Datasets:

samchain

/

econo-pairs

like 0

In practice this means that non-financial companies may obtain funds by issuing and selling certificates to the banks, which in turn use them as collateral for loans from the Riksbank. This credit facility is also available through an auction, where the minimum rate is the current repo rate plus a premium. Since it is mainly large companies that issue certificates, it is they that will benefit directly from the advantages of these facilities. But since banks can increase their liquidity by using the certificates to borrow from the Riksbank, there is less risk of them cutting back on loans to small and medium-sized enterprises that are directly dependent on bank financing. The way ahead? When the dust after the crisis has settled, we face a major task. We must carefully analyse the crisis and determine the areas in which supervision, regulations, etc. need to be 4 BIS Review 140/2008 tightened up and in which areas the problems are best solved by players from the finance industry. Crises create space and acceptance for necessary reforms. At the same time, extreme situations such as this always generate demands for extreme measures. Careful deliberation is therefore important before implementing new regulations. It is all too easy to go too far and implement regulations that are too far-reaching and extensive. Such regulations could control and conserve market structures for a long time to come or involve major costs that reduce efficiency. This crisis will need follow-up care.

Mortgage bonds that were difficult to sell could be converted into a liquid asset, which meant that the measure simultaneously helped the situation on the mortgage bond market. About the same time, the Riksbank also made it easier for banks to borrow from the Bank by accepting additional types of securities as loan collateral. Covered mortgage bonds issued by an institution with close links to the counterparty could now be used as collateral to a greater extent than in the past. This measure is also helping the situation for mortgage bonds. … a shortage of dollars the second The next problem to address was a general shortage of financing opportunities in US dollars. Since the Swedish banks are not counterparties to the US Federal Reserve (Fed), they cannot be sure of benefitting from the Fed's liquidity injections. In late September, mutual currency arrangements with the Fed were established by the Riksbank and several other central banks. With these swap facilities the Riksbank can borrow US dollars against Swedish kronor. The Riksbank then offered its counterparties large loans denominated in US dollars. The loans are granted against collateral at an interest rate determined by auction, though no lower than a minimum rate related to the expected policy rate in the United States. General measures to promote liquidity Since the beginning of October the Riksbank has been implementing measures to support SEK liquidity, aimed at securing bank funding, facilitating the supply of credit and improving the functioning of the financial markets.

One is that it normally gives a more realistic picture of future monetary policy. That makes it easier to evaluate our forecasts. It also becomes easier to compare our forecasts with those of other forecasters. The longer forecast horizon makes it clearer how inflation is being influenced by various temporary shocks. The reasons for the changes are to provide a more comprehensive set of data for monetary policy and to improve the pedagogical aspect of the monetary policy message. It is important to point out that the changes in methods do not entail any fundamental change in the Riksbank’s monetary policy strategy. Our interest rate decisions will continue to be guided by the ambition that inflation normally should be returned to target within two years. The new repo rate assumption is a technical forecasting assumption, which should not be interpreted as the Riksbank’s stance regarding which interest rate path it considers to be most desirable. The interest rate path that underpinned the forecast in the October Inflation Report was judged to imply a reasonable development of inflation in the coming years. Our conclusion was that if this development were to continue in line with our assessment at the time, the repo rate would need to be raised in the period ahead. At the same time, we pointed out that there also were different conceivable paths for the future repo rate that could give roughly the same outcome for inflation.

One example of when this happened was during the banking crisis at the start of the 1990s. During the years 1992-93, fully 40 per cent of the banks’ loan losses stemmed from the commercial property market. Let me begin by discussing how I view the developments in the commercial property market and then move on to the analysis of the housing market. Because the two markets have shown completely different developments in recent years. The commercial property market The equity market decline in 2000 was accompanied by a weakening in demand for office premises, and rents and prices for commercial property began to fall as the number of vacancies rose. In recent years, turnover of properties has risen again. Presently, the drop in prices seems to have decreased and in some regions prices have even risen. Even though it is difficult to determine whether there has been a definite turnaround yet in the price developments for commercial property, such a turnaround can be expected to come when demand for labour recovers more clearly. Vacancy levels are still high, though, which means that rents have not yet risen more generally. In the long run, a rise in property prices should be accompanied by an increase in rental income, since rental income is the underlying return on property investment. The situation today differs considerably from the conditions seen at the time of the property crisis in the early 1990s, when property prices had risen rapidly over a long period without any corresponding upswing in rental income.

Conclusion We stand on the threshold of a cyclical economic recovery amid profound structural changes to the global economy. For the first time, emerging economic powers, China and India, are thrusting themselves into the global economy. They are forcing a major reordering of the economic landscape, whether in terms of new competition for investments and exports, or new markets for products. Despite all the problems and complexities that Asia faces, this is the most dynamic region in the world. We need to continue to restructure the Singapore economy and move up the value chain of economic activities. Singapore will continue its role as an important financial centre despite the changing environment and challenges posed by China and India, and must find ways to benefit from these developments. Financial services will continue to be an area in which we have a competitive advantage. The economic recovery presents great growth potential. We need to position ourselves to capitalise on the opportunities. Market players must seek out and seize the business opportunities as they arise. They must continually reassess their strategies to remain competitive in this changing world, and more importantly, implement the good strategies vigorously to create new opportunities for themselves. MAS will continue to ensure the integrity of the financial sector, so that Singapore remains an attractive regional hub for financial sector activities. It will also adapt and respond to market developments to facilitate a more competitive operating environment.

But it will strive to supervise institutions without placing unnecessary regulatory burdens on well-managed individual institutions or inhibiting the innovation and dynamism of the financial sector. Compliance costs of supervisory actions will be commensurate with the risks posed by the individual institutions. We will seek consistency in applying equivalent prudential and market conduct standards to financial institutions conducting similar business activities that are subject to the same risks. Harmonising and integrating regulations and supervisory practices across financial activities will reduce opportunities for regulatory arbitrage. Working towards more win-win outcomes for Singapore and the region Second, we must work towards more win-win outcomes for Singapore and the region. The growth and development of Singapore depends on the health of the world economy, and the wellbeing of our neighbours and trading partners. As a hub and gateway in this region, Singapore benefits if the region is competitive and attractive to investors and new businesses. Southeast Asia must work together to make itself more attractive, especially with new opportunities and competition arising in North East Asia. Last month, ASEAN leaders agreed in Bali to build an ASEAN Economic Community by 2020 - a single market and production base with free flow of goods, services, investments, capital and skilled labour. Asian countries need to foster closer cooperation and integration between financial systems and markets in the region. This will facilitate the financing, and payment and settlement of intra-regional trade.

Here on an LFS basis the rate of unemployment fell from the recent peak of over 10½% in November 1993 to below 6% in July this year for the first time since these data were collected; and, on the Claimant Count basis, unemployment, which touched 10% in the winter of 1992--93, had fallen to 3.8% in August, the lowest rate since June 1975. But I freely acknowledge that it doesn't necessarily feel like that today - certainly not to everyone. I am only too well aware that there are a lot of people in every part of the UK - both business people who've been under real pressure and employees who have lost their jobs - who will react to these statistics by saying "Well you could have fooled me!" That may well be true of some of you here this evening. The Bank receives detailed reports every month from each of our 12 agencies throughout the UK, including reports from Sue Camper based in Cardiff. Many of you will know Sue already - and I encourage those who don't to make yourselves known to her. The reports which she and her fellow agents make each month, based on their direct, first hand, knowledge of what's happening in their area, are fed directly into our Monetary Policy Committee process. They play a vital part in informing our understanding of the macro-economic statistics which in themselves can only capture the overall, aggregate, picture.

Of the 2.2 million increase in the UK’s population between 2014 and 2019, 20% was in London and 13% was in the South East. These areas have seen above average house price growth. But as well as these fundamental drivers, house prices also depend on expectations and on whether households are able to obtain and afford the credit that will allow them to get onto the housing ladder. There is substantial evidence, both theoretical and empirical that credit conditions – both the cost and the availability of credit – have played a leading role in driving house prices in the UK and the US. Empirical cross-country estimates vary, but would suggest that a 1% increase in the policy rate, which would translate into higher borrowing cost, all else equal, reduces house prices by around 2-11%, with the majority suggesting a drop between 6-9%.5 The more purchasers are constrained by either the price or the availability of credit, the larger the impacts of a change in credit conditions on house prices is likely to be.6 Credit constraints are most likely to affect first time buyers. Conversely, the greater the proportion of purchasers that are not dependent on credit, the weaker the impact of credit conditions on prices will be. Such ‘deep-pocketed’ investors can act as arbitragers, selling when house prices are high and rental returns therefore low and, conversely, buying when prices are low. There is some support7 for the existence of such an arbitrage mechanism in the UK8.

First and foremost, the project itself is still work in progress and it is always advisable to partake from the inside in the construction of a mechanism that we will eventually have to join anyway. Secondly, with the Banking Union in place, the domestic financial system will be affected regardless of whether Romania is a member or not, so it is better to have a say in the decision-making process that generates such effects, since the latter will impact us one way or another. Besides, Banking Union membership is expected to benefit participating countries through the removal of an incentive for deleveraging on the part of foreign banks, more effective supervision by improving access to information and eliminating the possibilities of jurisdictional arbitrage, as well as the creation of a more competitive market by reducing distortions and entry barriers. Given the share of foreign capital in Romania’s banking system, it makes even more sense to support the project. In light of the above, Romania aspires to be part of all three pillars of the Banking Union. It is our view that adhering to this European project will strengthen financial stability, further increase confidence in the national banking sector (through the harmonisation of supervisory practices and deposit guarantee schemes), as well as foster sustainable lending and economic growth (by reducing the fragmentation of the European financial markets). I shall stop here, thanking you for your attention. I wish you a fruitful outcome of the conference, and hope you enjoy your stay in Bucharest!

The efforts seem to have already paid off – the year 2013 marked a turnaround in Romania’s economic development: economic growth of 3.5% driven mostly by robust export and industrial output on the supply side; a small current account deficit; historically low inflation; while the fiscal deficit was kept well below 3%. And I have every reason to believe that Romania will see further growth in the years to come. And that, unlike in the pre-crisis period, this time sustainability will be the name of the game, as hopefully we all have learned our lessons from our previous mistakes. As they say, no one really learns but from his own mistakes… BIS central bankers’ speeches 1 Talking about sustainable economic growth, one needs to put things into perspective in order to ascertain whether the economy is on the right track. This means that short-term policies must be harmonised with the long-term vision and goals. Euro adoption could serve as such a long-term goal. And Romania has chosen to use it as an anchor. Let me say a few words about this subject. In the post-crisis period, all non-euro area EU countries in Central and Eastern Europe with floating exchange rate regimes (Czech Republic, Hungary, Poland and Romania), as well as Bulgaria, shifted to a wait-and-see approach as regards euro adoption, even though, in some of them, Maastricht criteria were already fulfilled or within reach.

However, looking ahead workers’ pressures to regain lost purchasing power might be significant, especially since upcoming wage negotiations will take place in a context of a tight labour market. The unemployment rate remained at 6.6% in December, its lowest level since the euro was launched, and firms’ perceived degree of labour shortage has also stabilised at very high levels in historical terms. Thus, we should monitor wage and mark-up development to identify the potential emergence of second-round effects on inflation. 9 This depreciatio n increased the co st o f euro area pro ducers, given that mo st impo rted inputs are deno minated in do llars, resulting in so me expo rt market share being lo st (estimated at aro und 2.5% in 2022). 10 Leiva-Leo n, D., J. Martínez-Martín and E. Ortega (2022). “Exchange Rate Sho cks and Inflation Co-movement in the Euro Area”, International Journal of Central Banking, 18(1), pp. 239-275 11 Data fro m Indeed, an emplo yment website that aggregates jo b listings fro m tho usands o f websites, including job bo ards, staffing firms, asso ciations, and co mpany career pages. 5 The global context and the reopening of China Weaker global demand, particularly in key advanced economies, is contributing to the moderation of commodity prices on international markets and easing inflationary pressures. Economic growth in the United States continues to slow due to tighter financing conditions.

6 In this regard, the symmetry of the downward response is also an open question. Some support for this hypothesis can be found in recent developments in upstream stages of the price formation process. In particular, non-energy industrial consumer prices are still accelerating (as the flash estimate for January shows). However, industrial prod ucer prices (excluding energy) have decelerated significantly since last spring and this deceleration is rather widespread among components. In any case, the transmission and broadening of inflationary pressures is occurring at different speeds and intensities across expenditure components. Pressures on underlying inflation have so far been highly concentrated in particular expenditure items like household equipment and maintenance, transport, and activities involving more social contact. Some of their prices are more cyclically sensitive, others are more directly affected by the increase in the cost of energy, food prices or bottlenecks, while, in general, a fast pass -through has been facilitated by particularly strong demand during the pandemic (especially in the case of durable goods) and the reopening phase (notably in the case of services). These items’ prices continued increasing very strongly in December, in both year-on-year and month-onmonth terms, pointing to strong underlying inflationary pressures. 7 Excluding these items from the basket, core inflation stood at 2.8% in December, 8 with a slight upward trend that also points to an incomplete and slow pass-through.

There was also a risk to the stability of the financial system. The economic slowdown that had begun could thus become more profound and prolonged than was previously anticipated. The easing of economic policy after the terrorist acts contributed to some recovery in international and domestic economic activity. In spring 2002 we made the assessment that inflation one to two years ahead would exceed the target level. A gradual upturn in the underlying inflation rate, combined with unexpectedly high wage increases in the services sectors in particular, indicated that resource utilisation could be higher than we had assumed. The repo rate was raised in two stages. Steering interest rates in several other small countries were also raised at this time. However, during the summer and autumn we saw more and more signs that the recovery had come to a halt. Industrial activity weakened and geopolitical unease increased, as did the concern that the heavy stock market fall that began in 2000 would affect households and firms more than expected. The Riksbank, like the 4 BIS Review 20/2004 ECB and the Federal Reserve, began to reappraise the prospects for economic activity and inflation. Towards the end of the year, we made a downward adjustment in the inflation forecasts and the repo rate was cut by as much as it had been raised during the spring. With hindsight, it could perhaps be claimed that raising the interest rate in spring 2001 and 2002 was unnecessary. However, this would not lead to a fruitful discussion.

In a comparison with a number of other inflation-targeting countries, it is evident that Swedish inflation was closest to the target level last year, measured as an annual average, and that it was fairly average with regard to deviations from the target level. As monetary policy’s effect on inflation has a time lag, the outcome of inflation in 2003 is largely a result of the monetary policy conducted in 2001 and 2002. Let me therefore report some of our considerations in the light of the developments and forecasts made then. At the beginning of 2001 the repo rate was 4 per cent. During the spring there was a severe depreciation of the krona. Despite the fact that economic activity in Sweden and abroad was in a weakening phase, domestic resource utilisation was at a high level, while inflation had increased significantly during the spring and exceeded the upper tolerance limit. Inflation expectations had also begun to rise. Given this, we raised the repo rate in summer 2001. Economic developments and monetary policy considerations in Sweden differed from those in many other countries, where monetary policy in many cases had begun to be more expansionary. The decision to raise the interest rate in July 2001 was not self-evident. Three Executive Board members entered reservations against the decision, with reference to the weakening economic activity. The terrorist actions in September 2001 caused us to cut the rate by half a percentage point. Our assessment was that confidence among both households and firms would deteriorate.

In addition to regulators of the country in which the CCP is headquartered, these include foreign regulators. These regulators may be interested parties for many reasons. For example, their currencies may be used in settling the obligations of the CCP, they may have counterparties to the CCP that are headquartered or do significant amounts of business in their country, or they may have FMIs that are linked to the CCP. I want to emphasize that effective cooperative oversight is essential. Otherwise, the risk is that the system will become overly fragmented, with a proliferation of national CCPs. In this case, many of the risk-reducing benefits from CCPs could be lost or severely attenuated. That is because fewer offsetting positions would likely be cleared through any particular CCP and this would reduce the scope for reducing large gross exposures into much smaller net positions. The second safeguard is to ensure fair, open and safe access to global FMIs around the world. It is important, for example, that global CCPs have rules that are not exclusionary or that unnecessarily entrench the position of whatever dealer, firm, or FMI is currently dominant in the market. The third safeguard is to establish rules to ensure that, if a major market participant were to fail, a CCP can liquefy its collateral quickly so that it can meet its obligations in a timely way. But this also needs to be done in a way that would not disrupt financial markets or the CCP’s participants.

Interest rate risk measures the potential for loss which results from a mismatch between the term structure of a bank’s assets (e.g. mortgages) and that of its liabilities (e.g. customer deposits). While the term structure of assets gets increasingly longer, that of liabilities remains very short. The rise in credit risk was due, on the one hand, to the deterioration in the outlook for the Swiss economy. A slowdown in economic growth in Switzerland could have a negative impact on domestic credit quality, with the result that banks would face the prospect of writeoffs on their assets. On the other hand, the continued strong rise in mortgage loans and real estate prices has also caused credit risk to increase further in the past few months. Furthermore, the results of our mortgage lending surveys suggest a high risk appetite on the part of individual banks. In this regard, the Federal Department of Finance (FDF) submitted two important measures for consultation which should counter potential imbalances in the real estate and mortgage markets: more risk-sensitive capital requirements for mortgage lending and a countercyclical capital buffer. With more risk-sensitive capital requirements, incentives for mortgage lending should be structurally improved. The countercyclical buffer is a component of the Basel III framework and represents a variable capital requirement which is only activated in the event of excessive credit growth. As soon as credit growth weakens again, the buffer can be deactivated.

Once the terms of the bail-in are finalised, conversion ratios for the CEs into shares will be established and CE holders will be able to exercise their rights under the CEs resulting in legal title and voting rights being transferred to those bailed in bondholders entitled to compensation. In order to receive legal title and voting rights to the shares, the CE holders are required to provide evidence of their underlying beneficial ownership of the bonds, confirm that they are not acting as a controller and provide instructions for settlement. In this way beneficial ownership of the bank in resolution will stay in the private sector throughout the process. 4 e.g. BRRD article 43. 5 BRRD articles 36 and 74 and associated technical standards. BIS central bankers’ speeches 3 • Reorganisation: Finally, where a firm has been stabilised through a bail-in, this must be accompanied by a comprehensive restructuring plan. Bail-in is – explicitly – a prelude to reorganisation and the stability that it creates buys the time to achieve this 6. How much time is required will depend on the options available and how easily and quickly they may be implemented but it is essential to address directly the causes of failure and to restore market confidence so that the firm can access funding and operate normally.

• Early termination: For resolution to work effectively, resolution authorities need to ensure that counterparties do not use entry into resolution of a firm as grounds for closing out derivatives and other contracts. Disorderly close out could generate exactly the adverse impact of failure on the broader system that resolution is intended to avoid. For that reason, powers to apply a stay on contract terminations and cross defaults are part of the Key Attributes. This power is included in the BRRD, along with to apply a stay power in recognition so that resolution actions taken by non-EU resolution authorities can be enforced within the EU. There are also provisions in the BRRD that will give resolution authorities the power to impose requirements that where EU firms are operating outside the EU, in the absence of a recognition power in the host regime, their financial contracts include terms that ensure the actions of the home resolution authority are enforceable 3. 2 BRRD article 32. 3 BRRD article 55. 2 BIS central bankers’ speeches • Bail-in: So to the bail-in where again the KAs and the BRRD are aligned 4. The most important thing to note here is that bail-in must respect the creditor hierarchy. Under BRRD, a small number of liabilities are excluded from bail-in – for example those with an original maturity of less than seven days, and in exceptional circumstances some additional liabilities may be excluded – for example in order to maintain continuity in critical functions.

As Bank of Zambia, we believe that the recent economic developments, such as, the attainment of single digit inflation for the first time in three decades in April 2006 and sustaining low-level inflation for nearly three consecutive quarters so far to November 2006 are supportive of this initiative. These developments also indicate that Zambia is able to rally foreign private capital to improve the domestic financing limitations and support efforts of encouraging faster economic growth, private sector investment and exploitation of the country’s huge potential in various sectors. Ladies and gentlemen, we also believe that events such as this complement the outcomes of Government’s economic reform agenda which in part is aimed at strengthening our country’s creditworthiness as demonstrated by the attainment of the enhanced Highly Indebted Poor Countries Initiative (HIPC) completion point in April 2005. Ladies and gentlemen, please allow me to elaborate. In order to strengthen and sustain our new status as a creditworthy economy following the attainment of the HIPC completion point, the Bank of Zambia, together with Government, is working on ensuring that our institutional arrangements are supportive of keeping the global investor audience, amongst others, informed about domestic economic developments transparently and on an ongoing basis. For instance, we believe that obtaining a formal sovereign credit rating would help us build part of the necessary institutional arrangements of keeping all stakeholders informed.

There is an overall consensus that digitalisation can potentially boost firms’ productivity through several channels. First, technical progress in the production of digital products leads to new, better and cheaper products generating productivity gains in the sectors producing these products. Second, other sectors may benefit from cheaper inputs encouraging a higher use of those inputs as investment goods, resulting in productivity gains for the firms in these sectors. Third, digital technologies enhance product and process innovations leading to new production and organisational processes, new business models and new or superior products. Finally, information and communication technologies (ICT) are seen as reducing the cost of sharing and acquiring knowledge, potentially increasing the diffusion of innovation and new knowledge. However, digitalisation may also entail some challenges. First, while some argue that digitalisation leads to more intense competition, others fear increasing market concentration in some sectors on the back of digitalisation2. Second, some studies find evidence that ICT and automation are related to labour market polarisation3, where mid-skilled jobs either lose value or disappear, while there is an increase in demand for high-skilled job-profiles linked to digital technologies. This can lead to more income inequality or at least to big transition 1 Goldfard, Avi and Catherine Tucker (2019). “Digital Economics”, Journal of Economic Literature, vol 57(1), pages 3-43 OECD (2018): “Maintaining competitive conditions in the era of digitalisation”. OECD report to G-20 Finance Ministers and Central Bank Governors. 3 Michaels, G., Natraj, A. and Van Reenen, J. (2014): “Has ICT Polarized Skill Demand?

A Strong Foundation for Shanghai – Singapore Partnership 5 Over the years, China and Singapore have developed a strong bilateral relationship. Trade and economic ties are robust and strong. This is a firm foundation for the Shanghai – Singapore relationship to grow from strength to strength: In 2015, Sino-Singapore bilateral trade rose 1.6% year-on-year to SGD 123.5 billion or about USD 90 billion. For the third consecutive year, China was Singapore’s largest trading partner. Singapore was China’s 3rd largest trading partner in ASEAN 1. During the same period, Shanghai – Singapore bilateral trade saw steady growth to reach almost USD 13 billion. In 2015, Singapore’s investments into China amounted to about USD 7 billion, an increase of 18.5% from 2014. For the third consecutive year, Singapore was China’s largest foreign investor2. Singapore was China’s 5th largest investment destination. Singapore’s actual investments into Shanghai expanded an impressive 160% year-on-year to reach USD 2.2 billion in 2015. 6 In particular, financial cooperation between both countries has thrived. In September this year, President Xi Jinping met PM Lee Hsien Loong at the side-lines of the G20 meetings in Hangzhou. Both leaders noted the positive progress achieved in the latest government-togovernment (G-to-G) project in Chongqing. Financial cooperation was highlighted as an area that has made strong headway. China and Singapore also achieved several new financial cooperation milestones in 2016.

