held in Asia. Looking at the turnout, it is a good choice. I am not just referring to over 900 registered attendees – this is clearly impressive. | 1 |
Yet the press and the markets focus on them as though they were the writ of all-knowing, all-seeing monetary sages. On Monday night, for example, there was much ado made about Janet Yellen noting in Chicago that the central tendency of our best guesses was that full employment would be somewhere between a 5.2 and 5.6 percent unemployment rate. It is nonetheless helpful to contemplate what may be useful guideposts for deciding when to raise the base rate and how we may convey this to the markets. And so the FOMC is grappling with just what, in fact, we can provide the marketplace in the form of forward guidance about our future modus operandi. 4 Monty Python is the British comedy troupe known for its satirical skits. A parody about the FOMC’s “dots” could rank up there with the spoof about the argument clinic “intended to create grievous mental confusion among the general public.” A link is provided here for your enjoyment: www.youtube.com/watch?v=kQFKtI6gn9Y. BIS central bankers’ speeches 3 Odysseus or Apollo? Research papers have addressed this subject. For example, some academic economists draw on Greek mythology to distinguish different techniques for crafting forward guidance, making a distinction between Odyssean and Delphic forms of guidance. The Odyssean model involves committing to a policy rule or to a criterion for choosing between different policy alternatives. | Policymakers tie themselves to the mast of this rule or criterion, sacrificing some of their short-run freedom of action in order to achieve what they hope will be superior outcomes over the long term. In monetary policy, commitment can in theory reduce the risk of future recession and more tightly control medium-horizon inflation expectations at the cost of a somewhat poorer near-term inflation or unemployment performance. Commitments come in lots of different flavors and styles, and forward guidance isn’t necessarily helpful or wise just because it’s Odyssean. Tying yourself to the mast isn’t an especially good idea if your ship is sinking, or if enemy forces are directing fire toward your deck. Committing to a particular path for the funds rate, or to a time schedule for funds-rate liftoff, is not something in which I or many of my colleagues have any interest. Commitments that are contingent on future economic conditions, in contrast, enjoy at least some support on the FOMC. President (Narayana) Kocherlakota of the Minneapolis Fed, for example, has notably proposed that the committee promise to delay liftoff at least until either the unemployment rate reaches 5 1/2 percent or forecasted inflation hits 2 1/4 percent (provided longer-term inflation expectations remain well-anchored, and possible risks to financial stability remain well-contained). My own view is that commitments aren’t always credible, especially if they purport to extend far into the future. It’s hard to bind future policymakers, and it’s difficult to anticipate all the various economic circumstances that might arise down the road. | 1 |
The time to liquidate a given position is now seven times as long as in 2008, reflecting much smaller trade sizes in fixed income markets. In part the current liquidity illusion is a product of the risk asymmetries implied by the zero lower bound on interest rates, excess reserves in the system, and perceived central bank reaction functions. However, interest rates in advanced economies won’t remain this low forever. Once the process of normalisation begins or perhaps if market perceptions shift and it is expected to begin, a re-pricing can be expected. The orderliness of that transition is an open question. Certainly, conventional leverage and liquidity cycles – while dampened by reforms – can be expected to operate. High volatility, combined with lower prices, will tighten financing conditions, forcing some asset sales, dampening prices and increasing volatility further. An overshoot is possible. Some have argued there is an additional risk arising from pricing and asset allocations based on an illusion of liquidity. This could lead to “redemption risk” as detailed by Hyun Shin and others.15 Their argument begins with the observation that much of the shift towards market-based finance has been accompanied by an increase in assets under management. We know that almost half of the $ trillion in managed assets globally are in funds that offer their investors redemption at short notice.16 At the same time, funds are investing increasingly in higher-yielding, less liquid assets. | We must now consolidate our progress to build a financial system that can deliver strong, sustainable and balanced growth for all economies: large or small; advanced or emerging; home to large financial institutions or host to them. Success would be a global financial system that maximises its full potential to ensure that: - The payments infrastructure is efficient and reliable; BIS central bankers’ speeches 1 - Companies can access the working capital they need to operate; - Core markets function continuously to allow risks to be diversified and managed; and - Capital is allocated efficiently across the globe. - Liquid savings are transformed into long-term loans; Achieving these ends requires a financial system supported by three pillars: diversity, trust and openness. Building these pillars should be the focus of the future reform agenda. A diverse system, with market-based as well as bank-based finance, can best support a wide variety of investment from infrastructure to SMEs that is necessary to create the jobs our citizens deserve. A trusted system can retain its social licence to support the real economy in innovative and efficient ways. An open system can avoid the risk of Balkanised finance, which would reduce the efficiency with which savings are matched to investment and lead to a global misallocation of scarce capital. This is a daunting agenda and some might feel that, having apparently reached the finish line, the race has been extended. | 1 |
