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Vítor Constâncio: How fit are statistics for use in macro-prudential oversight? Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, at the Sixth ECB Statistics Conference, Frankfurt am Main, 17 April 2012. * 1. * * Introduction Macro-prudential analysis and oversight are not new tasks for central banks. In broad terms, the objective of macro-prudential analysis and oversight is to identify and prevent systemic risk, so as to minimise the costs that financial instability can impose on the real economy. Pursuing this objective calls for the definition of qualitative and quantitative intermediate goals, which can pose considerable analytical and informational challenges. Over the past few years, the financial crisis has clearly illustrated just how devastating the materialisation of systemic risk can be for the financial sector and the broader economy. In particular, the financial crisis has demonstrated the need for a coherent and well-articulated macro-prudential policy framework at the national, European and global level. In this respect, it exposed deficiencies in the information base on which macro-prudential oversight was being conducted. It is on this latter topic that I will focus my presentation today. In assessing the question as to how fit statistics are for use in macro-prudential oversight, I will outline the data needed for macro-prudential analysis, touching upon the ECB’s responsibilities in the field of macro-prudential oversight. I will then move on to reflect on what has been achieved so far, paying particular attention to the macro and microdimensions of data requirements. | More data on the granularity of balance-sheet exposures and across types of financial instruments are essential inputs for evaluating propagation effects with contagion and spillover models. Recent initiatives in central bank statistics also address interlinkages beyond the sample of large players – for example, by means of so-called “from whom to whom” information on deposits and loans from financial corporations, or through securities holding statistics with a view to also creating “who to whom” data for various sectors of the economy in the Euro Area Accounts. Dedicated ad hoc surveys, for example in the context of the ESRB’s work at an EU-wide level, should also contribute to shedding light on this topic. Sufficiently granular information would facilitate linking the regulated financial sector with the shadow banking sector. In addition, enhancing information on financial conglomerates – banking groups with substantial activities over and beyond the banking sector – would be essential, as nonbanking activities may be systemically important. In the case of financial conglomerates, contagion and concentration risks can be exacerbated by the increased intra-group complexity and potential conflicts of interest. At the micro-level, improvements to data for characterising interconnectedness are being pushed forward by several initiatives with different objectives and time lines. | 1 |
This is the last lesson I will refer to: globalisation has brought many benefits but, even if the right things have been done in one quarter, if others generate problems, such problems ultimately also affect those who did not create them and that is why we must respond to them. The turbulence on international financial markets has led some markets on which Spanish banks usually obtained additional financing, for instance the private fixed-income and securitisation markets, to dry up abruptly. The malfunctioning of these markets has affected everybody since investors, disillusioned with the complex products I mentioned earlier, have not wished to take the time to discriminate properly between different products. Whatever the case may be, the difficulties in gaining access to wholesale financing have posed a considerable management challenge. To date, the response of Spanish banks has been appropriate, partly because the structure of their liabilities is such that the wholesale financing raised in recent years, at a higher cost, has been predominantly with longer maturities, which now affords them greater freedom; and partly because they have been able to resort to alternatives, such as shorter-dated financing to cover their funding needs. These alternative ways of obtaining financing are somewhat temporary in nature, which is consistent with the high degree of uncertainty prevailing at present and which will conceivably not persist over time. Naturally, the potential impact of this situation on banks' financial position, and therefore on the Spanish economy, will largely hinge on the duration of the bout of turbulence. | In this pursuit, greater collaboration among the law enforcement agencies (LEAs) as well as between LEAs and the private sector is essential for us to efficiently and effectively connect and assess all relevant information, which will no doubt further strengthen our efforts to fight ML/TF/PF threats. In this respect, it is observed that the Public-Private Partnership (PPP) is gaining momentum and is fast becoming known as a key success factor for effective information sharing in the 1 the Joint Money Laundering Intelligence AML/CFT/CPF ecosystem. To quote some examples, Taskforce (JMLIT) established by the United Kingdom in 2016 has prompted a key shift in 1/3 BIS central bankers' speeches addressing ML/TF threats. As of June 2020, JMLIT has completed over 750 cases and detected more than 5,000 suspected accounts linked to financial crimes. Similar achievement was also experienced by the Fintel Alliance in Australia where within the span of one year between 2018 to 2019, over 300 cases were successfully completed through the partnership. Other countries within the region have also followed suit – Hong Kong’s Fraud and Money Laundering Intelligence Taskforce (FMLIT) and Singapore’s Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP). In Malaysia, the PPP is undertaken through the Financial Intelligence Network (MyFINet), which involves collaboration and information sharing between LEAs such as the Central Bank, Royal Malaysia Police and Malaysian Anti-Corruption Commission, and private sectors such as financial institutions. | 0 |
We want debt investors to be able to price risk effectively by being clear about where they rank in the creditor hierarchy and to give them confidence that we can stick to the hierarchy in applying losses and that we will not be picking winners and losers within a class. Counting as MREL senior debt issued out of operating companies without subordination looks like a recipe for undermining that confidence. (b) Bail-in execution We also want to be clear as a resolution authority how we will conduct the resolution in a way that preserves value and distributes it fairly, ensuring no creditor worse off protections are met. To that end, we have thought hard about the valuation capabilities we need firms to have so that we can value losses and recapitalisation needs in an effective and timely way. We have just consulted on a set of principle level 12 requirements and expect to finalise policy in this space in the next few months. We believe that the bail-in valuation for a large cross-border firm is not something that can be fixed over a weekend. Valuation on that timetable will inevitably tend to overshoot on the estimation of losses, not least because a significant driver of the valuation will be the reorganisation that follows the bail-in and the restructuring costs and disposal valuations associated with that. | It is no exaggeration to say that the world count on the leadership of the OECD in many fronts such as those that we are going to discuss today: financial inclusion, capital flows, migration, among others. This is the fifth edition of this Conference organised by IEMed, with the support of the Banco de España, to discuss economic and financial matters in the Mediterranean region. The first and third editions took place in Barcelona, in 2014 and 2017, the second in Rabat in 2015 and the fourth in Tunisia in 2018, on those occasions with the support and hospitality of Bank Al-Maghrib and the Central Bank of Tunisia. Past editions of this conference had provided useful exchanges of ideas between different actors with interests in the economic and financial developments in this region. I firmly believe that forums like this are particularly relevant to shape public policy in times of change as those we are witnessing today. The deep-rooted transformations in economic and financial relations globally force us to re-think the design of economic policies in order to better contribute to the progress of our society. In particular, these forums are instrumental for central banks in its role of providing guidance for economic policies that are not in their mandates. Let me add that in order to exert this role of assessing public policies, central banks need to be granted with political and operational independence, in order to provide recommendations free from political pressure or vested interests. | 0 |
Recent economic data are consistent with a positive underlying momentum of economic activity, while uncertainty remains elevated. Our monetary analysis indicates that inflationary pressures over the medium term should remain contained. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations is of the essence. Overall, the current monetary policy stance remains accommodative. The stance, the provision of liquidity and the allotment modes will be adjusted as appropriate, taking into account the fact that all the non-standard measures taken during the period of acute financial market tensions are, by construction, temporary in nature. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely. Let me now explain our assessment in greater detail, starting with the economic analysis. Following the 0.3% quarter-on-quarter increase in euro area real GDP in the third quarter of 2010, recent statistical releases and survey-based evidence confirm that the positive underlying momentum of economic activity in the euro area remained in place towards the end of 2010. Looking ahead at 2011, euro area exports should benefit from a continued recovery in the world economy. | In a well-functioning financial system, there is a stable relationship between changes to central bank rates and the cost of bank loans to firms and households. This allows central banks to influence overall economic conditions and maintain price stability. BIS central bankers’ speeches 1 But the euro area financial system has become increasingly disturbed. There has been a severe fragmentation in the single financial market. Bank funding costs have diverged significantly across countries. The euro area interbank market has been effectively closed to a large number of banks and some countries’ entire banking systems. Interest rates on government bonds in some countries have risen steeply, hurting the funding costs of domestic banks and limiting their access to funding markets. This has been a key factor why banks have passed on interest rates very differently to firms and households across the euro area. Interest rates do not have to be identical across the euro area, but it is unacceptable if major differences arise from broken capital markets or the perception of a euro area break-up. The fragmentation of the single financial market has led to a fragmentation of the single monetary policy. And in an economy like the euro area where about three quarters of firms’ financing comes from banks, this has very severe consequences for the real economy, investment and employment. It meant that countries in economic difficulties could not benefit from our low interest rates and return to health. Instead, they were experiencing a vicious circle. Economic growth was falling. | 0 |
This is to enhance market access and business networking, and also to widen the customer base and to generate new sources of businesses in uncharted territories; • fifth, liberalising the foreign exchange administration rules to allow multilateral development banks and multinational corporations to issue ringgit denominated instruments in our domestic bond market. In further liberalising the market, I am pleased to announce that resident and foreign issuers will now be able to raise foreign currency-denominated bonds, in particular, Islamic bonds, in the Malaysian capital market. The foreign issuers eligible to take this opportunity are the sovereigns, quasi-sovereigns, multilateral development banks, multilateral financial institutions and multinational corporations, while resident issuers are the local MNCs. This represents part of Bank Negara Malaysia's continuous efforts to promote the development of the Malaysian bond market, and to enhance Malaysia as a centre of origination, distribution and trading of sukuks. The issuance of foreign currency denominated bonds will also provide additional flexibility for both residents and foreign investors to diversify their investments into non-ringgit investments in Malaysia . In taking the MIFC initiative to the next phase of development, I am also pleased to share with you some of the current work-in-progress to this agenda further forward. The International Islamic Bank (IIB) and International Takaful Operator (ITO) will be allowed to be set up as a branch in addition to a subsidiary as currently stipulated under the domestic banking and takaful legislation. | Svein Gjedrem: Ten years of inflation targeting strategy in Poland compared with the experience of other countries Presentation by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the conference "20 years after the collapse of the socialist economy. Transformation, economic growth and convergence in Poland and other Central and Eastern European countries ", National Bank of Poland, Warsaw, 5 June 2009. * * * Thank you for the invitation to speak at your conference. It is a pleasure for me to be here in Warsaw on this occasion. Norges Bank was given an inflation targeting mandate in 2001. Inflation expectations have been well anchored around the 2.5 per cent target rate in recent years. We practice flexible inflation targeting. The credibility of our inflation target has enabled monetary policy to support a stable economic growth path. However, like other countries, Norway was hit by the international economic downturn that followed the financial crisis. The estimated growth rate for 2009 is minus one percent. Preceding the downturn, we went through a long period of low CPI inflation. Headline CPI in Norway is strongly affected by fluctuating energy prices. An inflation measure that instead includes trend energy prices, CPIXE, illustrates how the inflation rate gradually has been approaching our target of 2.5 per cent. In this – until the fall of 2008 – rather benign macroeconomic environment, rising property prices, high credit growth and a low saving ratio posed a policy challenge – as in many countries. | 0 |
The path for domestic and external interest rate does not imply any considerable changes in the krone exchange rate. Moreover, the Executive Board pointed out that the objective of bringing inflation back towards the target and anchoring inflation expectations implies a continued expansionary monetary policy. It is likely that continued high growth in output and employment will result in a gradual pick-up in inflation. The interest rate will therefore be set so that monetary policy gradually becomes less expansionary. Projections are uncertain. The uncertainty surrounding the interest rate forecasts is illustrated in the fan chart and indicates that monetary policy reacts to disturbances to the economy. This contributes to increasing the uncertainty surrounding future interest rates, but at the same time contributes to stabilising economic developments. Monetary policy cannot fine-tune economic developments, but it can prevent the largest effects from occurring when the economy is exposed to disturbances. In some situations, it may be appropriate to hedge against particularly unfavourable developments. In the baseline scenario, the interest rate is gradually raised to a more normal level. Norges Bank continuously assesses the effects of interest rate changes and other new information concerning economic developments. Thank you for your attention. | The earlier spike in inflation largely reflects the effects of the rapid reopening of the economy, which pushed supply and demand in extreme ways. In fact, we are now seeing some of the pandemic-related spikes retrace, including prices for lumber, used vehicles, and rental cars. This process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede. As the economy gets through these highly unusual dynamics, I expect inflation to come back down to around 2 percent next year. One reason I expect inflation to moderate is that measures of underlying inflation and longer-term inflation expectations have been relatively stable during this period of otherwise volatile inflation readings. There are two important aspects of longer-term inflation expectations: their level and their sensitivity to economic conditions and, in particular, to inflation. In terms of the level of inflation expectations, survey- and market-based measures of longer-term inflation expectations have reversed the declines of the past several years and are now around levels seen seven or eight years ago. They currently appear to be well aligned with our 2 percent long-run inflation goal. A second issue is how well anchored inflation expectations truly are, and whether there is a risk that they could drift higher in response to the elevated rates of inflation we have been experiencing. A group of economists at the New York Fed took a closer look at recent behavior of 2/4 BIS central bankers' speeches inflation expectations from the Survey of Consumer Expectations. | 0 |
The Albanian banking sector bore a considerable part of the financial bill of the pandemic and provided a continuous financial support to enterprises and households. In addition, the banking system carried out its function without jeopardising the main parameters of its financial soundness: the level of liquidity; profitability and capitalisation. Nowadays, the public considers our banking system a safe destination to hold their savings; enterprises find a source of funds, services and consultancy, while the economy finds a promoter of development and absorber of shocks. In parallel with these main directions, the Bank of Albania has worked and has achieved successful results in other fields as well, among which I find it appropriate to highlight: The payment system, which is already operating within a legal and regulatory framework in full compliance with the EU standards and with a payment infrastructure in an ongoing modernisation process. Here, I mention the approval of the new Law on the Payment System, which transposes the relevant directive of the European Union and paves the way for increasing the number of actors and strengthening the market effectiveness. Also, in 2/5 BIS central bankers' speeches January 2022, the Bank of Albania has started operating the complete infrastructure for the processing and settlement of euro denominated payments within Albania. This development will result in lower costs and considerable reduction of the time for the realisation of payments, with a considerable benefit to both the Albanian enterprises and households. | In my view, this process should be supported through: the regulatory approach to in-formalised activities; completion of the financial infrastructure which reduces costs on formal activities; and coordinated initiatives with the public sector. The Bank of Albania should pay a crucial role in the financial education field, in compiling and implementing the national strategies and promoting the increase of financial literacy in Albania. This should be considered vital to the long-term growth of the society’s welfare. In addition, the Bank of Albania will continue the work to increasing financial inclusion of the population. Modernisation of the payment system and the increased level of electronic payment is already a starting point of this process, next the utilizing of this opportunity for providing access to both payment and financial services which in turn affect they economic development of the country. Meanwhile, being aware on the role and importance of structural reforms, the Bank of Albania will continue to contribute – through advises and attention on public interest – in their progress. I believe that these reforms will boost productivity, unlock growth potential and build on the premises for a rather fair distribution of their results to the society. 4/5 BIS central bankers' speeches The forth priority is the support to European integration. Even though the opening and speed of this process will depend, on a large extent by our European partners, our task as an Albanian authority is to proceed with neither delay nor hesitation. | 1 |
The Mork commission submitted its recommendation to the Ministry of Finance in October. In February, Norges Bank was requested to assess whether the relationship between expected return and risk for equities and bonds has changed, and whether there is reason to adjust the equity share in the fund’s benchmark index. Norges Bank submitted its advice to the Ministry of Finance today, recommending an increase in the equity share to 75 percent. Chart: Covers of four Discussion Notes Norges Bank’s advice and my remarks today are based on a set of analyses conducted by Norges Bank. These analyses have been published in the form of four Discussion Notes.1 EXPECTED RETURN Let’s start by taking a closer look at expected bond returns. After several years of high bond returns owing to the fall in global interest rates, there are strong indications that returns will be low ahead. Chart: Yield and future returns Empirical studies show that current bond yields provide a good estimate of the nominal return on a broad bond portfolio over the next five to ten years. This is illustrated in the chart, which shows a close correlation between the return on US government bonds and the level of yields six years previously. Chart: Yields on US inflation-linked bonds It is the real return that is of relevance for the fund. For a bond portfolio of high credit quality, the expected real return can be estimated from the yield on inflation-linked bonds. | But now that the fence is up, we need it to do its job. It is of course a twenty-first century, modern fence – not a medieval stone wall, and as part of this it was electrified by Parliament in order to discourage attempts to 2 All speeches are available online at www.bankofengland.co.uk/speeches 2 climb over it: the legislation empowers the PRA to use a group restructuring tool to require a banking group to sell its ring-fenced bank or other parts of its group. Hopefully the prospect of electrocution will discourage any blatant attempts to climb over the fence. But there is still perhaps the possibility of wicked burrowing under the fence, passing things through it or even perhaps using a drone to create mischief. We are therefore setting up a border patrol of PRA staff who will police the fence. The patrol will ensure there is compliance with restrictions on activities performed by the ring-fenced entities and independence from the rest of the group. In particular, we will closely monitor governance arrangements, seeking evidence that ring-fenced banks can identify conflicts of interest and are able to make decisions on their own. We will set capital and liquidity for the ring-fenced banks, and more generally keep an eye on the risks they face. Let me move to my second example: accountability. As with the ring-fence, we and firms have gone to great lengths to bring in the Senior Managers Regime here in the UK. | 0 |
0 1998 2000 02 04 06 08 10 12 14 16 Sources for both charts: Bank of International Settlements What do these actions have in common? What guides the choice of macroprudential policy tools and their calibration? Is there a unifying framework that articulates success for macroprudential policy? There are several reasons why defining a unifying framework for macroprudential policy is more complex than for monetary policy. First, the gravitational pull of monetary policy is greater because its performance is easier to monitor. But whereas the objective of monetary policy—price stability—is readily and frequently observed, the objective of macroprudential policy—financial stability—is most easily defined in its absence. Financial stability is the opposite of the financial instability of bust, crises and panics.6 Second, macroprudential policymakers deploy a large number of very different tools in order to address a wide range of systemic risks. 5 See ‘True Finance – Ten years after the financial crisis’, speech by Mark Carney given at the Economic Club of New York, 19 October 2018. 6 While most definitions of financial stability are based on its absence, a positive definition of financial stability would be the sustainable provision of financial services, and confidence in the financial system to withstand future shocks without major disruption to those services, where these are integral to the real economy’s pursuit of strong and sustainable economic growth. | Being a senior manager in finance now brings the responsibility and accountability that befits what the best in the industry have long recognised: finance is a true profession. The Bank of England’s role in markets has been comprehensively overhauled. We’re replacing constructive ambiguity with open for business when we provide liquidity to markets. We’re working with others as One Bank to develop markets that support financial stability and the real economy. We’ve revamped our governance and we’re holding ourselves to the highest standards of accountability, including the Senior Managers Regime on top of parliamentary and public scrutiny. So a huge amount has already been completed to make markets fairer, more resilient, accountable and effective. These reforms are essential for the UK to remain the leading international financial centre. BIS central bankers’ speeches 3 They are essential not least because the size of the UK-based market-based financial system could increase from six to nearly 15 times UK GDP by 2050. But the journey isn’t finished. Today is a chance to take stock and reflect: not just on our achievements but on what we might have missed, overdone, or simply got wrong. Given the complexity and scale of financial reform, it would be remarkable if every measure were perfectly constructed. Or if they all fit seamlessly into a totally coherent, self-reinforcing whole. Authorities must have the courage to listen, the honesty to admit our mistakes and the confidence to set them right. | 0 |
Brunnermeier et al (2009) use this framework to motivate levying a tax – a “Pigouvian tax” – on institutions posing systemic risk externalities. This tax would be set at levels which offset the effects of the bank’s actions on wider society. A number of academics have since proposed measures along broadly Pigouvian lines (Archarya et al (2010)). Rather remarkably, policy reforms in practice have followed closely in the spirit of these proposals. In 2010, the FSB announced its intention to introduce a “systemic surcharge” of additional capital on the world’s largest banks. In July 2011, the Basel Committee published a methodology for measuring systemic importance based on indicators of bank size, connectivity and complexity, with additional capital of up to 2.5% depending on this score. In November 2011, the FSB endorsed this methodology and announced the 29 systemicallyimportant entities to which it would apply. This framework will be finalised this year, before being phased-in from 2016. Legislation is already in place, or is being drawn up, to implement the systemic surcharge in the United States and Europe. These proposals are clearly a practical step in the right direction. By boosting levels of capital in the system, the probability of big bank failure will be reduced. You would have got good odds back in 2007 that something as seemingly elliptical as a Pigouvian tax on systemic risk would have found its way onto the regulatory statute books. Now we have it. “We are all Pigouvians now”, even if most of us cannot spell it. | Whether they do so in practice depends on loopholes in, or omissions from, the ring-fence. And each of the existing proposals has open questions on this front. For example, the Volcker rule separates only a fairly limited range of potentially risky investment bank activities, in the form of proprietary trading. The Vickers proposals mandate only a limited range of basic banking activities to lie within the ring-fence, namely deposittaking and overdrafts. And the Liikanen plans allow a wide range of derivative activity to lie outside of the investment banking ring-fence. It could be argued that these loopholes are modest. But as the history of the Glass-Steagall Act demonstrates, today’s loophole can become tomorrow’s bolthole, today’s ring-fence tomorrow’s string vest. At a minimum, this suggests the need for full and faithful implementation of the spirit as well as the letter of the Volcker, Vickers and Liikanen plans if risk cross-contamination is to be avoided A larger question-mark still hangs over whether these proposals will lead to a sea-change in the allocation of resource to retail and investment banking. The cultures of investment and retail banking are quite distinct. Retail banking relies on forming long-term relationships, while investment banking is inherently shorter-term and transactional. Housing these subcultures under one roof makes achieving the necessary separation of cultures and capital a significant operational headache. At a minimum, such a separation of culture and capital is likely to require entirely separate governance, risk and balance sheet management on either side of the ring fence. | 1 |
Towards midyear it was even possible to raise the interest rate substantially to tackle a surprise rise in inflation that was much deviated from the target. This was so thanks to the fact that the purchase of dollars was being carried out mechanically, despite a significantly depreciated exchange rate after the intervention. The purchase of foreign currency was concluded prematurely due to global tensions in global liquidity in dollars in September of last year. The capacity of the Chilean economy to subsequently deal with a significant exchange rate depreciation, with monetary easing prospects and reduced inflationary pressures, is proof that there was no inconsistency between the decision to intervene and the conduct of monetary policy (Figure 2). It also shows that the flexible exchange rate regime adopted early this decade has the economy well prepared to absorb exchange rate fluctuations without the turmoil that used to come with them in the past. 4. Bubbles, exchange rates and capital inflows in emerging economies Latin America went through a period of large capital inflows in the first part of the 1990s (Calvo et al., 1996). We cannot disregard the possibility that after the current crisis is over, there will be a reemergence of inflows to emerging economies. Therefore, there could be strong pressures for a sharp increase in the valuation of domestic assets, with a potential bubble in their prices, and this bubble could take the form of an exchange rate appreciation. | 4 BIS Review 113/2009 To begin this discussion, I should emphasize that capital inflows to capital-scarce economies are a good thing. We know that capital flows to institutionally strong economies are beneficial (Prasad et al., 2002). Therefore, the role of policy is not to impede capital flows, but to avoid the creation of a bubble in domestic assets with consequences on resource allocation. 5 In this regard, to have in place sound prudential regulation during periods of abundance of capital is essential for financial stability, as we are reminded by the crisis in Chile in the early 1980s, the Mexican crisis of the mid-1990s, the Asian crisis, and more recently, the crisis in Eastern Europe. Even if one could accept that monetary tightening could be an appropriate response to combat an asset price bubble such as the recent housing price bubble, with all the caveats I discussed before, the problem is more acute in small open economies. Tightening monetary policy may have perverse effects, since it induces further capital inflows and strengthens the currency. In this case, the interest rate is not the most adequate instrument with which to burst the bubble. | 1 |
Thus the fear that our large balance sheet and the large stock of reserves in the banking system will cause inflation – either now or down the road – seems misplaced to me. While we have been experiencing disinflation generally, it is not the case for all prices. As Figure 13 shows, some prices have risen rapidly. Energy prices in particular have been rising, in response to robust growth in emerging markets. But outside of energy prices, most prices have shown little increase, and in fact a number of the major categories in the CPI index have experienced declines in prices. To be clear, the Fed certainly cares about increases in energy prices, for two reasons. First, higher energy prices could potentially bring about long-lasting increases in the overall inflation rate. The Fed therefore monitors energy prices closely, given our mandate to keep overall inflation low and stable. Second, rising energy prices act as a tax on households and businesses, who often find it difficult to reduce their consumption of energy in the short run.4 With regard to the first concern, our research suggests that the lasting effect of energy prices on overall inflation has been surprisingly small in recent years. For evidence, consider the enormous surges in oil prices in mid-2008, which were followed by significant declines in core inflation, as I mentioned earlier. 4 The first effect would lead Fed policy to be slightly less accommodative while the latter effect would lead it to be slightly more accommodative. | Let me focus in the minutes I have at my disposal on several economic issues. Our debate is so more important for it takes place at a time of some economic slowdown all over Europe and of an erosion of multilateralism, of spreading trade conflicts. The prospect of a hard Brexit is very annoying for all of us and I still very much hope that such a denouement would be avoided. Likewise, it is high time to strike a deal on the Multiannual Financial Framework so that the great challenges the Union is facing (protection of borders, cyber fare, climate change, conflicts in near and more remote neighborhoods, etc.) find proper conciliation with the need to preserve the cohesion of the Union and avoid further fragmentation. I also trust that EU leaders will find the right balance to address key institutional and policy related weaknesses of the Euro area. I mention this, for Romania, like other Non-member States, is bound by EU accession treaties to join the single currency area eventually. And hopefully, this will happen in the not too distant future. In this regard I wish to mention that two major documents on Romania’s path to the Euro area (an analytical report and a Plan of action) have been recently completed and have been subjected to the scrutiny and approval of the political parties and the Parliament. I was one of the vice-chairs of the National Commission which guided the completion of the two documents. | 0 |