These include (1) closer integration of global economy through stronger trade and financial linkages, (2) increasingly large and mobile capital flows due to lower costs on cross-border investments, (3) rapid spread of information made possible by advancement in technology, and (4) more pronounced reactions on the part of market participants in times of heightened uncertainties ever since the onset of the global financial crisis. The interplay between market players’ expectations, their self-fulfilling nature and spillover effects paves the way for market exuberance in response to a trigger event. As a clear case in point, the recent ups and downs of financial markets upon new information the market perceives from each round of the Fed’s announcements highlight the role of “shifts in beliefs” on market volatility. What made the post-2008 period particularly vulnerable to such self-fulfilling global turmoil is the current stage of the world economy characterized by lingering structural weaknesses of the crisis countries and limited policy space that reduce the potential of macroeconomic stabilization policy. All of these factors reinforce the role of global shocks and contagion through real linkages as well as expectation channel in transmitting volatility around the world. Notwithstanding the turbulence of the global economy, Asian economies had proven to be resilient in the face of negative external developments, with favourable macroeconomic performance and well-maintained stability during the past period, thanks to the region’s flexible policy framework, robust financial system, and improved risk management as lessons had been learned from the crisis of 1997.

It tracks how most markets have continued to improve towards normal levels (on these indicators at least). An interesting exception is markets for bank funding instruments in Europe, which have become subdued as commercial banks have de-levered and central bank operations have provided cheap medium-term funding in large scale. Perhaps the worst functioning is the market for CMBS which has still not really returned in the UK (in contrast to CLOs which have made a comeback this year). Chart 2 Market functioning “heat map” based on issuance and spreads data(a)(b) P R I M A R Y Corporat e bonds Bank bonds, unsecured RMBS CMBS S E C O N D A R Y Corporat e bonds Bank bonds, unsecured RMBS CMBS United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States Euro area N 2007 08 Very loose Loose Normal NN NNNNNNNNNNNNNNNNN NN N NN N N NNN N N N NNNNNNNNNNN N N N NN N N N N N NNNNNNNNNNN N N NNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN NNN NNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN N 09 10 T ight 11 Very t ight 12 13 No Issuance Sources: Bloomberg, Dealogic, JP Morgan Chase & Co, Bank of America Merrill Lynch and Bank calculations.

Both FIDE Forum and ICLIF are uniquely positioned to advance corporate governance in the financial sector. After all, they bring together those who represent the ultimate governing body of financial institutions, with great responsibilities and accountability. Such an opportunity must be capitalised and not wasted. FIDE Forum and ICLIF should therefore complement each other and avoid duplication. There are significant benefits to be gained from an effective partnership where resources can be channelled to increase the collective impact of programmes and initiatives by the two organisations. In my own engagements with the industry, over the years, coordination and cooperation among financial institutions can become game changers for the industry. In this respect, we should fully appreciate the distinctive purpose of ICLIF and the FIDE Forum and how they coordinate with each other within the space of directors’ development. With close coordination and cooperation we can avoid the redundancies and wastage and realise the synergistic benefits from the alliance between the two organisation. Being a director of a financial institution will demand a lot from the individual. It is a position of trust where integrity is the norm. It should be, given the critical role of financial institutions in any economy. 2 BIS central bankers’ speeches As a network of financial institution directors, FIDE Forum provides a valuable resource for directors as they navigate the heavy responsibilities that come with the position.

According to our estimates, annual inflation is expected to be higher than we forecast in April but lower than its current level. Due to the high base effect in the first half of this year annual inflation will return to the target only in the second half next year. Third. Monetary conditions remain accommodative. Interest rates on loans and deposits are low as compared to current and expected inflation. Our decisions to raise the key rate in March and April have not yet been fully reflected in banks’ interest rates. Banks’ lending and deposit rates are closely connected with yields on government bonds, OFZs. OFZs are risk-free ruble assets for banks and the pricing of all other ruble products of banks is pegged to them. OFZ yields with various maturities change together with the key rate, though to a different extent. The key rate impacts to the most extent the yields on short-term OFZs, with maturities of up to two-three years. These yields have increased significantly over the past two months. They will impact the cost of short-term loans and also deposit rates, which have already started rising. Meanwhile, yields on long-term OFZs are largely determined by long-term inflation expectations, the assessment of the macroeconomic policy stability, and external environment. The cost of long-term financing of investment projects as well as mortgage loan rates depend precisely on the yields on long-term OFZs.

External price impulses via consumer goods are then expected to increase in pace with unit labour costs among our trading partners. With a path for the interest rate and the krone exchange rate in line with the baseline scenario in Inflation Report 1/05, inflation may increase gradually from less than 1 per cent today to close to 2 per cent in mid-2006. Under these assumptions, inflation may stabilise at around 2½ per cent at the threeyear horizon. Developments in line with these projections imply that the output gap will increase to about 1¼ per cent in 2006. As the interest rate is gradually increased to a more normal level, growth in private demand will probably ease, and capacity utilisation may be brought down and stabilise. Developments since the March Inflation Report was presented do not provide grounds for changing this perception of the state of the real economy. The results of the wage settlement so far suggest that wage growth this year will be somewhat lower than projected by Norges Bank. Inflation, on the other hand, has been broadly in line with expectations, and there has been virtually no change in the krone exchange rate. The inflation outlook has not changed substantially since the March Inflation Report was published. At its meeting on 20 April, the Executive Board stated the following: “The Norwegian economy is growing at a solid pace, and capacity utilisation is rising.

Shanghai will become a big financial centre, first serving the Chinese market, and later, an international financial centre. Mumbai and Dubai also aspire to be international financial hubs. India will grow its manufacturing sector in a big way and make its presence felt in the export market. All countries, including Singapore, will have to adapt to these realities. Domestically, we have other long-term headaches. We are facing a demographic crunch, with a rapidly-ageing population and a declining birth rate. Our people are increasingly mobile. In a borderless world, ensuring that our best remain rooted to Singapore, physically and emotionally, will be a challenge. Despite these challenges, I am optimistic about our prospects. I base my optimism on our fundamentals. We have two basic strengths – good governance and our ability to nurture and attract talent. Good governance and talent form a virtuous cycle for sustaining economic growth. Let me elaborate. First, good governance. A World Bank Institute report released in September 2006 ranked Singapore among the top 10% of countries around the world with good governance. Good governance is possible only if you have an honest, capable and committed government. In our case, the government must, in fact, be exceptional to overcome the exceptional challenges faced by Singapore, given our land and space constraints and geopolitics. For the next decade at least, I do not see any danger of a drop in the quality of our governance. The new team under Prime Minister Lee Hsien Loong is firmly in place.

There are clear needs for developing other channels of financial intermediation in the longer term, in order to promote diversification and ensure financial stability and sustainable growth. However while the capital markets on the Mainland are still in their nascent stage and face some difficulties in development, the banking system will remain the most important channel of financial intermediation in the foreseeable future. Thus, those engaged in the banking sector will continue, for a long period of time, to play an important role in ensuring the effective intermediation of funds. Given the rapidly changing macroeconomic environment, the banking sector professionals face a difficult task in achieving this mission. The changes involved in this broad picture include supervisory policies for the banking sector, relationship between the regulatory authority and banks, and governance arrangements of individual banks. In line with the government’s reform and open policies and under the supervision of the China Banking Regulatory Commission, Mainland banks have become increasingly commercialized. Banking professionals have progressed from their former mode of following the authorities’ policy instructions to a more active role in assessment of loan applications before making credit decisions. This is not an easy change. It involves both time and considerable adjustment in the thinking. Besides, good tools are a must for a good job: bank employees have to increase their knowledge of the banking business in a market economy and enhance their professional standards.

Jon Nicolaisen: Challenges for the payment system Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the Finance Norway’s payments conference, Oslo, 12 November 2014. * * * Introduction The modern history of payments in Norway began 200 years ago. A clause was included in the Constitution stipulating that the Storting (Norwegian parliament) should “supervise the monetary affairs of the realm”. Two years later, in 1816, Norges Bank was founded. The Storting delegated “supervisory authority” over monetary affairs to the Bank. Today, private banks perform payment services for the general public. Norges Bank has become the bankers’ bank. According to the Norges Bank Act, Norges Bank shall promote an efficient payment system. The Bank issues cash and ensures efficient settlement between banks’ accounts with Norges Bank. In addition, the Bank has responsibility for overseeing and supervising those parts of the payment system located outside of Norges Bank. Finanstilsynet (Financial Supervisory Authority of Norway) has responsibility for supervising the retail payment systems. 1 Payment services play a unique role in the economy. The payment system can be compared to the plumbing system in a house. As long as it functions, we do not give it a second thought. But if it fails, the consequences are immediate and serious. The Norwegian payment system is efficient and up-to-date. Fast, cheap and reliable payments save time and provide security to households and the business sector. It gives the nation a competitive advantage over many other countries.

The result can be that an inexpensive solution – BankAxept – is supplanted in favour of more expensive solutions. In Denmark, merchants charge a fee to customers who use a credit card. A similar practice in Norway could keep down payment costs. The profit banks earn on the use of international payment cards is higher than on BankAxept. It is therefore likely that, in isolation, it is in the interest of many banks for customers to choose international payment cards. New European regulations that will set a cap on the fees issuers of payment cards can charge are in the pipeline. This will likely weaken banks’ incentive to promote international payment cards. Banks continue to lose money on payment services. The cost survey we are presenting today does show that banks’ cost coverage has increased somewhat over time. But income still amounts to only 76 percent of the costs associated with payment services. Banks lose money on all main types of payment instruments, except for international cards. The losses must be covered by income from other banking activities. Pricing that does not cover costs may be a conscious choice by banks. Some customers may believe that they should not have to pay for using their own money. At the same time, mispricing and losses weaken banks’ ability and willingness to promote efficient solutions and invest in new infrastructure. That is not a forward-looking approach. We must invest now to ensure efficient and secure payments also in the future.

Obviously, in practice, proper market functioning was distorted by perverse incentives and information asymmetry. A special role was played by implicit guarantees that regulators gave to market participants. These guarantees combined with the risk discounting usually associated with a prolonged bonanza and resulted in excessive risk-taking and leverage. In my view, the lesson is as follows: any good fix of the financial system should deal with the sources of market failure and not only try to prevent inconvenient outcomes. In doing so, I think it is better to avoid over-complex regulation, which may indeed be self-defeating in the long run. There has been a tendency to over-regulate in the aftermath of the crisis: as Haldane and Madouros (2012) observed, whereas the first Basel accord had only 30 pages, attempts to make it more flexible and fashionable turned it into a 347 pages document in its second iteration, on which the ink had barely dried when the financial crisis hit, and attempts to plug the gaping holes it revealed pushed the page count to no less than 616 pages in the case of the Basel III agreement. In the US, whereas the original Glass-Steagall act, perhaps the most influential piece of legislation of the 20th century, had a mere 37 pages, the new Dodd-Frank Act of 2010 has 848 pages, and that’s only the primary legislation – counting in the 400 pieces of detailed rule-making from various US regulatory agencies that are required for its implementation, the document risks topping 30,000 pages.

Regarding the size of financial institutions, let me go directly to the “too big to fail” institutions. Their contribution to systemic risk is more than proportional to their size. It is not possible for such institutions to be sold, merged or closed down without jeopardizing the economy as a whole. Standard bankruptcy legislation, providing protection from creditors, simply does not work. Given the systemic importance of such institutions, access to creditors is essential. A special resolution framework should be designed in such a way that market participants be confident that it can be activated without generating unacceptable risks for the economy. Finally, the cross-border aspect of financial activity poses some particular challenges arising from the fact that legislation and bankruptcy regimes differ across countries. Moreover, national regulators have, above all, the responsibility to ensure financial stability in their own country. The correct answer here lies with oversight mechanisms being adapted in order to be able to deal with the challenges of globalization, rather than attempting to restrict the functioning of the financial system in order to reflect the limitations in international cooperation. IV. The foreseeable future of the European banking systems: the banking union Let me quote Tommaso Padoa-Schioppa once more. He wrote that the old way of thinking along the Westphalian concept of nation-states is no longer suited for policy action when dealing with problems that are transnational, such as the financial crisis. For instance, Europe as a whole does not have large external deficits, or a high indebtedness of the household sector.

It is available on our website along with other data and information useful to policymakers, business people and the general public. We use our website to share what we learn about our diverse District, and you will find detailed information about the region at the site. I invite you to visit newyorkfed.org to explore our highly localized maps and information on small business, credit and housing conditions and even the latest job openings at the New York Fed. 2 BIS central bankers’ speeches Finally, and crucially, in the aftermath of the financial crisis, we are working with our colleagues in Washington, D.C., and at other agencies to help put the nation’s financial system on a firmer footing. Our supervisors are working hard to ensure that our District’s banks are operating safely and soundly. Although much has been done, we are not finished and are determined to keep at it. I recognize fully that there can be no return to pre-crisis business as usual – whether on the part of the financial sector or on the part of regulators like ourselves. All in all, there is a lot to keep myself and my colleagues busy. National economic conditions Now I’d like to turn to the national and regional economy. The incoming data on the U.S. economy generally has been a bit more upbeat over the past few months, suggesting that the recovery may be finally establishing a somewhat firmer footing.

Mr Noyer discusses “the euro from A to Z” Speech delivered by Mr Christian Noyer, Vice-President of the European Central Bank, at the European Union Centre, Sam Nunn School of International Affairs, Atlanta on 14 January 2000. * * * It gives me great pleasure to speak to such a (young) audience about what is, after all, the world’s youngest and newest currency. As indicated by the title of my speech, I do not intend to enter into complex economic and political considerations concerning the pros and cons of the introduction of the euro under the specific economic and political conditions prevailing in Europe. Rather, I should like to provide you with a concise overview, from A to Z, of the main elements of the new institutional and operational framework under which monetary policy is being conducted in Europe following the introduction of the euro. Nonetheless, I do hope to be able to enhance your understanding of the euro, both in the broader context of European integration and in terms of the practical functioning and implications of Economic and Monetary Union (EMU) in Europe. In this context, you will see that there are some similarities between the institutional framework and conduct of monetary policy in the United States and in Europe. At the same time, there are also substantial differences, particularly with regard to the political and economic framework in which monetary policy has to operate on your side and our side of the Atlantic.

Apart from standing guided by specific instruction and detailed direction from regulators, compliance officers are encouraged to introduced new or proactive measures, within the ambit of the law. Similarly, the requirement now emphasises on measures that commensurate with risk. The application of the risk-based approach (RBA) should have a meaningful application in action. Misinformed RBA could lead to unjust financial exclusion, economic cost to institutions, or 3/4 BIS central bankers' speeches sanctions by the authority. The efforts by private sector are vital as they form a part of the country’s assessment towards compliance to international AML/CFT standards. They are assessed under Immediate Outcome 4 on whether RIs adequately apply AML/CFT preventive measures commensurate with their risks, and report suspicious transactions. I wish to highlight that, based on Mutual Evaluation Exercise conducted on 38 countries so far, majority of the private sector within these countries, including developed countries are still unable to demonstrate the characteristics of an effective system; namely understanding risks, comprehensive internal control and compliance programme including application of customer due diligence on suspicious transactions reporting. I would like to echo the discussion during the Plenary session yesterday that an effective antifinancial crime programme requires concerted efforts from every line in the institutions, be it the first, second or third line of defence. It also demands collaborative efforts by other functions within the institutions, including an updated IT system and infrastructure, comprehensive and continuous staff training programmes, and good understanding of risks.

Most importantly, the oversight and support from senior management and Board of Directors of the institutions. Before I conclude my speech, allow me to share with you some developments from the regulatory perspective that you can expect in the near future. As you may be well aware, our national ML/TF risk assessment (NRA) is currently in progress and is expected to be concluded by year end. The results of the assessment will be accompanied with some guidance from regulators. This should be used as a basis in your institutional risk assessment to eventually align your operations on a risk-based approach. You can also expect introductions and amendments to AML/CFT policies, in response to the NRA as well as to new areas relating to cryptocurrencies and e-KYC. From the enforcement perspective, another notable change to expect in the next year is the publicising of financial penalties imposed on financial institutions and information on misconduct resulting in penalties. With the increase in the number of investigations by law enforcement authorities, you should expect more significant demand for information and collaboration from your institutions. Needless to say, timely and accurate responses are highly required and of paramount importance. A sound public-private partnership is essential to achieve the ultimate objective of an effective AML/CFT regime. On that final note, I would like to once again thank CONG, AIF and all of you here for attending this conference. I wish you all the best and let us all contribute hand-in-hand towards building a safer and more secure environment. Thank you.

In particular, insofar as climate risks affect the macroeconomy, the inflation outlook or the transmission of our monetary policy, then such risks are bound to affect the conduct of monetary policy. One fairly direct channel is the following. Policies aimed at promoting the transition towards a carbon-neutral economy – such as carbon taxes – are likely to affect the volatility of headline inflation, which includes energy prices. Most inflation-targeting central banks, including the ECB, target headline inflation, because it is more representative of the citizens' consumer basket than " other notions of inflation. The ECB’s medium-term orientation of our price stability objective provides us with some leeway to see through transitory energydriven increases in headline inflation. However, persistent upward pressure on, or substantial volatility in, headline inflation stemming from sustained climate policies could 2 lead us to rethink how we formulate our policies in pursuit of price stability over the mediumterm horizon. More indirectly, but not less importantly, climate change and the remedial actions needed to tackle it could affect central banks' ability to achieve price stability through their impact on the so-called natural interest rate3, which is an important benchmark for inflationtargeting central banks when setting our interest rates. Natural interest rates in advanced economies, including the euro area, have declined in recent decades, reflecting structural shifts in the balance between aggregate saving and investment.

In this context, and as part of our main responsibility to guarantee the stability of the financial system, we - regulatory and supervisory authorities - must ensure that the materialisation of climate risks does not endanger financial stability. Therefore, we must make sure that financial firms address these risks. In particular, we should contribute to identifying climate-risk drivers and their transmission channels, to the adequate measurement of the economic and financial impact of the different risks, and to the definition and development of the potential mitigation and riskreduction measures. If we succeed in incorporating these risks into the decisions of the financial sector, this will translate into a change in the relative prices of financial instruments. And, in turn, that will help to internalise those consequences originating from both transition and physical risks that affect directly providers and users of funds. This will be a powerful and much-needed complement to the use of the fiscal and environmental instruments that are needed to fight against climate change. In practical terms, climate risk can probably be captured in the traditional financial risk categories (credit, market, liquidity or reputational risks). However, several crucial limitations and challenges are coming to light when trying to measure these risks. In particular, there are few sufficiently deep and harmonised databases to analyse and understand the potential effects of physical and transition risks. Data granularity is particularly important given the high heterogeneity of the potential impacts.

We must ensure that this never happens again. 3/5 BIS central bankers' speeches But that should not discourage us from harnessing and redirecting such creative forces to address today’s most urgent global challenges, and in the process, restore trust and confidence in the financial industry. New paradigms in policymaking This brings me to the role of policy. In recent years, global standard setters including the Basel Committee on Banking Supervision, the Insurance Association of Insurance Supervisors and the Financial Action Task Force, have heeded the call to promote a better balance between the objectives of financial stability, financial integrity and financial inclusion. This has resulted in important strides taken to encourage a more proportionate regulation. Despite this, a recent report by the Financial Stability Board disclosed that as of 2017, the derisking phenomenon continued at the global level, affecting remittance service providers and many poor countries that rely on remittances from abroad. Clarifying regulatory standards is an important step, but clearly this alone is not enough. So where to from here? First, taking a cue from Albert Einstein who famously said that we cannot solve our problems with the same thinking we used when we created them, there is a need for policymakers to create safe harbours for experimentation. A number of regulators have introduced regulatory sandboxes that have helped create a virtuous cycle of innovation and sensible regulation, while isolating risks.

In Malaysia, solutions tested in the Bank’s regulatory sandbox enabled the Bank to design regulatory safeguards that would allow the implementation of end-to-end electronic know-yourcustomer processes for the provision of remittance services. By dispensing with the need to conduct physical face-to-face verifications, this is expected to significantly expand access to remittance services for customers working and living in remote parts of Malaysia, while effectively addressing money laundering and terrorist financing risks. Bank Negara Malaysia also successfully collaborated with the World Bank and the money services business industry in Malaysia to pilot and adopt solutions that have expanded the reach and reduced the costs of formal remittances. Second, policy life cycles will need to be managed more proactively, to allow for policies to be renewed when conditions change. While much is often said about policy stability, policies that fail to keep pace with conditions that are changing far more rapidly than we have experienced before, can be counterproductive at best, and at worst, create greater risks for the system. The SDGs are undeniably one of the most comprehensive attempts to capture the most important global challenges that we face. Solutions to these challenges will invariably create new issues for policy makers to consider. This in turn will lead to shorter policy life cycles, and a need for faster policy responses to emerging issues. Third, we need better remittance data. It is encouraging that efforts are being taken to ensure the availability of official global data sources on remittance flows.

In the future, the Bank might, for example, increase haircuts during “peacetime” if liquidity in the secondary market from a particular type of collateral became impaired; or if the Bank concluded that, as the upswing of a credit cycle developed, risk was plausibly becoming underpriced and so was not properly reflected in the valuations of instruments it was accepting as collateral. Whether or not that would be enough of itself quell a cycle is obviously uncertain; but it would help to protect us against risk and would give a signal. In short, haircut policy matters. Pricing But the Bank does not believe that haircuts can be relied upon on their own to produce the appropriate incentives for banks’ liquidity management. Price matters too. Bagehot said that the rate should be “high”. But since he wrote in the context of the Gold Standard and of domestic financial crises that were typically accompanied by external (or capital account) crises, his notion of a “high rate” was bound up with the central bank tightening monetary conditions to stem the outflows (of gold). But it is clear enough that, although he did not in fact talk of “penalty” rates, the relevant measure for him was the rate charged by the central bank relative to that prevailing in the market in normal conditions, ie before a crisis breaks. The Bank has adopted, and promulgated, a fee structure for its liquidity-insurance facilities that increases as banks’ borrowing increases and/or is made against riskier, less liquid collateral.

We will give particular priority to the highest-emitting companies and companies that have not published climate plans or have inadequate climate reporting. We will also step up our ownership activities aimed at the financial sector, which is exposed indirectly to climate risk through loans and investments. We tailor our dialogue to the sector and the situation. Steel and cement are good examples. These companies currently have high emissions, but their products will still be needed in the lowcarbon economy. Much of our dialogue on transition plans is therefore about the technological advances and investments needed. We also raise the need for industry standards and the issue of lobbying, which is a major challenge. Chart: Companies’ climate reporting is improving We are seeing signs that our efforts are paying off. For example, when we analysed the reporting of 1,500 companies, we found that those we have actively engaged with have made more progress in their reporting on climate strategy than the other companies. Of course, we cannot claim all the credit for this progress. But progress it is. In future, we will provide more information on our dialogue with companies – what we talk about and the changes we see. Drawing attention to it is a tool in itself. Reporting and voting Our dialogue with companies will not have the desired result in every case. We can then hold boards to account for their decisions through our voting.

This also entails increased international cooperation. Many financial crises in the 1980s and up to today have occurred in countries where rules and supervision are relatively ineffective. As a result, the financial sector has become fragile. The capital strength of financial institutions has been inadequate. Deregulation has occurred before the country’s financial infrastructure is in place. This has fuelled the build-up of financial bubbles. Large fluctuations in capital movements have often intensified the problems. Elements of this were also present during the banking crisis in the Nordic countries. The financial safety net should help prevent financial instability and curb the effects if instability should arise. This may also prevent the development of imbalances. Deposit guarantees, crisis liquidity schemes and the assumption that large banks will be rescued by the government may weaken market discipline. The result may be increased risk-taking. International organisations have developed international codes and standards for the financial infrastructure and for the regulation and supervision of the financial sector, which are in line with good 10 practices. These codes and standards should contribute to improving policy and creating more robust financial systems. They should make it easier for investors and others to keep abreast of developments, which in turn will increase their ability to assess risks in a country. This will reduce the risk of herd behaviour and the build-up of substantial imbalances. The International Monetary Fund plays an important role in international surveillance and crisis management. They have substantially strengthened their oversight of the financial systems in member countries.