The trigger for the correction can vary – in the early 89–92 episode it was a sharp rise in interest rates as the UK sought to remain in the Exchange Rate Mechanism; in 2007–9 it was a sharp tightening in credit conditions amid a collapse in confidence in an over-levered banking system – but, unfortunately, there are more precedents in UK for periods of a rapidly growing housing market to end in this way. The question for the Financial Policy Committee, therefore, is whether the sustained momentum we are seeing in the housing market will continue and will lead to unsustainable growth in household indebtedness, undermining the resilience of the system. Our first thought must be to the direct exposure of the financial system to the housing market and its resilience to a major housing shock. Mortgage lending amounts to two-thirds of UK bank and building societies’ UK lending. Financial institutions are better placed now than they were before the financial crisis. The reinforcement of underwriting standards that I mentioned earlier, protects both borrowers from taking on unaffordable mortgages and lenders from bad debts. Since 2008, the amount of capital in the system has increased by £ with capital requirements against UK residential mortgages broadly trebling. We now have, for the first time, a new international liquidity standard, which should help to prevent long-term mortgage debt being funded from unstable short-term wholesale sources; since 2008, banks’ liquid assets have broadly trebled. | So it is particularly important at present to ensure that the current low levels of interest rates do not mask the likely cost of mortgages and so create more headroom for prices to rise. It is possible that affordability constraints, reinforced by lenders’ underwriting standards, will increasingly act as a brake on the speed at which house prices are growing and as a brake on mortgage debt. In that case, having recovered much of their fall following the crisis, we will see house price growth slow to match the pace of earnings growth – a soft landing. This is not without precedent. In 2004, having risen at an average rate of almost 20% over the previous 2 years, house price growth began to slow with the annual growth rate falling to just 2% by the middle of 2005. The 125bps increase in Bank Rate in the 13 months to September 2004 was no doubt part of the story. It proved, however, to be short lived episode. Amid a period of easing credit conditions, the pace of house price growth began to rise again through 2006, reaching double-digit rates by 2007. But it is probably an example of how affordability can brake the market. However, there is another way the story can play out – a major overshoot in prices and build up in debt followed by a sharp correction with negative equity and an overhang of debt for many households. | 1 |
I wondered some years ago 2 whether such effects were at work after the financial crisis . Given the potential reallocative effects of any material change in the UK’s trading arrangements, it’s conceivable they could arise in this case too. Indeed it’s possible they could arise even ahead of the formal date of the UK’s departure. In September/ October a CIPS survey of procurement managers suggested there could be significant unwinding of supply chains through the course of next year: 40% of UK firms who currently use EU suppliers are actively looking for domestic alternatives; the equivalent figure in the other direction – the proportion of European businesses expecting to move away from existing UK suppliers – is 63%. A CBI survey in October found that, in the absence of a transition deal, 60% of firms would begin to activate “worst-case” contingency plans by the end of March 2018, a full year before the UK’s exit. Chart 3: Reductions in supply can add to It’s true that incremental changes in underlying inflationary pressure productivity can have knock-on consequences for wages, and for demand, that would blunt their impact on inflation. If in aggregate firms are less productive, they would probably spend less, including on pay awards. But to the extent those knock-on effects lag in any way, firms would also respond by raising prices. In other words, reductions in supply can add to inflationary pressure even as they also lower aggregate GDP. Chart 3 is an extremely stylised description of this effect. | The SNB in the centre of political debate Nowadays, credibility is even more important because of the fact that financial markets are extensive and closely linked. In the past, central banks were able to demonstrate their regulatory power by intervening in markets to influence rates and prices, particularly exchange rates. These days, they face global markets where the relative paucity of their means requires them to use tact rather than force to achieve their objectives. To this end, they depend upon their credibility. This smoothes out price volatility and makes it possible for monetary decisions to impact fully on market expectations. In other words, credibility is a precious monetary policy asset. We need to devote all our efforts to maintaining it. The SNB cannot merely rely on the good results it has achieved in the past. It must be able to convince markets of its determination to deploy all the means at its disposal to maintain monetary stability in the country, now and in the future. Nowadays it is generally recognised that a central bank is only credible if it can deploy its resources without having to obtain prior authorisation from the government, and without the risk of being penalised by the state authorities. This is why it is essential that a central bank be independent. In Switzerland, the independence of the National Bank is guaranteed under article 99 of the Federal Constitution and article 6 of the National Bank Act. This legal framework is sufficient. However, credibility is not merely a matter of legal independence. | 0 |