Thirdly, structural analysis suggests that agents assign less importance to past inflation trends – one of the factors that determines the persistence of inflation mentioned above – in the euro area 14 than they do in the United States. Moreover, it is important to highlight the fact that not only has there been less inflation variability in the euro area compared to the United States, there 15 has also been less variability in economic growth. And, contrary to popular belief, the euro area’s greater stability has not been achieved to the detriment of its growth, which in per capita terms has been broadly the same as in the United States for the past ten years. The same is true regarding the creation of new jobs, with 17 million new jobs having been created since the euro was first introduced. Thus it is incorrect to argue, as people often do, that the stabilisation of inflation in Europe has damaged economic growth. 3. Budget policy The differences between the European and US budget policies can be attributed to a combination of factors including: the political-cum-institutional setup, the general public’s preferences regarding the role and size of government and the structure of the economy in the broader sense. Just like monetary policy, so also budget policy in Europe appears on the 12 Bernanke, B. (2006), “Semi-annual Monetary Policy Report to the Congress”, 15 February 2006. 13 See Ehrmann, M. et al. | On the other hand, however, there appears to be a threshold beyond which this ratio evens out or even starts to go the other way. Indeed it has been estimated that an increase in the size of government has a negligible and marginal impact on income variability if government spending exceeds 40% of GDP. 26 Moreover, recent figures tend to suggest that the negative correlation between government size and income variability appears to have decreased since the 1990’s, and thus the role of budget stabilisation policies in attenuating fluctuations in consumption has also diminished. 27 Fiscal multipliers appear to have decreased over time (and may even have gone below zero) both in the United States and in the euro area countries. 3.5 Preferences Finally, the different level of fiscal activism in the United States and the euro area can be ascribed to the general public’s preferences, which are then mirrored in the budget authorities’ decisions. People often argue that the Europeans are more averse to inequality than the Americans, and that this has led to a higher level of fiscal redistribution in Europe. People’s attitude toward inequality may well be influenced by their expectations of social mobility. Even though income mobility in the United States is not particularly high, several statistics 28 show that the “American dream” ideal continues to have a major psychological impact on people at the grassroots level as well as on the country’s political choices. | 1 |
Second, through the most recent economic downturn, our policy rate has been lowered to 1.5 percent, a quarter percentage point above the historic low level of 1.25 percent implemented in 2009 immediately after the peak of the Global Financial Crisis. This was done with the aim to stimulate economic recovery. We now have limited “monetary policy space” to act should unexpected adverse economic conditions emerge. In very much 4/5 the same way that our foreign reserve build-up in times of capital inflow allows us room to conduct a diverging monetary policy and smooth out sudden capital outflows as we have seen these past months, building up some policy space for the future should be a prudent consideration. Ladies and gentlemen, With the ample external buffers we have built up, Thailand so far has the autonomy to deliberate our own monetary policy. I have outlined for you the main factors that the MPC considers: inflation, growth, and financial stability. We expect this year’s headline inflation to be in the target range, albeit around the lower end. In the longer run, however, structural changes and their effects on inflation dynamics will need to be taken into consideration when deciding an appropriate monetary policy framework. Concerns over the economic recovery have lessened over the last few quarters as the economy has made a clearer recovery with a more balanced growth. Nonetheless, certain risks to the growth outlook remains, and monetary policy still plays a role in supporting a more robust growth in domestic demand. | That is to say, gradually reducing the sizeable volume of public debt that will arise because of this crisis is feasible, provided we have an appropriate consolidation programme. This programme should include a clear definition of the budgetary objectives and their timeframe, along with details of the measures needed to attain them. It should also be based on a prudent forecast of macroeconomic developments and include a suitable response to possible slippage. It is in the political sphere that the details of this programme must be decided, incorporating social preferences about the level and composition of public spending and revenue. In any event, it should be compatible with an improvement in the quality of public finances. 10 In this connection, it would be a priority to subject the various items on the expenditure side to an exhaustive review, in order to identify those areas with room for more efficiency. It is important that the recommendations stemming from the AIReF’s assessments be taken into account forthwith. A comprehensive review of the tax system is also in order, to improve its revenue-raising capacity and its efficiency. Comparison with the other European countries can offer guidelines here. And, once again, the findings of AIReF’s ongoing review of tax benefits will provide a significant contribution. Finally, in a country as decentralised as Spain, it is vital to be able to count on the collaboration of the regional and local governments in the design and implementation of the consolidation programme. | 0 |
Unemployment is therefore decreasing, though it is still above the levels that were customary in earlier decades. So the situation before us today is completely different from what we experienced last autumn. During the past year, Sweden’s economic prospects have changed considerably in the eyes of various observers and the Riksbank has been no exception in that respect. Monetary policy in the past twelve months Last autumn the financial markets became increasingly turbulent in connection with, for example, problems arising from the hedge fund Long Term Capital Management and the suspension of Russian debt payments. The financial crisis was expected to add to the negative real economic effects of the Asian crisis. International observers, including the IMF and the OECD, therefore revised their global growth and inflation forecasts downwards. The Riksbank did the same. Although growth in Sweden’s domestic sectors was relatively good and the exchange rate tendency remained weak, the overall picture did point to slacker growth and lower inflation in the forecast period. In November and December the Riksbank therefore reduced the repo rate from 4.10 to 3.40%. The early months of this year were marked by continued repercussions of the Asian crisis in the world economy, with weaker international demand. In order to prevent this from leading to a dampening of economic developments in Sweden and an even lower rate of inflation, in February and March the Riksbank reduced the repo rate in two more steps to 2.90%. Since then the situation has stabilised. | Benoît Cœuré: Why the euro needs a banking union Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the conference “Bank funding – markets, instruments and implications for corporate lending and the real economy”, Frankfurt am Main, 8 October 2012. * * * I would like to thank Carmelo Salleo for his contribution to the speech. I remain solely responsible for the opinions expressed herein. Introduction Ladies and gentlemen, It is a great pleasure to be here with you this evening as part of this conference. I firmly believe that good research underpins policy choices and, as you know, the European Central Bank (ECB) is very committed to carefully conducted, high-quality analysis as the bedrock of its decision-making. Bank funding has been the focus of policy-makers’ concerns for the past few years, ever since the collapse of Lehman Brothers, which brutally reminded us all of the systemic dimension of liquidity and funding risk. Such a cataclysmic event elicited a host of responses, ranging from central bank interventions to prevent a meltdown of the financial system to the design of new regulations to limit risk-taking by financial institutions. The shock was global – and the response has been global. However, much work still needs to be done, so I welcome opportunities such as this conference to gain a better understanding of the dynamics and determinants of bank funding and of their implications for the financial system and the real economy. | 0 |
8 9 https://www.ukfinance.org.uk/sites/default/files/uploads/pdf/UK-Finance-UK-Payment-Markets-Report-2019-SUMMARY.pdf https://www.gov.uk/government/speeches/mansion-house-dinner-speech-2019-philip-hammond 5 All speeches are available online at www.bankofengland.co.uk/news/speeches 5 Third, how should we respond to completely new systems for holding and transferring value which work not in central bank or commercial bank money but a new form of asset – a ‘stablecoin’? Under what regulatory conditions should they be allowed to operate – if they are allowed to operate at all? Fourth, and perhaps most fundamentally, if technology is able to offer new ways to store value and make transactions – two of the three core functions of money – where should the public-private sector boundary lie? Over the course of the last few centuries, the store of value for most citizens has increasingly taken the form of private, commercial bank, money. Over the last few decades, the same shift from public to private has happened for transactional money. The shift is accelerating and potentially new forms of private money are on the horizon. Against that backdrop, does technology offer us the chance to shift that balance back towards state money and, if so, should we take it? Central banks all over the world are grappling with these questions. These are not just national issues. Central banks and other actors internationally are also addressing the important and related question of how these technological opportunities could be used to improve the systems for transferring money and making payments across borders. | Compliance efforts will be effective and sustainable only in organizations where Compliance emerges from an ongoing board-level engagement. Compliance management therefore is the execution of business processes designed to manage risks and to continuously benchmark against expected parameters/tolerance levels applicable for the entire industry. 1.6 Compliance is considered to be costly, time consuming and an onerous endeavor. But, many financial institutions understand the criticality and the importance of better GRC and they are willing to devise strategies for leveraging their GRC systems to derive value as well as increase their compliance performance. Behind all these imperatives is the commitment at all levels to manage GRC in an integrated manner and inculcate the culture across the financial services industry. 1.7 The three GRC imperatives are interrelated in financial business and implementing them in isolation or treating them as separate elements would not be fruitful. In the past, most organizations have traditionally viewed, and some still continue to treat, GRC as separate components. The emerging perception of GRC is that it is an integrated set of concepts and, when applied holistically within an organization, it can add significant value and provide competitive advantage. Further, the holistic approach would be more efficient, consistent and legally sound and the Boards of Directors, senior management and staff at all levels would be involved in the organization’s conduct of business. Most financial institutions have viewed GRC as discrete activities undertaken by different departments with no coordinated efforts. | 0 |
Woodford’s (2005) formulation: ” For not only do expectations matter, […] very little else matters.” BIS Review 110/2009 1 Criteria for a “good” interest rate path Inspired by Svensson, Norges Bank has developed a set of criteria for a “good” interest rate path. The intention is to make it easier for others to understand how we think, although the criteria also define the agenda for the internal discussion. 2 The first criterion for a good interest rate path is to set the interest rate with a view to bringing inflation back to target in the medium term following a shock. The primary objective is to achieve the inflation target. The second criterion reflects the flexibility of inflation targeting. There are many routes to the objective. Which one should we choose? According to the criteria, emphasis should be placed on finding an interest rate path that also stabilises output and employment. So far, our approach tracks Svensson’s theoretical approach fairly closely, with some deviation from the analytical method he presents in his article. The most important difference is that we have chosen to focus directly on the target, using a loss function to describe monetary policy. The approach proposed in the article primarily relies on a description of policy under different rules followed by calculation of the loss using the loss function. Because the model is primarily a model and reality is primarily reality, some tailoring is required to connect model and reality. Some additional criteria have therefore been formulated. | In particular, the rapid surge in prices over the last year, has been brought under control and inflation has been declining in recent months, through easing the pressures on household' budgets and reducing uncertainties for enterprises. At the same time, the banking sector appears sound, indicators on the stability of both public and external debt have been improving, the financial environment is calm, and enterprises and households' balance sheets remain solid. These achievements are not a result of chance. They reflect, among other things, adequate and coordinated monetary, financial and fiscal policies and the results of continuous structural reforms which we have undertaken in the financial sector. The proportional and timely reaction of these policies has minimised the immediate consequences of shocks and has safeguarded the production capacity of Albania. In parallel, continuous structural reforms have strengthened the flexibility and resilience of the Albanian economy, by helping both the monetary and financial stability of Albania. 1/8 BIS - Central bankers' speeches In my remarks today, I will provide an overview on the main directions of the Bank of Albania's work throughout 2022 and its results. I would then like to share a brief summary of our expectations and highlight some of our primary objectives for 2023. *** 1. The outlook for the economy, price stability and the Bank of Albania's monetary policy The global geopolitical and economic environment experienced upheaval in a radical and unexpected manner at the outset of 2022, due to the Russian unjustified invasion of Ukraine. | 0 |
Mugur Isărescu: Convergence towards euro enlargement Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the European League for Economic Cooperation’s (ELEC) Monetary Conference, National Bank of Romania, Bucharest, 4 June 2019. * * * As prepared for delivery Your Excellency Baron Snoy, Dear members of ELEC, Ladies and gentlemen, It is a pleasure for me to open this ELEC Conference, which is the 9th taking place in Romania and hosted by the National Bank. It all started in 2011 with “Renewable energy and transport infrastructure in the Black Sea Region”. One year later we talked about “Eastern Europe and the EMU: finding the optimal path for introducing the euro”. In 2013, there was the 3rd edition of the Danube Financing Dialogue. The following year the dialogue focused on “Agriculture and environmental protection in Central and Eastern Europe and their contribution to growth and employment”. In 2016, we discussed “How the EU can generate a virtuous circle in the Black Sea Region – the case of food and energy security” and in 2017 we debated on “the challenges for Eastern Europe in the present turmoil in the EU and EMU – persevering in the reforms and investing for the future”. The topic of the last year, “Convergence towards euro enlargement”, is approached again today, which is more than welcome, given the importance attached to this issue. The debate on convergence and euro adoption is broad-based and complex. The topic has been addressed in yesterday’s dinner speech by Academician Daniel Daianu. | Gross capital flows, however, are much larger: this may suggest that the economy’s degree of vulnerability is actually larger than currently accounted for. Should we therefore be concerned with large two way (gross) flows, as opposed to net flows, and the size of the much larger global balance sheet if counted in this way? Arguably, large gross capital flows and the flow of surplus capital from emerging markets to more developed markets may be a structural phenomenon, as mentioned earlier. The characteristics of developed financial markets, in terms of lesser financial frictions, better information and fewer borrowing constraints leading to better liquidity and lending, as well developed social welfare systems, are reflected in the persistent gap in savings compared to developing markets. In addition, financial integration has facilitated cross border arbitrage transactions, resulting in easier liquidity conditions globally. The implications and associated risks of this high level of global liquidity are different depending on whether the current state of affairs is a new equilibrium consistent with the conditions under globalization (e.g. case above), meaning that monetary policy should not try to counteract this phenomenon. However, if the current phenomenon is due to temporarily excessively accommodative monetary policy that would eventually translate into higher inflation, this would require eventual tightening and lead to the risk of capital reversals. But there are also compelling reasons to argue that risks have been better distributed, given financial innovation and various credit risk transfer mechanisms. | 0 |
Hamad Al-Sayari: Review of the Saudi Arabian economy Speech by His Excellency Hamad Al-Sayari, Governor of the Saudi Arabian Monetary Agency, to the Custodian of the Two Holy Mosques, on the occasion of the presentation of SAMA's Forty-Second Annual Report, Riyadh, 14 November 2006. * * * Custodian of the Two Holy Mosques, It is a great pleasure for me to present to You the Forty-Second Annual Report of the Saudi Arabian Monetary Agency which reviews the most salient domestic developments of fiscal year 1425/26 H corresponding to 2005G and latest developments during the current year 2006. Custodian of the Two Holy Mosques, Your government continued during 2005 and the preceding period of this year to make a number of important decisions and achievements in the area of updating regulations, restructuring the national economy, approving a number of great development projects, accession to the World Trade Organization which is a significant step towards further integration into the world economy, attracting foreign investments, opening and expanding markets and reinforcing the competitive capacity of the national economy. Therefore, an observer may say that the national economy is moving in confident and rapid steps on the right path towards more strength, diversification and employment of national man power. All these efforts would boost achieving sustainable growth. Custodian of the Two Holy Mosques, In pursuance of Your efforts aimed at regulating, streamlining and enhancing institutional work, You have recently approved the Homage System (Nidham Al-Bai'a). | These two examples are of course extremely simplistic, and are not realistic parameterisations of the Bank’s actual RSS. In broad terms, the elasticity of the Bank’s RSS is pinned down by three broad considerations. First, the Bank sees merit in allocating some funds regularly against wider collateral, to ensure counterparties remain familiar with the auction structure and continue to participate. Second, the Bank should not undermine the incentives to manage liquidity prudently. And third, the auctions should permit an increased allocation against wider collateral to the system in the face of adverse liquidity shocks and the associated heightened demand for liquidity. While the principles underlying the Bank’s RSS are clear, the precise configuration of the RSS is not revealed to the market, so reducing the scope for firms to game the Bank, and encouraging them to bid according to need. The Bank’s supply curve should be continuous but otherwise need not be linear. In particular the Bank can use the results from each operation to determine the degree of stress in the market and hence adjust the scale of the operations accordingly. Equilibrium The equilibrium point, which pins down the clearing spreads and the share of funds allocated to the two collateral sets, is determined by the intersection of the observed demand curve, and the Bank’s RSS. Chart 7 illustrates that using our hypothetical auction bids from Table 1 above, and three hypothetical linear RSS schedules. In case of intersections such as those given by curves A and B, a unique equilibrium is well defined. | 0 |
In contrast, between 1999 and 2008, the real effective exchange rate generally remained below its long-term average. It had started to increase around August 2007, then gaining over 30% between that time and the end of June 2011. With these numbers in mind, the additional changes registered this summer are quite extraordinary. Between early July and 9 August, when the Swiss franc reached its historic peak, its real value climbed another 17%. Estimates show that the currency was then almost 40% above its long-term average and more than 50% above its pre-crisis level.15 It can be argued that the Swiss franc is strong because the Swiss economy is faring well in absolute terms and, most importantly, in comparison with many of the country’s neighbours. Indeed, the Great Recession was less pronounced in Switzerland than in most other developed economies. The ensuing recovery was also relatively dynamic. The Swiss economy was one of the first advanced economies to return to the pre-crisis level of GDP and, in striking contrast with many other countries, Switzerland emerged from the crisis with solid public finances. Indeed, this explains why, in the crisis years, the country’s overall debtto-GDP level fell below 40%. Exchange rate movements, like those observed this summer, strongly suggest, however, that such explanations do not suffice. Slow-moving economic fundamentals or macroeconomic drivers can almost certainly not account for the sudden large movements of our exchange rate in July and August. | Lars Nyberg: Sweden and the world economy Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at Danske Securities, Stockholm, 24 September 2001. * * * Exactly two weeks ago I landed courtesy of SAS at Newark airport, after circling around Manhattan. As always, I was fascinated by the skyline dominated by the twin towers of the World Trade Center. Less than 24 hours later, those towers were gone and thousands of people had lost their lives in an act of terrorism that shook the entire world. It is tragic, terrifying and in many respects still incomprehensible. You all work in the financial sector and I am sure many of you have business contacts or friends who have been affected, directly or indirectly. I myself will never forget the pictures of human despair reflected in the US media during the week I had to wait for a flight back to Sweden. Naturally, the events in New York and Washington will have both political and economic consequences. At the moment, everything appears to be very uncertain, for understandable reasons. However, it is necessary to take developments in the US economy as a starting point for any assessment of how the Swedish economy will develop over the next few years. This applied before the attack against the USA and it applies even more now. | 0 |
These differences seem to last over long periods, indicating that the problems are partly due to low mobility in the labour market. In addition, the need for labour market mobility is growing as a result of structural change. The previously typical cyclical pattern, where jobs are shed during a slump and then are recreated when the economy turns around, no longer generally holds true in all industries. Jobs that are lost in a slowdown are being replaced, especially in manufacturing, by increased productivity and information technology. Growth is leading to new jobs but in different places than before. That means that more people have to change workplace or sector, and results in the need for considerable adaptability. More jobs have to be created in, for example, the services sector, perhaps in completely new companies. The structural change that occurred when farmers and forestry workers went into manufacturing was relatively easy. Now the change often entails manufacturing workers having to go into the services sector, a transition that may be more difficult. To the extent that the weak growth in employment is due to structural change in the Swedish economy, from manufacturing jobs to services, there is reason to discuss how the functioning of the labour market can be improved and how the driving forces for new business creation can be strengthened. | Since all other demand components were falling, the manufacturing sector was able to attract resources and expand. We have not had a current account deficit since 1993. Why 2 per cent inflation and a floating exchange rate? That two per cent is the optimal inflation target has no scientific basis. However, this level gives a reasonable trade-off between the negative consequences of high inflation and the problems entailed by deflation. Furthermore, two per cent is a common target internationally. It is necessary, you see, to have a certain margin from zero inflation if price and wage formation are to work well. Separate prices and wages have to be able to grow at different rates if it is to be possible to allocate resources such as labour to their correct use. Since it is difficult to cut nominal wages, some inflation creates the possibility for relative changes in wages without having to reduce the nominal level for any group. The scope for wage increases given the inflation target is around 4 per cent. (2 per cent + 2 per cent: Inflation plus productivity growth, at a given profit share. )1 This holds if we, like the National Institute of Economic Research, assume that average productivity growth is around 2 per cent for the whole economy in the long term. If one occupational group gets 5 per cent in order to attract labour, another group has to get less than the average increase. | 1 |
Thomas Jordan: Switzerland at the heart of Europe – between independence and interdependence Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Université libre de Bruxelles, Brussels, 17 January 2015. * * * The speaker would like to thank Nicolas Stoffels and Attilio Zanetti for their valuable support in preparing this speech. He is also grateful to Rita Kobel and Alexander Perruchoud. Ladies and Gentlemen, I am very honoured to be with you today in Brussels, and I would like to thank the Swiss Mission to the European Union and the Institute of European Studies at the Université libre de Bruxelles for their kind invitation. When I arrived at Brussels airport, I couldn’t help noticing the range of delicious chocolate on offer. It seems to be as abundant as in Switzerland. So I can see immediately that Switzerland and Belgium have important things in common. This certainly makes me feel very comfortable here. Although I am unlikely to end up emulating Jean Neuhaus. As some of you may know, Belgium’s most famous chocolatier was actually a native of Switzerland. He came to Belgium in 1857, and decided to stay and set up shop in Brussels. As for me, I plan to return to Switzerland. 1. Introduction Belgium and Switzerland have a lot of other things in common besides chocolate: Both are small, very open economies, which have successfully embarked on the road to globalisation. | Constantinos Herodotou: Sustainability, digitization, profitability Statement of Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at fireplace chat "Challenges for banks in a new operating environment" at the 10th Banking Forum, Nicosia, 9 December 2022. *** I would first like to thank Andrea for accepting my invitation to participate at today's event and share his valuable insights with us. In the aftermath of the two consecutive crises, the first round adverse effects have been limited for the banking sector. Nevertheless, with the level of uncertainty still tilted to the upside, the full extent of the consequences has not yet materialised especially in the area of credit risk. If we were though to draw a lesson from both crises, this would be the significance that technology plays for the banking sector, not only for the conduct of the normal banking operations but also for the sustainability of its profitability. The banking sector has proven resilient and continued to provide credit to the economy. However, the legacy structural weaknesses of the sector remain. At the same time, competition from challenger banks has been increasing. Therefore, the banks need to move more decisively in the road to digital transformation. This is presumably the only way if they are to address their structural weaknesses while retaining their competitive advantage against new players in the market. Investing in technology can become the catalyst in their effort to strengthen efficiency and build sustainable profitability. | 0 |
Sea change Speech given by Mark Carney, Governor of the Bank of England Local Government Association Annual Conference and Exhibition 2019, Bournemouth 2 July 2019 I am grateful to Clare Macallan and James Benford for their assistance in preparing these remarks, and to Charles Gundy, Emil Iordanov, David Glanville, George Rodger, Alison Schomberg, Anina Thiel, Mo Wazzi and Gabija Zemaityte for background research. 1 All speeches are available online at www.bankofengland.co.uk/news/speeches It is a pleasure to join this Local Government Association (LGA) conference. The LGA supports councils across the country as they deliver local solutions to national problems, helping them to build the skills they need and ensuring the voice of local government is heard at the national level. My only regret is not being able to enjoy the beaches for which Bournemouth is rightly famous. The closest I will get is using a nautical analogy – a sea change. A sea change is a profound transformation. The term was originally coined by Shakespeare in The Tempest, of which there are five productions across Dorset this summer.1 These productions will mix tragedy and comedy in a play whose themes range from magic and creation to betrayal and revenge. My focus is more limited and prosaic – but also more immediately relevant to your work. In recent months, there has been a sea change in financial markets driven by growing concerns over the global economic outlook. | In some cases, we can achieve better terms by investing in new companies ahead of a planned listing. As the GPFG has grown so has Norges Bank’s experience in investment management. The investment universe has broadened. Every year new emerging economies are added to the list of countries in which we can invest. The aim is always to improve the trade-off between risk and return over time. The GPFG is subject to an extensive governance and control framework. The Ministry of Finance draws up the mandate for investment management. Norges Bank’s Executive Board has laid down, pursuant to the mandate, further detailed guidelines for the CEO of Norges Bank Investment Management. Pursuant to these guidelines, Norges Bank Investment management makes decisions concerning individual investments. Control and supervision of investment management follow the same lines as the delegation of investment decisions. Risk and return are routinely reported to the Executive Board and discussed at its meetings. Norges Bank reports on investment management to the GPFG’s owners on a quarterly basis. Norges Bank works to safeguard financial wealth over time. Responsible investment is a key component of that task. The Bank uses a number of instruments to promote active ownership, such as international principles and standards, expectations documents, voting at shareholder meetings and contact with companies. Corporate governance and environmental and social considerations are integrated into the investment process and risk management. In a number of cases, the Bank has sold off or refrained from buying securities as a result of concerns regarding longterm sustainability. | 0 |
BIS Review 103/2009 9 Figure 15: Yield Curves* (Percent) 16 Yield 14 12 1 Apr 2009 16 July 2009 10 8 0.5 1 1.5 2 2.5 Term (Year) 3 3.5 4 * Estimated by using the compound returns on the bonds in the ISE Bonds and Bills Market, based on the Extended Nelson-Siegel (ENS) method. Source: CBRT. 3. Inflation and monetary policy outlook Distinguished Guests, Having summarized inflation and monetary policy developments in the second quarter of 2009, in this part of my speech, I would like to share with you the evaluation of the inflation outlook and monetary policy of the Central Bank of Turkey in the upcoming period. In addition, I will also outline the Central Bank’s inflation forecasts presented in the Inflation Report, which is to be posted on our website shortly. Firstly, I will briefly touch on the economic framework underlying these forecasts. In spite of widespread views that the recovery in the global economy will be slow and gradual, perceptions that the worst of the crisis is over led to optimism in global financial markets in the second quarter of the year and an increase in risk appetite. Parallel to the recovery in global risk perceptions, the risk premia of emerging markets fell rapidly and reached almost pre-crisis levels (Figure 16). As was the case throughout the crisis, the risk premium of Turkey followed a relatively lower path compared to other emerging markets. | Rather, it affects the exposure to loss of the DGS and thus the share of the losses having to be covered by the surviving parts of the industry.11 Amongst uninsured creditors, the position of bond holders will depend on whether they are issued from a (pure) holding company, in which case they have a structurally subordinated claim on the underlying business assets, or by operating companies that also have lots of other unsecured creditors. The exposure to loss of bonds issued by operating companies are, therefore, affected by whether or not they incorporate subordination clauses. For every bank group, all of that will be clear. The big issue, therefore, is about uninsured deposits. Should they rank alongside senior unsecured bonds or should they be preferred? In the US, all deposits are preferred. There is now an active debate in the EU about whether or not it should introduce depositor preference and, if so, whether that should be for all or only some uninsured deposits? Whatever the conclusion reached by the political authorities, it is important that the creditor hierarchy is the same under bailin, other resolution tools, and liquidation. Otherwise, pricing each piece of debt would depend upon time-varying assessments of the probabilities of the various resolution tools being applied in the event of a firm’s bankruptcy. On the substance of the issue, I can see a case for both insured and some uninsured depositors being preferred. | 0 |