The same applied to direct regulation of financial enterprises. Other considerations, than returns and risk, took precedence in connection with the provision of credit and capital movements. At the end of the 1970s, direct controls were gradually removed. As a result of the emergence of new financial instruments, the controls no longer had the same effect. There was a growing realisation that the existing controls had a negative effect on the allocation of credit and capital, and hence on longterm economic growth. Cross-border capital movements were gradually liberalised. It was not until the 1990s that capital was able to move between countries as freely as before 1914. Because of the serious effects of financial crises, the financial industry is subject to many regulations and to extensive supervision. The industry is by no means deregulated, but the regulations are now designed to make markets function more securely and more efficiently. Clear requirements have been established for both capital adequacy and liquidity. Nevertheless, the regulations do not eliminate the possibility of financial crises. Are financial crises an inherent feature of today’s system? 7 The transition to a market-based system has increased the scope for financial cycles. The cycles may be amplified by unrestricted cross-border capital flows. Because of the central role of the financial industry as a credit and capital intermediary, this can also influence macroeconomic developments. At worst, an upswing in the economy can be amplified through the build-up of financial imbalances, which may trigger and reinforce a downturn and financial crisis.

Other significant market movements leading capital positions to 8 deteriorate include a fall UK property prices, downgrades in credit ratings of corporate bonds , a fall in UK equity markets and widening in the spread between sterling interest rate swap and gilt yields. But life insurers’ capital positions are not especially exposed to a widening of credit spreads, partly because of the insulating effect of the Solvency II Matching Adjustment. The interest rate sensitivity is primarily due to the risk margin. Risk margins for annuity writers increase by 40%-50% for a 100bps fall in interest rates, which the PRA believes to be excessive. Insurers do not 5 https://www.bankofengland.co.uk/prudential-regulation/publication/2018/financial-management-and-planning-by-insurers-ss https://www.bankofengland.co.uk/prudential-regulation/publication/2017/solvency-2-data-collection-of-market-risk-sensitivities-ss 7 The aggregate solvency ratio (defined as aggregate Own Funds of the firms in this survey as a percentage of aggregate SCR) was 150% as at YE2016 and 156% as at YE2017. For definitions of the market variables, see https://www.bankofengland.co.uk//media/boe/files/prudential-regulation/regulatory-reporting/insurance/market-risk-sensitivities-instructions.pdf. 8 More specifically, the impact of 20% of assets by market value downgrading from the current Credit Quality Step (CQS) to the next CQS. A CQS refers to rating agency ratings. 6 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 typically hedge the risk margin. For insurance liabilities written before the introduction of Solvency II, the risk margin can however be offset by Transitional Measures on Technical Provisions (TMTP), which allow any increases in reserves due to the introduction of new Solvency II requirements, such as the risk margin, to be phased in over sixteen years.

That Supervisory Statement also set out some of the factors we expect boards to take into account in setting a risk appetite for capital, including: the quality of capital resources; the results of stress and scenario testing; levels of uncertainty in forecast earnings; inherent uncertainty in the technical provisions; credit ratings and market reputation; any non-linearities and discontinuities that may arise due to combinations of adverse events; recovery options available; and the potential impact of firm failure on policyholders. Central to setting capital risk appetite is the sensitivity of the balance sheet to changes in key risk drivers, including changes in market and underwriting conditions, and the emergence of large claims. Since the introduction of Solvency II, the PRA has been collecting data from large UK life insurers on the sensitivity of their capital positions to movements in key UK market variables, including interest rates, credit spreads, credit rating downgrades and property prices. across firms at year-ends 2016 and 2017. 7 6 Chart 4 below shows the averages of these sensitivities Individual insurers’ positions fall in a range around these averages. The most material sensitivity is to changes in interest rates. A large fall in interest rates would lead to a reduction in capital surplus over the SCR.

They would probably result in further reinforcement of fluctuations, as activity - and thus liquidity - on the markets would decline. As representative of a central bank, I would also like to point out that nor do I believe that monetary policy alone can counteract exaggerated movements on the financial markets. On the other hand, a clear monetary policy, aimed at price stability, is necessary in the work on maintaining financial stability. It facilitates economic decision-making in society. However, part of the solution must lie in breaking the pattern that causes players to behave in exactly the same way as one another. Increased transparency with regard to countries' and companies' economic status is an important step in the right direction here. Developments in technology have demolished many of the barriers that previously hampered the spread of this type of information. However, this requires that authorities and companies make use of the opportunity and actually release important information. We at the Riksbank, like many other Swedish authorities, have for quite some time now made use of the advantages of the Internet in this context. All important information is published on our website, which is easily accessible to most people. This applies regardless of whether one is an analyst at a major bank or whether one is a private person. Information technology has thus created a powerful instrument, which can be used to counteract the 'follow the leader' behaviour.

In the June Inflation Report, Norges Bank assumes that money market rates among our trading partners will gradually increase over the next three years. The path for domestic and external interest rates does not imply considerable changes in the krone exchange rate. Growth in disposable income has been high in recent years. Lower interest expenses as a result of the decrease in interest rates and relatively high real wage growth have resulted in an increase in household purchasing power. The rise in house prices may also have fuelled growth in private consumption. With high growth in employment and falling unemployment, consumption growth is expected to be high again this year. Since the publication of the June Inflation Report, electricity prices have increased to a further extent than expected. Forward prices for next winter have also increased. Higher electricity prices may in isolation reduce household purchasing power somewhat. On the other hand, growth in household income is high and there are market expectations of a fall in electricity prices later next year. A continued rise in house prices may contribute to holding up consumption growth. House prices increased further this summer, and the twelve-month rise moved up to 15.8 per cent in July. Residential construction is still high. In 2005, the number of housing starts was the highest since the beginning of the 1980s. As the interest rate level gradually normalises, household interest expenses will increase. Combined with projected lower employment growth and higher inflation, this might reduce growth in household purchasing power in the years ahead.

One argument that has been put forward for trying to slow down an increase in housing prices is that future falls in housing prices would have negative effects on future inflation and the real economy. However, Claussen, Jonsson and Lagerwall show that the macroeconomic effects of a 20 per cent fall in housing prices would be relatively limited and possible to counteract by adopting a more expansionary monetary policy. This is shown in more detail in the minutes of the monetary policy meeting held in June 2010, when I presented simulations of how expansionary monetary policy can stabilise CPIF inflation and GDP growth following such a fall in housing prices (Sveriges Riksbank 2010). According to Finansinspektionen’s (the Swedish financial supervisory authority) report on the Swedish mortgage market (Finansinspektionen 2012), Swedish mortgages do not constitute any threat to financial stability at present. Mortgage borrowers have a good debt-servicing ability and pass stringent stress tests, credit assessments are thorough, the loan-to-value ratio for new mortgages is declining and the loan-to-value ceiling appears to be effective. If the growth in mortgages or the loan-to-value ratio were to develop in a problematic way further ahead, it is possible to lower the mortgage cap. This is a better means of influencing growth in mortgages and loan-to-value ratios than using the policy rate.

BIS central bankers’ speeches 13 A higher average unemployment rate by 0.8 percentage points over 15 years is of course a very large cost to the real economy of undershooting the inflation target. At present, a higher unemployment rate of 0.8 percentage points corresponds to around 40,000 jobs. In comparison, it can be mentioned that the government’s own calculations show that the four stages in the earned income tax credit and the changes in unemployment insurance reduce unemployment in the long run by 0.6 and 0.7 percentage points respectively. 17 The respective reforms are thus expected to have a slightly smaller effect on unemployment than the calculated real-economic cost of inflation on average undershooting the target over the past 15 years. Implications for future monetary policy Why average inflation in Sweden has undershot the target over the past 15 years is a separate and important question that requires thorough examination. I do not intend to discuss this here. But a clear conclusion for future monetary policy is that it is important that the Riksbank ensures that average inflation is actually close to 2 per cent over a longer period of time and that it does not fall as low as during the past 15 years. This means that the inflation target must be regarded as symmetrical and that it should constitute a central point for the fluctuations in inflation. One should thus not be more afraid of overshooting the target during a limited period than undershooting it.

Another important feature to note is the decentralisation of knowledge: With a touch of their screen, consumers are now able to access an almost infinite repository of information about the products that they want; including comparisons and peer reviews. The days of the insurer or agent knowing best have passed, and it is important to recognise how this tilts the bargaining power in favour of the consumer. From this, there are fundamental questions that need to be asked of the agency force: Are the current incentives of the industry aligned with the best interests of consumers? Should insurance companies still be thought of as the main principals that agents serve, or should consumers be seen as an equal principal in that relationship? How can the remuneration and more generally, culture, change from one focused on volume of sales to one where agents are recognised for more customer-centric, and a consultative role? These are some of the questions that I hope this convention will touch on, and perhaps for me to share some thoughts. 1/4 BIS central bankers' speeches There are many concerns over the potential upheaval of the status quo arising from the digitalisation of services. But I can share with you that we firmly believe that the agency force will continue to have a role to play in the general insurance sector even as it evolves into the Digital Economy.

I once again congratulate you and your parents, for it is only through their guidance and care that you shall continue to succeed. I wish you well in your studies and hope to see the day when all of you will graduate with flying colors. Lastly, let me commend the President of this Foundation, for the noble work that you undertaking. I hope others will emulate your commitment towards developing the youths so that they can contribute to the welfare of our country. Mr. President, I salute and urge you to keep up with the good work that you are doing. To the sponsors and the Board of Directors, 2 BIS Review 160/2008 may the good Lord continue blessing your deeds and may he give more to those who had a hand in helping the cause. Let me finish by saying that I can not wait to see these beaming young faces to lead our future generations into a better Zambia and a better life for all. I thank you. BIS Review 160/2008 3

In the period ahead, the policy mix we implemented under the Liraization Strategy will continue to foster financial stability through healthy credit growth, and potential output through the financing cost channel, and will contribute positively to the supply-demand balance. As a result, an improvement in pricing behavior and inflation expectations and a permanent fall in inflation will be ensured. Esteemed Guests, In this part of my speech, I would like to talk about our monetary policy practices in 2022. In 2022, to reshape price stability within a sustainable context, we conducted a comprehensive policy framework review process that prioritizes the Turkish lira in all policy instruments. Accordingly, we implemented the Liraization Strategy, which we developed with a holistic approach. With the Liraization Strategy, we tried to eliminate the sensitivity of inflation and pricing behavior to the exchange rate in the short term. In the medium term, we aimed to strengthen the current account balance by supporting production and exports. With the macroprudential tools and FX-protected deposit products we have introduced to this end, we began the liraization process of the banking sector on both the asset and liability side. We adopted a targeted loan approach in terms of creating financial conditions that will ensure permanent improvement in the current account balance by increasing production and exports in our country. While implementing the Liraization Strategy, we updated our macroprudential policy set according to our targeted loan approach to contain the risks to financial stability and price stability along with interest rate cuts.

ahap Kavcolu: Recent economic and financial developments in Turkey Speech by Mr ahap Kavcolu, Governor of the Central Bank of the Republic of Turkey, at the 91st Ordinary Meeting of the General Assembly, Ankara, 28 March 2023. *** Esteemed Shareholders, Distinguished Guests, Before I start my speech, I would like to wish Allah Almighty's mercy on our citizens who lost their lives in the devastating earthquakes in February, I extend my condolences to their grieving families, and I wish a speedy recovery to those who are still being treated. I would like to commemorate again Prof. Yusuf Tuna, our esteemed professor and member of the Monetary Policy Committee, who passed away last year. Before moving on to the agenda items to be discussed at the General Assembly, I would like to share with you our assessments regarding the macroeconomic outlook and our monetary policy implementations. In the last part of my speech, I will summarize our activities in 2022. Distinguished Participants, In 2022, while the negative effects of the pandemic had not yet been fully eliminated, as a result of the Russian-Ukrainian war that took place in Türkiye's immediate region, supply constraints appeared again and particularly energy prices and global commodity and food prices rose rapidly. In addition to the geopolitical uncertainties that emerged due to the war, the supply-demand imbalances that persisted in the aftermath of the pandemic caused inflation to increase rapidly on a global scale, reaching historically high levels.

Why not persevere with the minimum exchange rate, instead of exposing the Swiss economy to the downsides of negative interest rates and the challenge of a stronger currency? With this question in mind, let me turn straight to a second fiction regarding Swiss monetary policy, namely, that an unlimited lengthening of the SNB balance sheet would be riskless. This fiction flies against common sense and is mostly prevalent in academic circles. I will try and clarify some misunderstandings with respect to central bank balance sheets by stressing three important facts that apply both generally and to the current Swiss monetary policy situation in particular. First, a central bank balance sheet is never a target per se, but rather, its size and composition simply mirror monetary policy decisions. Second, massive balance sheet expansions carry financial and economic risks. 3 This is clearly the case when the policies underlying the balance sheet expansion comprise outright purchases of foreign exchange. This puts foreign exchange risk on the central bank’s balance sheet. Third, policy measures involving a significant balance sheet expansion should be taken only as long as the benefits in terms of the broader policy objective clearly justify the risks and cover the costs associated with the balance sheet expansion. It is important to note that the costs and benefits of a given policy measure may change over time, and must therefore be reassessed repeatedly.

At the same time, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and the private sector will continue to weigh on economic activity. This assessment is also reflected in the December 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 before increasing by 1.1% in 2014 and 1.5% in 2015. Compared with the September 2013 ECB staff macroeconomic projections, the projection for real GDP growth for 2013 has remained unchanged and it has been revised upwards by 0.1 percentage point for 2014. The risks surrounding the economic outlook for the euro area are assessed to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include higher commodity prices, weaker than expected domestic demand and export growth, and slow or insufficient implementation of structural reforms in euro area countries. BIS central bankers’ speeches 1 According to Eurostat’s flash estimate, euro area annual HICP inflation increased in November 2013 to 0.9%, from 0.7% in October. The increase was broadly as expected and reflected, in particular, an upward base effect in energy prices and higher services price inflation. On the basis of prevailing futures prices for energy, annual inflation rates are expected to remain at around current levels in the coming months. Over the medium term, underlying price pressures in the euro area are expected to remain subdued.

Unemployment has steadily fallen since then and the inflation rate has returned towards 2%, which is the Federal Reserve’s inflation target. Only then could the FOMC stop increasing its balance sheet, raise the Federal Funds rate from its floor and so initiate an exit strategy. Obviously we, in the Eurozone, are not at the same point of the business cycle but we are travelling along the same road for monetary policy. Some consider these unconventional policies in the euro area are counterproductive because ultra-low interest rates hurt savers and banks. However, we have monitored closely banks’ profitability and – taking into account ALL elements of monetary policy BIS central bankers’ speeches 3 – there is in 2015 no evidence that this is doing harm overall. Moreover, the global longterm real rate of interest has been falling for around 30 years reflecting an imbalance between a strong desire to save and a relative scarcity of those willing to borrow to invest. As we all know, this imbalance is extremely acute in Germany where this surplus is in the order of 8 % of German GDP. Above all, we cannot base our decisions on their outcomes for particular groups but on the common good. Economic activity does not depend only on savers but also on entrepreneurs, workers, homebuyers and borrowers who benefit from low interest rates. Eventually, these policies will lead to levels of inflation more consistent with our mandate and will call for higher interest rates both in nominal and in real terms.

We closely monitor this process and get ready to respond adequately in order to protect the Macedonian economy against severe impacts. Therefore, the cooperation between the National Bank and the commercial banks will be even more important. Thank you for your attention. BIS central bankers’ speeches 3

The answer is that while the rise in real house prices over that period would have been less than half as large, the impact on overall real credit growth would have been pretty modest, reducing it by only a tenth – hardly enough to have a major bearing on the magnitude of the subsequent bust. Moreover, output would have been some 3 per cent lower. Monetary policy on its own therefore does not seem especially well suited to preventing credit/asset-price booms. So the crisis exposed not only the inadequacy of our understanding of the true nature of the risks that had built up in the financial sector, but also the need for suitable instruments to deal with them. One of the key reforms in the United Kingdom following the crisis has been to establish a body – the Financial Policy Committee (FPC) – with the responsibility for overseeing the stability of the financial system, together with specific powers to achieve that. The FPC will exist on a statutory basis once the Financial Services Act has passed into law, but has been operating on an interim basis since June 2011. The FPC has two objectives. First and foremost, it is charged with identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. But that is accompanied by a secondary goal: subject to protecting resilience, it should support the economic policy of the government, including its objectives for growth and employment.

Chart 2: Capital and leverage ratios of major global banks(a) Chart 2a: Risk-based capital ratios, end-2006 Per cent Chart 2b: Leverage ratios, end-2006(b) Per cent 16 Surviving banks Failed banks 14 16 Surviving banks 14 Failed banks 12 12 10 10 8 8 6 6 4 4 2 2 0 0 Sources: Capital IQ, SNL, published accounts, Laeven and Valencia (2010) and Bank calculations. (a) The classification of bank distress is based on Laeven & Valencia (2010), updated to reflect failure or government intervention since August 2009. (b) Total assets have been adjusted on a best-efforts basis to achieve comparability between institutions reporting under US GAAP and IFRS. BIS central bankers’ speeches 9 Chart 3: Output losses relative to trend after financial crises(a) Per cent 20 Interquartile range-past episodes Total range - past episodes 10 Mean 0 -10 -20 -30 0 1 2 3 4 5 Years from start of crisis 6 7 8 Sources: IMF and OECD. (a) The episodes examined are taken from IMF (2009).

The protection of existing or the creation of additional market failures, although inefficient on the whole, can be a profitable activity for an individual or for a single group of participants in a financial system. Therefore market imperfections once identified and addressed with appropriate measures are likely to permanently change their form and place and to challenge even the best of existing institutional arrangements time and again. A third imperfection that may affect a financial system is an unsatisfactory level of competition. When saying this I do not refer to perfect competition as described in textbooks but rather have in mind market contestability. Contestability excludes undue pricing power by market participants, the existence of collusion among market participants and barriers to entry. You will certainly agree with me when I say that there is no guaranty or a kind of “natural law” that leads markets to organise themselves according to the requirements of contestability. The free play of market forces is the exception rather than the rule. Economic agents individually benefit from rule bending. In addition, and this is of particular relevance in clearing and settlement, the presence of high fixed costs constitute relevant barriers to entry. From experience we know that these barriers reduce competition or eliminate it all together. In extreme cases we speak of a “natural monopoly” which call for regulation by public authorities. Market imperfections such as asymmetric information, negative externalities or limited competition have shaped the evolution of financial systems everywhere.

In the field of securities clearing and settlement systems the production of services is based on processes with high fixed costs. There is thus a risk that the free play of market forces is limited and that actual market developments might lead to monopolies that greatly damage efficiency. Regulatory and oversight authorities must therefore also make it their goal to prevent potential abuses of market power. Against this background, I strongly believe that trust-based co-operation between the providers of market utilities and regulatory and oversight authorities remains the key to the continued successful BIS Review 28/2003 5 development of an efficient and secure financial system that can handle fast-changing needs in the future. Ladies and Gentlemen, thank you for your attention. 6 BIS Review 28/2003

The US central bank, the Federal Reserve (the Fed), and the European Central Bank (ECB) took action in this situation by lending large volumes of money to the banks when they could not borrow from one another. The degree of financial unease then varied during the course of a whole year. The TED spreads peaked when the banks wanted to secure their liquidity ahead of the turn of the year 2007-2008. A further peak was reached in March 2008 when US investment bank Bear Sterns suffered acute liquidity problems and suspended payments, but things calmed down again after the Fed mediated the takeover of the bank by JP Morgan. BIS Review 25/2009 1 In mid-September 2008, when the US investment bank Lehman Brothers filed for bankruptcy, the financial turmoil became an acute financial crisis. The TED spreads were driven up to very high levels. Many banks, institutions and funds were highly exposed to Lehman Brothers. Few had expected such an important financial agent to be allowed to fall. There was a great deal of concern that more players would end up in a similar situation. The remaining large investment banks as such quickly disappeared. The financial crisis also spread to other countries and developed into a global financial crisis. Access to credit declined on the financial markets around the world and some markets more or less ceased functioning.

I shall now begin with developments in the financial markets. The financial turmoil worsened in the autumn and has developed into a global financial crisis The financial turmoil worsened in September 2008. It has now turned into a global financial crisis. Developments during the financial crisis can be illustrated in several different ways, for instance, through TED spreads. These show the difference between the interest rate the banks pay on loans between one another on the interbank market and the interest rate on risk-free government securities. It is thus a measure of how the banks price credit risk. At the beginning of 2007 and also prior to this, the spread was often between 10 and 20 basis points in Sweden, the United States and the euro area. In August 2007 the TED spreads increased substantially. The large French bank BNP Paribas stopped withdrawals from three of its investment funds, which were exposed to the US subprime market, that is, mortgage loans aimed at households with a poor ability to pay. The reason for this was that it was impossible to calculate what the assets in the funds were worth, as trade in them had largely ceased. At the same time, several other large market participants warned of losses linked to the US mortgage market. The banks began to be unwilling to lend money to one another and interest rates in the interbank market rose substantially.

In fact, things are even worse than this because lenders typically expect borrowers to fund a larger fraction of an investment themselves in such circumstances, reinforcing the downward spiral. And Adrian and Shin (2008) indeed find that the leverage ratio of the five US large investment banks, which held a substantial quantity of the securitised loans, was indeed strongly correlated with the size of their balance sheets. Now I noted earlier that once counterparty risk becomes a material concern, it is not only the state of an intermediary’s immediate counterparties’ balance sheets that matter, but also the state of those counterparties’ counterparties balance sheets, and so on. In practice, what used to be a very simple process of intermediating funds between savers and borrowers has evolved into a highly complex network, which is both difficult to comprehend and a major source of uncertainty. This complexity of the financial network is illustrated in Figs. 16 and 17, in which the size of the nodes is proportional to the size of the balance sheet and the thickness of the external lines measures the sum of the bilateral exposures. Fig. 16 shows the network for the major players in the UK financial system, while Fig. 17 shows a corresponding map for the international financial system. In the first instance, any losses that arise will be scored against an institution’s capital. But when it reaches the point of default, the losses cascade through the network until they reach intermediaries with enough capital to absorb them.

These go by the name econoME. As the name suggests, and like our recent public communications efforts, these materials describe the economy and finance in terms which are personal and relatable to young people’s lives. Why does the economy and finance matter to me? And how do my decisions in turn affect the economy? We set ourselves a target of reaching 400 state schools with econoME during the course of this year. So far since launch in April, over 1,000 schools have downloaded the materials, conceivably covering around 90,000 pupils. 52 This demonstrates the potential pent-up demand for school materials on economic and financial issues. The Bank’s aim is to reach close to 1,500 schools by mid-2020. We are currently considering where next to take our education initiatives. A promising avenue would be a younger age range, say 7-11 year olds. This will require different materials and possibly a different approach. A more challenging market still would be adults, perhaps linked to existing initiatives to boost 50 51 52 Haldane (2018a) and Barnes et al (2017). ING-Economics Network Survey of the Public’s Understanding of Economics (2017). Assuming 30 students per class and 3 classes per school. 22 All speeches are available online at www.bankofengland.co.uk/speeches 22 economic and financial literacy in the public at large. The scale of the public understanding deficit means central bank efforts can only be part of the solution but, as public institutions, an important part.