However, these developments also project the improvements in regulatory and supervisory oversight which continues to be updated. Distinguished Ladies and Gentlemen, for Zambia the vision is to become a prosperous middle income country by the year 2030. In order for us to attain this vision, there is need to improve the financial infrastructure in Zambia. Since 2004, the Government has been implementing the Financial Sector Development Plan with the view to improve the functioning of financial markets and increase accessibility to financial services by a majority of Zambians. The second phase of the FSDP is currently underway after the initial five-year plan lapsed. We cannot deny that an improved financial infrastructure will result in efficient capital and money markets which in turn will attract domestic and foreign investment in the economy. Conclusion In conclusion Ladies and Gentlemen I would just want to emphasise that Zambia and many of our regional counterparts are small countries in need of investment. However, the high cost of capital has hampered the increase in investment, particularly among the SMEs which continue to face enormous financing challenges. Therefore provision of appropriate financing to this category of firms is likely to lead to higher investment opportunities and more efficient methods of production. In turn, this will translate into poverty alleviation due to employment creation. | Ladies and Gentlemen you will agree with me that we have come a long way since the time when many viewed the financial system simply as a sideshow, or a passive channel that allocated scarce resources to the most efficient uses. Today, almost everyone agrees that the financial system is essential for development. Improving the financial system can lead to higher growth and reduce the likelihood and severity of crises. It is essential that we have a clear understanding of the causes of business cycles and the working of monetary policy. In thinking about financial reform, we need to treat liberalization as a means rather than an end. Instead of pushing for immediate deregulation, we should try to understand the important role authorities play in financial markets. These steps will not only result in a better and more stable allocation of domestic capital, but also help countries to develop their capital markets with the requisite financial systems. In view of this I encourage you all to join hands with authorities in your countries in improving financial infrastructure so as to contribute to the development of our regional financial BIS Review 149/2010 5 systems and thereby improving the availability of capital. I am also encouraged by the increasing number of financial service providers in our economies. As competition intensifies, banks and other financial institutions will start to reposition themselves by lowering the cost of lending to the private sector. | 1 |
By avoiding the deepest downturns, fewer people are likely to end up outside the labour force. But monetary policy cannot have a primary responsibility for the level of employment. Keeping the policy rate at a persistently low level with the aim of boosting activity and employment more permanently could lead to price and wage pressures and to a sharp increase in house prices and credit growth. This could give rise to imbalances that in turn increase the risk of a downturn and job losses further out. 18 CONCLUSION NORGES BANK In the quote from 1970, Erik Brofoss predicted a shift away from a resource-based economy. Fifty years later the structural shift is underway. Brofoss was optimistic about the way ahead, and he was clear about what the main source of progress is as he formulated in his speech: ECONOMIC PERSPECTIVES 13 FEBRUARY 2020 “Now is the time to reap the fruits of our efforts in general education and vocational training to boost human capital.” Brofoss had high hopes for the coming generations of well-educated young people. The young workers in Brofoss’ day are now retired, or close to retirement. In the coming years, the dependency ratio will increase. The aim must therefore be to make structural changes without further declines in labour force participation. We also have reason to be optimistic despite an ageing population. We still have a highly skilled workforce. We have an economic policy framework that has served us well for nearly 20 years. | Importing the stability-oriented policy that had long been conducted in the EMU's core countries helped to create better conditions for future growth. The policy model we now follow comes originally from Germany. During the entire post-war period they have endeavoured, to a great extent successfully, to maintain price stability. The task of achieving this has fallen to the German central bank - the Bundesbank - which has operated independently, at arm's length from party politics. The Bundesbank model is now copied by a number of industrial nations, which have given their central banks a large degree of independence and the task of aiming for price stability. This policy is also reflected in the Maastricht Treaty and in the Riksbank legislation. My colleagues in the major industrial nations also try - as long as they are sure that inflation is not about to deviate from the desired level to take account of economic activity and unemployment. There are thus considerable similarities and this applies not only in Europe, but also in a comparison with, for instance, the US, although the stipulated targets vary, sometimes for historical reasons. In this sense we are all the children of the Bundesbank! Within the central bank world the methods of working have also become more similar in recent years. Although not all industrial nations with a floating exchange rate say that they use inflation targeting, they actually do so in some form. | 0 |