In short, co-operation in supervisory matters in the EU has to observe the principles of pragmatism and flexibility. Pragmatism involves acknowledging the role that the competent national authorities must play in supervising a single market with very different levels of integration in the various areas of business and, furthermore, it advocates an increasingly important role for the authority in the home country of pan-European institutions. Flexibility is needed to adapt the levels of co-operation to the pace set by developments in the integration of the various segments of the single market. Finally, regarding the changes currently under way, a major source of such change is the intense regulatory process to which the banking sector is lately being subjected. The adaptation to the new accounting standards issued by the IASB, which in Spain are set out in the new accounting Circular, and the preparations for implementing the new capital accord are the two landmark projects which are undoubtedly calling for a major effort by European institutions. This effort is absorbing extensive resources and deserves our full support. In this respect, I consider that, after a process of intense regulatory change, we should focus on achieving proper implementation and allow ourselves to 12 BIS Review 45/2005 slacken the pace of regulatory developments in these areas. This will enable the far-reaching changes made recently to be digested and will ensure that the new standards are properly implemented. | [11] The upshot is that more firms have been protected and more jobs have been saved. Without the ECB’s policies, we estimate that over one million more people would have lost their jobs. [12] But we are not out of the woods yet. With the tremendous progress made on vaccine technology, we can now see the light at the end of the tunnel. But we still cannot see exactly how long that tunnel is. We will continue to face a period of high uncertainty until more people have been vaccinated against the virus. In this setting, it is crucial that the bridge for SMEs remains in place for as long as needed. The ECB will help ensure that firms and families can access the finance they need to weather this storm – and that they can do so in the confidence that financing conditions will not tighten prematurely. That commitment is the best way to provide certainty to all sectors of the economy and to bring stability back to the euro area swiftly. And this, in turn, is the best contribution we can make to delivering on our mandate of price stability. 5/8 As Goethe said, “Im Idealen kommt alles auf die élans, im Realen auf die Beharrlichkeit an.”[13] Reality is currently hard for many firms and the future remains uncertain. And so we will persist and persevere until the pandemic emergency has passed. | 0 |
Moreover, while there is no long-run trade-off between unemployment, or output, and inflation, both formal evidence and common sense observation on wage and price rigidities attest to the existence of such a trade-off in the short run. In the long run, however, monetary policy’s impact is only on inflation; potential output primarily is determined by advances in technology, growth in human and physical capital and other real resources. Because of the uncertainty about the timing and significance of short-term monetary policy effects on economic activity, as well as all other uncertainties concerning the economy, there are always differences of view about the speed with which policy should be adjusted, and on the balance of risks in dealing with ongoing economic developments. These conflicts become more marked when an economy confronts supply shocks that drive up prices BIS Review 17/1997 -3- sharply and suddenly -- such as the two oil shocks of the 1970s. In those circumstances, from my perspective, the appropriate course, consistent with maintaining longer term price stability, should be to bring inflation down somewhat gradually, as the economy adjusts to the shift in relative prices. As I see it, monetary policy must be formulated cautiously, and cannot ignore business cycle developments. In establishing price stability as the primary goal of monetary policy, therefore, it is best to recognize that monetary policy does affect output in the short run. | On the contrary, what is important to bear in mind is that by ensuring a stable price and financial environment, the central bank helps foster economic growth. I believe that no central bank can maintain price stability over the longer term without public support for the necessary policies. Only with the confidence of the public in their policies and their own lasting dedication to non-inflationary growth together with a well-functioning financial system can central banks succeed in achieving and maintaining price and financial stability. BIS Review 17/1997 | 1 |
I would also like to welcome Mr. Emil Stavrev, Deputy Division Chief, and Mr. Mariusz Jarmuzek, Senior Economist, both of them from the IMF European Department, who have contributed extensively to the report under debate today. Now, returning to the main topic: The National Bank of Romania has always valued the Regional Economic Outlook Report as it gave us a full and unbiased image of where we stand as compared to our peer countries. It has helped us to better understand the macroeconomic developments in our region and the interconnectedness/connections between our economies. The current report marks a turning point in our post-crisis economic history: We should take advantage of the improved economic context to focus on structural reforms needed to accelerate the real convergence and to raise Romania’s economic capacity in the long run. We need to preserve competitiveness and enhance the quality of public expenditure. We are all glad to see the global economy back on track and the European recovery strengthening. These results are even more encouraging, if we think back to 2010, in the aftermath of the crisis, when economists and policymakers started to really doubt our economies ever returning to business as usual. At that time it was believed that the new normal would come with secular stagnation, low interest rates and low inflation. Romania has secured a record growth of 8.6% in 2017/Q3. Nevertheless, we need to moderate our enthusiasm. | Mugur Isărescu: Regional economic outlook - Europe Opening speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the conference "Regional Economic Outlook - Europe", Bucharest, 17 November 2017. * * * Your Excellences, Ambassadors, Members of the diplomatic corps, Ladies and gentlemen, Distinguished guests, It is my pleasure to welcome you to the National Bank of Romania. The Board and I are honored to host the presentation of an important IMF document, one of their flagship reports, namely “2017 Regional Economic Outlook Report”. It is a tradition for the National Bank of Romania to host this event and we are pleased to greet the presence of many foreign diplomats – this is a clear testimony of its importance. Allow me to extend a warm welcome to Mr. Jeffrey Franks, who has been a long-standing friend of Romania. Mr. Franks is a veteran of the Fund, who – over the last 25 years – has managed challenging assignments, including the resident offices in Ukraine and Ecuador, and has led teams in Pakistan, Romania, France, Belgium, and Paraguay. He was the IMF Mission Chief for Romania for almost 3 years, from 2009 till 2012. As many of you may remember, during his mandate as mission chief, Romania overcame a very difficult period, with the support of the IMF, WB and EC. | 1 |
[9] Tentative evidence of the sharp sell-off in March corroborates the view that leverage has probably also been a source of procyclicality during the pandemic. Investment strategies reliant on low market volatility have possibly played a significant role in this. [10] These strategies have grown rapidly in recent years. Globally, there may be funds with assets under management worth around $ billion invested in some 100 risk parity funds, a well-known hedge fund strategy for multi-asset funds. These volatility-targeting funds typically use leverage when market volatility is below target, as it was before the pandemic, and they have to liquidate leveraged positions when market volatility surges. This probably amplified selling pressures in March. ECB simulations demonstrate that a strict risk parity rule would have called for a large unwinding of leveraged investments when cross-asset correlations surged earlier this year (see left chart slide 8). As volatility spiked and diversification benefits from cross-asset exposures vanished, volatility-targeting investors were prompted to sell assets and reduce leverage (see right chart slide 8). [11] The new portfolio would have had a cash share of nearly 25% as a result. Notably, asset sales would have extended to all asset classes in the portfolio, including the supposedly safer ones, in line with what we observed in the spring. Margin calls and demand for liquidity The third factor relates to margin calls. Margining requirements are an important safeguard to reduce counterparty credit risk. But they also increase liquidity risk, particularly when liquid asset holdings are inadequate. | Although we are providing clarity around how the central bank would react in the event of market-wide or large idiosyncratic stress, it is important that some of our facilities retain elements of discretion. For example, the benefits of Discount Window Facility and Emergency Liquidity Assistance could be undermined by immediate disclosure, if speculation about individual firms were to threaten financial stability. In this respect, both the Winters and the Plenderleith reports recognised that a lag between usage and public disclosure can provide a good balance between our financial stability objectives and our duty to be accountable to the public. 5. Co-ordinating liquidity support with micro-prudential policy Historically, one of the arguments for having ambiguity over the Bank’s provision of liquidity insurance, particularly against a wide range of collateral, was that clarity would induce moral hazard. The more certain banks could be of the availability of liquidity insurance, the less incentive they would have to manage their own liquidity prudently through private markets. Acting as a mitigant against this, the expansion of the Bank’s liquidity provision capabilities has gone hand in hand with two other key developments: the introduction of stronger liquidity regulation requiring banks to hold more liquid assets (Figure 3), 8 and the creation of a resolution regime which makes it more credible that firms will be allowed to fail in an orderly manner. Taken together, liquidity insurance, the resolution regime and microprudential supervision provide a framework of incentives for banks to manage their liquidity. | 0 |
As part of the efforts to improve the standard of pen-testing in Malaysia, Bank Negara Malaysia facilitated the formation of a task force last October, to set up a Malaysia chapter of the UK-based Council of Registered Ethical Security Testers or CREST, which will serve as a certification body for ethical hackers. We believe that this is a good platform to grow domestic talent in this area and promote international best practices in penetration testing. c. The Bank has also launched the Operational Risk Integrated Online Network or commonly known in the industry as the ORION system, to enhance the standard of operational risk 2/5 BIS central bankers' speeches management in the financial sector. ORION is a risk surveillance system that consolidates information on operational risk incidences, including cyber-attacks. The system will strengthen the Bank’s ability to perform system-wide monitoring and early detection of developing trends in cyber-attacks and frauds within the financial sector. Moving forward, Bank Negara Malaysia is looking to address identified gaps in technology risk management practices within the financial sector. As part of this effort, the Bank is in the midst of conducting a comprehensive review of existing technology risk guidelines, including enhancing the expectations for the board and senior management to play a more active role in managing technology risk, and enhancing the resilience of IT infrastructures such as data centres. In today’s world where there is increasing uncertainty of what the future may hold, it is no longer possible for risk managers to rely solely on historical trends. | There were few plans for large-scale investment, and they mainly concerned the renewal of modernization of existing equipment. Retail sales contracted in February, after posting a substantial rise in January. Employment levels remained stable in industry, except in the automobile sector, where they declined. The retail and market services sectors showed little change, but employment fell in the building industry. Increasing use was made of flexi-time, annualized working time and part-time working to respond to variations in demand. BIS Review 32/1997 | 0 |
Our strength can be seen from the current account surplus, a strong reserves position, low level of external indebtedness and strong capital buffers in the banking system. We expect these strong conditions to persist. As many of you here can testify, our financial system is resilient and robust. On numerous occasions over the past decade, we have been able to manage market volatility in our stride. To a large extent, this was due to the continuous measures taken over the years to develop our financial markets. Our market now is balanced, deep and liquid to provide the structural support for orderly market conditions. Conclusion Let me conclude with the wisdom of the great philosopher Socrates. He viewed that any state should be led by wise, noble and exemplary ‘guardians'. These guardians will “...unite themselves in philosophy and spirit and swiftness and strength...and they ought to be wise and efficient." As bankers and guardians, let us aspire to exemplify these traits; to pursue professionalism, agility and wisdom. Thank you and congratulations again to all the graduates. A bright and exciting future awaits you. 4/4 BIS central bankers' speeches | Brainard, L. (2017), Rethinking monetary policy in a new normal, Presented at the Rethinking Macroeconomic Policy Peterson Institute conference, Washington, DC. Bridges, J., C. Jackson and D. McGregor (2017), Down in the slumps: the role of credit in five decades of recessions, Staff Working Paper No. 659, Bank of England. Broadbent, B. (2018), Monetary and macro-prudential policies: The case for a separation of powers, Speech at Reserve Bank of Australia, Sydney. Caballero, R., E. Farhi and P. Gourinchas (2017), The safe assets shortage Conundrum, Journal of Economic Perspectives, Vol. 31 (3), pp. 29-46. Carney, M. (2019a), Pull, push, pipes: sustainable capital flows for a new world order, Speech at the 2019 Institute of International Finance Spring Membership Meeting, Tokyo. Carney, M. (2019b), The global outlook, Speech. Clarida, R. (2019), The Federal Reserve's Review of its monetary policy strategy, tools, and communication practices, Speech at the "Fed Listens: Distributional Consequences of the Cycle and Monetary Policy" Conference. Dynan, K. and W. Edelberg (2013), The relationship between leverage and household spending behavior: Evidence from the 2007-2009 Survey of Consumer Finances, Federal Reserve Bank of St. Louis Review, 95(5), pp. 425-48. Eggertsson, G. B., N. R. Mehrotra, and J. A. Robbins (2017), A model of secular stagnation: Theory and quantitative evaluation, NBER Working Paper. Fagereng, A. and E. Halvorsen (2016), Debt and household consumption responses, Norges Bank, Staff Memo. Gagnon, E., B. K. Johannsen, and D. Lopez-Salido (2016), Understanding the new normal: The role of demographics, Finance and Economics Discussion Paper, Federal Reserve Board of Governors. | 0 |
Looking back, it seems inevitable that the increasing breadth of financial activities undertaken by single firms would create an impetus for increased consolidation in the oversight of such activities. Of course this was the view in the late 1990s. At other points in time, indeed just over a decade after the FSA was created, it was decided that the most appropriate way to structure supervision was along separate prudential and conduct lines – the so-called “twin peaks” model. Moreover, some supervisory authorities like the PRA sit within the central bank given (in the case of the UK) the Bank’s longstanding interest in overseeing the banks that settle in its money – the clearing banks – out of which was born a system of supervision over banking and payment systems. 37 Gower, L.C.B. ’Review of Investor Protection’, Presented to Parliament by the Secretary of State for Trade and Indutstry, January 1984, p.13 38 Ibid, p.25 39 Hansard: http://hansard.millbanksystems.com/commons/1997/may/20/bank-of-england-and-financial-regulation 13 All speeches are available online at www.bankofengland.co.uk/speeches 13 Beyond the UK, we can observe many different types of institutional arrangements. In the United States, the organisation of supervisory agencies reflects the federal system of government with supervisors at both central government and local state level. Another difference lies in the fact that many US state commissioners are publicly elected, unlike other countries where supervisors are unelected. Indeed, undertaking a stint as an insurance supervisor at the DTI during the 1980s was just another rotation for those enrolled on the government-wide civil service scheme. | While a college education is generally a good investment, the cost of attending a fouryear college has risen considerably faster than wages over the last several decades. This means that college has become increasingly unaffordable—which can act as a drag on economic mobility and the growth of a college-educated workforce, and by extension, on productivity growth and living standards. As has been well documented by my New York Fed colleagues, many young Americans have adjusted to rising tuition and fees by taking on more debt. This trend highlights the importance of the federal student loan program, which has helped mitigate the impact of the shift in financing of 1/2 BIS central bankers' speeches higher education from state and local funding to students and their families over the past few decades. However, the end result is that more students leave college with significantly higher amounts of debt. Student loan debt has more than tripled over the past two decades and now totals over $ trillion. It is important to consider what these changes in financing higher education mean for economic mobility. First, New York Fed researchers have documented that a large percentage of student borrowers—especially those who attend less selective colleges or drop out—have trouble staying current on their loans, and often become delinquent and default on their debt. We also know that these factors—slow repayment, delinquency, and default—are most prevalent among those from more modest family circumstances. In addition, there is evidence that student debt acts as a drag on homeownership. | 0 |
Anita Angelovska-Bezoska: Ministerial Dialogue on the Economic Reform Programmes of the Candidate Countries Speech by Ms Anita Angelovska-Bezoska, Governor of the National Bank of the Republic of Macedonia, at the Ministerial Dialogue on the Economic Reform Programmes of the Candidate Countries, Brussels, 25 May 2018. * * * Dear Ministers, Dear representatives of the European Commission, European Central Bank and Eurostat, It is my great pleasure to join you on the regular Ministerial Dialogue. At the beginning, let me express our gratitude to the ECB, European Commission and Eurostat for their assessment of our Economic Reform Programme that outlines the ongoing, as well as forthcoming mediumterm reform priorities aimed at more competitive, flexible and resilient economy. Herewith, we appreciate the positive assessment of the monetary policy as well as the recommendation to continue “to conduct monetary policy consistent with the exchange rate peg, using available scope within this framework in line with safeguarding price stability” which is completely in line with central bank views on monetary policy strategic framework. In light of today’s thematic discussion on fiscal sectors reforms, we would like to express our support for the Ministry of Finance’s reforms oriented towards strengthening Public Finance Management system that besides improving the effectiveness of the use of public resources, will also foster the ongoing fiscal consolidation process. | We believe that the numerous reforms enshrined in the medium-term PFM Reform Program, such as strengthening macro-economic forecasting infrastructure, strengthening commitment control, enhancing fiscal transparency and introducing fiscal rules will help prevent potential fiscal slippages and be conducive to further strengthening of fiscal discipline. Continuation of prudent fiscal policy leading to stabilization of the public debt will provide room for prolonged accommodative monetary policy, i.e. keeping the main policy rate at its historically lowest level for an extended period, thus providing further stimulus for economic recovery. This is even of crucial importance considering the implemented exchange rate targeting strategy in our case. Reestablishment of fiscal buffers may be needed in the context of the new forthcoming global cycle of lower liquidity and higher interest rates. In addition, budget forecasts underpinned by sound macro assumptions will be an important input in the medium-term macro-forecasting process of the central bank with positive effects over forecast quality thus further enhancing the quality of the monetary policy decision making. Allow me to take this opportunity to also point out that last year’s monetary policy objectives have been achieved, despite the political uncertainty present at that time. Monetary policy remained accommodative, amid moderate inflation of 1.5% in the first four months of 2018, strong external position and gradual stabilization of market expectation. In March 2018, the main policy rate was reduced to 3%, which is historically lowest level. | 1 |
As we are aware, the world’s focus and attention has been to usher in an economic order that ensures high economic growth and an advanced level of development. In this endeavour, the widely discussed topics include liberalization, globalization, IT revolution, poverty alleviation, trade co-operation, political inclusion, regionalization, and many other buzz topics. Amongst these topics, “inequality and poverty” has maintained an important position, and it has therefore been discussed for years. Let us then ask ourselves the question: What do we really mean by inequality and poverty? Inequality means the lack of or fair treatment in the sharing of wealth or opportunities between different groups in society; and Poverty is the condition of being extremely poor. What do those who are stricken by poverty and inequality feel? Simply, they suffer the lack of material well being and lack of opportunities to succeed. Such feelings are often the root causes of political, economic and social upheaval, tension and revolution. Mr. Chairman, poverty and inequality are very closely linked. There is also ample empirical evidence to suggest that inequality and poverty seriously affect development. Inequality often leads to poverty while poverty hinders development and prosperity. Addressing inequality issues would undoubtedly have a positive impact on poverty alleviation. We would also probably unanimously agree that alleviating poverty is vital, considering its many economic, social, cultural and even more importantly, the human costs. | Your own Chairman, Prof. A D V de Indraratne, chairs such Committee and we have benefited immensely from the insights and advice rendered by such Committee. In a similar manner, I am certain that the research findings that will be presented by you at the conclusion of this very timely conference, together with the professional views expressed at the technical sessions would help policymakers immensely to reshape their policy focus appropriately. In conclusion, let me emphasize our deep commitment to your theme by referring to our own Mission at the Central Bank. The Vision of the Central Bank is that of being a credible and dynamic Central Bank contributing to the prosperity of Sri Lanka. As set out in our Strategic Plan, the term prosperity has a wider connotation: i.e., the enhancement of the quality of life of people through sustainable wealth creation and inclusion of all segments of the society in enjoying the benefits of development. The Central Bank expects to facilitate this process by ensuring price stability and financial system stability while providing prudential and pro-active policy recommendations, as the Advisor to the Government on Economic Affairs. We have, so far, taken a pro-active stance in the delivery of prosperity and we are encouraging the key stakeholders in our country also, to implement the necessary strategies towards such end. We see the Sri Lanka Economic Association as being a key partner in the delivery of prosperity in our country and we commend you for your commitment and dedication. | 1 |
Several of these measures have had an impact on the Bank’s assets, either by reducing them (sale of foreign currency) or increasing them (purchase of bonds and loans to commercial banks). The adjustments on the asset side have counterparts on the liabilities side, either by active measures (repurchase of long-term bonds from the Central Bank), or by monetary sterilization or liquidity absorption, or finally, to respond to changes in the demand for cash. The net effect of these operations and portfolio revaluations has an impact on the Bank’s net worth. On aggregate, these operations have involved an 86% growth in the balance sheet in one year, the equivalent of almost 10 points of GDP. At the same time, there have been significant changes in the composition of the balance 6 For further detail on these measures, their operating margins and effective execution, visit https://www.bcentral.cl/web/banco- central/medidas-excepcionales. 8 sheet (Figure 16). Now the Bank records on the assets side internal credit items (FCIC-LCL) and local securities. The latter yield more than international reserves, although with a somewhat higher credit risk compared to the sovereign securities that make up the former. On the liabilities side, the counterpart has implied an increase in short-term debt placements (PDBC) and the use of permanent facilities that drain the system’s excess liquidity. There has also been an increase in the monetary base, explained by an increased cash demand from the population. | The primary question today is not so much how much further we need to go with interest rate hikes, but how large is the pass-through of what is already in the pipe. Overall, evidence shows a quick and smooth pass-through of ECB decisions to broad financing conditions, which is the first step of monetary policy transmission. The growth rate of bank loans to households and firms has slowed due to a combination of higher borrowing rates, lower demand, and - for firms - tighter credit standards. Volumes of loans are decelerating, even though growth in outstanding amounts remains positive [+3.3% in the euro area for mortgages to households and +5.2% for loans to businesses]. By the way, the growth of loans in France remains significantly higher than in the euro area average. The second step of monetary policy transmission goes from the overall financing conditions to the economy and to inflation. In the textbook theory, tighter financial conditions moderate aggregate demand, and then decrease inflation with some lags. The estimated transmission lags of monetary policy in the literature vary from one year1 to more than two years2. At the current juncture several factors may bring us closer to the upper range: The current tightening cycle started from exceptionally low levels of real interest rates. It is only from the end of 2022 that we achieved positive real rates at all maturities – but we are now clearly in restrictive territory. the proportion of fixed-rate long-term loans is particularly high by historical standards. | 0 |
If leveraged loans experienced loss rates in line with the financial crisis, the equity tranches of CLOs would lose all their principal. Before everyone takes fright at the ‘s’ word, some important context is needed. These securitisations are very different beasts to their ancestors of 2008. CLOs now have much less embedded leverage than they did before the crisis, with equity tranches around 25% thicker. And they are not held in ‘shadow banks’ like investment vehicles that turn out really to be a part of banks. They are held properly outside the banking system, on the balance sheets of non-banks like hedge funds and open-ended funds. Chart 17 shows our map of who holds the loans and in what form. 9 These are estimated five-year loss rates based on observed default rates during the global financial crisis on the S&P leveraged loan indices for the US and Europe and Moody’s data for all corporates. We assume a recovery rate in line with the average on first lien loans. | A recession is defined as two consecutive quarters of negative real GDP growth, with at least eight quarters between consecutive peaks or troughs. Corporate debt A similar picture is apparent across companies. In a recession, companies with more debt tend to cut back on investment and employment by more than others. The evidence here is that companies with net debt more than about four times their cashflow cut investment twice as sharply as others (Chart 2). 4 All speeches are available online at www.bankofengland.co.uk/news/speeches 4 Financing from overseas Public debt, in contrast, tends not to deepen recessions, at least in countries issuing the debt in their own currency and within the bounds of sustainability. However, whether debt is raised by governments, households or corporates, the source of it does matter. A reliance on inflows of foreign capital -– what Governor Carney has called the ‘kindness of strangers’ – can mean future recessions tend to be deeper. The evidence is that those strangers tend to be more flighty when the economic ground shakes, ceasing to fund new investments, raising the cost of finance in the economy and magnifying recessions. 5 Other things equal, countries running bigger current account deficits tend to have deeper recessions. | 1 |
While the gold initiative’s third demand – that all of the SNB’s gold holdings should be stored in Switzerland – may be unproblematic in monetary policy terms, this too runs counter to the notion of security. Gold is stored in multiple locations for reasons of risk diversification, in other words to improve security. The lion’s share of the SNB’s gold reserves (approximately 70%) is already stored in Switzerland and an appropriate regional diversification serves to enhance the SNB’s market access. Concluding remarks Please allow me to make a few closing remarks. Managing Switzerland’s substantial foreign exchange reserves in the country’s best interest remains our key investment policy challenge. New markets are playing an important role here. I have discussed the growing significance of Asia and explained the process by which we plan to be able to invest a small fraction of our foreign exchange reserves in China in the near future. Thanks to our branch office in Singapore, we are optimally positioned to monitor developments and manage our investments in the Asia-Pacific region efficiently. Within the scope of its mandate, the SNB needs a certain amount of latitude in order to continue fulfilling its monetary and investment policy objectives, especially given that the Swiss monetary policy landscape is set to remain challenging in the foreseeable future. A BIS central bankers’ speeches 5 “yes” vote for the gold initiative would severely restrict our scope for action. It would therefore make it considerably more difficult for the SNB to conduct successful monetary policy operations in future. | To this end, it is prepared to purchase foreign exchange in unlimited quantities and to take further measures immediately if required. Once monetary policy requirements have been met, our foreign exchange investments are guided by three criteria: security, liquidity and return. In order to ensure that we meet the first two criteria – security and liquidity – we hold a substantial portion of our foreign exchange reserves in liquid government bonds, in the most important global currencies; almost threequarters of our foreign exchange reserves are currently invested in such instruments. When it comes to our third criterion – return – equities play an important role as they generally have a higher return potential than the government bonds of the major advanced economies. Currently, 16% of our foreign exchange reserves are invested in equities. BIS central bankers’ speeches 1 Given how substantial our foreign exchange reserves are, doing justice to all three of these criteria simultaneously is no simple matter. On the one hand, the considerable growth of our foreign exchange reserves has increased the concentration risk associated with conventional government bonds; on the other hand, there is the risk that we may overuse certain markets, thereby potentially triggering undesired price fluctuations. We therefore evaluate investment possibilities on a continual basis. As part of our search for diversification, Asia-Pacific markets in particular have become increasingly important for the SNB’s investment policy in recent years. | 1 |
In the US, the federal government still persistently registers fiscal deficits (averaging 3.2% of GDP per annum since 1980s) only except for the second term of the Clinton presidency in 1997–2001. Incurring persistent fiscal deficit means that the governments have to continuously raise additional debt to finance their spending. Quantitative easing: Lessening of pain of excessive debts? 10. This ballooning government debt raises concerns about long-term fiscal sustainability. For now, the situation seems manageable as central banks in these economies are pursuing quantitative easing (QE) policies to artificially suppress government bond yields. The aggressive asset purchases by major central banks have now suppressed bond yields to extremely low levels, where shorter-term government bond yields in some European economies like Germany, Austria, Denmark and Switzerland have already turned negative. 2 BIS central bankers’ speeches Negative government bond yield means that lenders are paying borrowers for the privilege of holding their debt, which is clearly not making any sense. I doubt how long such an unusual phenomenon could last, but in any case, I’m certain that such distortions will definitely come with unintended consequences. At least, one side-effect I can already observe is that QE penalises prudent savers and pensioners very badly. In Japan, for example, QE helps reduce the financing cost of public debt at the expense of eroding the purchasing power of JGB holders, with many of which being retirees and pension funds, by paying them negative real yield. Sovereign debt crisis: Mishaps that belong only to EMEs? 11. | Many Emerging Market Economies (EMEs) have had a wealth of experience in the mismanagement in their macroeconomic, fiscal and monetary policies, and all of them had paid a heavy price for their past mistakes. The fact that the latest series of crises erupted in the developed world does not mean EMEs are immune from the spillover effects. More fundamentally, the Emerging Market Economies, including Hong Kong where household debt to GDP ratio saw a record high, must learn from the latest mistakes of the developed world and take extra care in not getting into the mind-set or habit of spending beyond our means, whether at the household, corporate or government level. Hong Kong should in particular guard against the temptation of “collective irresponsibility” by pushing for or condoning public policies that entail spending that cannot be sustained in the medium to longer run, or else we would be mortgaging the future of our children and grandchildren. This again is easier said than done, and requires considerable wisdom of Hong Kong people and the courage and skills of our leaders to resist increasing pressure and temptations for unrestrained public spending. Hong Kong’s population is aging, and aging fast. At present, the elderly BIS central bankers’ speeches 5 dependency ratio of Hong Kong is 5:1. This means that Hong Kong now has 5 persons within the age group of 15–64 supporting each person over the age of 65. | 1 |