The focus is often on individual pension savings, but households’ total pension wealth also contains savings in collective funds, for instance, in systems for occupational pension schemes and premium pensions. The fact is that this form of saving currently comprises around half of total financial assets (see Figure 3). Moreover, we all have pension assets linked to the general income-based pension, which are not in funds but are linked to the pension rights we earn until we retire. Whether or not one has a job does play a major role for the size of the collective saving and the general income-based pension. It determines whether or not one receives an occupational pension and is also important for one’s income profile during the working life. Lower unemployment and higher employment should therefore have a levelling distributional effect for this reason, too. 8 The employment perspective on the income distribution in Sweden is described by, for instance, Bengtsson, Edin and Holmlund (2014) and SNS (2017). 9 See, for instance, Government Bill 2011/12:100. 10 [14] Figure 3.

There are also relatively large variations between households with regard to the distribution of capital income from capital gains, yield and interest on different types of asset and liability. The effect of an expansionary monetary policy on income and wealth distribution can thus vary for this reason, too. Households’ capital incomes may, for instance, differ in their sensitivity to changes in interest rates. All else being equal, low interest rates benefit household with relatively large debts as interest payments become lower. Households with bank savings are correspondingly disadvantaged and households with relatively large interest-bearing assets thus have a lower yield. Here the maturity of the different assets and liabilities also plays a role. If, for instance, mortgages are mainly at fixed interest rates, the effect of interest-rate cuts will be less than if the loans are primarily at variable rates. A comparison between different income groups shows that liabilities as a percentage of disposable income are more than 250 per cent in all groups in Sweden (see Figure 2). With the exception of the group with the lowest income, however, there is generally little difference in the debt-to-income ratio between the groups. 5 A related question is how income from these two sources develop in relation to one another over time. See, for instance, Karabarbounis and Neiman (2014) who find that the share of labour income has fallen in many countries and many sectors. 7 [14] Figure 2.

Paradigm is a word too often used by those who would like to have a new idea but cannot think of one. Optimism about growth rates has been greatest in the United States, which is hardly surprising given the recent performance of the US economy. But wiser heads counsel caution. Alan Greenspan has argued that, although there is evidence of a structural shift in the level of productivity, the laws of supply and demand have not been repealed. Eventually the old relationships will return. If the UK economy moves in mysterious ways, it does not always perform wonders. A comparison between the US and UK is instructive. In both countries earnings growth has been lower, given the level of unemployment, than would have been predicted on the basis of past relationships. Inflation has not picked up despite a tight labour market. In the US one explanation for this benign outcome is that costs have been held down by an increase in productivity growth. Over the past three years labour productivity (output per person hour) in the US has grown at an average annual rate of around 22%, well above the average rate of 1–12% over the past thirty years; and over the past year productivity growth rose to an annualised rate of 3% or more. Over the same three years productivity growth in the UK has been 12% a year, well below the thirtyyear average of 2–22% a year.

It is extremely difficult, if not impossible, to know how large that windfall might have been. But even a windfall of 0.1 percentage points of GDP is a sizeable amount. Of course, somebody might very well point out that we could have reaped this same “windfall” by allowing inflation to rise to match the higher inflation expectations. But that would be inconsistent with aiming to hit the inflation target, and might well have led to a further ratcheting-up of inflation expectations. It would have lost us all the benefits that low and stable inflation brings. What has the MPC learnt in the past two years? The first two years of the MPC have been a learning process for all concerned, both the members of the MPC and those outside who observe and comment on its actions. We have learnt from experience and made changes where necessary. For example, the minutes of MPC meetings are now published after two rather than six weeks. The additional delay created unnecessary speculation about the issues on the minds of MPC members, and made it difficult for us to explain our actions – for example, to the Treasury Select Committee – when our decisions had moved on from those described in the most recent minutes. So we decided to accelerate publication. I would like to focus on two main lessons from the first two years. The first is the crucial importance of a symmetric inflation target.

Valuations lead lending by around a year, with a correlation coefficient of around 0.75. 2 BIS central bankers’ speeches One way of slowing that pro-cyclical spiral would be to base lending decisions not on spot, but on medium-term or sustainable valuations. Any ramping-up of property prices above their sustainable value would not then automatically give the appearance of safety and thereby encourage looser credit conditions. That, in a nutshell, is the aim of the recommendation in the “Vision” document. Needless to say, there is further work to be done by the industry to make these proposals operational. The very first minutes of the Forum highlighted property statistics and valuations as two areas where greatest improvement was needed. Twenty years on, that remains the case today. A continued effort will be needed by the industry to complete the job. Next, regulators. For much of the period prior to the financial crisis, credit and asset price cycles were only of interest to policymakers to the extent they posed a direct risk to inflation targets or to the solvency of individual firms. Were a bubble to blow, then the most likely response was a combination of benign neglect on the upswing and lower interest rates in the downswing. The role of policy was to “mop” after the flood. That orthodoxy has been sunk by the crisis. After perhaps the largest credit boom in human history, central banks globally are still frantically mopping with unprecedented degrees of monetary stimulus.

To illustrate, an estimated 80% of trades are BIS central bankers’ speeches 3 executed in electronic platforms in developed country FX markets, whereas 85% of FX trades in Asia are still executed by voice. A reduction in transaction costs can promote greater liquidity for Asian asset classes, and broaden participation from investors including retail traders. III. Growing regional and international role of the RMB 24. Let me go on to the third theme I wanted to talk about, which is that of RMB internationalisation, and how this will shape Asia’s financial markets development. 25. The status quo will not last. Currently, only 0.6% of global payments are settled in RMB, vastly below China’s share of global trade (10%) or investment flows. There is clearly room for growth. 26. In the long run, if we envisage China with deep and liquid capital markets, and a largely liberalised capital account, the RMB market will potentially play a transformational role in Asian finance. For now, even with limited convertibility, there is considerable potential for greater use of the RMB. The economic fundamentals are driving this. Besides China’s growing share of global trade, there is a rapidly growing trade between China and the rest of the Asian region, and especially ASEAN. Further, China’s foreign direct investments are expanding strongly, especially into Asian markets. Outbound Foreign Direct Investment (FDI) from China has increased almost seven-fold in the last seven years (to $ billion in 20123), and is expected to expand further in the coming decade.

6 BIS Review 71/2008 Appropriate liquidity facilities The third lesson concerns appropriate liquidity facilities. In order to react quickly and flexibly, central banks must be capable of injecting and withdrawing large amounts of liquidity at short notice. In order to distribute liquidity to banks when the money market is impaired, central banks must also be able to conduct operations with a maximum set of counterparties and against a broad range of collateral. In order to address liquidity premia, central banks should be able to intervene in maturity ranges which are longer than the maturities at which they usually operate. Central banks may also need to enlarge the basket of eligible collateral during a crisis. Furthermore, the crisis has made it clear that the effectiveness of a standing loan facility in times of crisis may be reduced if there is stigma attached to its use. Moreover, central banks should also have alternative plans up their sleeves on how to deal with severe and persistent illiquidity in the money market. The collateral swap facilities are not traditional liquidity management operations aimed purely at injecting liquidity. They provide a temporary relief of banks' balance sheets and therefore indirectly support liquidity in the money market. However, central banks should use such drastic measures only in exceptional cases. Central banks also need exit strategies for such eventualities. Finally, the crisis has also shown that, in order to successfully address financial market turmoil, central banks need enough room to manoeuvre and a liberal legal framework.

As a central banker, I would date the outbreak of the financial market crisis to the beginning of August, when overnight interbank rates increased sharply. The first central banks to react were the ECB and the SNB on 9 August, when both banks conducted extraordinary finetuning operations. Soon afterwards, other central banks followed suit, also injecting additional liquidity. 4 For a discussion of the transmission of monetary policy to financial markets see Ph. Hildebrand (2006), “Monetary Policy and Financial Markets”, speech given to the Annual Conference of the Swiss Society for Financial Market Research, 7 April 2006, or Th. J. Jordan (2007), “Globalisierung und Finanzmärkte: Herausforderungen und Chancen”, speech given at the ETH Zurich, 13 November 2007. 5 Of course, to retain credibility, the central bank must refrain from deceiving the markets, i.e. from announcing future action without actually intending to act. 6 As measured by the Case Shiller Composite Index. BIS Review 71/2008 3 So far, there have been three waves of money market strains. After subsiding somewhat in late September, the strains increased again in November, exacerbated by year-end pressures. The third wave started in March. The worst peak of the financial market crisis so far was attained in mid-March, when Bear Stearns was taken over by JPMorgan. The takeover, which was facilitated by the Federal Reserve, resulted in a calming of markets. Since mid-March, financial markets have improved somewhat, with the exception of money markets, which are still rather tense. 4.

Digital Transformation Fintech opportunities and risks Implementing the Bali Fintech Agenda Intervention of Mr. Abdellatif Jouahri Governor of Bank Al-Maghrib Rabat, 13 March 2019 Dear colleagues and friends, Ladies and Gentlemen, It gives me real pleasure to be addressing you in this opening session of the Regional Conference for Africa and the Middle East, held by Bank AlMaghrib and the International Monetary Fund, on the digital transformation and the implementation of the Bali Fintech Agenda. I would like to start by thanking you all for your presence today, and wish a pleasant stay in Morocco to those of you attending from abroad. I would also like to thank the International Monetary Fund, particularly the entire staff of the Monetary and Capital Market Department, for having accompanied us for months in preparing this conference. My warmest thanks go to the Department Head, Mr. Adrian Tobias, and to his deputy Mr. Ghiath Shabsigh, with whom we have worked closely. I am also delighted by the strong participation of central banks and regional and international institutions; I am confident that many colleagues here had to adjust their schedules to take part in this conference witch shows the importance they attach to the issue we are addressing today. The idea of this meeting emerged two years earlier, in our quest for expertise and experience with regard to the approaches and policies to cope with digital revolution.

Experience of previous financial crises shows that they are usually followed by long periods of weaker growth, higher unemployment and seriously weakened public finances.10 GDP fell in both the United States and the euro area in 2009 and unemployment increased. Inflation fell rapidly, mainly because the earlier increases in the prices of energy and food turned into price decreases. However, there were other parts of the world that were not affected by the crisis to any great extent. Countries such as China and India continued to enjoy high rates of growth. The financial crisis mainly affected Sweden through the fall in the international demand for Swedish exports. GDP fell by 5.9 per cent between 2007 and 2009, but then increased by 5.5 per cent in 2010. Already a year after the downturn had bottomed out, production had returned to more or less the same level as before the crisis. But GDP was still far below the level that a postulated trend increase without the crisis would have led to (see Figure 11). Unemployment peaked at almost 9 per cent at the turn of the year 2009/2010. The increase in unemployment was much less than predicted in the Riksbank’s earlier forecasts and much less than indicated by normal Okun links between GDP growth and unemployment.11 This is probably because the crisis primarily affected the industrial sector with substantial effects on GDP but smaller effects on employment, while activity in other parts of the economy was kept up by expansionary monetary and fiscal policies (see Figure 12).

We, at the Central Bank, will be working intensively for permanent achievement and sustainability in all matters related to price stability and financial stability, particularly monetary policies, with the pride and sense of responsibility of celebrating the centenary of our Republic, at the Istanbul Financial Center, the construction of which will be completed this year. Distinguished Guests, Concluding my remarks, I would like to thank my esteemed colleagues for their painstaking efforts to support our Bank in its activities, and also would like to pay my respects to you all for your participation. 4/4 BIS - Central bankers' speeches

On the other hand, challenges and opportunities introduced by technological development for central bank policies and decision-making, financial inclusion and financial instruments, are phenomena that affect not only the central bank but also the rest of the society. It is, therefore, necessary to study, analyse and address such phenomena based on facts and best scientific analysis. We value international cooperation in these fields as a very important contributor to coping with such challenges and undertaking visionary policies. Notably, the selected format for providing technical assistance enables the output objectives of the cooperation to be tailored to the characteristics of the Albanian economy and dedicated to the Bank of Albania and its decision-making and operational framework. The technical assistance consists of a set of activities that include all the phases and methods of learning and, at the same time, contributes to all concrete and flexible policy-making processes at the central bank. Activities under the programme range from lectures to practical implementation of the knowledge and application in specific projects, in accordance with the priorities of the Bank of Albania. The selection of a serious partner is another important aspect for the success of this agreement. The Graduate Institute Geneva has become an important partner for the Bank of Albania, contributing with its academic staff as well as collaborators it selects among renowned professors and experts of economics, finance and banking.

We are both children of the successful German central bank, the Bundesbank. We have sprung from the same intellectual model, where the target is price stability, the management are appointed by the political system and the actual work is done at an arm's length from party politics. · In my opinion, the value of conducting a national interest rate and exchange rate policy is exaggerated in the EMU debate. On the other hand, it is conceivable that situations might arise where strongly stabilising fiscal policy measures are necessary. It would then be necessary to find institutional solutions to help the government and parliament to make the necessary long-term decisions and to do so even in situations where they may be politically difficult and even risky. Here I think it is possible to draw on some experiences of the Riksbank's actions in recent years. Clear targets, transparent analyses and discussions, combined with regular assessments, can put pressure on the political system to take action in time. · 4 As representative of the Riksbank, I have been able to experience at first hand the closed doors to the meeting rooms of Europe and the fact that we have lost influence. During the early years, when the ECB was being built up, we sat at the decision-making table.

Is EMU membership important for Sweden to gain influence? Finally, I intend to discuss what I personally consider to be the most important aspect of the EMU issue - how Sweden's opportunity to take responsibility and exercise influence in an international economic policy context will be affected by the result of the referendum. Here I am speaking not primarily as Riksbank governor of six months but on the basis of my experiences over almost 20 years, as civil servant in the Ministry of Finance under three finance ministers and later as deputy governor of the Riksbank, representing Sweden in numerous international forums. My first reflection concerns Sweden's influence now, compared with before. As I see it, Sweden's influence has declined considerably, which is not always made clear in the general debate. The most important reason for this erosion of Sweden's position is that we, as I mentioned earlier, have declined in economic strength in relation to almost all of the other industrial nations. In addition, there is a more positive aspect here, namely that a number of former developing countries have made considerable economic progress and are now important players in the international economic policy game. The result is that we now sit at fewer decision-making tables than at any other point during the post-war period and we carry less weight at those tables where we have retained a place. One expression of this is that an ever-declining number of Swedes now hold central positions in economic policy and financial contexts.

Christine Lagarde: Learning the right lessons from the past Speech by Ms Christine Lagarde, President of the European Central Bank, on the occasion of the awarding of the Prix Turgot 2021, Paris, 2 June 2021. * * * It is a great pleasure to be here once again in Bercy, which brings back so many memories. I am very grateful to Jean-Claude Trichet and the Cercle Turgot for bestowing this prize on me. It is an honour to join such an illustrious group of recipients. Anne-Robert, Jacques Turgot himself said that “the whole mass of humanity … marches constantly, though slowly, toward greater perfection”. When I reflect on my career as a policymaker in Paris, Washington and Frankfurt, these words resonate with me greatly. History never moves in a straight line. Day-to-day, it can be hard to perceive any direction at all. But I do believe that, in retrospect, we can make out a clear path towards progress. After two decades working in the private sector, I have held public office throughout two decades of crises – a period when Europe has been severely put to the test. But each crisis has taught us a valuable lesson – and we have had the humility to learn. It is thanks to those past lessons that we have been able to respond to the pandemic effectively.

I believe that we can say something similar about the arc of progress. Europe moves forward in stops and starts. It often learns lessons the hard way. But its arc bends towards a stronger and more united Europe for all citizens. The common currency 3/4 BIS central bankers' speeches reflects this continued progress, with support for the euro at its highest level on record at 80%, up from 66% a decade ago.8 This should give us hope as we look to the future. And it should give us confidence that, even when Europe may seem divided or lacking in direction, there is a thread guiding us forwards. Over my career, I have had the privilege to watch this process unfold up close, to share in its highs and lows. I have been lucky enough to see it from three different perspectives – national, European and global. And I am honoured to continue working to take Europe forwards. I am very pleased to see the contributions of the European Central Bank recognised through my acceptance of this prize. Thank you. 1 Common Equity Tier 1. European Banking Authority (2020), “Basel III monitoring exercise – results based on data as of 31 December 2019”, December. 2 Lagarde, C. (2019), “The future of the euro area economy”, speech at the Frankfurt European Banking Congress, 22 November.

Our ignorance of how people behave under uncertainty, together with the presence of feedbacks between behaviour, outturns and beliefs, highlights some of the difficulties and pitfalls of economic policy making. Second, the recognition that beliefs and behaviour play an important role in the dynamics of the system affects the type of policy actions that are desirable. Ensuring that panic did not spread is one reason why guaranteeing all bank deposits following the run on Northern Rock in September 2007 was necessary. Third, communication is part of the policy response to uncertainty. In this respect, economic and financial systems differ from physical systems. In the latter, there is no-one listening. The control strategy in a physical system is defined by a scheme that relates the settings of policy instruments to certain features of the environment (e.g. fire left booster rocket if rocket veers to left of target). But in an economic system – because people’s beliefs about future policy actions affect their behaviour today – the control strategy has to comprise not only a plan for setting the instruments (e.g. raise Bank Rate if expected inflation rises) but also a plan to condition beliefs about how policy makers would respond in future. That involves communication. 6. Communication A communication strategy involves deciding how much information to communicate, and in what form. Revealing information entails costs and benefits. An optimal communication strategy balances those costs and benefits. Consider first the benefits. Information is valuable and can improve the quality of decisions.

Thereafter, the MPC expected that inflation was more likely than not to fall back and be below target for a period [Slide 5]. You can see that the most likely outcome, shown in the darkest band, was for inflation to stay below the target at the end of the forecast period. But the MPC also saw upside risks to that projection, stemming from the possibility that the current high level of inflation might become embedded in inflation expectations, so making inflation itself more persistent. To make these risks easier to discern, the MPC also makes available charts of the cross section of the probability distribution at particular points on the forecast horizon, like the one shown in [Slide 6]. The upside risks mean that at the end of the forecast horizon, the MPC judged that inflation was as likely to be above the target as below it. We can see this in the chart, because the narrower bands towards the left hand side mean that the mass below the vertical line marking 2% is about the same as the mass above it. But why do we show our projections like this? Many other economic forecasters publish their forecast as a single, most likely outcome. In our view, this sort of forecast is not very informative, as the actual probability of it being correct is very close to zero. In contrast, the whole distribution contains much more information. What matters for policy is the entire distribution of outcomes.

But it would be unwise to simply assume the market will bottom out at these levels for three reasons. First, expectations of house price declines can easily be self-fulfilling. The feared loss in value can overwhelm the benefit of low mortgage rates, leading would-be buyers to sit out the market. Second, with home construction at minimal levels, housing supply cannot decline in response to weak demand. Home prices thus are very sensitive to shifts in demand and credit supply. If access to mortgage credit for home purchases is unduly restricted, the market-clearing price for housing will be lower than it would be if access to mortgage credit was less constrained. Third, in contrast to the efficient mechanisms in place in the commercial property market to work-out troubled debt, the infrastructure of the residential mortgage market is wholly 6 BIS central bankers’ speeches inadequate to deal with a systemic shock to the housing market. Left alone, this flawed structure will destroy much more value in housing than is necessary. In a recent speech I called for a comprehensive approach to housing policy.

Irma Rosenberg: My time at the Riksbank – some final reflections on challenges along the way Speech by Ms Irma Rosenberg, First Deputy Governor of the Sveriges Riksbank, at SEB, Stockholm, 8 December 2008. * * * On a chilly day in January 1976 I crossed the threshold of the newly-built Riksbank building for the first time. It was true that all employees were moving into the new building that day, which contributed to the more or less organised chaos of furniture gone adrift and employees trying to find their new offices. But for me it was probably an extra special day. It was my first day at work. And it was my first job outside of the university after taking my PhD. Almost 33 years have passed since that day in January. And as I leave the Riksbank at the end of the year one could say that I have come full circle. It was where I began my career. In 1986 I left the bank, but in January 2003 I once again crossed the threshold at Brunkebergstorg 11, then as one of the six members of the Executive Board. This will now be my final full-time job. The years have been eventful ones, with more than a little drama from time to time.

To prevent a system-wide increase in merchant fees, the Payment Card Reform Framework would moderate the increases in payment card acceptance cost. This would be achieved by subjecting interchange fees to ceilings which are set based on objective and transparent criteria. In addition, the framework also seeks to address distortions in the payment card market in order to foster an efficient, transparent and competitive payment card industry in Malaysia. b. Enhancing the payment card infrastructure To complement the Payment Card Reform Framework, the banking industry has committed to invest approximately RM1.1 billion over the next 6 years for industry-wide infrastructure development to further enhance the payment card security and expand the Point-Of-Sale terminal network. This would make Malaysia’s payment card landscape more competitive. The infrastructure development that would be undertaken by the industry includes, among others: 2 BIS central bankers’ speeches • the expansion of the Point-Of-Sale network by an additional 570,000 Point-Of-Sale terminals, especially among the lower tier merchants; • the adoption of Chip and PIN, which is a more secure cardholder verification method for purchase transactions, by 1 January 2017; and • the migration of the domestic debit card from its proprietary standard to the internationally-recognised EMV standard equipped with contactless functionality by 1 January 2018. These developments are exciting changes in store for the payments sector. With it, comes an enormous opportunity to expand business and enhance value to consumers.

In 2013, our cash-in-circulation over GDP is 6% compared to only 2% to 4% in advanced countries. In terms of payment card usage, our payment card transaction per capita is relatively low, at only 13 transactions per capita in 2013. This is far below the level of payment card usage in the advanced countries with an average of more than 200 transactions per capita. It is also important to note that Malaysia has a higher proportion of credit card usage compared to debit card usage, with a ratio of 7 credit card transactions for every debit card transaction. In contrast, debit card usage is more prevalent in the advanced economies, at an average of 6 debit card transactions for every credit card transaction. The debit card is a more cost-effective payment instrument compared to the credit card. Greater use of debit cards would minimise the country’s retail payment cost and contribute to greater savings and efficiency. In this respect, the banking industry can play the important role of taking more proactive measures to widen the payment card acceptance infrastructure, and promote actively the usage of debit cards to the general public. It is a mutually beneficial relationship. Consumers can conduct their financial transactions in a safe, convenient and efficient manner while the banking industry can benefit through reduction in the cost of handling and managing cash. High potential for debit cards to displace cash in Malaysia Cash is an expensive payment instrument which imposes an unnecessary cost to the economy.

Different countries may also have different priorities in terms of resources for supervision and crisis management or in terms of their regulatory structures. One reason may be that the financial systems differ quite significantly between countries. Additionally, in crisis management, the use of public funds can never be completely ruled out. In a cross-border context, serious conflicts of interest can arise when it comes to agreeing on how to share the potential burden of such interventions. All these challenges have a common theme. Increasingly, national financial stability is becoming dependent on the activities of banks and authorities in foreign countries. Also, given the roles and responsibilities of these authorities, conflicts of interest are likely to occur. The typical illustration of this problem is a bank being of limited size in the home country while having a systemically important branch abroad. While a potential failure of the bank would not create any substantial disturbance in the home-country economy the consequences to the host country could be destructive. As the host country, in the event of failure, is likely to end up with the bulk of the bill for resolving the crisis, the incentives to conduct close supervision of the bank are substantial. For the home-country on other hand the same incentives do not exist. Financial integration also raises a number of practical issues. Do the present legal frameworks provide authorities with the necessary tools for supervising cross-border banking groups in an efficient way?