But the different steps that have been gradually taken on a political level should, as I see it, be able to alleviate a confidence crisis that is largely political. This would point to an orderly resolution of the euro crisis. It then remains to be seen whether the crisis flaring up around Greece now can have more farreaching consequences. In a worried, nervous climate even a problem that only affects one small country can have contagion effects. Could things go better than we are forecasting? I have earlier listed various downside risks. Are there any conditions under which growth might be better than we are forecasting? My assessment is that this is the case, although things look uncertain right now and we cannot expect any rapid improvements. I think it is worth pointing out that we only expect a cautious recovery in growth in the euro area from the end of 2012 and onwards. What we are now seeing is a confidence crisis of gigantic proportions, but it also means that if political measures can build up confidence step by step, the economy in the euro area can recover with greater force than we are predicting. As I mentioned earlier, there are countries in the euro area with good fundamental conditions for a stronger recovery. In the United States there are good conditions for a better outcome. In this situation growth can be somewhat stronger than the fairly modest growth we are predicting. Particularly if housing construction picks up again, after several years of adjustment. | At the same time, there is great uncertainty surrounding fiscal policy as there is a political deadlock between the Democrats and the Republicans in Congress that may remain after the presidential election in 2012. The uncertainty has caused analysts to talk about the US economy facing a fiscal cliff next year. The concern applies on the one had to whether earlier income tax cuts and reductions in payroll taxes will be extended beyond the end of the year, and on the other hand is linked to the automatic expenditure cuts that will come into force at the turn of the year unless Congress can agree on long-term sustainable budget consolidation. All in all, these automatic tax increases and cuts in public expenditure entail a tightening during 2013 of 3–4 per cent of GDP. A further element of uncertainty is the result of the presidential election in November. If the results of the election are inconclusive and no party gains a clear majority, there is a major risk that the political deadlock will persist. The lack of credible budget solutions at present, and the low confidence in the political system’s ability to deal with the fiscal policy challenge, could led to companies and households beginning to act with greater caution. This would subdue growth in the world economy. We have given consideration to these risks in our forecast, but it is of course possible that the situation will be more problematic than we have assumed. Realistic to believe in an orderly resolution of the euro crisis? | 1 |
It assumes that the rest of the world has confidence in the Swedish housing market and the Swedish financial system. Historically, foreign investors have often been the most “fickle” in times of financial turbulence. If their confidence in the banks is damaged, for instance, through a heavy fall in housing prices, investors will either reduce their lending or charge more for loans. This could happen so quickly and in such large volumes that the banks might experience problems. The fact that we have not experienced a fall in housing prices is certainly one of the reasons why the effects of the crisis were milder for us, since it helped to sustain demand in the economy. But it is also a cause for concern, particularly as household debt has been increasing more than household income for a fairly long time. Ultimately, this is not sustainable. The danger is that this trend will continue so long that when it finally breaks it will be under dramatic forms and cause problems similar to those we have seen in other countries. We all want to avoid this happening. 2 BIS central bankers’ speeches The problems have varied from one country to another. In many countries the banks have suffered such severe problems that the state has had to intervene. At the same time as fiscal policy has been used to support the banking sector, it has also needed to uphold demand in the economy. | But we do this for partly different reasons, as we have different tasks. The risks now building up in the mortgage market concern individual banks. But risks are also building up that threaten financial stability – what are known as systemic risks. Ultimately, the macro economy may also be affected. This means that the division of responsibility is unclear. The problem with the division of responsibility can be illustrated as follows. If we assume that the trend in household indebtedness and housing prices does not slow down, despite all efforts, and continues at an alarming pace. Which authority should be the first to take action and on what grounds? Is it a question of consumer protection or of inflation and resource utilisation? Then the answer is simple. But what if it is a question of risks that threaten the financial system? Or perhaps everything at once? We in Sweden are not alone in struggling with these issues. Around the world there is intensive debate on the management of systemic risk – what is usually known as macroprudential supervision. As I have already mentioned, we in the EU have agreed to establish a European Systemic Risk Board to monitor the build-up of systemic risk in the member states and to recommend measures to deal with it. It is of course necessary that we in Sweden have a framework ready to respond to any such recommendations, in the form of allocation of responsibility and tools. | 1 |