Given that ‘administered and regulated’ price increases will continue to push up on inflation over the next two years, the MPC is prepared to bring inflation back to the target over two years or a little longer. Rest assured, however, that we will bring inflation back to target – and at each point we will ensure that risks to price stability are contained. Our forward guidance builds in important safeguards of price stability. If there are any signs of underlying inflation pressures building such that it seems inflation 18–24 months ahead will be 2.5% or more, or if medium term inflation expectations are no longer sufficiently well anchored, then the guidance on interest rates no longer applies. These safeguards give ample flexibility to bring inflation back to target at the appropriate pace, while ensuring that risks to price stability are contained. Market reaction to forward guidance Much has been made of the upward movements in market interest rates since our announcement of forward guidance. Let me give you my perspective. There has been a generalised upward move in long-term yields in advanced economies, including the UK, over the past month. The main common driver is speculation that the US Federal Reserve will soon reduce the pace of its asset purchases. That has – not surprisingly – affected yields in other countries because safe, liquid sovereign bonds of the world’s largest economies are close substitutes for each other. In the UK, these movements have been reinforced by growing expectations of recovery. | Specifically, we announced that we do not intend to raise Bank Rate at least until the unemployment rate falls to 7%, provided there are no material threats to either price or financial stability.1 All nine MPC members agreed to set monetary policy in future according to this framework of forward guidance. That does not mean Bank Rate will automatically rise when unemployment falls to 7%. Nor is 7% a target for the unemployment rate – it should ultimately fall well below that level. Before the Great Recession, the UK’s unemployment rate stood at just over 5%. The 7% threshold is instead a staging post along the road to recovery. When unemployment reaches 7% the MPC will reassess the state of the economy and the appropriate stance of monetary policy. Our forward guidance provides you with certainty that interest rates will not rise too soon. Exactly how long they stay low will depend on the progress of the recovery and in particular how quickly unemployment comes down. What matters is that rates won’t go up until jobs and incomes are really growing. The knowledge that interest rates will stay low until the recovery is well established should give greater confidence to households to spend responsibly and businesses to invest wisely. It may seem that unemployment doesn’t have far to fall, from the current 7.8% to the 7% threshold. The MPC’s central view, though, is that this could take some time – for three reasons. | 1 |
Lending and borrowing: closely related to financial intermediation 3. Risk management: closely related to the insurance sector (“InsurTech”) 4. Market support: the “tech” part of FinTech can make simpler or more efficient processes 5. Investment management: E-trading, smart contracts; robo advice Payments, transfers, clearing, and settlement. Mobile payments (either by banks or non-bank institutions), digital wallets, digital currencies and the use of distributed ledgers for payments infrastructures. These can contribute to the management of massive numbers of transactions as well as to the transfer and settlement of large sums among financial institutions. Lending and borrowing. The most common FinTech innovations in this area are crowdfunding and online P2P lending platforms. These applications are closely related to financial intermediation, a core and heavily regulated element of financial institutions. FinTech applications in this field are still a small fraction of overall credit but in some jurisdictions are growing very rapidly. Risk management. FinTech companies participating in the insurance sector (“InsurTech”) are getting traction in many jurisdictions. They have the potential to affect not only marketing and distribution of insurance, but also underwriting, pricing of risks and settlement claims3. Risk management also concerns the commitment and registration of guarantees and collateral in credit operations. Market support. The “tech” part of FinTech can provide simpler or more efficient processes such as ID verification, data storage and processing (cloud computing), or the execution of orders through smart contracts. The access and contestability of information is an important issue here. Investment management. | If drug lords continue to live well on their ill-gotten wealth, corrupt politicians continue to exert influence in the political arena, fraudulent bank executives continue to go unpunished with no loss of status, and stock price manipulators continue to get wealthier at the expense of other shareholders, people would ultimately feel that the society in which they live is unfair and unjust. This places a heavy toll on people's emotional resource and negatively affects their well-being. Thus, when economic or financial crimes are committed, it is imperative that prompt actions be taken against the perpetrators. Otherwise, people in the society would harbour negative feelings towards the government and the system. If left unchecked, their feelings of resentment and unfairness would accumulate and get bottled up. People would feel alienated, hating their own society and resenting the government. The feeling that one lives in a fair and just society is as important as, or even more important than the economic well-being. If the public feel void of this social well-being, they will feel thoroughly disheartened, unwilling to be good law-abiding citizens, unwilling to invest, unwilling to contribute to the society they live in. So, the question is how do we prevent this feeling from deepening such that it erodes the confidence and trust in the democracy and the government. What differentiates a "normal crime" from an "economic crime" is that the harmful consequences of a normal crime, which directly affects people's lives and properties, can be easily felt and observed. | 0 |
This new context has had several consequences: • both inside and outside the euro area, the reputation of the euro as a solid currency has fostered the holding of euro-denominated banknotes, which has doubled in a few years, now representing the largest banknote circulation in the world; • the so-called “home bias” in asset holdings has decreased further, both inside the euro area vis-à-vis assets issued in other Member States and outside the euro area vis-à-vis assets issued in the euro area. This has increased globally the demand for euro-denominated financial assets; • the integration and competition in the banking and financial markets that has been fostered by the euro speeded up the development and the spreading out of financial innovation throughout the euro area, affecting money and credit developments in different ways. Let me just mention some of them. 6 2 One is the rapid pace of expansion in the activities of the so-called “other financial institutions” or OFIs. OFIs are not part of the money-creating sector and are neither insurance companies nor pension funds. In particular, they include financial vehicle corporations that purchase, pool and repackage as marketable securities loans that are “securitised” by banks, thereby reducing the growth rate of loans to the private sector. The expansion in OFIs’ activities is to a certain extent mirrored in the development of their monetary assets: which is now quite significant and amounts to around 10.5% of M3. | However, the corporate sector faces major challenges down the road. Against a backdrop of lower expected cash flows and higher debt, the solvency position of some firms has worsened, especially in the case of those operating in sectors more adversely affected by the pandemic that are still facing some restrictions. Thus, with the crisis stretching out, concern has now shifted from liquidity risk to the deterioration of the solvency position of firms. Therefore, economic policies should now focus on supporting viable businesses whose solvency has worsened as a result of the COVID-19 shock, given that the potential liquidation of these firms would be a drag on economic recovery via different channels. First, due to the loss of employment and capital that follows the closure of any company. Second, firms’ solvency problems may end up affecting the health of lenders if these problems are significant and widespread within the corporate sector. And third, in extreme scenarios, the ability of of some banks to provide new lending could be affected, generating negative financial loops. We should take into account as well that a high level of corporate debt, even if not leading to defaults, can still be a drag on investment in the following years, lowering productivity and economic growth, as the experience from the global financial crisis indeed shows. | 0 |
Yves Mersch: The future of Europe’s financial market infrastructure – the Eurosystem’s Vision 2020 Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Sibos conference, Singapore, 14 October 2015. * * * Ladies and gentlemen, members of the panel, The beauty of innovation is that it never ends. Even the best ideas can be enhanced and complemented. The Eurosystem, the euro area’s network of central banks, has developed two major innovations in the field of financial market infrastructure over the past 15 years: TARGET (now TARGET2) and TARGET2-Securities, or T2S. Both platforms have significantly improved the way payments and securities are processed in Europe. However, as we look to the future, we see room for further enhancements and consolidation. As we think about where we want to go next, I should stress that our vision for market infrastructure integration is not, nor should be, ours alone. Following the success of our collaboration with the market during the development of T2S, we intend to take the same approach going forwards – to work together with the market to identify what its needs are and to draw on the expertise in both the public and the private sectors. Through collaboration we will define where European market infrastructure should be heading. As we think about future innovation, allow me to look briefly at past innovations. The digital camera, the mobile phone and the internet were three revolutionary innovations of the last century. | In other words, just as new apps are constantly being developed for smartphones, so too will we be able to add new functionalities to the platform to meet emerging market needs and requirements. These functionalities will benefit from being designed for a single, harmonised platform. As we consolidate the financial market infrastructure in Europe, another area requiring further attention is that of collateralisation. With increased regulation following the financial crisis, collateral requirements are higher than ever. This is why it is so important that banks and BIS central bankers’ speeches 1 financial institutions are able to manage their collateral in an efficient way and why the optimisation of liquidity-saving measures presents such a benefit to market participants. With T2S, it is now possible to have a single, centralised, pool of collateral, making it much simpler and faster to move collateral from where it is to where it needs to be. This then brings to the fore the issue of harmonising our own collateralisation techniques and procedures. As we look to the future, the Eurosystem will seek to drive harmonisation forwards, particularly as regards Eurosystem operations for the mobilisation of marketable assets, as well as the handling procedures for non-marketable assets. We live in a fast-paced world, and customers have come to expect instant services in all aspects of life, including from their banks. | 1 |
It is a well-known phenomenon that long-term unemployed have greater difficulty in obtaining jobs, for several reasons. A person who finds 17 See, for instance, Sveriges Riksbank (2012c). 18 According to the Swedish Public Employment Service, there are four groups who have a relatively vulnerable position on the labour market and who find it difficult to get a new job if they become unemployed: those born outside Europe, people with less than upper-secondary school education, people in the age group 55–64 and people with a physical disability which reduces their capacity to work. 8 BIS central bankers’ speeches themself outside of the labour market suffers not only personal loss and a feeling of isolation, they also find that their skills become outdated after a while, which makes it more difficult to get a new job. A high rate of unemployment over a long period of time can become entrenched and requires a very large demand for labour so that the long-term unemployed can find work. One says that unemployment becomes persistent. The longer unemployment has been high, the more difficult it is, the longer it takes and the larger the labour demand that is needed to bring down unemployment. The fact that unemployment has been high for a long time and that long-term unemployment has increased, is also an argument now for a more, rather than a less, expansionary monetary policy. | 4 non-renumerated reserve requirement of 40% with a holding period of a year on capital inflows into the bond market and high-yielding deposits. It worked, and monetary transmission through the interest rate channel was restored. As a result, we also avoided the build-up of significant carry trade positions with the associated risk to financial stability. We see such instruments as temporary and only to be used as a third line of defence. Furthermore, it remains an open question whether they will be seen to be more in the nature of macroprudential tools or as infringements on our treaty obligations to maintain free capital movements. We are hoping that everybody has learned the lessons of the crisis where large and volatile capital flows played a key role.3 In concluding, let me come back to the IMFS and ask what I have said about the plight of SOFIEs means in terms of desirable reforms. First, we need to continue to adapt IMF surveillance and facilities and other parts of the GFSN to modern realities. Second, we need to further reduce financial regulatory flaws and gaps at the regional and global level regarding capital flows and cross-border banking. Third, we need to try to find ways to make central bank swaps a more transparent and reliable part of the GFSN. Finally, international organisations and treaties need to accommodate but monitor SOFIEs’ use of macroprudential and capital flow management tools. With time, we might develop a new consensus on the rules of the game. | 0 |
Concerning capital stock, data reveals that the capital stock in the region constitutes only one third (35%) of the capital stock in the countries of the European Union. This calls for raising investment ratio and closing investment gaps. These gaps are particularly wide in infrastructure, looking at the average rank of 70.5 for the region compared to 16.7 for EU152. However, there is also a great scope for improvements in ICT infrastructure, as a cornerstone of the new economy, in order to accelerate digital transformation of the economies. As for productivity, it remains low, about 1/3 of the EU average. In the last five years before pandemics, the average GDP growth of the region was 3%, with TFP 2/3 BIS - Central bankers' speeches contribution of merely 0.3 p.p. To increase productivity, the region must tackle structural and institutional obstacles that inhibit efficient allocation of resources. The evidence suggests that institutional reforms in emerging economies are associated with about 1 p. p. a year higher total factor productivity growth compared to "normal" years3. So far, FDIs in the tradable sectors are one of the traditional venues that increase productivity that implies not only tapping additional external sources for growth financing, amidst low domestic savings, but also transfer of know-how and technologies. However, pandemics led to significant deceleration of FDIs and trade flows, flagging up many vulnerabilities of international trade and production that caused dilemmas about future globalization trends that are of key importance for small WB economies. | Yet, according to IMF estimates, the shock intensity would have been three times higher without unprecedented monetary and fiscal policy support, both in terms of speed and scale, preventing a more devastating outcome and long-term scarring to the economies. Given the lessons learned from the global financial crisis, that is recognizing the risk of self-fulfilling cycles, central banks this time responded quickly, providing ultra-accommodative support such as policy rate cuts from already historically low levels, regulatory flexibility to prevent credit crunch and some of them even experimented with non-conventional tools. In this crisis episode, monetary policy was not perceived as "the only game in town" and since the very beginning, it was coupled with unprecedented fiscal stimulus. Average fiscal stimulus in the region amounted around 6% of GDP, which was twice as low as the global fiscal stimulus, but still on a comparable level with middle-income economies. Consequently, the pre-pandemic fiscal consolidation was ceased and the fiscal deficit hit a record high of 7.7% of GDP. Overall, during this crisis episode, policy response in the region was swifter, bolder and better balanced. Looking forward to the policy front, one of the lessons learned from the global financial crisis is that the policy support should not be rollbacked prematurely. Thus, the main challenge is how to provide further support for the recovery stage, but without further creation of vulnerabilities on the other fronts. | 1 |
Two key issues remain: how to fund the backstop at a sufficiently high level to be credible, and how to create a swift decision-making process to deal with emergencies – if we need 1/3 BIS central bankers' speeches weeks, it is useless. The euro area also needs a system for providing liquidity to financially sound banks after resolution – one that is provided by the Eurosystem and secured by a highquality public guarantee. I’m fully convinced that once we have a credible and efficient mechanism for resolution, it will be much easier to reach a pragmatic compromise on deposit insurance, probably with a focus on liquidity sharing between national guarantee schemes. Let me add two thoughts on substance: First, on anti-money laundering. In this area, I am convinced that we need to enhance our approach by building on a network of national authorities and EBA that should ensure an effective single anti-money laundering supervision. This means that EBA should have the legal and human capacities to foster convergence of practices on the best standards, based on clear European mandates. It should go as far as including effective breach of law reviews and a capacity to directly intervene in some cases with European-wide impact. Second, what we have managed to achieve for banks can serve as an example for financial markets. | We have a great deal of work to do on these three issues in the months ahead, and I am confident that when bold reforms in these areas are undertaken, we will have achieved the necessary quantum leap in euro area governance. Thank you for your attention. 6 BIS Review 97/2010 | 0 |
I have been impressed by how they have focussed on products in which they can add value and exploit their comparative advantage – whether a company in Northern Ireland exporting wall heaters to the newly rich of Shanghai and Beijing, a manufacturer in the North-West exploiting a patent for paint which is resistant to very high temperatures, or a company in the Potteries passionate about the plates they make for the hotel and restaurant trade. And if you want a digger, why look further than a JCB? Proof that vehicle assembly in the West Midlands can be successful. All of them – as all of you – are working in a highly competitive environment. It is indeed much harder to run a business than to run a central bank. But seeing those companies at first hand has made me even more convinced that our duty is to ensure that you do not experience the macroeconomic instabilities of the past and that we keep inflation on track to meet our 2% target. Stability is in your interest just as much as mine. Speeches on monetary policy rarely whet the appetite for a good meal, and I apologise for that before the splendid dinner your Chamber is about to serve. But tonight has been an opportunity to share our analysis of the economic situation with you. I hope you will understand the reasons behind our decisions to raise interest rates over recent months, even if it goes against the grain to support them. | While the overall macroeconomic stability is sound, pockets of risk remain. In response, the Bank of Thailand took on a number of actions including implementation of new limits on credit card and personal loans to address problem of household debt; establishment of debt clinic to help restructure debt for individuals with multiple creditors; and tightening up of mortgage loan underwriting standards to curb speculation in the housing market. Along the same line, on the back of strong economic performance and ample liquidity, the Monetary Policy Committee raised the policy rate in December of last year largely to preempt potential build-up of financial vulnerabilities from investor’s “search-for-yield” behavior and underpricing of risk during prolonged period of ultra-low interest rate. Ladies and gentlemen, Let me now turn to the resilience supported by having diversified growth engines, which in turn enable the Thai economy and its agents to mitigate adverse events. While I previously stated at the beginning of my talk that drivers of growth have become more balanced, structurally—being a small open economy—export performance still plays an important role as the main growth driver. But, looking closely at our export portfolio, you would find that it is well-diversified and can provide cushion against marketspecific or product-specific risks. This is because Thailand has established export ties with over 80 countries; and exporters have become less reliance on major economies. Just over ten years ago, exports to G3 economies made up around 40 percent of total export value while those to ASEAN economies stood at 21 percent. | 0 |
On this anniversary occasion, it is my duty to mention that the far-reaching and beneficial reform our institution has undergone for the past two decades, the reconnection with the European System of Central Banks, would not have been possible without the various types of support from other central banks and international financial institutions. During its transformation and consolidation process, the National Bank of Romania became a top ranking institution, capable of meeting the European standards and providing assistance to other central banks. Looking further ahead and taking into account the activity it has performed for the past 130 years, I would like to emphasise that the National Bank of Romania stands firmly committed to fulfilling its mandate as a guardian of price and financial stability in Romania. Our efforts will focus on committing ourselves, together with the Government of Romania, to pursuing sound and stability-oriented policies, so that we can overcome the current challenges. Attracting European funds plays a major part in the sustainable development of Romania, as saving will remain insufficient in our country for a rather long time. The National Bank of Romania will spare no effort and will make recourse to its entire expertise in order to speed up this process. | Mugur Isărescu: 130th anniversary of the National Bank of Romania Speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Gala Concert of George Enescu Philharmonic Orchestra, Bucharest, 5 September 2010. * * * Mister President of Romania Your Excellencies Distinguished audience Dear guests and friends of the National Bank of Romania Please allow me to welcome Mr Jean Claude Trichet, the President of the European Central Bank, our honoured guest here, at the Romanian Athenaeum, to the final act of our anniversary event. I would also like to greet President Ion Iliescu and Mr Emil Boc, the Prime Minister of Romania. I appreciate your honouring our invitation. My thanks go also to you all, governors, representatives of central banks and international financial institutions, and to all our Romanian and foreign guests. We are very happy to have you here with us this evening. We celebrate the 130th anniversary since the establishment of the National Bank of Romania, the 16th central bank in the world, according to the most widely accepted chronology. The birthday of our institution is on 29 April 1880, a day on which the Law on the establishment of the NBR was published in the Official Gazette. The commissioning of the Bank required a longer process that spanned over the entire 1880. On 5 September 1880 – precisely 130 years ago, the Bank’s Board held its first meeting. | 1 |
This means that this year investment will fall short of projections, with an annual growth rate that is now estimated closer to 1 percent (4.1 percent in December). It also inputs first-quarter data available, as well as the downward revisions to investment in 2013 and the turn of 2014 shown by the latest survey of the capital goods corporation CBC. Another factor behind the lower growth forecast for the immediate future is the upward correction to inventory levels, meaning that this source of expansion will provide a smaller impulse. The baseline scenario also estimates that, as has been occurring for some quarters, private consumption will post a moderate slowdown, grounded on a looser labor income and a stable borrowing trend. This year, growth will go from less to more. Such a trajectory assumes that investment will stabilize, due to several elements coming together. On one hand, the CBC survey shows an increase in investment plans in engineering works in the second half of 2014 and for the period 2015–2016. On the other, there is housing construction that should continue the trend of last year, considering that the supply of homes is still low, housing sales are strong, and financial conditions (i.e. credit cost and volume) remain favorable. Meanwhile, the fiscal budget for 2014 is expected to be more in line with historical patterns, implying greater public spending with respect to 2013, especially investment. Machinery and equipment imports have been stable for some months. | During this period we were steadily reabsorbing the spare capacity created by the recession, and this was reflected in a gradual improvement in the labour market - in a net increase in employment of 1.7 mn people since the end of 1992, and in a persistent fall in unemployment to - as I say - the lowest rate for nearly 20 years. Meanwhile, underlying consumer price inflation has averaged 2.7% over the past 5 years, the lowest rate since the early 1960s - and it has been exactly on target - at 2½% - in each of the past 3 months. About 2 years ago it began to become evident that demand and output growth, in the economy as a whole, was picking up speed. And as we moved into and through 1997, it became increasingly obvious that unless we acted to tighten monetary policy, in order to moderate the rate of growth, we risked overheating, particularly in the labour market, where reports of shortages not just of skilled but even of unskilled workers, were becoming widespread. The situation was seriously complicated by an increasing imbalance between the domestic and the internationally exposed sectors of the economy. Domestic demand for goods, and particularly for services, was unsustainably strong, and large parts of the economy were doing very well on the back of that - though they didn’t make too much of a song and dance about it. | 0 |
Now I would like to review recent developments in the Puerto Rico economy and then outline for consideration and discussion several steps to help put the Island on a path toward fiscal health. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. Economic conditions in Puerto Rico Let me turn to economic conditions in Puerto Rico. As you are well aware, the news has not been good. Puerto Rico’s economy has been in a slump for nearly a decade. After declining for five straight years, real (inflation-adjusted) gross national product (GNP) rose 0.9 percent in fiscal year 2012 and only 0.3 percent in 2013, rates considerably below the respective U.S. mainland growth rates. A monthly index produced by the Government Development Bank for Puerto Rico paints a similar picture of an economy that has stabilized but at a depressed level. We are finally beginning to see some signs of improvement in economic activity on the Island, though there is little evidence to suggest that the strong recovery that we seek has yet taken hold. Puerto Rico’s labor market remains weak. Overall payroll employment fell by about 10 percent between 2006 and 2010 and has leveled off since then. | An independent regulator for utilities is the norm throughout mainland states. By leveraging the expertise and reputation of existing independent regulatory agencies, Puerto Rico may improve the efficiency of its public corporations while reassuring investors. As a fifth step, the Commonwealth could benefit from adopting fiscal institutions more like mainland states. Balanced budget rules are far from perfect, but by following the states’ model – splitting the budget into an operating piece that must be balanced and a capital piece that can be financed with debt – Puerto Rico could better align financing methods with its spending priorities. A sixth step is for the Commonwealth to implement a framework to help ensure that budget targets are met. A key aspect of such a framework would require that the authorities implement multi-year budgeting, in which revenue and expenditure plans are articulated over a three to five year horizon. Such a framework should also incorporate a review of the central government’s macroeconomic and fiscal forecasts by a non-partisan independent entity, the views and analysis of which could be published in coordination with the Commonwealth’s proposed budget for any given fiscal year. New York City, for instance, uses this type of framework. The steps should be viewed as potential ways to improve Puerto Rico’s finances over time and I present them to you for consideration and discussion. The decisions are obviously up to you. Other countries, U.S. mainland states and municipalities facing similar fiscal issues have been able to overcome them. | 1 |
We also saw that commodity prices had risen, as had food prices (Figure 6). Business tendency data from the National Institute of Economic Research also indicated that food prices would continue to rise. Inflation expectations, which normally fluctuate fairly substantially, had also shown a weak trend increase since summer 2005 and were at around 2.5 per cent for households in August, according to the National Institute of Economic Research’s survey (Figure 7). House prices had also continued to rise over the summer, while household borrowing had continued to increase at roughly the same rate as during the first quarter. BIS Review 111/2007 1 To summarise, there were in my view strong domestic reasons for raising the repo rate to 3.75 per cent in September. This could in itself also have justified a slightly higher forecast for the repo rate. But there was a counteracting effect from developments in the United States and the unrest on the financial markets. My conclusion was therefore that the repo rate forecast from June provided a fairly good picture of the most likely path for the repo rate over the coming years. If it were the case that the US economy suffered a deep recession with severe contagion effects, the Riksbank would have reason to reconsider its views. Advantages of an own interest rate forecast This leads me on to our experiences so far of the Riksbank’s publishing its own forecast for the repo rate. | In doing so, I would draw upon Thailand’s experience by touching on, first, a quick overview of the retail banking sector; second, I will draw the link to its social aspects - focusing on what’s moving and shaking in the Thai financial landscape; third, going through supervisory concerns and challenges - our policies to promote retail banking sector, while preserving financial stability, and concluding the session by attempting to answer “What do Regulators Really Want?” - from Thailand’s perspective, some elements of which I hope would be true or applicable to other countries’ experience as well. 1. Market developments of the retail banking sector in Thailand The past few years have witnessed a steady increase in the share of retail credits to total credits of the Thai banking sector, climbing to 16.6 percent as of September 2003 from just slightly over 10 percent in 1998 - right after the Asian crisis. This remarkable trend can be explained by both push and pull factors. Laden with excessive liquidity and mired with sizeable unresolved NPL in the corporate sector within the banking system, commercial banks are under pressure to extend credit to the retail sector. In addition, lending to retail sector imposes lower possible loss in case of defaults given its much smaller average size of credits and greater diversity of portfolio than those of the corporate sector. | 0 |
Between these two extremes – the US and the no-hoper – there are of course many cases where the situation is less clear-cut or less predictable. Euroland provides an interesting example. Given the careful steps which were taken before the advent of the euro to ensure the insulation of monetary from fiscal policy and to outlaw monetary financing of budget deficits, we might wonder why the news of impending budget overruns should cause the euro to weaken. It seems that not only do credit spreads faced by individual deficit countries widen (presumably for fear, however slim, of sovereign default), but also the currency weakens for fear of governments conspiring with the central bank to abandon its mandate against inflation or to break the rules against monetary financing. A rather different interpretation could be that foreign exchange markets are merely exhibiting a pavlovian reaction: having been brainwashed to the effect that a deficit is inherently bad if it surpasses certain preannounced limits, the reaction when such a breach does occur is bound to be negative, even if analysis of the substance underlying the breach provides little or no justification for such a reaction. In the context of trying to identify a relationship between the fiscal position and the exchange rate, these examples demonstrate that there is no simple, pre-ordained relationship. The outcome depends on a wealth of factors, including the nature of the disturbances affecting public finances, the policy regime and policy responses, and the state of sentiment in financial markets. | Several years of debilitating external debt, regional political instability, and doubtful macroeconomic management have all played a role in keeping private capital flows away from our economies. However, with endurance, progress in the region generally and Zambia in particularly is certainly being recorded. A glimmer of hope is finally showing that we are once again being welcomed in the international capital market arena. As you are aware, the Government has over the years set out programs to reform the country’s political and economic platforms. Politically, Zambia has been one of the most stable democracies in Africa boasting peace since independence in 1964. On the economic front, Zambia has made respectable progress in the area of macroeconomic management. Over the recent past, the Zambian economy has performed relatively well. This is reflected in positive growth rates of real Gross Domestic Product (GDP), low inflation, relatively stable exchange rate, stable financial sector and improved banking services. In addition, Zambia’s access to the Highly Indebted Poor Country Initiative and the Multi-lateral Debt Relief Initiative resources drastically reduced the country’s onerous debt burden from around US $ 7 billion to below US $ 1 billion. The removal of the debt burden also made Zambia more attractive to foreign direct investment and capital flows, that have been an important source of investment financing. Furthermore, over the recent past, the growth in the real Gross Domestic Product (GDP) has remained positive and above 5% for the last six years. | 0 |