Another challenge is that decisions and actions by national authorities are likely to have considerable implications for the financial stability in foreign economies. This is of course particularly true in cases where foreign operations are run through branches, meaning that they are subject to foreign supervision. However, in Europe at least, the consolidating supervisor has an increased influence also on foreign subsidiaries, within the new capital regulation – the Basel II-framework. In the Nordea case – which is now a group with a subsidiary structure – the Swedish consolidating supervisor has a possibility to influence the risk management of the group as a whole but also in the different subsidiaries. Now, Nordea has announced plans to convert its subsidiaries in the Nordic countries into branches. When, and if, this plan eventually becomes a reality, Swedish authorities will have the full 2 BIS Review 83/2007 responsibility for supervising three foreign branches, all of which may be of systemic importance in the different host countries. A third challenge is that the legal distinction between branches and subsidiaries is becoming blurred. Increasingly banking groups are starting to organize themselves along business lines rather than along legal and national lines, concentrating various functions to different centres of competence. There are several examples of this trend. Again Nordea is one illustrative example.

The two cities are situated in different regions and their real economies have different clientele. With capital account controls still in place on the Mainland, the further opening up of Shanghai, such as the development of its Free Trade Zone, will lead to closer and more extensive business, trade and financial links between the two cities, meaning more business opportunities. In 2000, there were 23 flights a day between Hong Kong and Shanghai. In 2013, this had increased to 75, clearly demonstrating that the continuous growth of Shanghai will result in more business exchanges with Hong Kong and creating a win-win situation. 9. Indeed, the launch of the Shanghai-Hong Kong Stock Connect on November 17 resonates with my assertions here in several ways. Last week, Vice-Premier Ma Kai told the visiting delegation of the Hong Kong Association of Banks that the scheme was not only a 2 BIS central bankers’ speeches milestone for financial co-operation between Hong Kong and Shanghai, but also a strategic move towards the Mainland’s capital account convertibility and the opening up of its capital market. Furthermore, the Shanghai-Hong Kong Stock Connect adds another important channel for the circulation of renminbi between onshore and offshore markets. It is also a strong vote of confidence in Hong Kong’s development as an international financial centre, reaffirming our unique role as the offshore testing ground for the Mainland’s financial liberalisation. Zero-sum vs positive-sum 10.

Mario Draghi: ECB press conference – introductory statement Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 8 September 2016. * * * Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis. Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases. Regarding non-standard monetary policy measures, we confirm that the monthly asset purchases of € billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. Today, we assessed the economic and monetary data which had become available since our last meeting and discussed the new ECB staff macroeconomic projections. Overall, while the available evidence so far suggests resilience of the euro area economy to the continuing global economic and political uncertainty, our baseline scenario remains subject to downside risks. Our comprehensive policy measures continue to ensure supportive financing conditions and underpin the momentum of the euro area economic recovery.

Knowledge of the size of this uncertainty can in itself be relevant for those who wish to form an idea of how the repo rate will develop in future. There are various methods that can be used to form an idea of how great the probability is of the repo rate being within a particular interval at a particular time in the future. We made an analysis in a box in the last Inflation Report as to how this kind of uncertainty interval can be calculated and presented two different methods 4 . In the first method, the implied forward rates are calculated for various points back in time. A study is then made of how well the implied forward rates have anticipated the actual development of the repo rate. Based on the “forecasting errors” it is possible to calculate the uncertainty interval around the forecast given by the implied forward rate path. The method is thus retrospective. Unsurprisingly, the calculations show that the spread of the deviations (the standard deviation) increases with the length of the forecast horizon (see Figure 4). This illustrates the uncertainty about macroeconomic developments in general and that the probability for unexpected disturbances arising in the economy increases with the length of the forecast horizon. 2 See also the Separate Minutes of the Executive Board, No. 4, 2006. 3 See also Nyberg, L., “House price developments and monetary policy”, speech at Evli Bank, 19 December 2005.

Loan growth in July increased to 11.8 percent while deposits including bill of exchange grew by 1.9 percent. Liquidity in the system remains adequate, with loan/deposit ratio excluding interbank transactions at 90.1 percent in July. On asset quality, gross NPL ratio edged downward to 6.4 percent in June. These numbers show that the performance of the Thai banking sector is quite robust, and is well positioned to support the economy. Fourth, a more difficult picture to assess is the impact of the turmoil on the economy and how this would translate into the impact on the banking sector. So far, notwithstanding the less helpful global environment, the Thai economy has performed relatively well, with growth averaging 5.7 percent in the first half of this year. But going forward, market participants expect the economy to become more affected by the slowing global economy. Our own forecast also sees growth to be less buoyant in the second half of the year, reflecting a more adverse impact on exports. But overall, the momentum of growth should not be too adversely affected given the support that growth could gain from domestic demand which is being supported by high farm income, continued credit availability, and supportive fiscal policy. Moreover, lower oil prices and monetary policy that focuses on inflation should provide a stable price environment conducive to domestic demand and to export competitiveness. Also, continued current account surpluses, lower external indebtedness, and high domestic savings have made the economy’s financial conditions more stable, by reducing its dependency on capital flows.

The implications for monetary policy will depend on the relative magnitudes of these effects. In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer. The Committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report. In August, we will also discuss further the range of instruments at our disposal. These judgments will benefit from the Bank’s joined-up approach. For example, the PRA’s direct line of sight of banks, building societies and insurers, and the FPC’s oversight of systemic risks, allows the Bank to understand better the net impact of any monetary actions on financial conditions, and ultimately businesses and households. As we have seen elsewhere, if interest rates are too low (or negative), the hit to bank profitability could perversely reduce credit availability or even increase its overall price. There are also interactions between prudential rules and the provision of credit in the face of large macro uncertainty. The Bank of England is well positioned to understand these interactions and will work across its policy committees to maximise the coherence and effectiveness of their efforts. I can assure you that in the coming months the Bank can be expected to take whatever action is needed to support growth subject to inflation being projected to return to the target over an appropriate horizon, and inflation expectations remaining well anchored.

I first made reference to the New Silk Road at the 2nd World Islamic Economic Forum (WIEF) on "Unleashing the Potential of Emerging Markets" in Islamabad, Pakistan in November 2006. It is my pleasure today to share some thoughts on the potential role of Islamic finance in strengthening the New Silk Road. My remarks will focus on four areas that is the emergence of the New Silk Road; how the linkages on the New Silk Road have built on the comparative advantages of Asia and the Middle East; how Islamic finance is able to foster the linkages along the New Silk Road; and finally, how we can extend the New Silk Road to the rest of the world to advance global economic stability and prosperity. The emergence of a New Silk Road Today, signs that a New Silk Road is flourishing are abundant. The economic and financial linkages between Asia and the Middle East are growing. While the world trade has on the average expanded by 10% over the period 2001-2005, Asia's trade with the Middle East has increased on the average by 24%. More than half of the exports from the Gulf states 1 goes to Asia and more than one-fifth of its imports are from Asia. The Gulf is the major supplier of fuel to Asia, while Asia in turn supplies manufactured goods and food to the Gulf. Recent trends in investment activities have been equally significant.

Key messages from the statement are: BIS central bankers’ speeches 3 • it is a responsibility of boards to establish strategy, set the risk appetite and monitor risk across the business and hold management to account; • the risk appetite must be clearly owned by the Board, integral to the strategy and actively used to monitor and control risks and inform key business decisions; • boards should articulate and maintain a culture of risk awareness and ethical behaviour; • boards should include individuals with a mix of skills and experience that are up-todate and cover the major business areas in order to make informed decisions and provide effective oversight of the risks; • but this does not mean expertise in every aspect of a broad and complex financial business – the point is to have the diversity of experience and capacity to provide effective challenge across the full range of business; • boards should act in a co-operative and collegiate manner whereby the nonexecutives support and encourage executive management and vice versa; • but this should not inhibit the non-executive directors from challenging executive management and holding them effectively to account; • non-executive directors should ensure they have the time and resources and access to the business they need to fulfil their duties; • executive management have a responsibility to ensure the Board can exercise its role and should exercise their judgement in bringing key issues to the Board’s attention at an early stage; and • the principle of good governance, including independence of the Chairman, should also apply to material subsidiaries.

Dimitar Radev: Eurozone slowdown likely temporary Publication in the MNI based on an interview with Mr Dimitar Radev, Governor of the Bulgarian National Bank, conducted by Mr Luke Heighton and published on 17 May 2019. * * * The eurozone slowdown may prove temporary, the governor of the Bulgarian National Bank told MNI, but whether Europe emerges from the current soft patch by the second half of 2019 is uncertain. "The euro area’s economy beat many economists’ expectations in the first quarter. But the pace and direction of the economy over the coming months and quarters are yet to be seen,” said Dimitar Radev, a member of the European Central Bank’s General Council since his 2015 appointment, noting the persistence of global trade tensions and “political developments” in Europe. "Recent data may be interpreted as signs that the region’s slowdown may be temporary,” he said in an emailed response this week to questions. Asked whether slow eurozone growth pointed to ‘Japanification', he replied: “comparisons with previous historical episodes and other economies do come to mind when we observe prolonged periods of slow growth, very low interest rates and aging population in Europe." "Policy responses may be effective only as long as they target structural areas, such as education, labour market and pension reforms. The focus needs to remain clear: to stimulate productivity and competitiveness,” he said, calling for more growth-oriented fiscal policies. "This does not necessarily mean higher spending. Moreover, higher spending would be counterproductive in countries with no fiscal space."

Figure 2 The Riksbank’s balance sheet total SEK billion 900 900 800 800 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 Jan-07 0 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Source: The Riksbank. Central banks in other countries have also expanded their balance sheets. Owing to the nature of the crisis and the structure of the financial systems in different countries, the central banks have implemented different measures and to a different extent. However, common to them all is the fact that their balance sheet totals increased dramatically immediately after the US investment bank, Lehman Brothers, filed for bankruptcy in September 2008 (Figure 3). 2 BIS Review 160/2009 Figure 3 Central banks’ balance sheet totals Percentage of GDP 30 30 The Riksbank ECB 25 25 Federal reserve 20 20 15 15 10 10 5 5 0 Jan-07 0 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Sources: Respective central banks. How has the work on our two main tasks affected the Riksbank’s balance sheet? Let me begin by discussing monetary policy and then move on to financial stability. Monetary policy The target of monetary policy is to maintain inflation at 2 per cent. The Riksbank normally steers the short-term interest rate to attain this target.

The Chatroom will provide speedy and timely feedback when new technology or solution is being contemplated, thereby reducing the risk of abortive work by the parties concerned and expediting the rollout of new fintech applications. Second, tech firms may have direct access to the Sandbox. Tech firms may test out their innovation by seeking feedback from the Chatroom without necessarily going through a bank. Third, we understand that our fellow regulators in Hong Kong, the Securities and Futures Commission (SFC) and the Insurance Authority (IA), will shortly be launching their own sandboxes. Following discussion among the HKMA, SFC and IA, we have agreed to link up the three sandboxes through a common interface so that there can be a single point of access by the stakeholders for fintech solutions covering more than one sector. (C) Facilitating Virtual Banking We believe that the time is ripe for Hong Kong to try out virtual banks. In some jurisdictions, it has proved to be technically feasible and commercially viable for virtual or branchless banks to operate. A virtual bank operates on a different model of service delivery and may help promote financial inclusion as they normally target small customers, be they individuals or SMEs. Our view is that the emergence of virtual banks in Hong Kong would also provide additional impetus to the application of fintech in Hong Kong and offer a new kind of customer experience in mobile and digital banking.

The estimated impact on output would be, of course, negative, dampening real GDP growth by 0.1 to 0.8 percentage points in the first year; in subsequent years, the average cumulative impact suggested by these models would be roughly neutral (-0.3 to 0.2 percentage points in the second year; -0.1 to 0.4 percentage points in the third year). Needless to say, these estimates are surrounded by a high degree of uncertainty related to the model specifications and other factors, for instance, the assumed initial cyclical position of the economy, the nature of the oil price shock, and the possible existence of non-linearities in the transmission of the oil price shock to the economy. More importantly, these (and other comparable) simulations are based on the assumption that the monetary policy stance is given; that is, the central bank’s interest rates are assumed to be kept constant and not to be adjusted in response to the impact of the oil price shock on inflation. Of course, this assumption is made for the purpose of isolating the “pure” impact of the oil price shock. In reality, monetary policy has an important role to play in influencing the effects of oil price shocks on the economy. Oil price shocks present policy-makers with difficult choices as they simultaneously pose upside risks to inflation and downside risks to growth. In responding to oil price shocks, it is essential to understand that policy-makers cannot offset the real effects of oil price increases.

With regard to inflation targeting strategies, it has been acknowledged that if financial imbalances accumulate and there is, for example, substantial uncertainty about the sustainability of asset price movements, it is not advisable to strictly pursue an inflation forecast for consumer prices over a horizon of one to two years. In such circumstances, it may be better instead to set interest rates with a view to a time-frame extending well beyond conventional forecast horizons. The ECB’s monetary policy strategy has some features that can become quite useful in this respect: • First, from the beginning, the ECB has adopted a “medium-term orientation”. This implies that policy is not set for a time horizon of one or two years. Rather, the ECB pays due attention to the need to take into account the entire horizon over which monetary policy and macroeconomic shocks impact on the state of the economy. This lengthening of the policy horizon helps to trace out the likely macroeconomic impact of a financial misalignment. • Second, the monetary policy strategy of the ECB is broad-based implying that a whole range of several indicators and models are employed and cross-checked, thus making the assessment and policy response to financial imbalances robust. In particular, the commitment to monitor and assess money and credit developments - besides being instrumental in identifying longer-term risks to price stability in general - may help to guard against ignoring asset price bubbles.

Risk indicators for the banking sector Risk indicators EBA-defined prudential range 2014 2015 Romania* 2016 Mar.17 14.56 16.72 17.55 17.72 17.84 17.15 15.7 14.56 16.72 17.55 17.72 17.84 17.15 14.3 20.71 13.51 9.62 9.36 8.32 7.96 4.5 55.61 57.72 56.34 56.79 59.13 59.37 45.0 11.90 8.43 6.36 6.37 5.90 5.85 2.9 -14.44 11.89 10.10 11.19 12.13 12.14 7.0 55.76 58.46 53.19 61.36 55.45 54.80 61.5 78.18 74.34 75.77 75.26 76.30 117.5 8.17 8.15 7.86 7.88 7.80 14.2 Jun.17 Sep.17 EU Jun.17 Solvency Tier 1 capital ratio CET 1 capital ratio >15% [12%-15%] <12% >14% [11%-14%] <11% Asset quality Non-performing loan ratio Non-performing loan coverage by provisions Ratio of restructured loans and advances <3% [3%-8%] >8% >55% [40%-55%] <40% <1,5% [1,5%-4%] >4% Profitability ROE Cost-to-income ratio >10% [6%-10%] <6% <50% [50%-60%] >60% Balance sheet structure <100% [100%-150%] 82.49 >150% <12x Debt-to-equity ratio [12x-15x] 8.91 >15x *) includes only banks, Romanian legal persons, according to EBA methodology best bucket intermediate bucket worst bucket Loan-to-deposit ratio for households and non-financial corporations Source: NBR, EBA 7 Figure 9.

The global fall in interest rates reflects the emergence of a considerable savings glut, especially after the countries in Asia joined the world market in earnest after 2000. The decline in interest rates is thus an international phenomenon, driven by falling inflation, lower growth and increased global saving. Interest rates in Norway cannot diverge too far from global rates. An excessively strong krone would then lead to a fall in activity and deflation. The main task of monetary policy is to maintain the value of money by keeping inflation low and 5/7 BIS central bankers' speeches stable. Inflation targeting is forward-looking and flexible so that it can contribute to high and stable output and employment and to counteracting the build-up of financial imbalances. Monetary policy cannot assume primary responsibility for financial stability. But as we are now in the process of raising the policy rate somewhat, this could also help curb debt growth. Will debt be reduced? It is easy to imagine that house prices will just continue to rise – as they have done for more than 25 years. Rising income and government wealth have gone hand in hand with rising house prices and higher household debt. But Norway’s experience from the years after oil was discovered, and in particular from the years following the banking crisis at the beginning of the 1990s, cannot serve as reliable guidance for what we can expect in the future.

Benign economic and financial conditions in recent years have kept credit losses at low levels. Combined with buoyant returns from capital market activity, the profitability of major financial institutions has been strong. And capital levels are high. But as highlighted in Financial Stability Reports by the Bank of England and others, this benign environment has encouraged an increase in risk-taking and a “search for yield” which has lowered the compensation for bearing credit risk and market risk to very low levels. The vulnerability of the system as a whole to an abrupt change in conditions has consequently increased. Against this background, I would like to focus my comments today on some of the implications for the management and reduction of risks to the financial system as a whole. More specifically, how can the public policy goal of promoting systemic financial stability be best achieved? I will not provide a fully comprehensive answer to this question but will touch briefly on four aspects; improving the assessment of vulnerabilities that might threaten stability; developing appropriate buffers for capital 1 Financial System Risks in the UK – Issues and www.bankofengland.co.uk/publications/speeches/2006/speech280.pdf BIS Review 77/2007 Challenges (John Gieve) (July 2006) 1 and liquidity within the financial system that take due account of the changing nature of risks; strengthening the core market infrastructure; and lowering legal uncertainty.

3/3 BIS - Central bankers' speeches

Even with an agreement in place that might reduce the probability of a default by Bear, we decided that independent of that outcome, it was important to get assured liquidity to primary dealers by Monday morning, to address the accelerating process of deleveraging and tightening liquidity seen in the financial system. On Sunday morning, executives at JPMorgan Chase informed us that they had become significantly more concerned about the scale of the risk that Bear and its many affiliates had assumed. They were also concerned about the ability of JPMorgan Chase to absorb some of Bear’s trading portfolio, particularly given the uncertainty ahead about the ultimate scale of losses facing the financial system. In this context, we began to explore ways in which we could help facilitate a more orderly solution to the Bear situation. We did not have the authority to acquire an equity interest in either Bear or JPMorgan Chase, nor were we prepared to guarantee Bear’s very substantial obligations. And the only feasible option for buying time would have required open ended financing by the Fed to Bear into an accelerating withdrawal by Bear’s customers and counterparties. We did, however, have the ability to lend against collateral, as in the back-to-back nonrecourse arrangement that carried Bear into the weekend. After extensive discussion with my colleagues at the New York Fed, Chairman Bernanke, and Secretary Paulson, and with their full support, the New York Fed and JPMorgan Chase reached an agreement in principle that the New York Fed would assist with non-recourse financing.

In particular, the advent of bancassurance and bancatakaful has seen more players packaging life insurance and family takaful with innovative investment options that incorporate banking product features. Today, bancassurance and bancatakaful constitutes a significant feature of Malaysia's financial landscape, and continues to develop rapidly in terms of market reach and operational sophistication. The recent passage of the Insurance (Amendment) Bill on Financial Advisers marks yet another important milestone in ongoing efforts to achieve a more diversified market structure. With the legislative framework now in place, I am pleased to announce that Bank Negara Malaysia will soon be issuing licences for financial advisers. The introduction of financial advisers in the Malaysian insurance industry will further diversify the distribution system for life insurance. Corporate bodies with a minimum paid-up capital of RM100,000 will be eligible to apply for a financial adviser's licence. Similar amendments to the Takaful Act 1984 will be undertaken in the near future within the context of more substantive and wide-ranging changes to the current legislation. Our foundations for financial stability will also continue to be strengthened with the ongoing evolution of a more diversified and balanced financial structure. Today, Malaysia stands at the forefront in the provision of comprehensive Islamic financial services covering banking, takaful, and the capital and money markets. In the area of takaful, Bank Negara Malaysia continues to undertake initiatives aimed at developing significant market players that are able to compete effectively and efficiently.

Indeed, these investors may choose not to enter emerging markets in the first place - standstills would pre-empt the inflow rather than precipitating the outflow. But the behaviour of longer-term investors needs also to be weighed. They would stand to gain from country runs being forestalled. Their incentives to flee are thereby diminished. The net effect might be some change in the composition of the developing countries’ capital stock, with fewer fleet-of-foot, skittish investors and a greater number of longer-term, sticky investors. This change in capital stock ought to be advantageous from the welfare perspective. Third, might standstills worsen contagion between markets, the like of which we saw following Russia’s debt moratorium in 1998? Contagion appears to be a fact of life in a world of cross-border capital flows. The question is: would articulating a role for structured standstills worsen contagion? It is not clear that more coherent crisis-management framework would increase the incidence of standstills; it might reduce their cost. And to the extent that contagion is sourced in investor uncertainty, it might to some extent be mitigated by the proposals I have outlined. So, to summarise, there are good reasons to think that a world of structured standstills might alter investor behaviour and the international flows of funds. It is difficult, however, to believe that these changes would be damaging to the international capital market mechanism - indeed, some would clearly improve its functioning. Sovereign defaults will continue to occur periodically.

On its 2 BIS central bankers’ speeches own, however, such a policy will raise difficult political questions about the capacity of the weaker sovereigns to pay for any recapitalisation of their banks. Bank and sovereign solvency concerns are inextricably intertwined. In the end, the underlying solvency concerns require countries to adopt compatible policies so that they can credibly service their internal and external debts. What does this mean for our own economy? Our objective must be to steer the UK economy slowly back to a position of more normal interest rates and lower budget deficits. With a lower level of sterling and a credible plan to reduce the fiscal deficit over the medium term, we were on track. But the problems in the euro area and the marked slowing in the world economy have lengthened the period over which a return to normality is likely. 2011 has been the year of the reluctant recovery. Growth has disappointed, both here and abroad. Business and consumer confidence have fallen sharply, not only at home but also elsewhere in Europe and the United States. And the level of world trade in goods has stagnated. A slowing of the world economy, especially in the euro area, is a threat to our strategy of rebalancing and recovery of the UK economy. Despite the more competitive level of sterling, the recovery in our trade position is at risk of stalling.

In making our streets clean and free from litter, it is not enough to station one health inspector at the corner of every street to catch offenders (there are simply not enough health inspectors to go round anyway), nor is it enough to raise the fines against littering to a draconian level because people will still litter if they think they can avoid being caught. The best way to keep our streets clean or cleaner, in my view, is to nurture the value among our citizens that littering is morally bad and should not be indulged in even when no health inspector is around and there is a low chance of being caught. In the context of the financial-services sector, the best way to uphold the integrity of the markets and trustworthiness of the industry is for the stakeholders to nurture and cherish a culture and values that encourage and support honesty of the practitioners and 4 BIS central bankers’ speeches restrain the institutions from placing the maximization of profit above the interests of the customers. This may all sound very idealistic and is “easier said than done”. We all understand that it will take a long time, years and even decades, to change people’s mindset and values. However, no IFC is built overnight. It has taken London and New York many, many decades to become what they are today. The race to become among the top IFCs in the world is a long term endeavour.