They were “self-similar”. Selfsimilarity appears to be present throughout the physical world, from coastlines to cauliflowers, from snowflakes to lightning bolts, from mountain ranges to river deltas. 16 One of Mandelbrot’s earliest applications of fractal geometry was to stock prices. In a 1967 paper, he argued that stock prices could best be understood by distinguishing between two measuring rods: clock time and volume time. 17 While empirical studies typically used the first measuring rod (days, hours, seconds, milli-seconds), stock prices were better understood by using the second. Mandelbrot’s explanation was relatively simple. If trading cannot occur within a given time window, price movements can only reflect random pieces of news – economic, financial, political. So, consistent with efficient market theory, price changes would be drawn from a normal distribution with a fat middle and thin tails when measured in clock time. They were a random walk. But as soon as trading is possible within a period, this game changes. Strategic, interactive behaviour among participants enters the equation. Volumes come and go. Traders enter and exit. Algorithms die or adapt. Behaviour within that time interval may then no longer be random noise. Rather trading volumes will exhibit persistence and fat tails. This will then be 15 Blackledge (2008). 16 Peters (1994). 17 Mandelbrot and Taylor (1967). See also Clark (1973). BIS central bankers’ speeches 7 mirrored in prices. | 012234 56789 98 7 !"# # 3 ;796<967 3 Y6%&'#%: )' >%: #&'#6 6% --'&&: 922 2 68 2 2 68 2 8 2 2 27 2 2 8 5 85 217252 2 3285 9 3297 27 2 8 5385 953859 2 2 2 999 2 32852 22 2178 9 2 2 8252 9 9523 5 91 13 1645 23 1 1 416 5 91 "46 4 47 6 9 5 5 63 5 54 5 ! | 0 |
Behavioral risk refers to behaviors within an organization that could potentially lead to negative business outcomes.3 In such organizations, behavioral risk is not effectively mitigated or even considered, and the stated values of the firm are not reflected in the actions and norms of the organization’s members. Group think is prevalent and employees do not speak freely, or are ignored, when they have concerns about the way their group is doing business. The letter of the law may be followed but not the spirit, with illegal activities only coming to light when discovered by authorities. “Conduct” is viewed as something that is only the responsibility of the compliance department through a set of rules and controls. The outcomes stemming from high behavioral 1/5 BIS central bankers' speeches risk reduce cultural capital, damage the firm and the trustworthiness of the industry over time. In an organization with a high level of cultural capital, on the other hand, behavioral risk is low. Employees refrain from taking excessive risks and they are unafraid of – and rewarded for – raising issues up the management chain. When they speak up, they believe the organization will take them seriously with meaningful responses. The organization recognizes and rewards employees who understand and internalize the expectations of laws and regulations, and do not view compliance as a checklist. In organizations with a high level of cultural capital, an important factor in advancing to senior leadership is role-modeling behavior consistent with a firm’s values, assumptions and behavioral norms. | While it may still be too early to understand the long-term impact of a fully-remote staffing model on trust, it is interesting to note that over the last few years, a number of large firms that had favored a highly remote workforce, including Yahoo and IBM, had begun to reverse course, asking employees to return to the office to increase personal interaction and collaboration.9 We can perhaps learn by comparing firms that intentionally transitioned to a virtual work environment with limited personal interactions, to those that relied heavily on personal interactions and were forced into a fully remote posture. Indeed, we will explore how proximity impacts trust as part of a panel on trust and decision-making that I’m moderating on December 2 for the New York Fed. 3/5 BIS central bankers' speeches Severed networks. The second dynamic is severed personal networks. Beyond formal networks and hierarchy within an organization, the value of informal networks should not be underestimated. As I mentioned, the financial sector has been quite effective in maintaining core services and operations during the pandemic so far. One hypothesis is that this success reflects, in part, the development of personal relationships, teams, and networks over years, and possibly decades. As people came together during the initial months on the pandemic, it is likely that they relied on their existing networks and leveraged the strength of existing relationships. | 1 |