Greece, Ireland and Portugal are the three countries that have benefited from EU and IMF rescue packages. I will return to this in greater detail in a minute. The financing conditions of a number of other euro area countries have been extremely tight for the past few months, but they have not required bail-outs. This is particularly the case of Spain and Italy. Here too, certain economic or political weaknesses along with deteriorated public finances are stoking fears in financial markets, which – I should say in passing – have the unfortunate habit of lumping all players together and always expecting the worst. I would like to stress one point: the current crisis is not a crisis of the euro but a sovereign debt crisis. Moreover, we can see that all the turmoil that has been affecting the economy for the past few years is ultimately due to indebtedness: first, US household indebtedness and then sovereign indebtedness. Nevertheless, since end-2009, the crisis has revealed major shortcomings in the implementation of fiscal discipline and, more generally, in the economic governance of the euro area. The founders of the single currency had put in place the Stability and Growth Pact because they knew that a monetary union could not work without a common fiscal discipline. Its principles were sound, aiming to achieve a long-term balanced budget. But its implementation was greatly lacking. | Tackling the urgent issues To tackle the urgent issues stemming from the crisis, it was first essential for the three countries that were experiencing major difficulties to be able to continue funding themselves: BIS central bankers’ speeches 3 the EU and the IFM stepped in to assist them. They did this via bilateral loans in the beginning, and then in the framework of a structure that borrowed on the markets backed by a guarantee from the euro area Member States: the European Financial Stability Facility (EFSF). This support was subject to strict conditionality to ensure that the sustainability of public finances was restored and the country in question regained its competitiveness. These countries therefore undertook to meet deficit reduction targets in order, ultimately, to be able to tap the markets directly for their funding needs. This support was always designed to be temporary and encourage sound fiscal policies. Central banks also played a decisive role throughout the crisis. First, they cut their key interest rates sharply after the crisis of 2008 in order to guarantee price stability and boost lending and activity. Furthermore, they provided financial institutions with liquidity to limit credit crunches. Since 2008, the Eurosystem, for example, has conducted fixed-rate tenders with full allotment against an extended range of eligible collateral. | 1 |
For instance, capital requirements do not prohibit risky exposures, but they make them expensive to the bank. Before moving somewhat deeper into the questions of supervision, there are some things to say about risk management. BIS Review 66/2000 2 Risk management Risk management systems are at the core of modern banks. Banks must have consistent systems for identifying, monitoring, controlling and managing risks. These systems must be endorsed and understood not only by credit officers, but also by the board and the management. In a deregulated banking sector, the division of control and responsibilities in a bank is of particular importance. Owners must take an active interest in the bank by setting broad strategic guidelines and policies for risk management and internal controls. Bank boards must have access to timely and adequate information and act on it when necessary. There must be a division of labour making it clear to all members of management and staff what specific responsibilities they have. From the Swedish banking crisis I would single out a few types of risk. Credit risk in general, linked to the issue of collateral, was - as should be expected - the main problem. It was our experience that banks coming from the sheltered world of strict regulation did not have good and consistent systems for credit evaluation and documentation. Today, banks must have credit policies, stating what kind of credits they wish to grant. | Usually, small and simple loans are provided at branch office level, but larger and complicated loans are provided at successively higher levels. Banks have also adopted internal risk evaluation systems in which the individual loans are graded according to their risk. Loan documentation is improved to facilitate monitoring of the loan but also to ensure that the bank can collect on the loan in the event of a judicial process. In Sweden, concentration of credit risk was a major problem during the crises. Some two thirds of the losses were linked to the sharp price declines in real estate. A loan and its collateral must be evaluated separately, something that we had forgotten during the many years of regulation. If the expected returns from the investment made by the loan are uncertain or not adequate the loan should in most cases not be given, irrespective of the collateral. The reason is that the collateral, in a crisis situation, often proves to be worth far less than expected. This is particularly true when it is tied to the borrower - such as when a company has put up its own building as collateral. The linkage between credit risk and foreign exchange risk was large during the Swedish banking crises. This was seen also in the Asian crises in 1998. For example: Swedish borrowers wanted loans in yen and German marks because the interest rates in these currencies were low. | 1 |
Since the Asian crisis erupted in mid-1997 we experienced a number of speculative attacks aimed at toppling the Hong Kong dollar and breaking its fifteen-year-old link to the US dollar. This link is successfully maintained by a strict and automatic currency board system, backed by more than adequate foreign currency reserves. During the attacks speculators took out large short positions against the Hong Kong dollar with the aim of destabilizing the linked exchange rate. On all these occasions the attacks activated the autopilot mechanisms under the currency board and drove up interbank interest rates to such high levels that the speculators (who had to borrow locally to fund their short positions) were forced to unwind their positions and incur heavy losses. The speculators failed, the currency board worked, and the link survived. But the interest rate volatility, and the consequent additional pain imposed on the community, was extreme: during one attack, on 23 October 1997, the overnight interest rate shot up to nearly 300%. In August we faced a much more complicated situation, in which speculators launched coordinated and well planned attacks across our financial markets. Speculators had discovered that by intensively selling Hong Kong dollars over a short period they could temporarily drive up interest rates under the currency board system, which would exert a downward pressure on stock prices. By pressuring the currency and selling stocks short, they could realize a profit on stock index futures contracts, even if they could not break the exchange rate link. | This double play strategy, backed by massive prefunding offshore (which protected the speculators against the interest rate volatility in Hong Kong) occurred with increasing intensity and formed the BIS Review 2/1999 –5– background to our controversial operations in the equity markets in late August. We used official reserves to purchase stocks to ensure that the speculators did not profit: in other words, we did the unexpected in order to prevent our predictable and transparent system from falling prey to manipulation. We had absolutely no intention of defending a given level of equity prices. Nor do we have any intention of playing a role in corporate decision making in Hong Kong. The substantial stock portfolio that we acquired during the operation has since been turned over to an independent body with wide representation, to be managed in a neutral and transparent manner. We further followed the market operation with a package of technical measures designed to strengthen the currency board system and make it less susceptible to manipulation. At the same time, stock exchange trading rules have been tightened. We were roundly condemned at the time for what many saw as a criminal breach of free market principles. Milton Friedman, for example, called our operation in the markets “insane”, and suggested that it was part of a plan to socialize Hong Kong. Less dramatic critics feared that it marked the beginning of the end of Hong Kong’s fabled philosophy of positive noninterventionism. | 1 |
It also will require firm-specific action to manage individual risks. The challenge is that the window for action is narrowing. 5/6 BIS central bankers' speeches Therefore, we must redouble our efforts to ensure a successful transition from LIBOR to a more sound and durable regime. Thank you for your kind attention. I would be happy to take a few questions. 1 James Bergin, Raymond Check, Caren Cox, Gerard Dages, Joshua Frost, Matthew Lieber, William Riordan, and Kevin Stiroh assisted in preparing these remarks. | We left most of these problems behind us when we began making forecasts based on market expectations, as reflected in the so-called implied forward rates. This was because market expectations in most cases provide a much more realistic forecast for the future development of the repo rate. The changeover from a constant repo rate to the markets’ expected interest rate path was also a natural step on the route to publishing our own forecast for the repo rate. We then began talking more systematically about future interest rate developments by commenting on the plausibility of the interest rate path given by market expectations. In my opinion this was when we took the major step towards increased clarity with regard to our view of future interest rate developments. The method of basing forecasts on market expectations is not without its problems, either. One problem concerns how expectations are measured. Other problems are related to communication regarding the interest rate path. Let me explain what I mean here. Changes in the policy rate have a direct effect on the shortest interest rates in the economy. Monetary policy can therefore also affect financial market expectations of future short-term interest rates. It is these expectations that the implied forward rates are meant to capture. The implied forward rates can be interpreted as the financial markets’ ”average” forecast for the future repo rate. | 0 |
I would like to focus in particular on the results from two different but complementary empirical approaches that sharpen the view on the existence and nature of contagion occurring in the euro area over the course of this year.6 The first approach exploits the possibility of a persistent ability of idiosyncratic events in Greek credit default swap premiums to predict developments in other euro area countries’ 4 A previous account of this has been provided in a recent speech by my colleague Vítor Constâncio, who described inter alia how contagion spread the sovereign debt crisis beyond the countries under EU/IMF programmes over the summer (http://www.ecb.europa.eu/press/key/date/2011/html/sp111010.en.html). For further discussions of the links between banking instabilities and sovereign debt problems, see V. Acharya, I. Drechsler and P. Schnabl (2011), “A pyrrhic victory? – Bank bailouts and sovereign credit risk”, NBER Working Paper, no. 17,136, June, or A. Alter and Y. Schüler (2011), “Credit spread interdependencies of European states and banks during the financial crisis”, mimeo., University of Konstanz, June. 5 Like in previous episodes, such effects were not limited to sovereigns. The average CDS premium of a group of 17 large European banking groups – none of which is Greek – showed the largest one day increase of this year. Finally, also non-financial corporations were affected. The Eurostoxx 50 declined by 5.2% on the same day, the third largest one day drop of this year. | Thus, by promoting a digital euro we must acknowledge that the Eurosystem is potentially putting its reputation at stake in that it remains liable for the overall functioning of the digital euro architecture whether it decides to rely on third parties for its distribution and operation or not. That said, the biggest source of concern is how a non-controlled expansion of the digital euro as a form of investment could, indeed, threaten the ability of authorities to properly maintain financial stability. As a matter of fact, a too attractive and accessible digital euro could foster a significant migration of banks deposits, thus compromising their intermediation and lending capacity plus also likely destabilizing the entire banking system in times of financial stress. To prevent these macroeconomic consequences from happening, ongoing discussions are currently focusing on what potential safeguards could be built into the digital euro, yet final decisions remain pretty much open at this stage. The main reason being they not only depend on the practical feasibility of the various available tools but also on the likelihood of different scenarios to materialize and the extent to which the latter may actually compromise banks’ resilience. As such, the fine-tuning of design features of the digital euro calls for additional research which I strongly believe the members of CEBRA are best positioned to provide us with. As of today, operational and legal considerations have been the bulk of our work thus far. | 0 |
I agree that this would be the case if all property buyers used their savings and did not need to borrow from banks. However, I do not believe that none of the purchasers of luxury properties borrow from banks. Some buyers do not approach banks for mortgages because they still have time before completing the transactions, or because they do not intend to hold the flats for a long time. I also do not believe that the markets for small and medium-sized residential flats could have become so active without abundant credit from banks. I therefore believe that the prudential measures that we have taken and good risk management by banks will help stop asset-price bubbles from forming. 10. While banks will help to control the risks, members of the public and corporations in Hong Kong also need to be more alert. They should consider what they can afford and not borrow too much at a time when interest rates are so low to avoid getting into financial difficulties when interest rates rise again. But I can see that this is not easy. As hot money continues to flow into Hong Kong, it pushes the market higher. If this continues, people may get into a mistaken mindset that the market can only go up and overlook the risk that capital and hot would might one day reverse course without warning. 11. Finally, I would like to share with you an article I read last week. | Additionally, it provides for a new resolution procedure for large financial companies, a creation of a new agency responsible for implementing and enforcing compliance with consumer financial laws, introduces more rigorous regulatory capital requirements, affects significant changes in the regulation of OTC derivatives, includes reform of the regulation of credit rating agencies, implements changes to corporate governance and executive compensation practices, incorporates the Volcker Rule, requires registration of advisers to certain private funds, and affects significant changes in the securitization market. In the EU, Markets in Financial Instruments Directive MiFID is an important step in the biggest overhaul of financial markets regulation in the EU for a decade. However, the new regulatory framework consists of Directive (MiFID 2) and Regulation on markets in financial instruments (MiFIR). It is an integral part of the EU’s strategy to address the effects of the financial crisis, but at the same time aims to bring greater transparency to markets and to strengthen investor protection. These changes are a key for restoring the trust in the EU financial markets. In reaction to the global financial crisis, the EU has also introduced the European Market Infrastructure Regulation (EMIR) that initiates a reporting obligation for OTC derivatives, a clearing obligation for eligible OTC derivatives, measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives, common rules for central counterparties (CCPs) and trade repositories (TRs), and rules on the establishment of interoperability between CCPs. | 0 |
For example, the recent reports issued by the Senior Supervisors Group (SSG), which is composed of regulators from five major countries, indicated that the banking regulators both here and abroad should have been tougher in the assessment of the quality of management, of governance, and in terms of these banks’ risk management 1 There is a growing body of economics literature on this issue that links monetary policy to leverage. See, for example, Tobias Adrian and Hyun Shin, manuscript in preparation for the forthcoming Handbook of Monetary Economics, volume 3, currently circulated as Federal Reserve Bank of New York Staff Reports, No. 398, October 2009. 2 BIS Review 161/2009 capabilities. 2 We should also have pushed harder for better management information systems and more simplified corporate organizations and structures. We should have done more to identify best practices in terms of risk management, liquidity, capital, and compensation and pushed harder to force the laggards to move to best practice standards. We are learning a lot about how to do supervision better and are working aggressively to apply those lessons to our current practices. The Supervisory Capital Assessment Process or SCAP is an important example of the value of broad, horizontal examinations. In the SCAP, the Federal Reserve worked in conjunction with other U.S. regulators to assess the impact of a stress economic environment on the 19 largest banking organizations in the country simultaneously. This approach made the SCAP a particularly powerful exercise. | I have highlighted this example because it provides a stark illustration of two critical shortcomings in our current regulatory system. The first is the fact that a large, systemically important institution like AIG was able to slip through the cracks in our regulatory structure and put our entire system at risk. The second is the lack of an effective resolution regime for large bank holding companies and nonbank financial institutions. Absent such a regime, a commitment to support a failing firm inevitably results in the loss of leverage in negotiating with counterparties and creditors. Turning now to another difficult issue, it is deeply offensive to Americans, including me, and runs counter to basic notions of justice and fairness, that some of the very same individuals and financial firms that precipitated this crisis have also benefited so directly from the response to the crisis. This has occurred at the same time that many Americans have lost 4 AIG was supervised by the Office of Thrift Supervision (OTS) and state insurance commissioners. Bear Stearns and Lehman Brothers were supervised by the Securities Exchange Commission (SEC), Fannie Mae and Freddie Mac were supervised by the Office of Federal Housing Enterprise Oversight (OFHEO), and Washington Mutual and Indy Mac were supervised by the OTS. The Fed's involvement with many of these firms came only through its lender of last resort role. BIS Review 161/2009 5 their jobs and hard-earned savings. The public outrage this situation has produced is understandable. | 1 |
The lack of structural reforms is, in my view, a major cause of the difference in the growth potential in Europe compared with the US and with some other advanced industrialized economies. The structural reforms identified in the Lisbon agenda have the potential to increase both labour productivity growth and labour utilisation, and therefore the long-term growth potential of the European economy. The experience of European countries which have undertaken some courageous and successful reforms show that it pays off. For instance, since the beginning of the EMU in 1999 the euro area has witnessed an increase of more than 12 million in the number of people employed, while from 1990 to 1998, the number of people employed only increased by around 3 millions. It is clear that major structural reforms are not easy to achieve, but pursuing resolutely such reforms is especially needed in the current environment, where the European economy is facing a number of important challenges, including rapid technological change, accelerating globalisation as well as ageing populations. According to the European Commission’s and 4 Source EUKLEMS. BIS Review 82/2007 3 ECB projections, the impact of ageing populations alone could reduce on average potential output growth in Europe by nearly half by 2040, if structural reforms are not carried out 5 . There is today a unique opportunity for European governments to take advantage of the present favourable growth developments to push ahead with the structural reforms that have been already agreed upon but are still far from being achieved. | So, imposing new trade barriers – or “bilateral deals” – on some trade partners not only has almost no chance of eliminating the overall current account deficit, but it also threatens long-run economic growth. Alternatively, it would also be misleading for countries to carry out non-cooperative domestic macroeconomic policies. Competitive devaluations first: after some unilateral and unfortunate declarations last week, several of us on the Governing Council of the ECB felt the need to reiterate that during the last IMF Annual Meetings in DC last October we committed with all our partners to a multilateral approach saying that, I quote, “we will not target our exchange rates for competitive purposes”. Any deviation from this common rule would be at the cost of breaking mutual trust and global growth. Speaking of the Governing Council of the ECB, let me say a few words on our monetary policy. It is following, with confidence and with patience, a path of gradual normalisation. But one shouldn’t focus excessively on the sole instrument of monthly net asset purchases: whether we end them in September or taper them somewhat more gradually is not a “deep existential” question… There are two more important issues: First, we prefer, as in Irish dancing, a four-hand reel rather than a solo; we will rely more and more on the entire policy package, including the sizeable stock of acquired assets, the forthcoming reinvestments and the forward guidance on interest rates. And we will follow a predictable sequence. | 0 |
This helps to explain why at the Bank of England we are conducting a system wide stress exercise involving non banks as well as banks to help us to map out the risks. This is inherently a cross-border issue. So, we must make progress internationally. This is what the Financial Stability Board work programme is focussed on, and why it is so important. It is also crucial that individual countries take forward and implement these reforms. While the solutions are global, delivering them will necessarily be local. Finally, there is an important point to pull out of a number of these issues. A common outcome of a shift in the balance from inside to outside money (either through CBDC or banks holding larger reserves at the central bank) or increasing the broader liquidity buffers of banks and non-banks could be to create a constraint on lending and investment in the real economy. For the UK economy this would go against the need to finance investment to support stronger potential growth, from its current weak level. This constraint would not appear if the counterfactual was an unstable financial system because solving that instability would have to be the priority. But in a more stable world public policy must still determine the best use of tools – for instance, advocating ever tougher stress tests and larger liquidity buffers in an attempt to cover future Black Swans is not obviously preferable to having tools by which central banks can make temporary and targeted interventions, as we did last October. | (2007): Overborrowing and Undersaving: Lessons and Policy Implications from Research in Behavioral Economics, Discussion Paper, Federal Reserve Bank of Boston; Heidhues P. et al. (2010): Exploiting Naivete about Self-Control in the Credit Market, American Economic Review 100; Laibson D. et al. (2000): A Debt Puzzle, NBER Paper No. 7879; Meier, Sprenger (2008): Charging Myopically Ahead: Evidence on PresentBiased Preferences and Credit Card Borrowing; Azfar O. (1999): Rationalizing hyperbolic discounting, Journal of Economic Behavior and Organization, Vol. 38. 9 Hume, D. (1739), A treatise of human nature. 4 BIS central bankers’ speeches encouraging sign, as it shows that deleveraging is not always inconsistent with economic growth. Turning to the indebtedness of households, the diagnosis does not point to easy solutions. Thus, regulatory measures at the microprudential level that enforce stronger discipline on the supply side of credit are all-important. Complementary macro-measures aimed at preventing excessive exuberance should also be deployed. In this context, I am referring to interest rate policies which – whenever feasible – “lean against the wind”, but also to more targeted macroprudential measures which directly address the dynamics of the credit market. The countercyclical capital buffer is an important example. Besides, facing more directly the behavioural biases that are at the root of the problem requires an increased level of “awareness”. In the words of Shefrin (2012), raising people’s awareness means “reminding ourselves of our psychological fallibilities so that we can avert some crises and mitigate others”.10 More specific consumer protection regulations or system design measures come as a second step. | 0 |
Beyond climate change, the NGFS is acting as a great catalyst on nature-related issues. In light of its March report, the NGFS launched in April a Nature-Related Risks Taskforce co-chaired by Sylvie Goulard, Deputy Governor of the Banque de France, and Saskia de Vries from DNB, with the objectives to incorporating nature-related risks into the NGFS’s long standing workstreams within the next two years. As much as possible, let us have interim deliverables earlier. Conceptual framing and research: as a problem well-stated is a problem half-solved. Bridging methodological shortcomings and data gaps is a crucial pre-requisite for action, before jumping to any conclusions on the prudential or monetary front – these must come in due time. Our priority as Page 11 sur 13 central banks and supervisors is thus to build the capacity to further analyse and study empirical evidence of the financial implications of biodiversity and naturerelated risks. At the Banque de France, we are fully committed to this effort, thanks to a dedicated team of experts within the Climate Change Centre (CCC) who contribute both to NGFS and BDF research advances. We will strive to provide state of the art metrics, financial assessment, and, hopefully in a near future, scenarios analysis. The work plan of the NGFS Taskforce includes the development of a unique conceptual framework adapted to our activities, which will be key to build a common understanding and address the knowledge, capacity and methodological gaps that we face. | Rather, the current emphasis is on promoting an informal grouping of central banks called EMEAP (“Executives’ Meeting of East Asia and Pacific Central Banks) which is exploring opportunities for cooperation in areas such as payment systems, reserves management and banking supervision. Among other things, this may provide the opportunity over time to develop a more distinctive and focused regional voice on international supervisory issues. Consolidated supervision I will now return to the topic which I raised at the beginning of my speech, which is how we view consolidated supervision from the receiving end. I suppose that it goes without saying that we are in favour of the concept of consolidated supervision. As an international financial centre, we are vulnerable to adverse developments in banks abroad and we rely heavily on the consolidated supervision of the supervisors of those banks. The ability to conduct consolidated supervision is a key factor in whether we regard the home supervision of a particular bank as adequate - which is one of the criteria for granting a banking licence in Hong Kong. Within the legal framework in Hong Kong we try to cooperate with overseas regulators to ensure that they can effectively undertake consolidated supervision. In particular, we allow home supervisors to carry out on-site examinations of their institutions in Hong Kong subject to obtaining our prior consent - which we have not hitherto withheld. | 0 |
Ladies and Gentlemen, In these competitive and challenging times, excellence in marketing capabilities, innovative and efficient distribution network, product development capabilities and customer relationship and care require the ability to harness these different competencies, formulate a coherent enterprise-wide strategy, that is then executed effectively. For that to happen, banks have to look within their organisations for the answers. Before resources are allocated, before a marketing direction and strategy is established, before the organisation is restructured, the bank needs to decide what its strategic business will be within the context of its markets - exactly what type of financial service provider it will be. As part of the efforts to enhance efficiency and thus alleviate the level of competitiveness, significant strategies were initiated during the year. This included the consolidation, the rationalisation of common functions and operations across institutions in the group, outsourcing of non-core activity and leveraging on cross- selling of the products and services within the group. Following the consolidation of the 54 domestic banking institutions into ten banking groups, there was significant rationalisation of the wide range of common functions and operations across institutions in the group. Six banking groups have also now leveraged on cross-selling of their products and services across institutions in the group. A further impetus towards achieving this would be the merging of the commercial banking and finance company businesses in the banking group into one single entity. | With the completion of the merger programme in December 2000, the banking groups are at various stages in building up their management team and enhancing corporate governance. A number of measures have been implemented to ensure that banking institutions’ Boards and key committees have sufficient representation of independent directors and that the Boards are encouraged to appoint qualified professionals to run the banks. Towards this end, Bank Negara has liberalised the remuneration package of the chief executive officers of banking institutions and left it to the Boards to formulate appropriate packages to attract the necessary talent and determine their remuneration package. In the final analysis, a more competitive banking system should produce benefits to their customers and the business in terms of easy access, quality choices and competitive prices. An indicator of the improved level of competitiveness has been the narrowing of margins. During the year 2001, gross interest margins of banking institutions have narrowed to 3.86% for the commercial banks from 4.3%. This reflected the larger reduction in the average lending rate vis a vis the average cost of funds. Competitive interest rates were particularly evident for mortgage and hire purchase loans reflecting strong demand for credit for these sectors. The competitiveness of the domestic banks in terms of the gross interest margin has also improved. The gap between the domestic banks and foreign banks has narrowed from 0.92 percentage points as at the beginning of year 2000 to 0.69 percentage points as at the end of 2001. | 1 |
Let me briefly outline some of these roles: • The MAS, as the statutory regulator, will monitor compliance with the laws and regulations that govern the integrity of the markets, seek enforcement of the laws, and propose amendments in order to keep them relevant in a changing market environment. We have undertaken a substantial review of our securities laws in the last year. Insider trading is now both a criminal and civil offence, and we have recently proposed to amend the laws to capture a wider pool of persons who seek to take advantage of inside information. The proposed new Securities and Futures Act (SFA), to be put to Parliament later this year, will contain other substantial changes. I will elaborate on one of these, concerning the 1 prospectus registration regime later in the speech. • The Singapore Exchange (SGX), with its frontline interface with the industry and markets, plays a key role in preserving fair and transparent markets. It is responsible for the listing 1 The SFA would also incorporate the provisions concerning the raising of capital that are presently found in the Companies Act, thereby creating a single compendium of laws governing the securities industry. BIS Review 14/2001 1 rules for companies that raise capital and have their shares traded on the exchange. It is also responsible for ensuring that conditions exist for orderly trading of listed securities. • The conduct of issuers themselves is at the core of a system of market discipline. | Regulation of SGX as a self-listed entity When the SGX was listed on itself (on its Securities Trading subsidiary), MAS assumed the role of frontline regulator for the listing and trading of SGX's shares. MAS was the approving authority for SGX's listing, and was directly responsible for vetting SGX's prospectus. We are also conducting surveillance of trading in SGX's shares, and monitoring the continuous disclosure of material information by SGX. MAS has powers under the Exchanges (Demutualisation and Merger) Act to issue directives to SGX to resolve any conflicts of interest arising from its self-listing. Such conflicts are also addressed in a Deed of Undertaking to the MAS. In keeping with the Deed, SGX has appointed a Conflicts Committee to deal with such issues, and MAS is the approving authority for the composition of the Committee. Revisiting the regulatory structure will be necessary The relationship between the regulator and the exchange is evolving internationally. Regulators are monitoring the effectiveness of self-regulation by the exchanges, and the division of responsibilities between regulators and exchanges. No single model has gained universal acceptance, and no model is regarded as good for all time in any jurisdiction. The present MAS-SGX regulatory arrangement has major elements in common with that in the major jurisdictions which have seen the exchanges demutualised, and in particular with arrangements in Australia. The UK approach is also similar, except that the Financial Services Authority (FSA) has taken over the listing authority from the London Stock Exchange (LSE). | 1 |