I would note this is something the Committee was able to anticipate before the referendum, the minutes of the MPC’s May 2016 meeting stating that “[t]he implications for the direction of monetary policy will depend on the relative magnitudes of the demand, supply and exchange rate effects.” And my colleague Ben Broadbent has recently set out in more detail what this means in the particular context of Brexit. True to this statement, the MPC has set monetary policy since the referendum on the basis of its assessment of how those effects are interacting. This is made difficult by the large, uncertain and sometimes offsetting implications of the decision to leave the EU. So it is not surprising that even though all Committee members sign up to the framework I have laid out, their individual assessment of the economic outlook has differed along the way. Decide Which brings me to the second phase of ‘end to end’ monetary policy: Decide. In the MPC’s meeting at the start of this month, a majority of its members thought that the evolution of supply and demand was such that the margin of slack in the economy now seemed fairly limited, and that underlying inflationary pressures had shown some signs of picking up. As a result, they judged that this reduced the degree to which it was appropriate for the MPC to tolerate an extended period of above-target inflation, and that a small reduction in stimulus was warranted.

we use cookies together, youtoare theagree blueprint serve the foundation forcan our global This isbythe house we're going to live in for a long time. Let's build it to last. reviewing our Privacy Statement. 1 Alternative Reference Rates Committee, ARRC Commends Decisions Outlining the Definitive Endgame for LIBOR, March 5, 2021. 2 Alternative Reference Rates Committee, Progress Report: The Transition from U.S. Dollar LIBOR, March 31, 2021. 3 John C. Williams, 901 Days, Remarks at Securities Industry and Financial Markets Association (SIFMA), New York, July 15, 2019. 4 Forum on Ongoing Innovation in Reference Rates for Commercial Lending, Presentation materials, Federal Reserve Bank of New York, New York, November 18, 2020. 5 Alternative Reference Rates Committee, ARRC Identifies Market Indicators to Support a Recommendation of a Forward-Looking SOFR Term Rate, May 6, 2021. 6 Alternative Reference Rates Committee, Second Report, March 2018. 7 John C. Williams, 537 Days: Time Is Still Ticking, Remarks at LIBOR: Entering the Endgame, Webinar, July 13, 2020. See also: Financial Stability Board, Reforming Major Interest Rate Benchmarks, November 20, 2020; and Bank of England Financial Policy Committee, Interim Financial Stability Report, May 2020. 8 Alternative Reference Rates Committee, The ARRC Selects a Broad Repo Rate as its Preferred Alternative Reference Rate, June 22, 2017. 9 John C. Williams, 537 Days: Time Is Still Ticking, Remarks at LIBOR: Entering the Endgame, Webinar, July 13, 2020. See also: Federal Reserve Bank of New York, IOSCO Compliance, as of May 2021.

Peter Praet: Interview in La Libre Belgique Interview with Mr Peter Praet, Member of the Executive Board of the European Central Bank, in La Libre Belgique, conducted by Ms Isabelle de Laminne and Mr Vincent Slits and published on 21 December 2015. * * * What is the situation in the euro area on the eve of 2016? How do you see the coming years? The economic outlook has improved, in an environment where interest rates are low and oil prices have fallen sharply. The positive effects of the structural reforms in a number of countries, such as Spain and Ireland, should also be underscored. These factors have had positive effects on the labour market and on the economic recovery. Fiscal policies will be more neutral too, even slightly expansionary. In fact, they will contribute 0.1% to GDP growth in the euro area in 2016 and 2017. Enormous fiscal efforts have been made, although debt levels are still too high. However, we must bear in mind that real GDP in the euro area in the first quarter of 2016 will barely return to its level of early 2008. This means that over the last eight years the GDP of the euro area has not grown in real terms, on average, even though countries like Germany saw reasonable growth. Other countries have experienced a severe fall in their living standards for a very long period of time. This poses a number of problems.

Monetary policy must then be conducted in a flexible way based on the available information. This means, for instance that assessments of whether financial imbalances are being built up and the risks that are associated with this must be taken into consideration in some way when monetary policy decisions are made. And even if the possibility for an individual central bank to influence a strong international stock exchange increase through interest rate hikes is very limited, nothing will be improved by an excessively expansive monetary policy. The increase in share prices is moreover often followed up by a price increase in the real estate market and in contrast to the stock exchange, this is local and thereby to a greater extent dependent on the national interest rates. A more in-depth analysis of the quantity of money and expansion of credit can give leads as to what happened with household and corporate balance sheets and in the financial institutions, In certain periods, it can therefore be justified to give the analysis of lending and monetary policy increased weight. The complexity of the transmission mechanism combined with the necessity of clarity and openness sets considerable challenges for monetary policy decision-makers. It is important to avoid simplifying to such an extent, in the endeavour to create understanding of what one is doing, that one compromises one's freedom of action. BIS Review 40/2001 5

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.

In part this reflects a significant spike in economic policy uncertainty and the related risk that protectionism could prove more pervasive, persistent and damaging than previously expected. As I will discuss in a moment, these headwinds are now restraining business investment globally and could push down on the global equilibrium interest rate, exacerbating concerns about limited monetary policy space. Long-term government bond yields have fallen sharply alongside the falls in expected policy rates. US 10year yields are near three-year lows, and 10-year gilt yields and German 10-year bund yields are their lowest ever. Around $ trillion of global debt is now trading at negative yields. As material as these global developments are, the UK outlook hinges on the nature and timing of Brexit. The UK economy contracted slightly last quarter and surveys point to stagnation in this one. Looking through Brexit-related volatility, it is likely that underlying growth is positive but muted. The biggest economic headwind is weak business investment, which has stagnated over the past few years, despite limited spare capacity, robust balance sheets, supportive financial conditions and a highly competitive exchange rate. There is overwhelming evidence that this is a direct result of uncertainties over the UK’s future trading relationship with the EU, and it serves as a warning to others of the potential impact of persistent trade tensions on global business confidence and activity. The UK economy could follow multiple possible paths depending on how Brexit progresses with material implications for the stance of monetary policy.

And any review mechanism must take careful account of the implementation costs incurred by banks when the rules change. But it is costly, too, to persist with regulatory standards where they are clearly out of line with market practice. Real effort has been made to tie the Accord to best market practice and thus to changes that banks will need to introduce anyway. Going forward, the guiding principle, difficult I know to achieve in practice, should be to keep to a minimum the difference between expenditure that banks would be incurring in any event and that required by regulators. Part of the trick is to ensure sufficient continuity of core aspects of the standards, so that changes to basic IT systems etc are minimised or at any rate can take place over time. Time is, after all, a major help in this respect. Implementing systems changed as part of the software obsolescence cycle may involve only modest marginal cost. More immediate and discrete changes are always going to be more costly. These issues will clearly need further discussion. In the EU context, however, it is particularly important that the arrangements for revising any Directive reflect, if not the letter, at least the spirit of Lamfalussy. It would be wholly inappropriate to try to hard code all the detail of the pillar one rules in an EU Directive, as if these can necessarily stand for a long period of time.

- Third, major advances in the services available to consumers of non-financial products have made them much more demanding of a similar consumer experience from banks and their peers. Younger consumers in particular now rely totally on their phones, and expect the same ease of use, choice and service integration they get from the so-called ‘GAFA’ (Google, Apple, Facebook and Amazon). Firms in Asia and elsewhere, such as Alipay and Tencent, unencumbered by legacy systems, have perhaps moved furthest and fastest in that direction. - And, fourth, public authorities are putting more weight on competition, reflecting a frustration in some quarters with the pace of consumer-benefiting change, and a recognition that innovation and competition may actually boost, rather than harm, prudential stability, where it helps reduce single points of failure and replace operationally vulnerable legacy systems. In the UK, the Bank of England has a New Bank Start-up Unit and has recently broadened access to its Real-Time Gross 3 Settlement service ; the government created a new Payments Systems Regulator, focused on competition, and is implementing Open Banking, itself the result of recommendations from the CMA; and the FCA has pioneered the use of a so-called ‘regulatory sandbox’ as part of its Project Innovate. These are strong and persistent forces. The resulting technological change and innovation, though uncertain in timing, will have profound implications for the nature and range of financial services available to households and firms.

The last turmoil in the global and domestic financial markets has been a concrete proof of this fact. Thus, the dedollarization is not a straightforward process. As a clear evidence of this, the findings of Reinhart and her friends 13 show that only two countries, Israel and Poland, out of a total of 85 countries managed to achieve large and lasting declines in domestic dollarization. Accordingly, we can say that dedollarization is a difficult and long lasting process that is very much related with the macroeconomic stability and proper incentives. Hence, what we should do first is to continue with the current sound macroeconomic policies and structural reforms in a decisive way. Second, in order to start dedollarization, an active dedollarization strategy such as the so-called “carrot and stick approach” in the literature, which consists of regulations that will encourage the use of the Turkish currency, should be planned. However, as Ize and Levy-Yeyati 14 suggest, before launching an overly ambitious policy agenda, we should make all the necessary researches to understand the roots, risks and costs of dollarization and the implications of policy reforms made against it. I think, this conference provides a big opportunity for all of us to share our opinions and experiences and to enlighten our way of dedollarization. Distinguished Participants, I would like to conclude my words by repeating that I am very glad to welcome such distinguished economists from all over the world. I am sure that we have a lot to draw on the experiences of each other.

On the other hand, the deployment of innovation hubs and accelerators, which takes me to the last part of my address, may successfully contribute to maximising and better understanding the benefits of new technologies for society. Hence, they could encourage financial innovation and/or increase the adoption of these technologies by the supervisory authorities in their functions. Indeed, regulatory sandboxes try to find a balance between these two objectives: they are defined as controlled and delimited environments in which technology-based financial innovations can be tested and monitored by the supervisors, while minimising the risks to the financial system and 5/6 BIS - Central bankers' speeches consumers. This is the main tool adopted by Spanish financial authorities since 2020 to respond to the emergence of new technologies in finance. The Spanish sandbox has opened up new ways for supervisory authorities to engage and cooperate with the fintech sector, whose players frequently do not have at their disposal other ways of interacting with financial authorities. More importantly, the sandbox has increased the participating firms' understanding of regulation and supervisory expectations and improved their regulatory compliance through their close interaction with the supervisor. The sandbox has also enhanced the supervisors' understanding of both the new technologies applied by the financial sector and their underlying benefits and risks, as well as of the potential regulatory barriers faced by innovators. Four cohorts have been run up until now, and the Banco de España has already published reports with the conclusions of six projects.

However, what seems more challenging to me is being able to reach the delicate balance between achieving our policy objectives and, at the same time, avoiding collateral damage, to the transmission of monetary policy and particularly to the stability of the financial system. It would probably be short-sighted to think that a CBDC would have no impact on the financial system. Of course it may replace cash to some extent, but it is difficult to believe that it will not attract a fraction of deposits as well. This means that a CBDC could have implications for financial stability, monetary policy, and the allocation of credit to the real economy. However, dispensing with its issuance in order to preserve the status quo is not an option either. Let me explain. We are in the middle of a 3/6 BIS - Central bankers' speeches whirlwind of change, so the question should not be "what should we do to avoid change?" but rather, "what should we do to ensure the stability of the financial system, in the midst of change?". That said, CBDCs may come in different shapes and forms; therefore, adequate design and implementation are needed in order to minimise their impact. This is not a minor task and requires careful analysis. There are many interlinked design options and they all have to be considered, both individually and holistically, in order to ensure they are a perfect fit. This is, in fact, what the Eurosystem is currently doing in the context of the digital euro.

Resource utilisation is important for monetary policy When we members of the Executive Board make decisions on monetary policy we take into account both inflation and resource utilisation. Our monetary policy is normally aimed at attaining the inflation target of two per cent a couple of years ahead. If we are also able to support economic policy in general without neglecting the inflation target, then we do so. At present this means that we can also use monetary policy to try to mitigate the current economic recession. It is fairly easy to follow inflation. Inflation is measured by means of a well-established and relatively uncontroversial instrument, the annual change in the consumer price index – the CPI. Of course, there are other measures of inflation that we regularly follow, such as the CPI with a fixed interest rate – the CPIF, the CPI with a fixed interest rate excluding energy, the EU-harmonised measure HICP, and a number of measures of what is known as underlying inflation. But we always clearly state that it is the CPI that is our target variable. We only use the other inflation measures to analyse and better understand developments in inflation. However, it is much more difficult to determine the degree of resource utilisation. On a general level, resource utilisation refers to how much of the available labour and capital assets are used. In practice, one tries to measure it in several different ways. For example, GDP in relation to trend GDP, employment ratio, unemployment and capacity utilisation.

But the connection probably still remains, albeit in a weaker form. This means that in our monetary policy we also have to take into account what effects resource utilisation has on inflation in the slightly longer term. I will return to this issue later on. Different measures of resource utilisation There is no clear-cut means of defining resource utilisation, nor of measuring it. When one tries to measure resource utilisation one is faced with different alternatives. For example, one can draw conclusions regarding resource utilisation in the economy by comparing output or employment with a trend, normal or ideal level. Examples of this approach include the GDP gap, the employment gap and the flexprice gap. Another alternative with regard to measuring resource utilisation is to use as a base responses to direct questions put to companies regarding, for instance, their utilisation of labour and capital. Both of these approaches have inherent difficulties. In the first case, one must relate actual output or employment to a trend, normal or ideal level that is difficult to determine, and in the second case one must rely on the companies’ own assessments of their resource utilisation. GDP gap A common means of measuring resource utilisation is to relate actual GDP to a long-term or trend level of GDP. This GDP level is also often called potential GDP, despite the word potential implying that GDP cannot be greater than this level.

Moreover, the 2004‐2007 period was one of prosperity and stability across the developing world. Of course, the Global Financial Crisis of 2008 derailed everything, but it is difficult to argue that it was the consequence of the hiking cycle of the mid 2000s. If anything, it might have been the consequence of the lack of a timely normalization. Hence, although there are many common features in the 1994 and 2004 cycles, the consequences were very different. What I want to do in this talk is to identify a few features that help us reflect why this was the case. I think this is useful to extract some lessons for the current process of monetary policy normalization in the US. 1994‐2004 normalization Cycles As a starting point, it is important to notice that the 1994 and 2004 episodes are comparable for two reasons. First, the Federal Reserve started hiking in a context of inflation above 2% and the unemployment rate around 6%. This is of course a simplified characterization of the business cycle, but it offers a good base for comparison. Beyond that, the monetary policy adjustment in the United States looks quite similar in both cases. Not only is the size and speed of the hikes in Fed Funds’ rate comparable.

First, the Bank of Thailand will ensure ample liquidity in the system in order to accommodate the economic recovery. As policy normalization by the Fed is imminent, the risk of liquidity withdrawal from Emerging Markets increases. We anticipate limited impact on the overall Thai economy as markets have priced in the Fed’s initial hike. Besides, it is widely expected that the Fed fund rates would rise gradually from then on. As for now, despite the slow economic growth in Thailand, the overall credit to the private sector continues to expand at around 5 per cent. Furthermore, enterprises have issued a sizable amount of corporate bonds, leveraging on lower yields compared to last year. Commercial banks’ liquidity position is stable. All these are indications of favorable domestic financing conditions. Should a sudden reversal scenario occurs, the Bank of Thailand would make sure that liquidity will not become an impediment to economic recovery. The Bank of Thailand will also ensure that “cost of funds” is accommodative to the ongoing recovery. The two pre-emptive cuts in the policy interest rate earlier this year, in response to greater downside risks to growth, have eased domestic cost of funds. In addition, low inflationary pressure gives room for monetary policy to remain accommodative. This would ensure that the overall monetary conditions are conducive to the economic recovery. Nevertheless, we keep a cautious eye on risks to financial stability, especially under the prolonged low interest rate environment. Household debt, although it has stabilized, remains high in relation to GDP.

But the National Institute is one of the forecasters with the largest resources and it usually “sets the trend” for other forecasters. Last November the Institute counted on annual rates of CPI inflation of 2.0 per cent for 1998 and 2.5 per cent for 1999. In other words, inflation would move gradually upwards from the price stability target. In keeping with this, the Institute also counted on an monetary policy realignment, with an expected increase in the repo rate from 4.10 to 5.5 per cent, that is, by 140 basis points. This March - only four months later - the National Institute’s prediction of inflation had changed considerably, to annual rates of 1.1 and 1.5 per cent for 1998 and 1999, respectively. The Institute’s most recent assessment is that during 1998 and 1999 there is no need for any change from the present level of the repo rate. What has happened to forecasters’ perception of inflation? Increased element of transitory price effects Basically, nothing has happened in the appraisal of the upward cyclical phase. The National Institute, like most other observers, counts on good growth in the coming years. The strength of the upswing may vary but the overall picture is that demand growth will be somewhat above the long-term trend, which implies rising resource utilisation. But besides expectations of lower wage increases, there have been a number of favourable price shocks on the supply side. Falling international crude oil prices have already led to price reductions for energy-related goods.

This complies with EU agreements. ERM membership is voluntary. But even in a flexible regime, exchange rate movements constitute an important policy indicator, albeit more indirectly. • If the exchange rate weakens and remains at the weaker level, demand in the Swedish economy is stimulated via increased exports and decreased imports. BIS Review 35/1998 ˝ -6- In this way, a permanent depreciation can lead to higher inflationary pressure. The Riksbank then has to keep its instrumental rate at a higher level than otherwise in order to fulfil the price stability target. • A permanent appreciation of the krona tends to dampen demand, leading to lower inflationary pressure. All else equal, the Riksbank can then keep the instrumental rate at a lower level. With reference to the exchange rate, the Riksbank is wont to talk of “permanent” or “lasting” developments and that is applicable here. We do not react to occasional market movements because they are unlikely to influence inflation prospects. The Maastricht Treaty requires all member states to treat exchange rate policy as a matter of common interest; this applies even if the exchange rate is flexible. An EU country is expected to focus economic policy - both monetary and budget policy - on stability to the same degree as the other EU countries. This, basically, is the absolutely crucial condition for sustained exchange rate stability. An exchange rate that deviates permanently from the long-term real equilibrium level may be an indication that economic policy lacks credibility.

At the same time, we have seen the risks in this development in no uncertain terms. The flows in the financial system have increased substantially while the system has become increasingly complex and difficult to survey. The mutual dependence of the various markets has increased. This means that crises can more quickly and more forcefully hit an increasing number of economies at the same time. The important thing now is to find the right tools for managing these new risks; to find instruments for a better-balanced development. We need a better insight into the build-up of global risks. This requires increased cooperation between public authorities around the world. It requires greater harmonisation of regulations and supervision. It requires a better readiness to manage cross-border crises. And to find the means to counteract the build-up of large imbalances we must begin to think along new lines. At present the functioning of the financial system is being maintained with the aid of the measures implemented by public authorities. One sign that the crisis is no longer as acute is that the TED spreads have fallen in Sweden, as well as the United States and the euro area. These spreads are now back to around the same levels that prevailed immediately prior to the worsening of the crisis in autumn 2008. But the financial markets are still functioning much less efficiently than normal. It is also still difficult for companies to finance themselves in the capital market.

Nevertheless, it is not desirable, even for a central bank, to experience a long period of negative equity as this could generate doubts about its credibility. 2 Switzerland: a very special case Although the recent crises have been global in nature, every country has had to define policy in response to the specific circumstances that affect it. The Swiss case is very special as our country still has the leeway to undertake fiscal manoeuvres. Instead, we are confronted by another major challenge, the exceptional power of our currency. As we all know, the increased uncertainty and extreme risk aversion, which arose as a result, drove the Swiss 2 Cf. Jordan (2011) for more details on this topic. BIS central bankers’ speeches 3 franc to an all-time high in early August of 2011, posing a threat to the economy and carrying the risk of severe deflationary developments. As I already mentioned, fiscal policy remained a conceivable means of addressing this problem as our country’s debt-to-GDP ratio is less than 40% and its public sector budget has been in surplus for the last six years. It was not, however, as the massively overvalued Swiss franc first threatened demand for Swiss exports and Switzerland is, of course, not in a position to stimulate the entire world economy. In this particular case, it was inappropriate to resort to fiscal policy. It was therefore up to the SNB to take action. It implemented measures aimed at a substantial and sustained weakening of the Swiss franc.

In fact, in a number of jurisdictions such as Bahrain, Brunei Darussalam, Maldives, Nigeria and Malaysia, Islamic finance is increasingly becoming an important component of the broader financial system. In essence, Islamic finance is impacting the lives of many – individuals and business alike. All these progress would not have been possible without the dedication of Shariah scholars such as yourselves in harnessing collective wisdom to resolve many practical and contemporary issues facing the Islamic finance industry. From enabling deposit taking to facilitating funding, investments and protection solutions – Shariah has been the underpinning thrust of Islamic financial intermediation in meeting the evolving expectations of businesses and consumers. My remarks today will focus on three imperatives for Shariah scholars to be the beacon for financial, social and economic developments. Engagement with wider stakeholders First, the world we live in is not static. It is important to understand that issues confronting the global economy and our modern society are intricately linked to the issues facing the financial sector. This therefore demands for Shariah rulings to constantly be contextualised towards addressing contemporary issues facing the ummah. From ending poverty and hunger to promoting responsible production and consumption; providing affordable housing; better healthcare and education – Shariah deliberations on Islamic finance matters should reflect on the evolving needs of the economy and society. Shariah scholars are constantly challenged to have a thorough and sound understanding of other fields of expertise such as economics, law, psychology and technology to formulate well-rounded and pragmatic ijtihad.

With Shariah scholars at the forefront of multi-disciplinary knowledge, the Shariah fraternity can play a more prominent role in the global call for action for the financial sector to better respond to the contemporary challenges facing our world today. Closer engagement with wider stakeholders, be it the financial industry, regulatory authorities, central banks and the public sector, has never been more pressing than before. It is the way forward. It is the way to ensure that the Islamic finance industry continues to be able to deliver on the intended objectives of Shariah. 1/2 BIS central bankers' speeches Transparency of Shariah rule-making My second point relates to the importance of transparency of Shariah reasoning and credibility of Shariah rulings. This will encourage a deeper understanding of Shariah requirements and outcomes beyond a compliance mindset. Pronouncing a clear and comprehensive hukum is certainly not easy; Shariah deliberations would need to be anchored to a comprehensive and robust decision making approach that captures holistic considerations including legal, risk, accounting, operations and also stakeholder implications. It is equally important that Shariah rulings are well-understood by everyone. This calls for an effective communication strategy to advocate the intended outcomes of each rulings and the underlying reasons for each decisions. Platform such as this gathering – offers all of us the opportunity to learn and exchange views from each other’s experiences. Best practices in Shariah methodology and governance can be shared and deliberated to elevate the quality of rulings and stature of Shariah advisory authorities globally.

Singapore’s value proposition to Chinese companies I believe the Singapore Exchange will be committed to maintain a robust market-oriented framework, which facilitates organisations that would like access to global capital for their business expansion plans. To date, the Singapore Exchange is one of the most international equity markets globally, boosting 38% of international listings originated from a myriad of places such as the ASEAN nations, Hong Kong, India, Japan, South Korea, North America, Europe, and of course, China. Singapore welcomes Chinese companies to use Singapore as a second home, to pursue regional business opportunities, to build international connections, as well as a test-bed for new, innovative ideas. At a point where East meets West, Singapore today is home to 26,000 international companies. Of these, approximately 4,200 MNCs have regional activities in Singapore to leverage on the Singapore connectivity to service their clients from within the region. An increasing number of financial institutions are also using Singapore as a regional hub to conduct their investment, fund management and private wealth management activities. Singapore’s asset management industry has boomed and flourished, with assets under management surpassing $ billion. Closing The establishment of the Singapore Exchange’s presence in Beijing could not be more relevant, with the Chinese market growing at a strong pace, and as Chinese companies and markets become increasingly linked to the global community. The strong economic growth in China, Singapore, as well as the ASEAN region, gives us a window of opportunity to deepen and enhance market integration, strengthening Asia’s competitive edge.

The Singapore Exchange Beijing representative office will, I am sure, play an important supporting role in bridging both China and Singapore’s equity capital markets, and servicing the current and future listed Chinese companies. It also demonstrates Singapore’s long-term commitment to China, and I believe both markets will stand to gain in the long run. As a Chinese saying goes, Spring is the season we sow the seeds in the fields. As the Singapore Exchange sows its promising seeds in China, I very much hope that both Singapore and the Chinese companies who choose Singapore as their financing location will enjoy the harvest of good fortune in time to come. With that, I would like to extend my heartiest congratulations once again to the Singapore Exchange for its representative office opening in Beijing. I encourage the exchange to play its role well in serving the specific needs of the Chinese companies with the ambition to grow regionally and in doing so, contribute to the strengthening partnership between the China and Singapore. Have a great evening, thank you. 2 BIS Review 46/2008

14 Thus, the number of furloughed workers fell from the April 2020 peak of 3.5 million to around 30,000 in April 2022, when the level of effective employment was just over 550,000 higher than in February 2020. 15 In February 2022 a volume of € billion of guarantees had been issued, giving rise to financing under these programmes amounting to € billion. 16 The percentage of firms of this type that went into a capital shortfall position after the crisis seems to have declined modestly (from 6.4% of the total SMEs to 5.7%) and the overall capital shortfall of firms in this situation declined by 9%, to 0.27% of GDP, according to Banco de España estimates. 5 In the case of households, the favourable course of the labour market and household income in 2021 is also helping them to recover their economic and financial situation. In 2021, households' gross disposable income grew 2.2%, but was still 2.8% lower than in 2019. Between the onset of the health crisis and end-2021, households’ aggregate net wealth rose by 9.8%, driven by the revaluation of financial assets and, above all, of real estate assets, in addition to the relative stability in debt. Overall, there has been a broadbased decline in the bank debt-to-total asset ratio – particularly in the bottom net wealth deciles – to below its pre-crisis level. Nevertheless, in the first net wealth decile, debt continues to far exceed the value of assets (by around 50%), signalling this group's financial vulnerability.