Some economists think that a shift from a rigid exchange rate regime to a free float would result in lower interest rates to ease the interest rate pain. However, recent experience in Asia has shown that the market demands even higher interest rates than before under a floating rate regime due to the need for hedging, since there is a perception of higher credit risks and exchange rate risks. 17. I interpret the currency turmoil in the region not as exchange rate volatility, but as a painful but necessary adjustment in the real economy (manifested through the financial system and markets) to the new world of greater competition. In essence, we must all work harder to get greater productivity gains to meet the new challenge. No one can afford to be complacent in this global world. To the extent that the free market is demanding higher interest rates because there is a reverse flow of capital from Asia to the OECD markets, we will all have to bear the pain and adjust accordingly. 18. And not all interest rate pain is bad. Higher interest rates would increase savings in Hong Kong and bring inflation down further, thus increasing our competitiveness. To the extent that higher interest rates would reduce house prices, they would also make housing more affordable. 19. The currency board system with a fixed exchange rate is appropriate for a small and highly externally-oriented economy like Hong Kong. It further imposes a strict discipline on public finances. Hong Kong runs budget surpluses, not deficits. | Much attention will also be required, in the fullness of time, to make sure that the financial systems through which financial intermediation takes place are robust so that the benefits of financial liberalization could be maximized and the associated risks could be minimized and prudently managed. 3. As a financial services centre which operates with a highly liberal regime, Hong Kong has important roles to play in all this. There is not enough time to go into details here on this occasion, so I shall just identify three general areas for your consideration. 4. The first area concerns financial intermediation within individual economies, in other words, the channelling of domestic savings into domestic investments. Here Hong Kong, at this stage at least, largely only plays an advisory role. The less liberalized financial systems in this region are very much dominated by domestic financial institutions, particularly in the banking market. Further, domestic politics and a desire to protect domestic financial institutions from undue competition are such that liberalization to admit foreign financial institutions to take part in domestic financial intermediation would only proceed at a pace dictated by these considerations. For example, it will, I think, take some time and patience for Hong Kong-based banks to gain a physical presence in the mainland of China, be allowed access to renminbi banking business and command a significant share of that business. 5. | 1 |
The growth of our financial sector in part has been driven by our ability to attract 1 Source: http://www.bloomberg.com/news/articles/2016-01-07/global-markets-at-the-beginning-of-a-crisisgeorge-soros-says BIS central bankers’ speeches 1 international investors, traders and financial intermediaries to participate in our financial markets, and for foreign corporates to tap our markets for their funding and hedging needs. Clearly, Singapore does not and cannot operate in isolation from rest of the world; indeed, we have become an important node in the global financial system. 6. Singapore’s attraction and standing as an international financial centre must be underpinned by investor confidence in a stable business environment, with clear rule of law and a sound regulatory framework. Only when there is confidence and stability in the system would corporates, financial institutions and individuals tap our financial centre to invest, to raise capital and to manage risks. 7. As our markets develop, we must continue to safeguard this reputation of integrity, trust and resilience. Because many global financial institutions operate here, we have to also measure ourselves to international standards and expectations by incorporating international rules and best practices where appropriate. In the securities markets, the MAS has an active role in international standard setting bodies such as International Organisation of Securities Commissions (IOSCO); as an example, we co-chair a CPMI-IOSCO Working Group on strengthening the cyber resilience of financial market infrastructures, including dealing with cyber-threats. 8. As exchanges in Singapore are key financial market infrastructure with a global participation, they are regulated to meet international standards. | In other words, a risk began to gradually build up that the role of the inflation target as benchmark for price-setting and wage formation would begin to weaken – that the nominal anchor that has been an important part of the favourable developments in Sweden since the 1990s crisis would begin to slip. Some say that the Riksbank should not attach any weight to this, but instead hold the repo rate at a higher level. However, I find it difficult to see how the Riksbank could deliberately ignore the risk that confidence in the inflation target, the linchpin of the inflation-targeting policy, begins to be undermined – something the Riksbank alone has the explicit task of preventing – to instead continue to try to counteract financial imbalances building up; a task for which others share the responsibility and have more tools to manage. Should central banks raise their inflation targets? Most of the post-financial crisis debate on the level of the central banks’ inflation targets has been based on rather different trains of thought, as I mentioned earlier. Here the starting points has instead been that problems can arise if inflation and inflation expectations fasten at a too low level for too long. Many economists and debaters have therefore begun to ask whether the central banks’ current inflation targets should therefore be raised. 15 The idea behind the proposal can be described as follows. | 0 |