We think of Dodd-Frank as akin to what Dr. Seuss once wrote about medicine: BIS central bankers’ speeches 1 Interest margins for community and regional banks have been shrinking for some 20 years. To be sure, the low interest rates the Fed has engineered to bring the economy out of the death spiral threatened by the Financial Panic of 2007–09 exacerbated pressures on margins as we awaited the strengthening economy we are now beginning to experience. But adding the pills and the bills of extra layers of compliance and legal expenses generated by Dodd-Frank has compounded the difficulty of passing on profitable franchises to your banking heirs. This is why, Systemwide, the Fed has been sensitive to the situation of banks under $ billion, and especially sensitive to the situation of banks with less than $ billion in footings. To be sure, we are as committed as ever to safety and soundness and the application of the law; we always have been and always will be. But at the Dallas Fed, we believe we can apply the requisite discipline required to safeguard our banking system in a way that is beneficial to regional and community banks. We and our fellow Federal Reserve Banks have worked hard to instill a constructive and interactive relationship, rather than a hostile, purely formulaic one, with the banks we supervise. | So what are the implications of the U.S. experience? The context and purpose of any stress test should dictate the form it takes. Both the SCAP and CCAR models likely have some lessons for other such exercises, but in circumstances of market stress, the SCAP model is more relevant than the CCAR model. In such episodes, our experience suggests: First, the stress scenario needs to be severe to be credible. Second, disclosure of the results is needed at a sufficiently granular level so that private analysts can make their own independent assessment. Third, the results need to be credible in terms of expected losses. Fourth, there needs to be a credible capital backstop so that market participants can be sure banks will be able to raise the capital that they need under a stress environment, one way or another. One tricky issue is how to treat sovereign debt exposures. This was not an issue in the U.S. SCAP exercise. This is difficult because there is a complex interaction between fiscal soundness and bank soundness, which is very hard to model. This illustrates a wider point – that all situations are importantly distinct and that while we can all learn from each others’ experiences in this field, there is no one-size-fits-all approach. BIS central bankers’ speeches 5 6 BIS central bankers’ speeches | 0 |
It is important to avoid fragmentation of the infrastructure for clearing payment transactions in NOK, otherwise we will lose the advantages we have today. An efficient and secure common infrastructure must still be a main feature of the Norwegian payment system, whichever solution the industry ultimately chooses. Looking further ahead, a number of broad issues need to be addressed. Norges Bank will initiate a project to assess the payment and settlement system of tomorrow as a whole. The aim is to make active and constructive contributions to an efficient and secure payment system, today and in the future. We will seek long-term solutions to several of the issues mentioned above, in particular the following two key questions: Should we continue to have a completely domestic payment infrastructure in Norway, or could it become more international? How would we then solve issues related to national security? How should the infrastructure be changed to facilitate the services needed by end-users in the future? Should payments still be cleared before they reach the central bank, or is gross settlement the best option? The first phase of the project is scheduled to be completed by the end of 2019. Cyber security As the payment system is centralised and ICT-dependent, it is vulnerable to cyber attacks. If an attack were to succeed, payments could come to a halt and financial losses could occur. An attack could also result in unauthorised access to or manipulation of sensitive information. | FATF will consider these issues as part of its planned review of Recommendation 16 on wire transfers, to improve consistency and usability of message data, and enable more effective AML/CFT checks. It will also continue efforts to promote consistent implementation of the Travel Rule for virtual assets. The new FSB industry taskforce on Legal, Regulatory, and Supervisory matters, chaired by Carolyn Rogers from Bank of Canada, will help move the conversation forward in these areas. We hope to harness expert input from industry and provide guidance, working with national authorities and the international standard-setting bodies. Continued collaboration Improving the payments infrastructure will only be possible through successful collaboration. As policymakers and operators, we can improve the policies and core infrastructure to provide solid foundations for private innovation. The private sector needs to build on this to help deliver cheaper, faster, more transparent, and more accessible services to their customers. The new industry taskforces will play an important role. But this needs to be complemented by strong dialogue and actions in individual jurisdictions: exploring improvements to the domestic payment infrastructure, using the globally agreed frameworks. Page 8 Firms will likely need to continue to invest in their payments technology to be ready for upgrades to payment systems: such as the move to ISO 20022. The industry taskforce on Payment System Interoperability and Extension are developing a handy checklist to support firms on this journey. And importantly, firms should consider how to make the most of these changes. | 0 |
6 In the case of portfolio investment and direct investment, Switzerland has high net assets abroad which, together, make up 84% of Swiss net wealth. However, in some years, the increase in the net international investment position attributable to current account surpluses has been cancelled out by currency-related losses on asset holdings abroad. 7 Since 2011, reserve assets have been a further important component of the net investment position. Switzerland has a net liability position in the “other investment” category, reflecting the strong linkages between the Swiss financial center and the rest of the world. 8 See “Merchanting in Switzerland”, in Swiss Balance of Payments 2012, Swiss National Bank. 9 See the discussion in Beusch, E., Döbeli, B., Fischer, A., and Yesin, P. (2013): “Merchanting and Current Account Balances”, Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute, WP 140. BIS central bankers’ speeches 3 investment position, the special role of our country as an international financial center, and merchanting business. Consequently, Switzerland’s current account surplus did not arise because the Swiss franc was too weak. The real exchange rate does not play a decisive role in the structural factors responsible for this surplus. Narrow current account ranges: a bad idea In the context of resolving global imbalances, some would argue that each country’s current account should lie within a narrowly defined range. | It is thus necessary to keep watch on inflation expectations, to counteract expectations of falling inflation, and preferably to create expectations of higher inflation. In this type of situation it may be desirable to create expectations that actually exceed the inflation target. The Riksbank’s current regime, with a credible inflation target and the publication of forecasts, including their motivation, for inflation, the real economy and the repo rate, provides a very good base for maintaining confidence in monetary policy, for upholding inflation expectations and preventing them from falling too low, or even from falling unchecked. If, contrary to expectations, this should not prove sufficient, and inflation expectations were to threaten to become too low, it is possible that tightening the inflation target, in the form of a temporary target for prices, might work better. This type of temporary price target could be introduced in the form of an average inflation target, so that inflation over the coming five years should on average be 2 per cent. If inflation then falls below 2 per cent during a period of time, it must be kept above 2 per cent during a period of time to ensure the average will be 2 per cent. With a well-motivated average inflation target it may be easier to justify this monetary policy and to create confidence in allowing inflation to exceed 2 per cent during a period of time in order to provide a sufficiently low real interest rate. | 0 |
Policies for financial system stability in 2007 and beyond The Central Bank has just issued the Financial Stability Report for 2006, which clearly indicates that the financial system in Sri Lanka is resilient and that there are no imminent threats that may endanger its stability. The report however contains information regarding certain possible risks and those will of course need to be attended to by the relevant authorities in due course. The resilience of the financial system is underlined by the robustness of the macro-economy, soundness of systemically important financial institutions, healthy developments in financial markets, sound supervision and oversight, and continuation of a safe payment and settlement system. At the same time, a series of measures will need to be implemented to further enhance the efficiency and strengthen the financial sector, which will contribute to financial system stability. These encompass regulatory and supervisory measures of major financial institutions; forward looking surveillance indicators and tools to predict emerging vulnerabilities; measures to improve efficiency of financial markets including access to finance; initiatives to enhance the safety of payment systems; and introduction of necessary changes to legal enactments governing the wider financial system. In general, the aim will be to promote an adequate level of competition in the banking industry, while ensuring that the banks are capable of adding value to the economy and expanding in order to serve presently underbanked areas of the country. | The IMF should not thus provide unlimited and unconditional financial support, its catalytic role remaining a core element of BIS Review 49/2001 3 financial crisis resolution. As a consequence, IMF financial assistance should be ex ante limited in terms of quotas. Access above these regular limits should be exceptional and allowed only in cases of systemic risks. However, if short-term financing is the bulk of IMF lending role, the IMF should also promote macro-stability, including structural matters relevant for macro-economic policies. As a consequence, the IMF needs a medium and long term surveillance and medium and long term facilities for adjustments to take hold. - 2. As regards its role in crisis management, the IMF could concentrate on agreeing with the crisis country a program which ensures adjustment and financing over the short and medium-term: · This means, for example, that IMF conditionality should cover short and medium and long term issues. The Asian crisis has led to an extension of IMF conditionality to structural areas, mainly as regards financial systems restructuring issues. This extension was somewhat criticised but I do not share such views: including structural matters in the IMF conditionality is clearly in line with IMF missions as regards financial stability and should reinforce its efficiency. In that respect, the review of IMF conditionality under process should not mean, in my opinion, that it should necessarily be weakened, by focusing only on short term macroeconomic variables. | 0 |
So rather than try and give a lecture on monetary theory, or pre-empt the results of ongoing thinking on this issue, I’ll seek to make only a few very broad, conceptual points, touching on the following questions: what is the key innovation in private-sector digital currencies such as bitcoin? what is a “central bank digital currency”? and what might be the economic implications of introducing one? I’ll be brief about the first, not least because there are good, more detailed descriptions elsewhere – including in two excellent articles by Bank economists, published some time ago in the Quarterly Bulletin. The main point here is that the important innovation in bitcoin isn’t the alternative unit of account – it seems very unlikely that, to any significant extent, we’ll ever be paying for things in bitcoins, rather than pounds, dollars or euros – but its settlement technology, the so-called “distributed ledger”. This allows transfers to be verifiably recorded without the need for a trusted third party. It is potentially valuable when there is no such institution and when verifying such information on a multilateral basis is costly. Acting as a trusted third party is precisely what a central bank does. It performs that role only for one particular asset, central bank money (i.e. reserve deposits held largely by commercial banks at the central bank). But the function goes right to the heart of what central banks do and how they came about. | Ajith Nivard Cabraal: Management Accountants – focusing on the repositioning of the profession Special address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the Global Summit, organised by The Institute of Cost and Works Accountants of India on “Repositioning the Management Accountant”, New Delhi, 12 January 2008. * * * The theme of the Conference suggests that the Management Accountants of today are de facto doing something different to the traditional role of the Management Accountant. The new de facto role seems to be more of that of a strategist and a performance management specialist, rather than a historical “information supplying” or even a “decision facilitating” role of an accountant. If one were to drill down, we may perhaps note that the education and training of those who have become strategists and performance management specialists may not have necessarily been intended that way. But yet, it happened. How did this happen? • Perhaps the training, although intended to create management accountants, was appropriate to create a strategist. • Perhaps the training, coupled with business developments and public expectations, shaped management accountants to become strategists or the deliverers of outputs rather than contributors of inputs only. • Perhaps the ability of the management accountant, as a result of his core disciplines, enabled him to respond effectively to unfolding developments and then deliver new outputs, and such abilities were recognized by the business community in the course of time. | 0 |
Evidently, though, the possibilities of further using these types of policies have become notably constrained, both at home and abroad. It should also be borne in mind that, once the economic and financial fragility beleaguering the world economy has been resolved, demand-side policies should adopt a more neutral stance. All these considerations on the diagnosis of the Spanish economy in the current international crisis and on the limited leeway available to demand-side policies mean, rather, that 6 BIS Review 79/2009 economic policy has a central role to play in implementing the reforms that help improve productivity and the behaviour of the factor and product markets. It is in this area that the authorities undoubtedly have effective room for manoeuvre, and also considerable responsibility. Let me begin with the labour market, which is where the most pressing problems are to be found. The scale of job destruction has once more highlighted the existence of distortions that emerge with force in recessions and compound contractionary trends. And there is a risk that, as in the past, the surge and change in level in unemployment may stick and that this will delay subsequent recovery. Labour market dysfunctions are also closely linked to the discouraging behaviour of the economy in respect of gains in economic efficiency and in productivity, hampering the possibility of attaining genuine improvements in competitiveness and of raising growth potential. | In fact, at times, when short-term rates have been pinned at the zero lower bound, the Federal Reserve has taken actions that eased financial conditions without changing shortterm interest rates. Such actions have included forward guidance that the FOMC was likely to keep short-term rates low for a long time and large-scale asset purchases that led to lower bond term premia. Now, as I said at the start, just because I don’t want to follow a rule mechanically does not mean that I favor the polar opposite – that is, a fully discretionary monetary policy in which market participants, households and businesses cannot anticipate how monetary policy is likely to evolve as economic and financial market conditions and the economic outlook change. If households and businesses do not have a good notion of how the Federal Reserve will respond to changing economic and financial market conditions, then this would loosen the linkage between short-term rates and financial conditions. This would also likely lead to greater uncertainty about the outlook and higher risk premia, and it would make it more difficult for policymakers to attain their objectives. Instead, what I favor is a careful elucidation of those factors that influence the economic outlook and how monetary policy is likely to respond to changes in the outlook. This includes fiscal policy, productivity growth, the international outlook and financial conditions, as well as how much employment and inflation deviate from the Fed’s objectives. | 0 |
We tackled many difficult problems, although it was unpleasant, and resolved their underlying causes. This has definitely given us better resilience to what is happening now. At what stage is the global financial system now? The global financial system is currently in the middle of such a process. Deficiencies in the system that have lain in wait in many parts of the world have now come into focus in an BIS Review 138/2008 7 acute situation. This includes supervision, regulatory frameworks and the possibility for insight with regard to somewhat fanciful constructions of financial instruments. And it is not only the regulations and supervision that need to be reviewed and harmonised between countries – the same applies to the frameworks for crisis management and financial stability. Otherwise one country’s crisis management can easily become another country’s problem. We can now see examples of initiatives taken towards better and more coordinated crisis management in the EU, for instance. Now we are facing the task of fixing what is broken so that it will stay fixed and function better in the future. This applies both to resolving the deadlock on certain markets and the distrust that has been created within the financial system, as well as putting the problems to rights in the long term. Some measures have already been taken and more are on the way. It is not a simple process and it will probably take some time before the measures take full effect. | MAS has gotten very good feedback on the growing electronic FX trading system in Singapore. Singapore has attracted key liquidity providers and platforms to base their pricing and matching engines here. We already have about seven banks and non-banks who have moved these activities to Singapore. Now, we have got another two global banks joining us.2 So even during this period, we are seeing positive, encouraging developments on the FX front. Upskilling Industry Workforce Talent development and upskilling the industry workforce is another key area that MAS has been focusing on during this period, so that finance professionals are able to function effectively and have a competitive advantage in the future. During this period of slower growth, MAS has been working with financial institutions to retain their talent, use the opportunity to upskill their human capital, and explore ways to build longerterm capabilities in digital functionalities, so that the industry can emerge stronger from the crisis. Last month, in April, MAS announced a $ million package, basically to support smaller financial institutions and FinTech firms, through the downturn. As part of this package, we launched a training allowance grant, which allows financial institutions, especially the smaller ones and FinTechs, to make use of the downtime to train and deepen the capabilities of their employees. We also set up a new digital acceleration grant. The larger financial institutions are able to invest heavily in digital platforms and digital capabilities. The smaller ones do not have the capacity to do that. | 0 |
More importantly, this has moved beyond negative screening, to more impactful approaches involving the adoption of environmental, social and corporate governance (ESG) considerations in investment and business practices. These have served to align risk and reward in a more sustainable manner. Indeed, some global banks and insurers have begun to incorporate sustainability considerations, including environmental concerns in their lending and investment decision-making processes via the adoption of international risk management frameworks such as the Equator Principles and the UNEPFI Principles for Sustainable Insurance. These positive forms of finance are increasingly becoming powerful market forces, driving focus into the kind of productive activities needed for long-term growth. BIS central bankers’ speeches 1 Islamic finance, a well-established component of responsible finance, is similarly gaining significant growth and prominence in the global financial system due to its inherent orientation towards promoting societal welfare. This includes the propagation of strong ethical values that engenders accountability and trust in its intermediation function, as well as the promotion of risk sharing that fosters entrepreneurship and equitable distribution of wealth. By virtue of its requirement for financial transactions to be supported by genuine productive activities, Islamic finance is also deeply rooted to the real economy. All these are hallmarks of Islamic finance that underpin greater market discipline and stronger focus towards building sustainable and long term value in capital allocation. Collectively, these characteristics enable Islamic finance to also serve as an effective model for responsible finance. | This entails focusing our sights on the path ahead, towards re-building a global financial architecture that will facilitate and secure our economic prospects. With the considerable benefit of hindsight, we now know that finance, if not anchored to the aim of creating sustainable value in the real economy, will become inherently unstable and destabilising to the ultimate goals of greater shared prosperity. There is thus a compelling need for finance to have a greater role in shaping responsible behaviour that underpins a stable and well-functioning economy, and advances the goals of a progressive society and sustainable environment. This is the underlying objective of responsible finance. Of significance, aligning business practices towards responsible finance entails a paradigm shift away from the conventional thinking of finance - the most important distinction being the need to recognise and appreciate that responsible finance delivers value by focusing on its ultimate outcomes, rather than its immediate returns. Responsible finance at its core strives to serve wider objectives that is consistent with, but goes beyond, the predominant objective of enhancing shareholder value. In delivering long term sustainable value, allocative efficiency is achieved in a manner that promotes stability and prosperity in the broader economy and sustainability of the environment. Above all, responsible finance aims to optimise its positive impact on society, economic wellbeing and development. Over the recent decade, the heightened advocacy for ethical and socially responsible investments has also seen the proliferation of financial instruments that cater for both financial and societal objectives. | 1 |
If you look more closely at the dollar bill, you will find a further inscription which states “This note is legal tender for all debt, public and private”. This imposes an obligation to accept the note in the settlement of contracts and highlights the fact that money derives its value - whether imposed by a legal tender requirement or not - from the willingness of other economic agents to accept it to settle transactions. Each agent will only accept money, if he can be confident that it will in turn be accepted BIS Review 96/2000 2 by other agents in future transactions. Thus money is a social achievement as has long been recognised by economists for example by Menger. Money is a question of trust, its use requires trust and it reflects trust. This is especially true in the case of fiat money, i.e. the use of printed paper - which has no intrinsic worth - as a medium of exchange and as a store of value. Yet even commodity money requires trust and a well-founded expectation that it will be accepted for a wide range of transactions. Milton Friedman, in his book Money Mischief (1992), reports the well-known story of the monetary system of a small island in Micronesia which at the end of the 19th century used stone wheels as a medium of exchange and as a store of wealth. | One is hard pressed to find examples in history, where sovereign nation states voluntarily chose to cede or share sovereignty in the monetary field. It is therefore clear that European Economic and Monetary Union has been and will continue to be part of the wider economic and political project that the process of European integration process has represented from the very start. Monetary union is certainly not only about money. It is an important element in the very successful quest for lasting peace, stability and prosperity in Europe. This quest involves the building of trust and the sharing of sovereignty among European partners and the building of common institutions, in cases where this is desirable for the benefit of all. Europe is more than a collection of nation states, but it also stops far short of becoming a single federal entity. I do not believe that a stable monetary regime necessarily must have its root at the level of the nation state. Going back in history the international gold standard coincided with an era of stability. It was a system that was fundamentally based on rules and which transcended the nation state. Nevertheless, as a currency that is new and not linked in the traditional way to the nation state the euro does face particular challenges in winning the trust and the hearts of the people. Money is clearly regarded as more than simply a medium of exchange or a unit of account. | 1 |
After the privatization process of the former Savings Bank was over and a 100% of its stock was transferred to the Raiffeisen International Bank Holding AG in August, the capital ownership structure during that period underwent significant changes, having the share of “domestic government capital” estimated at 6% from 32.1% at end of 2003, and the “domestic capital” at 12.75 from 35.15% it was in the same period of the previous year. 2 BIS Review 115/2006 Figure1: Banking system capital ownership structure in years 1 Recently, the improved climate for the development of business and the economy, the Savings Bank’s privatization from the Raiffeisen Bank, the macroeconomic stability, and the low inflation, have all led to rapid development of the banking system. Hence, we can highlight that: • 1 During 2005 and onwards, considerable developments have occurred. The system was more oriented towards the lending activity. The latter one constituted 26% of the portfolio, from 16% in the same previous year period. In 2005, the outstanding credit of the banking system increased by ALL 57.6 billion 2 or 82%, from ALL 19.3 billion or 38% in the previous year. In the meantime, the significant growth rate of the outstanding credit compared to end of 2004 has been reflected even in the changed credit structure by terms. | These same precautions have permitted macroeconomic policies – both fiscal and monetary – to be clearly countercyclical, helping to cushion the effects of the world crisis on our economy. 1 2 Central Bank of Chile (2009). BIS Review 35/2009 The transmission of MPR reductions to lending interest rates One important element in the diagnosis of how this countercyclical effort is actually working is the evaluation we perform on a permanent basis to the way our decisions are affecting the borrowing conditions facing households and firms. This issue is not new, and was the subject of analysis several years back when the Central Bank’s monetary policy was on a sustained expansionary path. 2 The evidence we gathered then can be summed up in that the Central Bank’s monetary policy decisions are reflected in the banks’ financial cost very quickly, but in the overall cost of credit only after a few months. This response pattern was similar to that in other economies. Lately, we have reviewed that information, 3 and we have found that, even in moments of great uncertainty as we experienced in recent months, reductions to the MPR are translating into reduced borrowing costs for both businesses and consumers. One good example is the trend of the interest rate on commercial loans at 30 to 89 days, which can be linked to the funding of working capital. This rate was very high in October last year, but this year so far it has fallen substantially. | 0 |
As such, the total amount of European safe assets, defined as government bonds with a high credit rating (AA or higher) or privately-issued AAA products, is around $ trillion, half of its peak in 2009.2 By comparison, privately-held safe debt in the United States totals more than $ trillion. Thus, the scarcity of safe assets is particularly acute in the case of eurodenominated safe assets, which limits the diversification options of investors in the euro area's common currency, in particular, those of international reserve managers with a mandate to invest safely. The latter has two important consequences for the euro area. First, it precludes a more prominent international role for the euro, as investors need to take into account multiple sovereign risks and insolvency frameworks. Second, the demand for safe assets is entirely concentrated in a group of sovereigns. As a consequence, we face a form of “exorbitant divergence” in the euro area, as only some government bonds enjoy a high convenience yield stemming from their status as safe assets.3 A common safe asset would provide a single benchmark for every country in the euro area, allowing banks and companies to diversify their portfolios without triggering capital flights in the event of a crisis, and mitigating the “exorbitant divergence”. The introduction of a safe asset would also help to alleviate an unwarranted national bank - national sovereign nexus. | Let me expand on these aspects. The normal operation of markets and financial intermediaries requires the availability of a broad spectrum of assets with sufficient liquidity and bounded counterparty risk, including so-called “safe assets”. This is even more the case in turbulent times, as investors tend to react to increases in uncertainty by turning to assets with a lower level of perceived risk. As Holmstrom and Tirole1 put it, a safe asset is an instrument that allows wealth to be transferred from one point in time to another without any nominal loss. If you allow me the metaphor, the supply of a broad enough set of assets is the infrastructure in an electricity grid. A large enough infrastructure is needed to ensure the grid’s smooth functioning, in 1 Holmstrom, B. and J. Tirole, “Private and Public Supply of Liquidity”, Journal of Political Economy, Vol. 106, No 1 (February 1998), pp. 1-40 (40 pages). 4/8 particular, to allow it to withstand episodes of high demand. If not, the system is prone to disruptions and even blackouts. There is a wide consensus regarding the existence of a secular shortage of safe assets at global level. To put it simply, there is not much highly-rated paper available once holdings in monetary policy portfolios are discounted. This phenomenon has become more acute since the outbreak of the European sovereign debt crisis, given that some eurodenominated sovereigns have seen their ratings downgraded, in part due to the persistence of an incomplete EMU. | 1 |
In the data, there does appear to be a degree of “smoothness” in the way official interest rates behave. Rather than jumping from one level to another, factoring in all the news at once, the policy rate usually seems to respond to it over time. Two explanations have often been suggested. One is uncertainty about the impact of changes in official interest rates. If there’s a degree of imprecision in estimates of policy multipliers there’s a case for moving a little more gingerly than otherwise. Another, offered by the economist Michael Woodford, is that smoothing the spot interest rate gives the central bank better control of medium-term interest rates, which may matter more in the transmission of policy. In this case I think a third factor may be at play, namely the need to learn about the extent of these “second-round effects”. We have inevitably had to learn about them and, therefore, to respond to signs of more persistent domestic inflation as and when they emerge. Bank of England Page 15 The response to demand shocks This is less the case when it comes to plain-vanilla shifts in aggregate demand. These are more common and the appropriate response is well understood: an inflation-targeting monetary authority has to lean against them. Indeed, one additional reason for caution, in the face of these big rises in import prices and their impact on domestic inflation, has been the likelihood that they will also weigh significantly on domestic demand. | The exchange rate impact is calculated using a path for sterling ERI that is half way between its starting level at close on 17 October and a path implied by interest rate differentials. Both marginals are calculated relative to the August 2022 MPR forecast. The yield curve news is calculated using the path for Bank Rate implied by forward market interest rates at close on 17 October relative to the August 2022 MPR forecast. Source: Bank of England, ONS, Bloomberg Finance L.P. and Bank calculations. One should always take the OPPs with a healthy dose of salt. They are based on a particular characterisation of the MPC’s objectives. (We ask a simple policymaking “bot” to stabilise inflation and output, placing four times more weight on the first than the second, and to pay some heed too to the “smoothness” of interest rates). The resulting path obviously depends on the extent to which interest rates are assumed to affect demand and inflation. The higher the policy multipliers the smaller the “optimal” response of interest rates is likely to be. It’s also conditional on – and therefore highly sensitive to – the particular forecast on which it’s based. Any observer – indeed any individual MPC member – who sees the risks differently from those in the central projection will come to a different conclusion about the most likely path of future interest rates. | 1 |