Bahrain and Malaysia has one of the strongest relationships among the countries in the Middle East. It was further cemented with the signing of a Memorandum of Understanding between the Central Bank of Bahrain and the Central Bank of Malaysia in 2001 to jointly develop Islamic finance internationally. In fact, an 80-strong Malaysian delegation led by HRH Raja Dr. Nazrin Shah, Crown Prince of the State of Perak and Malaysia’s financial ambassador, visited Bahrain in October 2009 to forge greater financial ties with the Bahraini Islamic financial community. It is heartening to note that common grounds have been reached on the standard contracts that the Association of Islamic Banking Institutions Malaysia or AIBIM, and the International Islamic Financial Market, or IIFM, have produced. This is invariably a reflection of the growing cross border harmonisation of interpretations of concepts and agreements. Furthermore, AIBIM’s interbank Murabahah master agreement (IMMA) and the corporate Murabahah master agreement (CMMA), recently launched in Malaysia, would further unlock the potential of the Malaysian Islamic money market, which saw around $ billion worth of transactions daily last year. In the global scene, it is estimated that the global commodity murabahah market is valued at more than $ trillion, giving rise to a huge business potential. I would encourage you to focus more resources here as it is one of the key areas that we can jointly promote in our regions.

As shown in Chart 3, 2008 stands out as one of the worst years in this period. Ten years ago, on 25 November 2008, Norges Bank presented the GPFG’s results for the third quarter. Lehman Brothers had gone bankrupt. The world’s central banks were making large and frequent cuts in policy rates. In the course of autumn 2008, the US stock exchange fell more than five percent on as many as ten separate days. Norges Bank wrote in its press release that “The third quarter of 2008 was an unusually demanding quarter for the management of the Government Pension Fund – Global.” And it was to get worse. The GPFG posted a return for 2008 of minus 23 percent, measured in terms of the fund’s currency basket. Chart 4: Post-crisis paths have differed Chart 4 shows developments in the US equity market from 2008 onwards. The rapid reversal in equity markets, shown in the chart, also affected the GPFG’s results. In 2009, the fund posted a positive return of 26 percent, largely thanks to a 34 percent return on the equity portfolio. The return continued to rise in 2010. While the fall in the fund’s value as a result of the financial crisis in 2008 was historically large, the fund’s recovery in 2009 was stronger and faster than had generally been expected. Owing to a weakened krone, the GPFG’s return was less negative in terms of NOK than in terms of the fund’s currency basket.

Even though changes in the krone exchange rate do not influence the GPFG’s international purchasing power, the fall in the fund’s value may have been perceived as less dramatic as a result. Equity markets have not always rebounded after a steep decline as rapidly as after the 2008 financial crisis. The chart shows developments in a global equity index in the period after the dotcom crash in 2000. From the peak in winter 2000 to the trough in winter 2003, equity prices plunged at the fastest pace since the early 1930s. Fluctuations in the krone exchange rate amplified the fall in the GPFG’s value measured in NOK. The value of the GPFG at the beginning of 2003 was 30 percent lower than assumed in the National Budget for 2002. Investors buying equities in Japan’s equity market at the end of 1989 experienced even more dramatic developments. The market fell and stayed there. The value of the shares traded on the Tokyo Stock Exchange is still no higher than the 1989 levels. From being the largest in the world in 1990, accounting for almost 40 percent of global market capitalisation, Japan’s equity market now accounts for less than ten percent. However, it is important to remember that these developments apply to only one country. Global equity markets in general have shown completely different developments since 1989. 2/6 BIS central bankers' speeches What can we learn from these crises? The first lesson is that crises will occur.

Such surveillance efforts could also lead to discovery of parties trading on privileged insider information. SGX has the power to suspend or de-list a counter if conditions for orderly trading are found to be absent. • MAS will carry out independent surveillance on a selective basis, to ensure that SGX is performing its responsibilities effectively. • The MAS will have the power under the proposed SFA to pursue civil prosecution of listed companies which fail to make timely disclosure of material information, and of any participants suspected of market misconduct. The recently introduced civil remedy regime for insider trading will be extended to cover other forms of market misconduct such as market manipulation, or the employment of fraud and deceit in dealing. Civil remedy, which lowers the burden of proof against offenders, will complement the present framework of criminal remedy for offences under securities law. d. Supervision of brokers • SGX supervises and inspects brokers to ensure that they comply with SGX's rules, are prudentially sound, and uphold high standards of market integrity. SGX has to act swiftly and firmly to deal with any unprofessional conduct by brokers and their representatives. • MAS conducts continuous off-site review of brokers' operations to check if they comply with statutory licensing requirements. Such off-site reviews will be complemented by MAS' selective, on-site inspection of brokers to assure itself of the competence and effectiveness of SGX's supervision.

MAS and SGX will no longer vet prospectuses with a view to determining if they contain inaccuracies in information or factual BIS Review 14/2001 5 errors. Issuers and their advisers have to bear greater responsibility for ensuring accurate and adequate disclosure. After a prospectus has been registered, it is proposed that MAS be empowered to issue a stop order and prevent further issues of securities if a prospectus is found to contain misleading or incorrect statements, or to have omitted material information. Investors who have subscribed for securities on the basis of the deficient prospectus can withdraw their applications and have their monies refunded. The new prospectus registration regime is aimed at placing greater responsibility on issuers and their advisers to meet the high standards of disclosure necessary for the development of more effective market discipline, and a more mature capital market environment. MAS will be seeking feedback on the proposed prospectus registration regime shortly, as part of our public consultation on the draft SFA. Conclusion Approaches to regulation worldwide are evolving with the times. An effective system of market discipline is necessary to sustain and promote the growth of open, transparent and competitive markets. Singapore is making substantial changes to its laws, rules and standards to support enhanced market discipline. It will be a process of evolution, but we have made good progress. Succeeding in this endeavour will require effort by both the regulator and all market participants, including issuers, their advisers and investors themselves.

Output and demand are posting moderate annual growth rates, but still with some improvement over the second half of last year. This is good news. However, marginal data show some loss of strength which, combined with low confidence indicators for firms and households, leads us to estimate that the recovery foreseen for the second half of this year will proceed at a slower pace. Accordingly, we have adjusted our growth forecast for this year downward, by one fourth of a point. Inflation has moderated but is still high and thus it is our main worry. In our baseline scenario, we have it around 4 percent for some months to later descend toward our 3 percent target. About the risks facing financial stability, the Report shows no big changes either. Corporate borrowing continued to rise in the past few quarters. Although there are obvious factors behind this trend, such as increased external borrowing-a logical development given the good credit conditions-and the depreciation of the peso, we must not relent in our efforts to closely monitor these tendencies. Anyway, figures also show that the households’ and firms’ financial burden has not increased, largely because interest rates are low, in line with our clearly expansionary monetary policy. The external scenario has also behaved as we outlined in March. The recovery of developed economies looks more balanced across countries, boosting confidence in consolidated growth of the developed world. Emerging markets continue to show some further weakening, especially in our region.

Since there has been no deterioration in their money multipliers, central banks of emerging market economies have not felt the urge – experienced by their counterparts in advanced economies – for an unconventional broadening in their money bases. Esteemed participants, distinguished guests, In emerging market economies, the gradual alleviation of the pressure on financing sources – caused by public sector demand – has provided significant room for the private sector to invest in physical capital. These investments have enabled – via capital markets and the banking system – the use of both domestic as well as foreign savings. These shed light on the importance and prominence of institutional capacity and financial infrastructure for financial stability. Smoothly functioning payment and settlement systems is the first and foremost significant requisite for strengthening financial infrastructure in emerging market economies. The existence of both a stock market backed by a strong capital market and also a bond market in local currency is also essential. Another important structural factor is a sound banking system. An adequate legal infrastructure, strong capital structure and confidence-based management are the prerequisites for such a system. Distinguished guests, A strong infrastructure is a “necessary-but-not sufficient” component of financial stability. Another “sine qua non” for more stable global capital flows is developing and implementing a macroprudential policy framework, and emerging market economies have taken important steps in this direction in the post-2008 period.

Federal Reserve Governor Edward W. Kelley, Jr. has recently elaborated on the activities of the Federal Reserve System in connection with the Y2K problem, as well on possible macroeconomic implications.1 I will not attempt to cover those topics again here. Instead, this morning I will begin with some background on the possible implications of the Y2K problem for international banking and finance. Second, I will describe how various supervisory initiatives led to the formation of the Joint Year 2000 Council a little more than two months ago. Third, I will discuss the actions being taken by the Joint Year 2000 Council, particularly in the areas of raising awareness, improving preparedness, and contingency planning. Background on the International Implications of the Y2K Problem The Y2K bug potentially affects all organizations that are dependent on computer software applications or on embedded computer chips. In other words, nearly all financial organizations worldwide are potentially at risk. Even those whose own operations remain strictly paper-based are likely to be dependent on power, water, and telecommunications utilities, which must themselves address possible Y2K problems. Also, many non-financial customers have dependencies on technology. All countries of the world, therefore, need to address the Y2K problem and its potential effects on their domestic financial markets. In some cases, it is said that computer systems in particular countries are not much affected because their national calendars are not based on the conventional Gregorian calendar used in the United States and many other countries.

The same message was also conveyed repeatedly by my predecessors, in three quarters of all press conferences since the introduction of the euro. The term “structural reforms” is actually mentioned in approximately one third of all speeches by various members of the ECB Executive Board. By comparison, it features in only about 2% of speeches by governors of the Federal Reserve. Our strong focus on structural reforms is not because they have been ignored in recent years. On the contrary, a great deal has been achieved and we have praised progress where it has taken place, including here in Portugal. Rather, if we talk often about structural reforms it is because we know that our ability to bring about a lasting return of stability and prosperity BIS central bankers’ speeches 1 does not rely only on cyclical policies – including monetary policy – but also on structural policies. The two are heavily interdependent. So what I would like to do today in opening our annual discussions in Sintra is, first, to explain what we mean by structural reforms and why the central bank has a pressing and legitimate interest in their implementation. And second, to underline why being in the early phases of a cyclical recovery is not a reason to postpone structural reforms; it is in fact an opportunity to accelerate them. The importance of structural reform Structural reforms are, in my view, best defined as policies that permanently and positively alter the supply-side of the economy.

Several of these initiatives have taken on the challenging task of linking regional payment systems on appropriate technological platforms, thus ensuring resilience and safety of common payment systems. With peer pressure, significant reforms have been introduced in payment instruments, payment mechanisms, infrastructure systems, clearing processes, cross-border clearing and settlement systems in individual countries. To ensure efficiency and safety and achieve common goals, there should be a clear commitment by all member countries, which can be clearly displayed by working together as a group. A collective effort and cooperative agenda should support self-help mechanisms and also complement the coordination and cooperation with other regional initiatives and international institutions. As a group, we can mobilize and optimize technical support from other regional initiatives and international bodies like the World Bank, IMF and CPSS of the BIS. A logical conclusion of some of these payment initiatives would be to work towards a single payment mechanism like the Single Euro Payment Area (SEPA). This is obviously a longterm objective for the SAARC region and we need to be very cautious in taking a decision towards a single payment mechanism. At the moment, there is no visible political or official commitment towards such a move, but it is worth examining the processes that have taken place in Europe to learn some valuable lessons and avoid potential pitfalls in working towards a single payment space. Since 1999, the European Union has been using a single 2 BIS Review 79/2007 currency, the euro, as the common currency within the Union.

Notes: Data show job-to-job transition rate as a share of employment. Chart 21: Job churn by firm-productivity Percentage of employment in previous period 0.14 0.12 0.1 0.08 0.06 0.04 0.02 2003 2005 2007 2009 Low productivity 2011 2013 2015 0 2017 High productivity Sources: ONS and Bank calculations. Notes: ‘Low productivity’ defined as the average churn rate per decile for those firms in the bottom half of the productivity distribution; ‘high productivity’ defined as the average churn rate per decile those firms in the top half of the productivity distribution. 40 All speeches are available online at www.bankofengland.co.uk/speeches 40 Table 4: Job moves and productivity Decile at t-1 2- 3 4- 5 6 -7 8- 9 2- 3 0.41 0.21 0.20 0.20 Decile at time t 4- 5 6 -7 0.26 0.14 0.29 0.21 0.25 0.25 0.19 0.21 8- 9 0.18 0.30 0.31 0.40 Increasing productivity Increasing productivity Sources: ONS and Bank calculations Notes: Each cell shows the probability of a worker being employed in a given quantile of the firm productivity distribution conditional on where in the distribution that worker was in the previous year, and having moved jobs.

In order to expand the insurability of catastrophe risks in the region and bridge the protection gap, an innovative public-private partnership (“PPP”) approach is needed. To do this, the MAS is supporting a Natural Catastrophe Data Analytics Exchange (NAT CAT DAX) for Asia Pacific. Led by the NTU Institute for Catastrophe Risk Management (ICRM) in collaboration with A*STAR and the industry, this common data analytics platform will enable industry to pool insurable claims data. More importantly, this platform will unlock new economic exposure and loss datasets through the use of new technologies such as satellites, remote sensors and drones. With a comprehensive and integrated economic and insurance database, this will form a strong data backbone for the industry to not only underwrite traditional reinsurance better, but also catalyse new product innovation, such as government pools, and alternative risk transfer products, which will push the boundaries of insurability further. Today, it gives me great pleasure to announce the formation of the Nat Cat DAX Alliance, in collaboration with pioneer industry founding members Mitsui Sumitomo Insurance Group, Renaissance Re, RMS and Aon. I urge the industry to be a part of this collaborative initiative, as we partner together to increase the availability of quality data, enhance the underwriting process, and spur collective market analytics and innovation. New technology and innovation Just as new disruptive technologies like 3D printing, autonomous vehicles, and the Internet of Things have emerged in various sectors of the economy, such technologies will similarly surface in the insurance industry.

The proposal of the Financial Crisis Commission has now been circulated for comment and I and the other members of the Executive Board of the Riksbank will now formulate our joint response to the proposal during the spring. Conclusions I thus believe that there are many indications that demand is too weak in the Swedish economy and that in principle this has been the case ever since the autumn of 2008. One should not have exaggerated expectations of what monetary policy can achieve when it comes to reducing the relatively high level of unemployment in Sweden. However, as long as inflation is expected to be clearly under the target of 2 per cent I believe there is scope to use monetary policy to try to alleviate the situation on the labour market. I have argued that one of the reasons why fiscal policy and monetary policy have not been used more actively to increase demand in the Swedish economy is the concern about financial stability. The risk that public finances will be radically weakened if the government is forced to intervene to support banks in crisis seems to be an argument for being cautious with public finances at present.

- An Evidence-based Analysis of the Trade Effects of the Euro”, Centre for Economic Policy Research. Baldwin, R., Skudelny, F. and Taglioni, D., (2005), “Trade effects from the euro – evidence from sectoral data”, ECB Working Paper Series, No. 446. Boije, R., Borg, A. and Eklund, J., (2002), ”The Riksbank’s statement regarding the report ’Stabilisation in the monetary union’”, Sveriges Riksbank Economic Review, 2002:4, pp. 90-127. Boije, R. and Shahnazarian, H., (2003), “National Stabilisation Policy for Sweden in Stage Three of EMU”, Sveriges Riksbank Economic Review, 2003:1, pp. 18-49. Borio, C. and Filardo, A., (2006), “Globalisation and Inflation: New Cross-country Evidence on the Global Determinants of Inflation”, Mimeo, BIS, Basle. Böwer, U. and Guillemineau, C., (2006), “Determinants of Business Cycle Synchronisation Across Euro Area Countries”, ECB Working Paper Series, No. 587. Kose, M. A., Otrok, C. and Whiteman, C. H., (2005), “Understanding the Evolution of World Business Cycles”, IMF Working Paper, No. 05/211. Lamfalussy, A., (2006), ”Central banks, governments and the European monetary unification process”, BIS Working Paper, No 201, BIS, Basle. Mishkin, F. and Schmidt-Hebbel, K., (2006), “Does Inflation Targeting Make a Difference?”, Mimeo, presented at Bank of England. Mundell, R., (1961), “A Theory of Optimum Currency Areas”, American Economic Review, Vol. 51, No. 4., pp. 657-665. Persson, T., (2001), “Currency Unions and Trade: How Large is the Treatment Effect?”, Economic Policy, October, 0(33), pp. 433-48. Rose, A. and Stanley, T. D., (2005), “A Meta-Analysis of the Effect of Common Currencies on International Trade”, Journal of Economic Surveys, Vol. 19, pp. 347-365.

Public and political acceptance will be more likely if voters are not only given the possibility, but being helped, to form an opinion and to express it in general elections. Summing up Perhaps somewhat counterintuitive but in line with today’s seminar topic, I would like to end this speech by questioning its underlying assumption. Is it necessarily a problem having to give up national monetary policy when joining a monetary union? The assumption presupposes that what is to be stabilised is mainly driven by factors that can be affected by national policy instruments. Is this really the case? A recent cross-country study suggests that determinants of inflation have become less “country-centric” and increasingly “globe-centric” (Borio and Filardo, 2006). Of course, national stabilization policy still plays an important role, but global factors are becoming increasingly important. At the same time, business cycles in the G7 countries seem to have become increasingly synchronised, thereby narrowing the difference between domestic and global determinants of inflation. 7 As integration increases and differences diminish, monetary unions will have a greater chance of success. This chance will increase further if countries prepare their economies from a stabilizing as well as a structural perspective. Institutionally, frameworks for monetary and fiscal policy, at country and union level alike, should strive for consistency, commitment, transparency and accountability, coupled with independence of policy makers. Most importantly, the aim should be long-term stabilization rather than short-term fine-tuning. Against this back-drop, it is my belief that the advantages of a monetary union outweigh the disadvantages.

I would like to highlight four emerging lessons from the current crisis that should help prevent future problems. First, we need to understand better the various sources of liquidity risk, particularly under stressed conditions. Second, banks need to develop more effective contingency funding plans. Third, banks should support improved market functioning and stricter market discipline through better disclosure. And finally, supervision should ensure that banks’ liquidity risk management is undertaken to a more robust standard, in order to internalise some of the costs of a bank failure on the wider financial system. I shall cover these briefly in turn. Banks and public authorities alike need to develop a more in-depth and more complete understanding of the various forms in which liquidity risk can arise. That requires both a careful analysis of the various potential sources of liquidity risk, and of how such risks may crystallise under stressed market conditions. As outlined earlier, in today’s financial environment, it is not just the simple maturity transformation between deposits and loans that generates liquidity risk for banks. To this must be added contingent risks, such as the potential activation of liquidity lines to off-balance sheet vehicles, or the drawing of committed facilities extended to corporate customers. Contingent risks may also arise, in a variety of forms, from complex trading instruments, as detailed well by the Institute for International Finance (IIF) last year.

Caleb M Fundanga: Developing Zambia’s Stock Exchange Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the BancABC Central African Stock Exchange Handbook, Lusaka, 26 July 2011. * * *  The Chief Executive Officer of ABC Holdings - Mr Douglas Munatsi  The Managing Director of BancABC Zambia Limited - Mr Dana Botha  The Managing Director of Lusaka Stock Exchange - Mrs Beatrice Nkanza  Management and Staff of BancABC  Chief Executive Officers and Representatives of various Institutions present;  Distinguished Invited Guests;  Members of the Press;  Ladies and Gentlemen. Let me begin by thanking the management of BancABC for inviting me to this occasion, which marks the official launch of the “Central African Stock Exchange (CASE) Handbook”. I also wish to thank the Managing Director of BancABC, Mr Dana Botha, for sending me a copy of the CASE handbook. The handbook provides a snapshot of various company financial results, share price performance and volumes traded in 2010. The handbook also highlights basic information on investment and borrowing options, which will not only assist investors diversify their portfolios but also assist in reducing transaction costs in our stock market. Ladies and Gentlemen, The stock market is an important avenue for harnessing resources for the financing of development in our country.

Later on, payment instruments issued by the private banks took ever greater market shares and the use of cash has declined steadily since the 1950s as a proportion of GDP. During the 1990s, electronic alternatives such as card payments also gradually started to replace cash for purchases in shops. Money is now electronic and is created by banks When we talk about money, many people probably envisage a banknote in one currency or another. But in today’s digital society, cash forms a very small part of the total amount of money, only about 2 per cent. 11 The overwhelming majority is completely electronic. Neither is it the case that the Riksbank or other central banks are normally the ones who create new money these days. 12 Many of us have been taught that, when banks get new deposits, they can create new loans, but it actually works the other way around. At present, it is the banks that create new money when they issue new loans. If I approach my bank with a request for a new loan for a home and the bank grants me credit, I will receive a liability in my account with the bank. At the same time, the money I have borrowed is transferred to the seller of the property, who deposits the money in his or her bank account. So new loans 10 Eichengreen, B and Temin, P. (1997) ”The gold standard and the great depression”. NBER Working Paper 6060.

However, at present, we have too few details around these plans to be able to express an opinion on it. What we see here is the ongoing centralisation of payment systems generated by globalisation. There has been a movement within the euro area from national systems and a fundamentally fragmented market to centralised, cross-border systems. Deregulation in the 1990s and 2000s contributed towards the integration of the banking market in the EU. And now the same thing is happening to the payments-infrastructure side. The European Commission intends to propose an amendment of the EC regulation on cross-border payments in euro to reduce fees for cross-border transactions in all member states and thereby facilitate trade and contribute towards increased competition. Other initiatives are also taking place on the EU level to develop the market for electronic payments and create better conditions for secure and efficient payments. The new regulations will entail a gradual adaptation of Swedish payment services to EU standards. Crypto-currencies are not money Another new trend is the new crypto-currencies such as Bitcoin, Ethereum and Ripple, to name a few. Bitcoin was launched in 2009 and is still the most commonly-used crypto-currency. Bitcoin was created by networks of users. Participants who pool their hardware resources to verify the payments made are rewarded with newly-created Bitcoins. The size of the rewards declines over time in a way that means there cannot be more than 21 million Bitcoins.

The confirmation of these trends would allow for the projection forward of economic dynamism at somewhat more moderate rates, in line with growth potential. For this to occur, however, further progress in slowing spending and household and corporate debt, and in improving the economy’s supply-side conditions, is needed. We must not forget that the long expansionary phase of the Spanish economy has been accompanied by a buildup in certain imbalances that pose considerable risks to its sustainability. Thus, until they are sufficiently corrected, we should avoid complacency. Admittedly, recent months have seen slower growth in household debt and a gradual slowdown in house prices, while the inflation differential with the euro area has narrowed. But it is important these processes continue to head off the risks the Banco de España has been warning about. Economic policymakers have a major responsibility to take advantage of the current economic prosperity to adopt, on a preventive basis, the measures required to harness the existing opportunities and to mitigate the risks that may arise. The change in the single monetary policy stance dating back to late 2005 has contributed to gradually normalising the financial conditions under which households and firms take their spending decisions, although monetary conditions are still accommodative for the Spanish economy. Turning to fiscal policy, buoyant revenue, which continues systematically to grow above budget, has provided for an improvement in programmed objectives.