In line with the new Government’s announced policy, the Central Bank now gives the priority to it to have due justice to the depositors. We need to fix the finance companies sector and their risky business models through strong regulation and market discipline. Otherwise, this sector will pose risk to the financial system stability in next 10 years. Another regulatory intervention that created immense macro economic consequences was the attempt to appreciate and maintain the currency highly over-valued during the period 2009 – 2012 at around Rs. 109 – 110 per US Dollar. For this purpose, the Central Bank lost about $ 3.5 billion of foreign reserves leading to a foreign exchange crisis. Finally, crisis was managed by raising a loan of $ 2.6 billion from the IMF to restore the international reserve and allowing a sharp depreciation of the currency to around Rs. 134 per $ in June 2012. This intervention led to raise interest rate, control credit and raise fuel prices which had dampening impact on the growth of the economy reducing to 6.3% in 2012. In this regard, although some raise concerns over current intervention in the exchange rate, we are comfortable with current level of international reserve, pending already arranged inflow of foreign resources to strengthen the reserve. Another case in point is the Pramuka Bank failure in 2002 – 2004. | As the Manager of Public Debt, the Central Bank raises local and foreign debt to meet expenditures approved through the Consolidated Fund, maintains such loan records and service such loans out of funds at Government Account with the Central Bank. The popular criticism here is the monetization of the budget deficit through Central Bank funds. The Central Bank’s purchase of Treasury bills is the cause of this criticism. The Central Bank purchases Treasury bills in order to use them for regulation of the domestic market liquidity (Open Market Operations) as permitted in the MLA and not for lending to Government. Further, under the MLA, the Central Bank is authorized to provide provisional advances to the Government up to 10% of the estimated Government revenue of the current financial year, subject to recovery of each advance within 6 months, and such advances are only to meet the expenditures authorized under the Consolidated Fund. Managing public debt by the Central Bank is beneficial for the country since the Central Bank can raise public debt in line with interest rate structure envisaged in its monetary policy. If the debt management is undertaken by a separate Government office, it may attempt to raise debts without regard to market interest rates and monetary policy and that will cause immense conflicts with the current monetary policy. The opposite view is that as the Central Bank manages public debt, its monetary policy is constrained by the need to attempt to raise and maintain public debt at low cost. | 1 |
Geopolitical uncertainty and other factors holding back growth may recede, and the U.S. economy could resume the robust trajectory of last year. Or GDP growth could continue closer to trend, which is my own forecast. Finally, there’s always a chance that downside risks could knock GDP growth off course. But what the data’s telling us is that this period of slow growth isn’t an aberration—it’s the “new normal” we should expect for the foreseeable future. Monetary Policy So what does all this mean for interest rates? With the economy running close to our dual mandate goals, monetary policy is in the right place. Looking ahead, the Fed will watch the data and use monetary policy to keep the expansion on track. When growth is well above trend, raising interest rates to keep the economy on a sustainable path is the right decision. Equally, when faced with a crisis like the Great Recession, it’s incumbent upon policy makers to use every tool at their disposal to get the economy back on course. It’s important to remember the change in the long-run economic fundamentals means that interest rates are likely to be lower than what we saw in the 1990s, for example. In addition, the slope of the yield curve is unlikely to return to levels typically seen in the past. This “new normal” clearly has implications for banks, large and small. Conclusion In conclusion, the outlook is positive. GDP growth is on track, unemployment remains low, and there are no signs of inflationary pressures building. | First of all, in a Monetary Union which covers an area stretching from Lapland in the north of Finland to Andalusia in the south of Spain, we cannot expect complete homogeneity of the economic cycle or of economic conditions in a more general sense. Therefore, it makes sense for the euro area Member States to maintain control over the remaining tools of economic policy so as to be able, if necessary, to respond to developments which are particular to their own economies. On the other hand, when formulating their economic policies, euro area Member States must give sufficient consideration to the impact that these policies will have on the rest of the euro area economy. This is particularly important in EMU since euro area countries are no longer exposed to the discipline of financial markets to the same extent as used to be the case when they conducted their own autonomous monetary policies. Prior to the introduction of the euro, unsustainable economic policies were penalised by the markets in the form of higher interest rates, substantial risk premia and exchange rate pressure. In EMU, however, where financial markets take an increasingly euro area-wide focus and where the exchange rate risk associated with national currencies no longer exists, the effects of inappropriate policy choices in any one country tend to be largely spread across the entire euro area. Only relatively small risk premia remain. | 0 |
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