This concrete type of approach will give our experts a vision of the diversity of cases and thus the maturity necessary to provide the market with relevant and operational guidance. Obviously, all this work shall be considered as a contribution to the evolution of a more global framework – at European and international level. The European level is of course the most relevant one to promote innovation for financial services in the single European market. The success of the two payment services directives (PSD1 and PSD2) clearly illustrates how European legislation can identify new trends, trigger innovation and create a true momentum in the Fintech ecosystem. More recently, the GDPR provided the European Union with a clear framework for data protection and circulation: this regulation is now a reference for many third countries, which identify the risk that unregulated data exploitation can pose to consumers’ confidence. However, the European market cannot be considered in isolation and this will remain the case in the post-Brexit era. Innovation – and growth – benefit from open ecosystems. Risks in a digitalised world do not recognize borders. Ensuring a better coherence of national (or regional) regulatory frameworks in the world is therefore a key element for their effectiveness. Crosssector and cross border cooperation is necessary. Our initiative for a G7 cyber-attack simulation exercise or our contribution to the G7 working group on global stable coins are two recent examples of our commitment to this necessary worldwide cooperation. 2/4 BIS central bankers' speeches 2. | In countries such as Italy and Germany, supports in the form of capital, credit and other liquidity were employed in addition to the fiscal policy. Meanwhile, in emerging markets, economies were supported by various measures, although these measures were more limited compared to advanced economies. With the rate cut decision we took at the Monetary Policy Committee Meeting on 17 March 2020, we announced our first set of measures geared towards countering the economic effects of the pandemic. These measures aimed to; (i) (ii) (iii) (iv) enhance predictability by providing banks with flexibility in Turkish lira and foreign exchange liquidity management, offer targeted additional liquidity facilities to banks to secure uninterrupted credit flow to the corporate sector, boost cash flow of exporting firms through arrangements on rediscount credits, and boost the liquidity of the Government Domestic Debt Securities (GDDS) market. The uninterrupted and smooth functioning of financial markets, the credit channel and firms’ cash flows was essential to contain the adverse effects of the coronavirus. The measures taken boosted the financial sector’s liquidity and credit conditions, and the monetary transmission mechanism continued to function effectively. 5 In sum, we aimed to support financial stability and the post-pandemic recovery process by providing much-needed liquidity to the financial system and the real sector under appropriate conditions during the pandemic. Thus, we sought to minimize the long-term damage to production and employment that may be caused by temporary effects arising from the pandemic. | 0 |
BIS Review 126/2010 3 This process of lending on one side of the Bank’s balance sheet and borrowing on the other – both in large scale – effectively dis-intermediated the malfunctioning sterling inter-bank market, ensuring that central bank money got to all those counterparties which needed it. In addition to the greater size and longer maturity of lending, the Bank also widened the pool of collateral eligible in the three-month lending operations to accept high-quality private sector securities. 9 These included AAA RMBS and covered bonds, neither of which had previously been taken as collateral by the Bank in OMOs. 10 This provided further support to the banking system, at a time when both primary and secondary markets for these private sector securities had closed. The temporary expansion of long-term repos during the crisis raised a number of important policy questions for the Bank. Firstly, it was very difficult to decide exactly how large the operations should be. This had to be assessed by reading market conditions. Secondly, the Bank also had to set an appropriate price to charge for lending against wider collateral, to mitigate adverse selection and the moral hazard risk. A minimum 50 basis point spread was applied. Thirdly, since the increase in the Bank’s liabilities (commercial bank reserves) was being funded at Bank Rate, and the assets were earning rates linked to 3-month market rates, there was a significant interest-rate mis-match. | Ajith Nivard Cabraal: Ensuring stability and integrity of the world’s financial system over the next few years Keynote address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, 27th International Symposium on Economic Crime, Jesus College, University of Cambridge, Cambridge, 5 September 2009. * * * Chairman, Professor Barry Rider, Distinguished Delegates, Ladies and Gentlemen; I am delighted to be here this afternoon at the historic University of Cambridge to deliver one of the closing addresses at your 27th International Symposium on Economic Crime. Thank you very much for your invitation, which I am honoured to accept. I am also happy that this year, 2009, marks the 800th Anniversary of this great institution. Therefore, I would like to take this opportunity to congratulate the University of Cambridge on reaching this amazing milestone, and extend my best wishes for the centuries ahead. Mr. Chairman, at your invitation, I would, today, discuss the ways and means of ensuring the stability and integrity of the world’s financial systems in the future. As in the case of all serious and complex reviews, our starting point should necessarily be to critically examine the basic and underlying reasons for this crisis. | 0 |
Comparison of October 2012 and January 2013 Inflation Report Forecasts Inflation Forecasts Source: TurkStat, CBRT. Output Gap Forecasts Source: CBRT. The same slide presents the revision in the output gap forecasts. We revised the output gap upwards for the first quarter of 2013 due to recent acceleration in capital inflows and credit growth. However, we assumed that the policy measures would drive the output gap and credit path closer to the October forecast in the second half of the year. BIS central bankers’ speeches 9 We can summarize the main message of the forecast regarding the monetary policy as follows: a cautious monetary policy stance should be maintained to keep inflation close to the target at the end of 2013. It is important that the CBRT does not disregard excessive volatility in credit and exchange rates, for macro financial risks to be contained. It should be kept in mind that keeping credit growth at healthy and reasonable levels will support both price stability and financial stability. In fact, notwithstanding the recent faster-than-expected growth in credit, we envisaged that credit growth would hover around 15 percent. I would like to once more underline that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, assumptions regarding the monetary policy outlook underlying our inflation forecasts should not be perceived as a commitment on behalf of the CBRT. | Philipp Hildebrand: Swiss monetary policy and financial markets Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the Autumn forecast of the Swiss Institute for Business Cycle Research, Zurich, 5 October 2006. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch) * * * Transparency and communication enhance the impact and the precision of monetary policy. Monetary policy functions through expectations. This means that it is first and foremost expectation management. Central banks strive for transparency regarding their methods and approaches. All in all, the current economic and, in particular, the structural uncertainties are resulting in a greater range of possible economic scenarios and thus also in an increase in the range of expectations regarding our future monetary policy. In other words, being transparent does not automatically mean being predictable. Therefore, the Swiss National Bank (SNB) considers it particularly important to communicate its monetary policy concept to the markets and the public. This allows them to arrive at similar conclusions to those reached by the SNB. BIS Review 92/2006 1 | 0 |
The agenda for this conference – covering topics such as cyber security, artificial intelligence and digital currencies - gives an insight into the scale and pace of innovative thinking currently taking place in the payments industry. Innovation is at the heart of the topic I will be focusing on today – cross-border payments. I will cover why greater innovation is needed in cross-border payments and outline the G20 initiative to develop a roadmap for action. I will then seek to bring it to life by outlining some of the key developments already underway at the Bank of England to support the international agenda in this area. Cross-border payments lag behind Over the last decade or so, there has been a strong focus on further enhancing domestic payments with a significant increase in instant payments and great innovation at the customer-facing end. Just consider our ability to pay for goods and services not just with cards and phones but also with watches and smart speakers. There is also a move to enhance the core underlying infrastructure. In the UK, the Bank of England is renewing its Real Time Gross Settlement Service and Pay.UK is developing a New Payments Architecture for retail payments. Many other countries are undergoing similar transformations, including the US with FedNow and Australia’s New Payments Platform. Traditionally, however, there has been less focus on cross-border payments even though they are so significant in both value and volume. | Recession or instability at home is often quickly exported. Equally important, growth and stability abroad makes all our jobs easier. This means that there are externalities in the work we do, so that more effective fulfillment of our domestic mandates helps to bring us to a better place collectively. Ensuring global growth and stability is and will remain our joint and common endeavor. This is what Terry Checki has worked for over his distinguished career. We have been very fortunate for his service and must carry the mantle forward. 4 BIS central bankers’ speeches | 0 |
Sarah Dahlgren: Five years since the crisis – where are we now? Remarks by Ms Sarah Dahlgren, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the Institute of International Bankers’ Seminar on “Risk management and regulatory/examinations compliance issues”, New York City, 8 October 2013. * * * Thank you Sally. It’s great to be here again this year to open up the IIB’s annual seminar on Risk Management and Regulatory/Examinations Compliance Issues. I appreciate the opportunity to address this group and to continue the dialogue that we’ve been having over the past several years. Given that we are celebrating the five-year mark of what was probably the worst part of the financial crisis, I thought I’d take this opportunity to take a step back and reflect a bit on how far we’ve come since the crisis in addressing some of the most pressing issues. Then I’d like to share with you some of my thoughts on areas that still need to be addressed and where I think more concerted effort is needed. As always, my remarks reflect my own views and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System. It’s hard to believe that it has already been five years – and I’m not sure whether it feels longer or shorter than that! | A payments strategy for the 21st century Remarks made by Andrew Hauser, Executive Director, Banking, Payments and Financial Resilience Payment Strategy Forum “Launch of the Final Strategy”, London 29 November 2016 1 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx Thank you very much for the opportunity to speak to you today at the launch of the PSF’s Payments Strategy st for the 21 century. I want to start by emphasising that this is not the Bank of England’s strategy – or the UK authorities’ as a whole. And that in fact is its great merit: because it has been drawn up by a genuine partnership of those who actually provide and use retail payments services, with the interests of those users uppermost in their minds. But that doesn’t mean the Bank has been ‘hands off’, or lukewarm over the direction of travel. Quite the reverse. We have a deep interest in, and responsibility for, maintaining the stability of sterling payments. First, through our statutory responsibility for the supervision of the major payments schemes. Second, by ensuring that all material payments either settle in, or are backed by, central bank money – the safest form of settlement asset. And, third, through our role as member of some schemes as a bank in our own right. It is sometimes said that a focus on stability impedes innovation. But there is no reason why that has to be true. | 0 |
4 BIS Review 42/2003 As we consider the long-term view, we should not lose sight of the fact that we are just at the beginning. The New Accord represents another important milestone in the adoption of more advanced risk measurement and management practices. But to remain robust and relevant to the demands of twenty-first century banking, our capital regulations must keep pace with changes in the market environment and with the state of the art in risk management. On that note, I would like to emphasise the importance of research and debate in promoting the safety and soundness of the financial system. The Basel Committee owes a debt of gratitude to the studies and efforts undertaken by economists, risk management professionals, and researchers in both the public and private sectors as we have sought ways to refine the proposals. We know that your work has helped to inform ours. The future evolution of the Accord will be dependent on input and contribution from the industry, and I look forward to continuing our healthy and fruitful exchange of views. In closing my remarks today, I would like to stress again the Committee’s commitment to having a balanced Accord of the highest quality. Although we are encouraged by the general support for the proposals shown through the CP3 process, we recognise that there are some high-level issues still to be addressed and we are working hard to find the best ways to resolve them. | I know that many members of the IIF have accepted that choice as prudent for now, but you have also cautioned us that this decision is incompatible with the existing treatment of market risk and the emerging practices in operational risk management. We know that some banks are making commendable progress in thinking about ways to estimate the value of diversification. Nonetheless, we remain concerned about the degree of confidence one might have in those estimates, given the relative lack of data available on which to base them. Furthermore, we are concerned that it would be difficult for third parties to validate any estimates at this time. Finally, we are not convinced about the consistency of application of these diversification effects. For example we are not certain that any leading bank today consistently adjusts the value of all of its assets based on each asset’s contribution to diversification. Portfolio theory suggests that an obvious next step to further enhance the risk-sensitivity of the capital framework would be to incorporate calculations of diversification benefits into the framework. In the coming years, and we can start very soon, we look forward to working with banks, with banking associations such as the IIF, and with academics and researchers to find ways to move Basel in the direction of full credit risk models, and to harness other improvements in risk measurement and management practices. | 1 |
Barbro Wickman-Parak: The economy and the labour market Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at Skandinaviska Enskilda Banken (SEB), Stockholm, 29 April 2010. * * * Sweden’s GDP fell by almost five per cent in 2009, compared with the previous year. We need to go back as far as the 1940s to find an individual year with a correspondingly large fall in growth. The large demand shock that followed in the wake of the financial crisis had an unavoidable and drastic impact on production and employment. It has been possible to alleviate these effects, but not to prevent them, despite forceful monetary policy measures and expansionary fiscal policy. Normally, changes in employment and unemployment occur two quarters after changes in production. This time, however, it appears as though the upturn in employment has already begun and unemployment has stopped rising, which is surprisingly early given the large fall in GDP. But unemployment is still high, and we are expecting a slow recovery in employment in the coming period. During the past three months unemployment has been around 9 per cent as a share of the labour force. Today I intend to talk about developments in the labour market in Sweden. I will begin by describing how employment usually varies over the business cycle and then discuss what is different this time. I shall conclude by discussing how we Executive Board members viewed developments in the labour market at our monetary policy meeting last week. | Christian Noyer: Central bankers’ dilemmas under uncertainty Speech by Mr Christian Noyer, Governor of the Bank of France, at a seminar in Buenos Aires, 5 June 2006. * * * Ladies and gentlemen, • Thank you for inviting me to this seminar. It is a great pleasure to address such a challenging theme, namely “Central Bankers’ dilemmas under uncertainty”. • In the first part of my address, I will recall the nature of uncertainty and its importance for the central banker; in the second part, I will sum up proposals for addressing uncertainty. I The nature of uncertainty Uncertainty arises in many forms. It is crucial to central bankers in general (I/1) and maybe even more to the Eurosystem (I/2). 1) The importance of uncertainty for the central banker The relevance of risks and uncertainty for economic analysis was suggested in 1921, by Frank Knight (Risk, Uncertainty and Profit). “Risk” refers to situations where the decision-maker can assign probabilities to the randomness that he is faced with; “uncertainty” to situations where this randomness cannot be expressed in terms of probabilities. Uncertainty is crucial to central bankers: according to Alan Greenspan, “Uncertainty is not just an important feature of monetary policy; it is the defining characteristic of that landscape”. Thus, I will focus on monetary policy, although the topic is also relevant for financial stability, which is another important issue for central banks. | 0 |
Easier access to financial services benefits us all, but there is a risk that it may also create more opportunities for criminals - if it’s convenient for us to move money in real time using our smart phones, it would also be convenient for money launderers as well. And there is no shortage of smart people looking for ways to exploit such new developments. 18. But technology, especially the fast-growing field of data analytics, has the potential to offer more effective and efficient ways to undertake our AML work. In particular, recent developments in artificial intelligence and data analytics, while still at an early stage, appear promising. For example, AI is already being used to – apologies for the jargon – “triage” alerts generated by monitoring systems to make subsequent case investigations by oldfashioned human beings more focused and efficient. And data analytics is being used to identify what normal behaviour looks like for particular segments or types of customer, thereby making it easier to spot behaviour that departs from the norm and which may therefore need to be scrutinised further. This has the potential to make monitoring less “expost” and allow potential problems to be spotted in real time to a greater extent. And I would once again stress the word “efficient” here: the HKMA is a banking regulator and we have an interest in seeing the banking sector’s cost-to-income ratios kept down, while without compromising effective controls. 19. | This reflects the fundamental reforms these EMEs have put in place over the past 15 years, as well as the hard lessons they learned from past periods of market stress. Among the positives are: • The absence of the pegged exchange rate regimes that often were undermined violently in the past during periods of stress; • Improved debt service ratios and generally moderate external debt levels; • Larger foreign exchange reserve liquidity cushions; • Clearer and more coherent monetary policy frameworks, supporting what are now generally low to moderate inflation rates; • Generally improved fiscal discipline; and • Better capitalized banking systems, supported by strengthened regulatory and supervisory frameworks. Of course, progress has not been uniform across EMEs, and more work remains to further strengthen institutional structures in some countries. In particular, vulnerabilities remain in several important EMEs. Still, the fundamental improvements I’ve cited leave many EMEs better positioned than in the past to weather those times in the cycle when the external environment turns from welcoming to wary. The impact that changes in Fed policy can have beyond our borders has led to calls for us to do more to internalize those impacts, or even further, to internationally coordinate policymaking. As I’ve already noted, Fed policies have significant effects internationally, given the central place of U.S. markets in the global financial system and the dollar’s status as the global reserve currency. | 0 |
Concerted efforts are underway focusing on the further development of the Islamic financial markets, the financial infrastructure, the investment in research and development to support innovation, and enhancing further the legal, regulatory and supervisory framework. An important part of the developments will be to facilitate a more inclusive arrangement that would allow for greater interface and inter-linkages across jurisdictions, in particular from emerging economies. As part of this process, building and strengthening linkages between financial systems will contribute to this process. Indeed, participation with the European financial systems will form an important linkage between the East and the West. In our pursuit and commitment to strengthening the resilience of Islamic financial industry and to enhance these linkages would not only have the potential to contribute towards global financial stability but also to the prospects for global growth. Thank you. 4 BIS Review 141/2009 | Sabine Lautenschläger: The euro – idea and reality Speech by Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the Single Supervisory Mechanism, at the Europa Forum Luzern, Luzern, 2 May 2016. * * * President of the Confederation Schneider-Amman, President of the Government Wyss, Mayor Studer, Excellencies and parliamentary representatives, Ladies and gentlemen, 800 years ago, here in the Swiss Alps, a structure was built that was vital in bringing people together in Europe: the Devil’s Bridge over the river Reuss. It was because of this bridge that the Gotthard pass become one of Europe’s main routes, “the people’s road”. Lucerne is located on this road and is thus an early witness of European integration. Today, in the 21st century, Europe is interconnected by much more than a pass. Europe has become a political and economic community. A tangible symbol of this community is our single currency, the euro. The euro – do the idea and the reality clash? The idea of the euro was, and is, to support Europe’s internal market, and thus provide for economic growth and prosperity. But the name of the currency says it all: the euro should be more. The euro aims to be a single currency for a united Europe. It should deepen Europe’s cultural and political unity, dismantle borders and strengthen our feeling of togetherness. So much for the idea. | 0 |
Investors found it difficult to conduct their own risk assessments and largely relied on the classifications of credit-rating agencies. When the losses on sub-prime loans became unexpectedly large, genuine uncertainty arose about the value of the structured products and where losses associated with them would occur. Banks and other financial institutions became cautious about lending money to one another. They began to hoard liquidity to meet their own obligations and to avoid losses on loans to counterparties about whose status they felt uncertain in the wake of the general crisis. The cost for bank borrowing on the interbank market rose, causing other market interest rates to climb. The financial turmoil spread to Europe and resulted in a general aversion to invest in mortgage securities. Banks and mortgage institutions found it increasingly difficult to obtain funds on the securities markets. Escalating crisis after Lehman Brothers collapsed When the Lehman Brothers investment bank filed for bankruptcy protection, a full-scale confidence crisis erupted. A major financial player was left to its fate and there was rapidly growing concern that other institutions would follow suit. Credit flows dried up almost completely and investors essentially dared to invest only in government bonds. Companies had already experienced a tightening of credit terms; opportunities for loan financing now essentially disappeared. In this phase of the crisis, around mid September this year, the effects on the Swedish financial system became clear. | Even if the Riksbank's assessment is that the most acute phase of the crisis may subside over the next few months, it will probably take time before conditions return to normal. Confidence must be restored on several levels and that takes time. 6 BIS Review 140/2008 | 1 |
Let me follow this account of the general framework of regulation governing financial investments denominated in foreign exchange with a description of the structure, strengths and weaknesses of our economy. The basic economic features of our country are attractive. A liberal trade and exchange rate regime, a modern and competitive private sector, abundant and vigorous consumer demand, and extremely attractive investment opportunities. This rosy picture is clouded by three economic problems that can be solved by a firm commitment to macroeconomic discipline. These three problems--high and persistent inflation, high public sector deficits, and large current account imbalances--are interrelated. Persistent high inflation has been Turkey’s main economic problem for the last two decades. Its main cause lies in the sizeable public deficit. Its other causes include entrenched inflationary expectations, exchange rate movements, monetary developments, interest rates, and price increases initiated by public enterprises. Under conditions of an open capital account, large public deficits can generate imbalances in the current account. Turkey’s current account tends to be volatile. For this reason, what Turkey really needs is to accept fiscal discipline. A sustainable and consistent fiscal policy is evidently the key to solving other economic problems. Achieving fiscal discipline will require political will as well as persistence. BIS Review 42/1997 -3- Even though we have economic problems, we unquestionably also have the ability to overcome them. Turkey needs to make use of this potential. I therefore now wish to draw your attention to the considerable strengths of our economy. | Even though during the early years of the Exchange Market’s operation in the 1860’s, the amount of foreign direct investment in Turkey was negligible, foreign capital was being encouraged to form joint stock companies. Up until the beginning of the 20th century, the Market helped the government find funds to finance its obligations. In 1906, the Istanbul Exchange Market was re-organised and once more became a source of new capital for young private ventures. BIS Review 42/1997 -2- Without giving the whole history of the Istanbul Exchange Market, I want to emphasise that Turkey’s experience with free markets did not begin in 1980 but goes back more than a century before. What the reforms of 1980 did accomplish was to institutionalise the markets and put them on a solid legal footing. Besides liberalisation, the structural reforms begun in 1980 included measures providing investment and tax incentives. I would like to review these issues briefly. The aims of these incentives were to encourage activities that would earn foreign exchange on the one hand, and to help foreign sources of capital finance investments in Turkey on the other. It can be said that by liberalising its capital account and introducing structural tax changes to improve investment returns, Turkey issued an invitation to foreign capital. | 1 |
It is a game that gives people the chance to set monetary policy to steer the US economy. In the UK, “MyUK” allows people to put themselves in the Prime Minister’s hot-seat and invoke Article 50 on any day of the week. These are effectively single-person games, designed largely for educational purposes. But there is no reason a similar game could not be designed which was multi-person. This would allow interactions among the public, in their communications and choices, to take place. This is crucial for understanding the propagation of stories, and the contagion in choices, across the economy. Once those are captured, the game could offer important insights into public actions and reactions to central bank interventions, in an experimental setting. There are many existing games that are multi-player and interactive, many of them hugely successful. A small sample would include Second Life, Minecraft, EVE Online and World of Warcraft. A number of these games contain elements of the economy or financial system, albeit in a simplified form. Creating a game with a realistic economy, realistic psychology and realistic policy would not be a venture into the unknown. Robert Shiller has spoken of the role played by “narrative entrepreneurs” in catalysing and shaping the popular narratives that propagate across society. Central banks are narrative entrepreneurs, shaping views on the economy and on policy through their words, providing a hopefully benevolent “nudge” to expectations. In a world of new media, that narrative entrepreneurial role has probably never been more important. | Sources: Danker and Luecke (2005), Eijffinger and Geraats (2006), Plosser (2011), Warsh (2014), Cordemans (2015), Blinder et al (2017), Praet (2017), Bank of Japan. 36 All speeches are available online at www.bankofengland.co.uk/speeches 36 Table 2: 2013 forward guidance survey results Effect on expectations for the next change in Bank Rate Remain low for Rise sooner longer than No than Don't know previously change previously expected expected Percentages of households Percentages of companies, survey by Markit (Bank’s agents) Percentages of households Percentages of companies, survey by Markit (Bank’s agents) 23 43 13 22 45 (47) 34 (31) 14 (19) 7 (4) Effect on confidence Slightly No less change confident Much more confident Slightly more confident 1 14 56 7 (12) 51 (62) 39 (24) Much less confident Don't know 12 4 13 3 (1) 0 (0) 0 (0) Sources: Bank/GfK NOP survey and Markit. See February 2014 Inflation Report for more detail on the survey questions. 37 All speeches are available online at www.bankofengland.co.uk/speeches 37 References Acemoglu, D and Robinson, J (2012), Why Nations Fail: The Origins of Power, Prosperity and Poverty, Random House Inc. Adams, P and Hunt, S (2013), ‘Encouraging consumers to claim redress: evidence from a field trial’, Financial Conduct Authority, Occasional Paper, No.2. | 1 |
A cross-border crisis situation involves several national authorities, of course, each having different mandates regarding when and how they can intervene. Even more importantly, these authorities may have different objectives to pursue, but are in all cases accountable to national taxpayers and depositors. BIS central bankers’ speeches 1 Third, and closely linked to the previous two points, the lack of private financing arrangements also poses a significant barrier to effective resolution. Even the best resolution framework needs some funds to finance the measures. However, as long as strong interlinkages exist between supervisory and crisis management policies on the one hand and fiscal policies on the other, cooperation will be hard to ensure among national authorities. As an alternative, there are many possible forms of private financing: one could use the funds of the deposit guarantee scheme, set up an ex ante resolution fund, or ensure that the creditors contribute to recapitalisation. The bottom line is that the lack of such a means ultimately undermines the effective implementation of resolution measures. Initiatives at the global level Work at the international level to address these issues is ongoing and there are some promising developments. The Financial Stability Board’s (FSB) new standard, “Key Attributes of Effective Resolution Regimes”, adopted by the G20, is a point of reference for the reform of our national resolution regimes. These key attributes aim to enable authorities to resolve failing financial firms in an orderly manner and without exposing the taxpayer to the risk of loss. | In 2017, the TCFD published its recommendations in terms of reporting. These guidelines take into account the double materiality of climate matters: both the information on the exposure of the company to climate change, and the information on the impact of the company on climate must be considered significant. Nonetheless, more progress is necessary concerning climate disclosure. A first step is the shift from ‘voluntary’ to ‘mandatory’ reporting. On June 7, G7 nations came to an agreement to make climate-reporting mandatory in line with TCFD recommendations. Mandatory requirements have been enforced in the EU since 2014, and will be extended to a larger set of corporates when the Corporate sustainability reporting directive (CSRD) will enter into force (expected to apply as of October 2022). It will also be completed by the development of a comprehensive set of EU sustainability reporting standards. The first set of standards would be adopted by October 2022. We expect that the international standards to be developed by the International Sustainability Standards Board (ISSB) will ensure interoperability with regional standards and offer common building blocks across jurisdictions and sectors. ***** Let me conclude in highlighting that we are just at the starting point of what we can do with and what we draw from those scenario analyses. Further collective work is needed to improve them. I have no doubt that we will succeed in doing so. Financial institutions need to step up their effort to combat climate changes. | 0 |
Other examples of differences in values are that European women may prefer relatively more to stay at home to look after their children than pursuing their professional careers in parallel; that older people place greater value on enjoying the fruits of their working life through early retirement rather than continuing to seek gainful employment until – or even beyond – the official retirement age. Nobel Laureate Edmund Phelps has recently investigated and sought to estimate empirically, by employing econometric techniques, the possible direct effects of deeply held values by people interviewed for the World Values Survey on some of the key determinants of economic performance that I discussed earlier: labour participation and productivity. He found, for example, that the lower number of Europeans, compared to Americans and other nationalities, stating that their job is most important in their lives is significant in explaining lower labour participation rates and lower employment in Europe (Phelps 2006). Furthermore, he found that the more people take pride in their work, the greater is their participation in the labour market, and the larger the reduction in unemployment. In other words, the evidence suggests that (1) Europeans are not as deeply involved in their jobs and place relatively lesser importance on work – compared to, say, Americans or Japanese – and (2) this fact can be directly linked to lower labour participation rates and higher unemployment rates, and thus to slower economic growth in Europe. | The bank crisis in the early 1990s is still such a recent event that I shall not dwell on it here. But it is worth noting that there was a similar crisis in the 19th century. As early as 1857 the government was obliged to intervene to safeguard the payment system in connection with a bank crisis: Skånes Enskilda Bank was threatened and finance minister Gripenstedt came to its rescue. Barely two 4 See Lennart Schön, ibid. BIS Review 10/2001 3 decades later, in 1878, another bout of excessive optimism and unduly strong credit growth led once more to a bank crisis when the boom was over. On that occasion the crisis hit Stockholm in particular. Stockholms Enskilda Bank was most vulnerable, having increased its commitments in private railroad construction in the 1870s. Government efforts saved the bank by establishing a fund in the National Debt Office so that the bank could mortgage its illiquid railroad bonds. These examples illustrate how excessive optimism is liable to lead to things getting out of hand and resulting in imbalances. The course of economic developments may then be checked for the time being but once the problems have been overcome, a new expansive phase begins. I leave you to draw your own parallels with the previous rapid price rise for IT shares and last year’s subsequent correction. The bursting of what some have called an IT bubble in the stock market is thus not the end of the new information technology’s era. | 0 |
There has also been a recent shift in opinions coming out of academic research, from a broad resistance to taking financial stability into account when shaping monetary policy19 to greater openness to the view that there may be good reasons for doing so.20 Even before the financial crisis hit Europe and Swedish with full force in autumn 2008, there were concerns in the Executive Board that the credit expansion was too rapid and that housing prices were increasing too quickly so that a bubble might build up, and later burst to cause a severe recession. This was not the case in Sweden, but did happen in the United States and several countries in Europe. During the crisis years 2009–2010 the endeavour was instead to use low interest rates and liquidity assistance to the banks to avoid a credit crunch that could intensify the crisis. And we succeeded well in this. During the entire period, the banks’ total lending to households and companies in Sweden increased (see Figure 11). Put greater emphasis on the initial situation and the forecasts for the coming year We should put greater emphasis on the initial position and the forecasts for the coming year than on the long-term forecasts. At the Riksbank, considerable resources are put into analysing the state of the economy. The statistics received are analysed and commented on regularly. | The risks we face are: first that we may increase interest rates too fast or push them up too far, with an unnecessary loss of growth, and second that we may raise rates too slowly with a cost in higher inflation and potentially higher interest rates and a sharper slowdown in the end. I voted for a further increase earlier this month partly because I was not convinced that current rates would be sufficient to bring credit growth and nominal demand back to their long term sustainable path. I also felt that the impact of moving too slowly on the credibility of the regime and thus the future prospects for the economy was of greater concern, given the robust rate of growth, than an unnecessary slowdown in activity. In reviewing the position again in future months I will be watching the trends in the growth of credit and money carefully. BIS Review 73/2007 7 8 BIS Review 73/2007 BIS Review 73/2007 9 10 BIS Review 73/2007 BIS Review 73/2007 11 | 0 |
It thus became fully clear BIS Review 73/1999 2 that Switzerland was going to demonetise gold and to progressively transform a part of its stock into interest bearing assets. But why did we decide to fund the Foundation with gold and not with other assets? In order to understand this, one must take a closer look at the structure of the SNB’s balance sheet. 2. From revaluation of the gold stock to gold sales 2.1. The SNB’s balance sheet If, in relative terms, Switzerland is leading among all industrialised countries as far as gold holdings are concerned, the Swiss National Bank is also a special case with respect to the structure of its balance sheet. The bulk of the SNB’s assets consist of foreign exchange and gold. Swiss franc denominated assets constitute a mere 20% of the total. Compared to the balance sheets of the Bundesbank prior to the introduction of the euro, the SNB’s balance sheet exhibits only a small proportion of domestic assets (see graph 3). Graph 3 Assets Structure of the Bundesbank and the Swiss National Bank 20% 54% 50% 30% 30% 14% BUBA Gold SNB Foreign Claims Domestic Claims Other Assets On the liabilities side, the most striking feature are the bank’s own capital and reserves to which will be added the revaluation gain on the gold stock (see graph 4). | The still very low unemployment rate and the low interest rate environment should continue to shore up private consumption, while investment should benefit from increased public spending on infrastructure as well as new projects in education and health. Certain capital intensive sectors look set for further expansion. The continued strong growth in permits for residential dwellings should also lead to further growth in dwelling investment. It is also evident, however, that maintaining the momentum registered in recent years is becoming an increasingly challenging feat, as a number of internal constraints already identified last year persist. The rapid economic expansion and population growth have put pressure on the country’s physical infrastructure, in particular as regards road transport and health and education facilities. Given the adverse effects of infrastructure gaps on business investment, productivity and social welfare, it should not be surprising that one of the key recommendations which IMF staff issued in January was to boost public investment, to address infrastructure bottlenecks and support medium-term growth Page | 4 in a budget-neutral manner. This need to boost investment in infrastructure was also acknowledged by the European Commission in its assessment of the Stability Programme and National Reform Programme. In this regard, the Government’s announcement of a seven-year capital investment programme focusing on the road network is an encouraging step forward. However, given that this additional investment coincides with a booming construction sector and more stringent procedures as regards the utilisation of EU funds, the possibility of slippages should not be overlooked. | 0 |
For some time now we are no longer affected by financial premiums that resulted from credibility problems in economic policy. This can be seen, for instance, in the fact that the difference in ten-year government bond yields between Sweden and Germany is much less than before (see Figure 6). The fact that interest rates and exchange rates vary relatively little despite the difficulties in forming a new government can also be regarded as an indication that the Swedish economy enjoys a high level of confidence. The fiscal policy framework introduced after the crisis in the 1990s is central to this stability and it is important to safeguard it. Creating confidence takes a long time, but it can be lost very quickly. Having said this, it does of course feel reassuring to have fiscal policy room for manoeuvre, even if one would prefer not to use it. The role that fiscal policy should play is therefore not an uncomplicated question. But I think that it is nevertheless important that the question of how to stabilise economic activity when the Riksbank's possibilities are not unlimited is brought up on the economic policy agenda. 22 Before I go on, it may be worth emphasising that yet another alternative for stimulating the economy that is sometimes mentioned – what is known as “helicopter money” – also requires interaction by monetary policy and financial stability. In brief, helicopter money involves the government increasing public expenditure or cutting taxes and this being funded by a permanent increase in the money stock. | Conclusion Our banknotes serve as repositories of the country’s collective memory, promoting awareness of the United Kingdom’ glorious history and highlighting the contributions of its greatest citizens. That tradition continues with the new £ As Austen herself advised us “You must learn some of my philosophy. Think only of the past as its remembrance gives you pleasure.” Today, we look forward to the launch of the new £ note, graced by Jane Austen, as we look back to her life and celebrate the joy she has brought, and is yet to bring, to all those who read her work. 7 The advantage of using the engraving, rather than the original portrait, is that it has sufficient detail that it can be used without requiring any alterations to the image. 8 This image is from a drawing by Isabel Bishop (1902-1988), who illustrated E. P. Dutton & Company’s 1976 edition of Pride and Prejudice. 9 Miss Bingley, Chapter XI. 10 Other features of Bank of England banknotes that aid the visually impaired include the tiered sizing of different denominations and bold numerals. 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 | 0 |
Household debt and housing prices were a fairly hot topic on the Riksbank's monetary policy agenda a relatively long time before the global financial crisis broke out.22 Moreover, Sweden is usually regarded as one of the few countries that has in practice applied a policy that, to some extent at least, "leans against the wind".23 The dominant view prior to the crisis was that central banks should not actively try to counteract the build-up of financial imbalances, but should act forcefully once a crisis had occurred. Instead of "leaning against the wind", they should in other words make do with "mopping up afterwards" – they should "clean but not lean". Trying to take preventive measures was perceived as too difficult and too costly, while it was assumed that it would not be very problematic to quickly clean up after a crisis. After the crisis - greater emphasis on preventive measures There is no doubt that the view has changed considerably since the financial crisis.24 In many countries, the combination of high household debt and a fall on the housing market marked the start of a period of weak demand, high unemployment and very weak public finances – problems that several countries are still struggling with. Cleaning up afterwards proved to be much more difficult than anyone had thought. One lesson from the crisis is thus that one must take much more preventive action and try to counteract a development with rapidly-increasing debt and housing prices. | Banks sharply curtailed their lending. A full fledged panic had started and was spreading rapidly; the financial system was facing the threat of collapse. In light of the circumstances at the time, a bankruptcy filing by AIG would have had disastrous consequences. Federal Reserve Chairman Bernanke has stated that it could well have “resulted in a 1930’s-style global financial and economic meltdown, with catastrophic implications for production, income, and jobs.” Because of the decisions made that morning, we can never really know. Let us be clear, though, about the risks that the policymakers did know. Policymakers knew that AIG’s largest creditors were other financial firms and that those firms clearly would have been directly impacted by an AIG bankruptcy filing. But the gravest risks were not the direct exposure of other financial firms to AIG. The gravest risks related to the indirect consequences of a bankruptcy of AIG, indirect consequences that would impact millions of Americans. AIG’s role as one of the world’s largest and storied insurance companies meant that its failure likely would have had a contagion effect, causing damage as it spread throughout the insurance industry. Policy holders would be hurt. Municipalities, who were already reeling from a lack of financing options for their building projects, would have seen their financial protection disappear. Workers whose 401(k) plans had purchased $ billion of insurance from AIG against the risk that their stable value funds would decline in value would see that insurance disappear. | 0 |
The shift may be in the order of one-half of a percentage point. This is the change that lies behind the common, but not entirely certain, estimate that nowadays the Swedish economy can maintain an annual growth rate between 2% and 2.5%. But Swedish data do not yet provide any definite evidence of an improvement in productivity, and hence in potential growth, that corresponds to what has happened in America. It does seem likely, however, that the rapid advances in information technology will also have a major impact on future production and distribution processes in Sweden. Sweden is well to the fore in Internet applications. Still, when and to what extent these factors will affect growth in general is not yet clear. But even though appreciable general economic consequences cannot be discerned at present, the tendencies are worth considering. Some parallels can perhaps be drawn with the situation over a century ago, when Sweden was being transformed fairly rapidly from a poor European country into a dynamic and strongly expanding industrialised economy. There are also lessons to be learned from developments in recent decades. Monetary policy’s task well defined The current monetary policy conclusion is unequivocal and there seems to be broad agreement about the task that monetary policy faces. So today I should like to discuss developments in the Swedish economy in a wider perspective that is not an immediate concern for monetary policy but may have to be considered some time after the turn of the millennium. | Internet compared with railways Simplifying somewhat, the advent of the Internet can be compared with the era of railroad construction in Sweden in the second half of the nineteenth century. In the initial phase there was a boom for those who constructed the railways and manufactured rolling stock. In the closing decade of the century Swedish firms began to produce locomotives; previously BIS Review 118/1999 2 that had been the preserve of British manufacturers. The Swedish firms took over the domestic market and were even able to export their products. Much the same happened with the manufacture of passenger carriages and goods wagons. Today we can see similar developments in the IT industry. Besides the giant, Ericsson, Sweden has many different IT enterprises. But growth is still being driven not so much by users of the new communication facilities as by the production of new possibilities. To continue with the comparison, in the next phase people started to travel by rail. A journey from Stockholm to Gothenburg admittedly took 11 hours and 45 minutes in 1865, but that was nothing compared with a horse-drawn carriage. Travelling became quicker and more efficient; people gained new impressions and learned new things. Sweden became smaller. Today we travel on the Internet by gathering information simply and efficiently from all over the world, largely for the price of a local telephone call. Millions of people in all parts of the world are indeed using this facility and in that sense the world has now become smaller. | 1 |
I will also offer my opinion on how other economic policy should make a consistent contribution, so that we can chart a course through these uncertain times towards prosperity and opportunity. 1. Euro area: situation and outlook A succession of adverse shocks, including that triggered by Russia's invasion of Ukraine, have rocked the global and, naturally, the European economy. Indeed, given our geographical proximity to the war zone, our close trade and financial ties to Russia and our high dependence on fossil fuel imports from that country, the euro area economy has been one of the hardest hit by the war. The war has sent the prices of energy and other commodities soaring. As these are products that the euro area does not have at its disposal and needs to import, this has led to a significant deterioration in our terms of trade of around 2 percentage points (pp) of (nominal) GDP to 2022 Q3. Moreover, this shock has unfolded amid sky-rocketing global inflation, which has reached levels not seen in several decades and is prompting sharp falls in real income. The reasons behind the rise in inflation are manifold and combine supply and demandside factors, whose weights differ depending on the geographical area in question. In 1/8 BIS - Central bankers' speeches the case of the euro area, higher energy and food prices have added to the effect of other supply-side factors related in particular to supply-chain disruptions. | 3/8 BIS - Central bankers' speeches An equally important aspect of the current monetary policy response relates to the existing high level of uncertainty, which affects both the nature of the shocks and their persistence, and how our measures will ultimately influence inflation throughout the monetary policy transmission channel. In light of this, firms' and workers' long-term inflation expectations are key to defining the optimal response. If the expectations remain firmly anchored to the target, as there is full confidence in the ECB's commitment to getting inflation back to its target, the monetary policy response could be less forceful. Conversely, if they rise above the target, monetary policy will have to act more forcefully. As I mentioned earlier, inflation surged in the euro area and has gradually proven more persistent and spread to a higher number of goods and services in the consumption basket. This has led to successive upward revisions to projected inflation, including the medium-term projections. In tandem, second-round effects via wages or mark-ups have been moderate, but the greater persistence of inflation has increased the risks of a deanchoring of medium-term inflation expectations. Against this backdrop, the ECB's response has been to tighten monetary policy, combining gradualism and forcefulness in an effort to keep inflation expectations anchored. The normalisation of our monetary policy began in late 2021 with the announcement that net asset purchases would cease by the end of the first half of 2022. | 1 |
In this context, it was particularly important that the European Central Bank (ECB) initiated very large asset purchases, which led, for example at the end of February and beginning of March 2015, to the krona appreciating strongly against the euro. Against this background, it has been particularly important to follow the ECB’s actions and it is probably in this light that we should consider the fairly common claim in the Swedish debate that “the Riksbank is forced to follow in the ECB’s footsteps”. However, this is a special case in many ways. When we start to approach a situation in which we feel more certain that the inflation target is again well-anchored among economic agents, we will be able to take a more tolerant attitude towards the development of the exchange rate. This means that it will again become possible to conduct monetary policy with a greater degree of freedom. In situations in which confidence in the inflation target has to be defended, it is not only autonomy that is temporarily weakened, in the sense I have just described. This also applies to the possibility of conducting a flexible inflation-targeting policy, which is to say taking account of factors other than inflation. This also reduces the degree of freedom for monetary policy, compared with a situation in which confidence in the target is completely solid. | The successful accomplishment of the main objective for maintaining price stability and the objective for safeguarding the financial system stability required improving all business processes within the institution, both the ones related directly to the legal duties of the Bank and those related to supporting aspects. During 2013, human and financial resources of the Bank of Albania focused on the qualitative development and improvement of these processes and their approximation with European practices. I would like to present them in brief. 4. Other activities of the Bank of Albania The Bank of Albania has started a project to review the collection and processing of statistics according to Eurostat requirements, and has completed the technological infrastructure to automate and process reporting. This process is in a testing phase and is expected to be functional within this year. The Bank of Albania has continued cooperation with the World Bank to improve the reserve portfolio management system. Drawing on the experience of other countries for the administration of the crisis in the euro area, the respective regulation was revised to establish buffering and monitoring mechanisms against the materialisation of investment risks. The regulatory framework for the issue and control of banknotes and coins was amended, setting the standards for banknotes fit for circulation, and strengthening the monitoring of their protection against counterfeiting. In 2013, the laboratory for analysing banknotes suspected as counterfeit was made functional. Its instruments employ state-ofthe-art technology, hence fulfilling one of Albania’s obligations arising from the SAA. | 0 |
And indeed, inflation targeting would seem to have much to recommend it, provided that it is approached not as a panacea, but rather as a pragmatic organizing framework for policy. In other words, policy frameworks such as inflation targeting can be useful where they signal a disposition towards continuous and predictable communication, and a forward-looking, informative policy approach. But as I said, inflation targeting per se is not a sure-fire solution – for example, the costs of disinflation do not appear to be lower in inflation-targeting countries – nor is it a prerequisite for effective communication and ultimately effective policy. Role of fiscal policy Clearly, crisis prevention through promoting stable and sustainable conditions in the macro-economy is not solely the province of central banks. Sound fiscal policies are needed to complement the effectiveness of even the soundest monetary policies. Chronically loose fiscal policy is a persistent threat to macroeconomic stability, through the build-up of internal and/or external debts that can be devastating. For the countries of East Asia, the public sector’s generally low initial indebtedness provided important latitude for dealing with the recent crises. Governments had room to stimulate aggregate demand recovery through fiscal ease; moreover, extensions of public guarantees and capital helped to contain the banking crises. However, while initially strong fiscal positions provided flexibility to address financial sector problems and aid recovery, public debt has since risen to high levels in a number of countries, and contingent liabilities often remain significant, raising some concern about potential future debt growth. | Thus, governments now face the challenge of moving to retighten fiscal policy in the face of slowing economies, and over the longer term, gradually restoring their earlier prudent levels of net indebtedness. These considerations further underscore the importance of quickly completing the process of banking sector rehabilitation and of attracting new sources of capital. Such decisive action would allow the banking sector to again be an engine of growth, capable of offsetting the eventual withdrawal of fiscal stimulus. Conclusion In closing, the recovery in Asia has been impressive indeed, and owes much to the energy and hard work of its people, enlightened political leadership, and the substantial and focused efforts of policymakers to implement sound macroeconomic and financial policy. But the recovery is not yet complete and much remains to be done. While the crisis did substantial damage, it has not fundamentally affected Asia’s prodigious economic strengths. But if Asia is to realize its potential, it is critical that authorities attend to the unfinished business that remains while continuing to put in place longer-term measures to promote financial resilience, ensure the sustainability of public sector debt burdens, and encourage sustainable growth. Asia is at an important crossroads and there is now a unique opportunity to consolidate recent reforms and implement lasting change that will pay dividends for years to come. Thank you for your kind invitation and attention. I would be happy to take any questions you may have. BIS Review 10/2001 5 | 1 |
We are currently awaiting the official figure, but project that the economy in the second half of 2014 to have grown by 1.7%, which translates into an annual growth of 0.8% for 2014. (Slide 1) Prospect for 2015 and projections As for 2015, we project that the Thai economy will continue to recover at an annual growth rate of 4%. Let me briefly highlight a few key points underlying this projection. First, we anticipate that the growth momentum is carried forward from last year’s second half. The economy should show stronger signs of recovery. Private consumption, investment and government spending will be the main drivers of growth. Lower oil prices certainly have also given consumers a hand in the recovery process. Exports are also expected to grow, but at a slower pace than we have seen in the past. Second, our estimate of exports is conservative. We project merchandise exports to grow mere 1% this year compared to 3–4 % expected by the market. Demand growth from our trading partners is still slowly recovering, especially in the euro zone and Japan. While the US economy is picking up its growth momentum, the risk of global growth and lower commodity prices has undermined many Asian countries’ exports including ours. With regard to exports of services, particularly the tourism sector, things are however somewhat brighter. With tentative signs of improvement, we project tourism to grow approximately 10% compared to last year. Third, there are critical assumptions in this projection, which hinges on government spending. | It’s not sprinting as fast as you can for 100 meters until the finish line. If you told me today to run a full marathon tomorrow, I could not make it. But, if you gave me time to prepare and get fit, I would be in the run. Monetary policy Let me now devote the last few minutes of my talk to update you about our monetary policy. Throughout the last couple of years, the Monetary Policy Committee has maintained an accommodative policy stance to support the economy. Mindful of downside risks to growth, the Committee carefully adjusted the degree of policy accommodation to ensure sufficient support to domestic demand and to shore up confidence. Since May 2013, the policy rate was cut three times, as lower risks to domestic financial stability and subdued inflation opened room for monetary easing. Nonetheless, since the interest rate has been low for a prolonged period, we continue to be vigilant in monitoring any risks to financial stability. (Slide 6) Ladies and Gentlemen This year marks the 15th anniversary of Bank of Thailand’s adopting of the “flexible inflation targeting’ monetary policy framework. Thus far, this framework has served us well and resulted in a satisfactory record of price stability, which is a remarkable improvement from previous decades. (Slide 7) The headline inflation rates were on average 2.6% since 2000 under inflation-targeting, while they were more than 4% prior to that (15 years during 1985–1999). | 1 |
This interconnection, if broken down in its simplest form, has two possible outcomes that relate to financial stability. First outcome, the transmission mechanism of conventional monetary policy includes the ways interest rates directly influence the supply for credit for house purchases and indirectly influence the real economy through house prices3. In the history of conventional monetary policy decisions, the ECB, at times, responded to the presence of excessive credit in order to safeguard its price stability objective. In its August 2006 decision to increase interest rates, the ECB stated that the "stimulative impact of the low level of interest rates in the euro area has been an important factor behind the tendency for money and credit growth to strengthen". In the period of quantitative easing, monetary policy tools expanded to include, among others, targeted operations to stimulate bank lending to the real economy4. These are 2/3 BIS - Central bankers' speeches linked to a threshold of the banks' loans to non-financial corporations and households. By recognising the impact this tool would have on housing prices, housing loans have been excluded from the this threshold. Given that monetary policy affects real estate developments, the role of macroprudential policy becomes important in addressing idiosyncratic vulnerabilities and as such the independence of macroprudential policy should be safeguarded, especially in a monetary union. The Second outcome is that, an increase in interest rates will increase the monthly loan payments. | Constantinos Herodotou: Recent developments in housing markets and related policy challenges Speech by Mr Constantinos Herodotou, Governor of the Central Bank of Cyprus, at the HL conference organised by the NBB, Nicosia, 18 February 2022. *** The target of macroprudential policy is to mitigate threats to financial stability, by reducing vulnerabilities and promoting the resilience of the financial system. In order to achieve its goal, the macroprudential toolbox has been designed to include two broad categories of measures. First category, authorities can use Borrowed Based Measures, such as limits on the Loan-to-Value ratio, which strengthen the resilience of borrowers against potential vulnerabilities and limit demand for credit. The second category are the Capital Based Measures, such as higher risk-weights on specific exposures, which strengthen the resilience of credit institutions, by increasing available buffers that can be released in case of adverse developments1. One of the macroprudential risks authorities face stems from the overheating of the residential market. The fact that not all euro area countries receive relevant warnings and recommendations by the ESRB is an indication that the Residential Market in the euro area is characterised by heterogeneity. In the upper right quartile of the chart, we find a number of countries that registered an accumulated increase in residential property prices of at least 25% in the last three years. Other countries have recorded accumulated growth as low as 5%. | 1 |
First, last February, concerns surrounding a faster-than-expected tightening of monetary policy in the US triggered a major stock market sell-off and a corresponding volatility spike (green curve). Then, in May, political uncertainty in Italy led to a considerable widening of the yield spread between German and Italian 10-year bonds (blue curve). Demand for various asset classes regarded as safe havens, such as the Swiss franc, increased. Finally, in August, we witnessed a huge sell-off of certain emerging market currencies and an increase in their volatility (yellow curve). Fears of global contagion resulted in the franc appreciating strongly. It remains a safe-haven currency during periods of high uncertainty. Indeed, an analysis of the options market confirms that the Swiss franc was in demand as a safe-haven currency during the three events described above. Risk reversal shows that during these events, participants were prepared to pay a higher premium to hedge against losses resulting from a steep appreciation of the Swiss franc vis-à-vis the euro than against a depreciation. As we can see from chart 5, three-month risk reversal for the EURCHF pair was significantly negative. Even today, risk reversal is still well below zero, indicating that the situation on the foreign exchange market remains generally fragile. And now I would like to hand back to Andréa Maechler. As we have just seen, without this kind of in-depth analysis as a supplement to traditional macroeconomic analysis, it would not be possible for us to capture the complexity of markets simply and comprehensibly. | It reflects the banks’ loss of confidence in conducting transactions on an unsecured basis since the beginning of the financial crisis. This trend has not been reversed, as we can see from chart 6. Activity on the money market has shifted towards the secured segment – in Switzerland towards the repo market (shown in blue). Following the substantial injection of liquidity in the wake of the SNB’s interventions, activity in this segment has also declined. However, the sizeable liquidity surplus has not reduced volume to zero. In fact, the introduction of negative interest on sight deposit accounts at the SNB has prompted banks to arbitrage their exempted amounts. In addition, banks have continued to trade in repos, in order to exchange the corresponding collateral. Collateral management tends to gain in importance in response to ever-stricter regulation. Insurance companies are likewise active in the market, for liquidity management purposes. In this changing context, the money market has performed its role as a monetary policy transmission channel to the fullest extent. Following the introduction of a –0.75% negative interest rate on sight deposit accounts at the SNB at the beginning of 2015, the various money market interest rates rapidly moved into negative territory, as chart 7 shows. The decline also spread to yields on bond and credit markets. To ensure the smooth functioning of the capital market and the effective transmission of monetary policy regardless of the circumstances, the quality of the money market infrastructure plays a key role. | 1 |
Luis M Linde: Key issues on today’s banking industry Closing speech by Mr Luis M Linde, Governor of the Bank of Spain, at the 6th Santander International Banking Conference, Madrid, 5 November 2013. * * * I would like first to give my thanks to Banco de Santander for inviting me to take part in this final session of your 6th International Banking Conference, an excellent opportunity to review and assess key issues on today’s banking industry, which has to face, in the next few years, important regulatory and operational changes. I will comment on several elements of the new Basel III capital framework that remain contentious or are still open to discussion. Among those, the leverage ratio, the liquidity ratio and the very important issue of consistency in implementation. Then, I will move on to the Financial Stability Board’s work on resolution strategies and, finally, I will comment on the European Union Bank Recovery and Resolution Directive (BRRD), and one of the most important elements it contains, the bail-in tool. First, the leverage ratio, the ratio between Tier 1 capital and total balance-sheet and offbalance-sheet exposures not deducted from the calculation of Tier 1. This ratio is set, in principle, at a minimum of 3%. Its entry into force as an obligatory Pillar 1 ratio is foreseen to be in 2018. This new tool has been designed as a simple, transparent measure, not linked to risk, complementing and acting as a floor with respect to the risk-based minimum capital ratio. | The initial design of this ratio was too demanding and, perhaps, not realistic. 2015 for full implementation was clearly too early a date. Another controversial element was the definition of the “high-quality liquid assets” to be included in the numerator. However, after the review agreed by the Basel Committee in January, the ratio definition should be now fairly stable. It should be noted that, rather than a minimum ratio that has to be met at each point in time, such as the capital or the leverage ratios, what is involved with this new liquidity ratio is the setting up of “liquidity buffers” that can be used in times of need. Hence, although the minimum level is set at 100%, a bank could maintain a lower level at stressed times, but should inform the supervisor, in order to agree on a plan to restore the required minimum level. BIS central bankers’ speeches 1 As in the case of the leverage ratio, the short-term liquidity ratio does not come into force immediately. We are now – the present year and next – in an observation period that needs to be used for its fine tuning. At the end of this period, the ratio will be phased in from 2015 – when it will be required at the 60% level – to 2018, when it will fully apply. However, this timetable may be accelerated at national discretion. | 1 |
Subsets and Splits