In terms of the migration to e-payments, the insurance and takaful sector is a key sector where the usage of cheques is still prevalent. In 2016, 2.3 million cheques were issued by insurance and takaful companies while 9.8 million cheques were collected by such companies from their customers. While good progress has been made this year with the decline in cheque collection accelerating from -0.5% in 2016 to -22.1% in the first 7 months of 2017, more effective and creative measures are needed to drive cheque usage to negligible levels. To this end, Bank Negara Malaysia has recently concluded a consultation exercise with the industry on the implementation of an ePayment Incentive Fund Framework (ePIF). Under the framework, insurance companies shall set aside RM3 for every cheque issued and RM1 for every cheque collected to be used as incentives to encourage their customers, agents, service providers and government agencies to migrate to e-payments. The current practice where agents collect premiums from customers in cash and make payment to insurance and takaful companies using the agencies’ own cheques or credit cards should stop. The industry should promote greater prudence and transparency in the collection of customer premiums by facilitating customers to make direct payments to the insurance and takaful companies. To this end, the industry equipping agents with mobile point-of-sale (mPOS) or mobile apps to collect payment directly from customers should be the norm. Thirdly, the industry needs to collaborate and invest in key market infrastructure and arrangements.

One, when financial institutions set up new technology functions in Singapore, MAS works with them to facilitate capability transfer from foreigners to the local workforce. When we started attracting innovation labs in 2015, the Singaporean share in jobs created at these labs was just 40%. With more labs set up over the years and more Singaporeans exposed to innovation work, Singaporeans now make up about 60% of the 180 high value jobs created at these labs. Two, IMDA partners financial institutions through the TechSkills Accelerator (TeSA) initiative to train and place fresh and mid-career professionals into tech roles. Since 2016, more than 500 professionals have been placed into tech roles in the financial sector, such as so ware developers and data analysts, through Company-Led Training and TeSA Mid-Career Advance. Three, MAS works with financial institutions to support individuals from outside the financial sector transit into tech roles in the sector. Through the Technology in Finance Immersion Programme (TFIP), MAS has been working with IBF and Workforce Singapore to support individuals with STEM capabilities through industry-curated training in specific tech skills followed by a work attachment with a financial institution From 70 trainees in 2019, we now have 190 participants. 1 out of 3 are from the mature age group or were unemployed when they enrolled in TFIP. This year, under the refreshed TFIP, there is indicative offer of around 400 traineeships across more than 20 financial institutions. There will be 10 specialist tracks offered in this run, twice the number as before.

It reflects the impact of the Job Support Scheme that shored up local employment; and the border control measures during the COVID-19 pandemic that made the employment of foreigners difficult. Job growth in the financial sector has been consistently strong over the past 5 years A total of 21,000 net jobs were created during 2016-2020, with Singaporeans taking up about 16,000 or about 75% of these jobs. With more financial institutions setting up their regional and global hubs in Singapore today, 40% of financial sector jobs here are primarily international-facing. Half of these jobs are filled by Singaporeans. They include good jobs such as: application developers who develop digital products for overseas markets; private bankers who serve regional clients; and risk managers who monitor risk metrics for the regional or even global business. The employment outlook for the financial sector in 2021 remains positive. Late last year, MAS and the Institute of Banking and Finance (IBF) conducted a survey of financial institutions’ projected hiring from January to December 2021. Close to 800 financial institutions responded, representing about two-thirds of the financial services workforce. Financial institutions are offering 6,500 newly created positions in 2021. These are new jobs created and do not take into account gross outflow of jobs. About 6,000 of the newly created positions are permanent jobs. Half of these jobs are in technology and consumer banking, with the remaining jobs spread across other business lines and functions.

Tony Latter: Why blame the peg? Speech by Mr Tony Latter, Deputy Chief Executive of the Hong Kong Monetary Authority, at a luncheon of the American Chamber of Commerce in Hong Kong, 12 March 2002. * * * Introduction When things aren't going too well, it's natural to look for scapegoats. In the case of the Hong Kong economy, the pegged exchange rate certainly gets its fair share of that treatment. What is the basis for complaints about the peg, and how far are they justified? Before examining some of the complaints, however, let us review the monetary policy background. Monetary policy It is widely accepted that the duty of monetary policy - and that embraces exchange rate policy - is to provide that monetary environment which is most conducive to long-term growth and prosperity of the economy. This is seen to imply a desire for stable monetary conditions, but there is scope for judgement as to how this stability should be defined. The majority of regimes focus on internal purchasing power and thus aim for low and stable domestic inflation. Thus, the practice of inflation targeting has now become quite widespread and well understood. This requires an active monetary policy, necessarily impacting on domestic interest rates and money market liquidity; and, at least in the strictest form of targeting, it inevitably involves some exchange rate flexibility, even if not an entirely free float.

Inflation targeting was chosen as “the best of all bad” alternatives at the time. Such a sudden switch from a fixed exchange rate system to inflation targeting required a radical and fast change in the central bank’s mentality. This was perhaps the biggest challenge that the CNB had to face. Over the past five years it has involved much work on improving our forecasting tools, leading to substantial development in our internal analytical processes. These changes culminated at the beginning of 2002, when the CNB settled on a new forecasting process. This integrates expert judgment and short-term analyses – which were the key pillars of the CNB’s forecasting tool-kit in the first years of inflation targeting – with a small-scale macroeconomic model developed by the CNB’s staff with the assistance of the International Monetary Fund. An important element of this step was a switch from a forecast with a fixed-interest-rate assumption to an unconditional forecast that includes a reaction function of the central bank. The established quarterly projection model was a small-scale model belonging to the first generation of such models. It was thus fairly simple and arguably missed many important links in the economy. Nevertheless, it was already quite close to the state-of-the-art among the inflation-targeting central banks around the world, and intense work has been in progress to build a higher-generation model. We are now just about ready to use regularly our newly developed so-called “third generation” general equilibrium model, which is fully based on micro specifications.

It is necessary to continue strengthening the robustness of these methods to evaluate situations of extreme tension. Starting tomorrow, the Central Bank of Chile will hold its Annual Conference, and this version will feature frontier work in this area. From the regulatory standpoint, supervision must consider the macroeconomic impact of financial activity. In the months to come, we will have to analyze also the potential procyclicality of the Basel II capital requirements, as well as the modeling and quantification of liquidity risk. A regulatory framework will be necessary to ensure the building of sufficient reserves in the boom phase of the cycle in order for the financial system to be well capitalized when the bust phase comes. 9 One of the most recurring sources of financial stress in the past few years in emerging economies are periods of euphoria or pessimism, which trigger movements in their exchange rates beyond what their fundamentals would justify. For example, when economic expectations are good, foreign exchange appreciations can arise with symptoms of bubbles in favor of all the domestic assets. As I discussed before, a first line of defense for specific asset prices, stocks or housing is to raise the interest rate. However, in the area of exchange rates this may trigger more pressures to appreciate and exacerbate financial imbalances.

However, at their origin, these institutions were created precisely to deal with the financial instability caused by frequent bank runs in the late 19th and early 20th century. Furthermore, the concern for price stability was even institutionalized later on around the world, with the inflation-targeting regime being the latest stage of its development. It is important to review jointly the issues of price stability and financial stability, because here the well-known Tinbergen principle is clearly present. This principle indicates that, to achieve a certain number of objectives, at least an equal number of instruments are needed. We often have used this argument when asked to achieve inflationary, output and exchange rate objectives with only one instrument, that is, the interest rate. Although several objectives can and do coincide with an instrument fairly frequently, there is no reason why they should. For instance, during a period of declining inflation, an expansionary monetary policy could be justified, which could trigger an excessive credit expansion, asset price bubbles and, hence, introduce vulnerabilities into the financial system. If the monetary authority decides to fight the credit expansion with a high interest rate, it may end up reducing inflation excessively incurring in unnecessary costs in terms of employment. Here a new instrument is in order, namely, financial regulation. About these issues I want to talk today. Price stability: inflation targets The regime adopted in Chile and in a number of other countries with low and stable inflation to pursue the price stability objective, is that of flexible inflation targeting.

Compared with the June Report, only minor revisions have been made to GDP growth in Sweden up to 2002. Neither has the inflation forecast been altered more than marginally. That future inflation is not higher, even though the economic upswing is continuing and the forecast horizon has been shifted ahead, is partly a consequence of the amount of unutilised resources now being considered to be somewhat larger. Wage increases are judged to be somewhat lower, accompanied by marginally higher productivity growth. In the short run, however, inflation is expected to be somewhat higher than forecast in June, mainly because the oil price is higher and the exchange rate somewhat weaker. While the oil price and exchange rate assessments have been revised in the light of developments in the summer and early autumn, the forecast of inflation one to two years ahead still counts on a successive appreciation of the krona and a gradual fall in the price of oil. However, the uncertainty is considerable. A higher oil price and a weaker exchange rate could lead to inflation rising more rapidly than assumed in the main scenario. The assumption of a somewhat lower rate of wage increases is supported by, for example, wage outcomes to date this year as well as inflation expectations that are relatively low and stable. Still, there is considered to be some risk, albeit relatively small, of a development of wages that is considerably stronger, for example as a result of negotiators’ demands for parity and compensation.

Together with confidence in the low-inflation policy, the situation in the labour market and the coming wage negotiations will be of crucial importance for the future formation of monetary policy. The present decision to leave the repo rate unchanged for yet another while is to be seen in the light of the assessment that for virtually the whole of the time horizon the Riksbank currently appraises, inflation is calculated to be below 2%. When various alternative paths are incorporated in the assessment, however, inflation two years ahead is marginally above the target. The picture of a strong upswing in the Swedish economy still holds, with rising resource utilisation in the labour market, for example. That suggests that the repo rate may need to be raised in the future. 3 BIS Review 87/2000

As a matter of fact, the contribution of private consumption and investment spending to the recovery in advanced economies has not currently reached the desired level. The ongoing balancesheet restructuring across households and firms, and the consequent slow and protracted recovery in employment and credit conditions put a cap on private consumption and investment. Furthermore, persisting and mounting concerns over the sustainability of sovereign debt continue to pose downside risks on global economic activity, especially in the euro area. The growing discrepancy between advanced and emerging economies, which became more pronounced in the post-crisis period, is expected to continue for an extended period of time. BIS central bankers’ speeches 1 5. The divergence in the pace of recovery between these two country groups has undoubtedly significant implications for inflation and monetary policy. Yet, before moving on to global inflation and the monetary policy outlook, I find it useful to mention the upward trend in commodity prices observed with the recovery process since this upsurge is becoming even more significant for both the global inflation outlook and the monetary policy. 6. The recovery in global economic activity has also been manifested in commodity prices, and the upward trend in commodity prices, which started following the peak of the crisis, continued throughout 2010. In this period, the strong course of economic activity in China and India, two countries that account for a significant share of global commodity demand, reinforced the upward trend in commodity prices.

Whatever happens, we have to achieve our primary mandate: price stability. DIE ZEIT: "Not all Germans believe in God, but all in the Bundesbank", Jacques Delors once said. The Mark was extremely popular. The euro isn't yet. What went wrong? Trichet: The euro is as stable, as credible, as a good store of value as the Mark was. And look at the figures: More than 12 million jobs have been created in the euro area since 1999 many more than in the eight years before. And around 2 million more than the US have created in the same period. Certainly, that has also a lot to do with the structural reforms that we have to continue implementing actively. But stable prices are a necessary condition for sustainable growth and job creation. DIE ZEIT: Beyond all political differences there was always an economic consensus in Europe: freedom for goods, services, labour and capital. Now the French President Nicolas Sarkozy attacks the European principle of free competition, and also European institutions, especially the ECB. What holds Europe together? 2 BIS Review 85/2007 Trichet: We live in a world of very rapid changes, thanks to science and technology, thanks to globalization. There are major changes in the division of labour. And there is a temptation in particular nations to turn the EU and the ECB into scapegoats. This is not fair. The European construction has helped us to create a level of prosperity, which has played an important role in reuniting Europe. Our values are clear.

But make no mistake – deleveraging is now a cold and hard fact of reality in many advanced countries. Let’s look more closely at the sectors involved: (1) Households: Take the US as an example. We all know that the Americans are quite used to spending on credit. But we should note in particular that the growth in US household debts, which doubled between 2000 and 2007, had been driven mainly by more and more people looking to buy a house on mortgage. This trend has in turn caused house prices to double in a short period unseen before. Looking further back, the ratio of average debt to after-tax income of the US households had remained at 80% in the past 50 years. But it shot up to a peak of 130% in end-2007 and has been on a downward trend following the burst of the US property bubble, falling to the current level of 109%. Forced to cut debt but with rather subdued pay rises, many US households have no choice but to lessen their spending. It is still uncertain whether this process of deleveraging, i.e. increased savings and decreased spending combined, will continue. But the one thing we are certain about is that this will be a major factor affecting consumer demand in the US. Over in Europe, many countries are similarly beset with huge debts. Despite the prevailing low interest rates, efforts to cut debt have to be kept up, which can restrain consumption and impede short-term growth.

This is also in line with expectations in the money and foreign exchange markets. The interest rate was last raised in March. In line with the forecast in the March Inflation Report, there are prospects of another interest rate increase in the second quarter – at the monetary policy meeting in May or June – and a further increase thereafter. 2 BIS Review 39/2006 Conclusion Increased globalisation and the ensuing terms of trade improvements have exposed the Norwegian economy to a significant upward income shock. This has amplified the domestic upswing. So far, however, strong growth impulses have not led to major imbalances in the labour market or strong upward wage and price pressures. This may be seen as an indication that the macroeconomic framework, most notably the fiscal and monetary policy regimes, has been quite successful so far in shielding the Norwegian economy from excessive fluctuations. More importantly, as long as we adhere to the macroeconomic framework, it will shield the economy when oil prices eventually fall and our terms of trade are reversed. Thank you for your attention! BIS Review 39/2006 3

7 [13] situation in recent years has probably made it more attractive to participate in the labour force. Monetary policy cannot solve structural challenges with greater labour supply Higher labour supply is basically positive as it should lead to higher employment in the long term – which is beneficial not least in light of the challenges we face as regards a greying population. Higher labour force participation in the long term raises the economy’s output potential, which means that the wheels can turn more quickly without the risk of overheating and rising prices, which monetary policy ultimately needs to subdue. But a prerequisite for this positive effect is that the increased labour supply also leads to higher employment. As it takes time for the labour market to adapt to rapidly increasing supply, it is likely that the increase will, in part, result in higher unemployment in the near term. High demand in the economy can facilitate the adjustment. But the extent to which greater labour supply leads to higher employment in the longer term is determined by how the labour market works and by the matching of job-seekers to vacancies. This is particularly true of groups with a vulnerable position on the labour market, for example persons born outside Europe. We have had a strong labour market in recent years and not only the labour force but also employment are now on a historically high level. The expansionary monetary policy has contributed to this development.

Migration and reforms behind labour force participation Various structural changes have meant that the Swedish labour market differs considerably from the structure in the mid-1990s, and in the ten years since the financial crisis alone, a great deal has happened. One such change is that the number of persons at the disposal of the labour market has grown significantly. Since 2006, the number of persons in the labour force aged 15–74 has increased by over half a million. 9 This means that the share of the working-age population participating in the labour force is now the highest for almost thirty years. Several factors lie behind this. The working-age population has increased, much as a result of Sweden’s substantial intake of refugees. Various reforms in recent decades have also increased the incentives to participate in the labour force by making it more profitable to work and to continue working to a more advanced age. Relatively better health and level of education also seem to have contributed to a rather large increase in the labour force participation rate among older people. 10 We should also remember that the increasingly strong economic 8 See Finocchiaro, D. et al (2016), “Macroeconomic effects of reducing household debt”, Economic Review 2016:2, Sveriges Riksbank. 9 See Flodberg, C. and Löf, M. (2017), “Labour supply has increased surprisingly rapidly”, Staff memo, Sveriges Riksbank. 10 Laun, L. and Palme, M. (2017), “The recent rise of labor force participation of older workers in Sweden,” Report 2017:18, Institute for Evaluation of Labour Market and Education Policy.

Thus at present, there are no consequences for the implementation of our monetary policy. Discussions are also currently underway at the international level on the meaning and structure of benchmark interest rates on money markets. The SNB, as member of a BIS working group, is also involved in these discussions. From the point of view of monetary policy and financial stability, the working group identifies core requirements for credible and robust reference rates. Central banks or banking oversight bodies could play a supportive role in reform efforts, inasmuch as the extensive use of benchmark rates affects the general public. However, since reference interest rates are primarily there to cover the needs of the financial markets, market participants are themselves ultimately under obligation. BIS central bankers’ speeches 3

In addition, the sharp rise in stock prices led to a re-assessment of the appropriate equity risk premium. The higher that stock prices rose, the more people thought that equities had little risk. Everyone could become a millionaire with little risk or effort. 4 Similarly, in the subprime/structured finance boom, there were several important positive feedback mechanisms. In particular, the surge in credit availability drove up the demand for housing and pushed up housing prices. This increase in demand caused the default 4 In fact, one book, Dow 36,000, which was published in 1999 shortly before the stock market peaked, argued that “fair value” for the Dow Jones Industrial Average should be 36,000 because the appropriate risk premium for the equity market versus Treasury bonds should be zero. BIS Review 43/2010 3 experience associated with such lending to be very low, reinforcing the notion that subprime lending was not very risky. It also reinforced the demand for the complex CDOs secured by such assets. During the boom, the structured finance models appeared to be sound because losses on the underlying subprime mortgage loans were low and because the correlation rates in performance across different assets in the pools were low, just as the models had assumed. Fourth, the proportion of market participants who believe that a particular episode of asset price increases are justified by the innovation tends to rise as the boom persists.

Benoît Cœuré: Interview in Der Tagesspiegel Interview with Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, in Der Tagesspiegel, conducted by Ms Carla Neuhaus on 19 September 2018 and published on 1 October 2018. * * * Mr Cœuré, the financial crisis erupted 10 years ago. Is the eurozone now better prepared for a crisis? As central bankers we always need to be prepared for the next crisis. It is our job to make the financial system as resilient as possible. And a lot has been done on that front. The financial system is now much safer than it was 10 years ago. We have better regulation and higher capital and liquidity buffers in banks. Good progress has been made, but we are not there yet. Why not? There are still parts of the financial system that are not nearly as well regulated as we would like them to be. I’m thinking of the shadow banking sector, for example, meaning financial institutions that conduct activities similar to those of banks but don’t have a banking licence. Regulators still don’t have proper instruments to adequately monitor and control risks in these institutions. It would be up to politicians to change that. But are they still ready to do so, 10 years after the start of the crisis? There is indeed a risk of complacency. After all, the economy is doing well, memories of the crisis are fading, and bankers have been trying again and again to soften regulation.

But to acknowledge these complexities does not weaken the case for the importance of trying to make sensible judgments about how monetary policy should respond to asset price developments. Here are some considerations for how central banks should navigate through these challenges. 2 BIS Review 2/2006 First, in circumstances where the central bank observes a large realized movement in asset prices and is confident in its knowledge of the impact of those moves on the path of aggregate demand, monetary policy may need to follow a different path than might have seemed appropriate in the absence of those developments. In other words, when policymakers have already witnessed a significant move in asset values, and are confident in what that move means for the outlook, it should be prepared to adjust policy accordingly. Note that in order for this seemingly straightforward proposition to apply the central bank must be responding to its assessment of what an already observed movement in asset prices will mean for output and inflation. Of course central banks must always be prepared to respond when factors threaten to push aggregate demand away from aggregate supply and impact the inflation outlook. Movements in asset prices certainly have the potential to be one of those factors, and the implications of this approach apply in both directions.

Rather, they would be “frozen” and unblocked only in pre – specified circumstances (Landau, 2009). Criteria for use would not be defined on the basis of individual countries’ situations, but on consideration of the conditions prevailing in the global economy and international capital markets. If properly constructed, such a scheme may provide, for no cost, the kind of insurance that countries are currently seeking by building excess reserves. How would countries access to this new source of liquidity? The traditional approach would allocate contingent liquidity to countries according to their quota shares in the IMF. However, those are very imperfect representations of countries’ liquidity needs especially in times of crisis. Taking inspiration from the contingent capital literature, one could imagine that countries could “buy” the access to contingent liquidity in crisis times by paying, in normal times, a premium to the issuer (the IMF?). This could prove less costly than accumulating excess reserves. Going one step further, and transposing an idea from Caballero and Kurlat (2009), the IMF could issue tradable instruments giving access to contingent liquidity once it has been activated. If broadly traded between public entities, the price of such instruments would give a useful indication of underlying systemic tensions in international financial markets. Regional arrangements Another approach would privilege regional arrangements either for pooling reserves or redistributing them though permanent swap agreements. Asian countries, especially, are working on and implementing progressively such schemes through the Chiang Mai initiative.

 Finally, and most important, many oil and commodity producers face an intertemporal choice between extracting resources and keeping them on or under the ground. According to standard economic reasoning (the Hotelling rule), one important determinant is the return earned on financial assets, to be compared to the expected commodity price increase over the long run. The possibility of large valuation losses on financial assets makes it optimal to reduce the rate of extraction, which would durably lower the supply of oil and other commodities. However, there are also practical and conceptual difficulties:  A choice would have to be made as to the true nature of the “super reserve currency”. Would it be a basket of existing monies or a new “fiat” currency? If the “super reserve” is a basket of existing currencies (such as the SDR today) it would basically serve as an instrument for diversification of foreign exchange reserves (or private portfolios), and such a diversification can easily be achieved by using existing currencies. On the other hand, the “super sovereign” could be issued as such as a fiat currency. Then, the international community would have a basic choice. Either the new currency could be made “strong” and never depreciate against any other major existing currencies, which probably means that its supply would be severely restricted. Or, the “super sovereign” would be issued according to pre-specified rules, and depreciation against existing currencies could not be excluded.

Upon the emergence of the possibility of a permanent deterioration in expectations causing inflation to diverge from the targets in the medium term, the Monetary Policy Committee made effective use of the short-term interest rates as the basic policy instrument. Within this context, the Committee implemented a strong tightening policy and increased the policy rates by 425 bps to 17.5 percent in the June-July period in order to put an end to the deterioration in medium and long-term inflation expectations and also to render the inflation targets attainable in the medium term. Following this strong monetary tightening of the Monetary Policy Committee and the measures taken for financial stability, fluctuations in financial markets gradually decreased and medium and long-term inflation expectations partially improved. In this regard, inflation expectations of 12 and 24 months decreased to 7.1 percent and 5.6 percent respectively, as of the end-2006. The Monetary Policy Committee kept the policy rates unchanged in the period between AugustDecember in 2006 due to this improvement observed in inflation expectations, mild progress in international liquidity conditions and a gradually favorable outlook of the future course of inflation compared to the first half of the year. 2 BIS Review 28/2007 Dear Guests, I would like to draw your attention to two rather important factors about our decisions regarding shortterm policy rates. Firstly, the decisions that the Central Bank took regarding the short-term policy rates affect the economic activities with a certain lag, as is the case with the other economies.

Mohamed S Fofana: Banking developments in Sierra Leone Statement by Mr Mohamed S Fofana, Deputy Governor of the Bank of Sierra Leone, at the launching ceremony of the new Guaranty Trust Bank logo, Freetown, 28 July 2006. * * * Mr Chairman, Hon Vice President, Solomon E Berewa, Hon Ministers, Board of Directors, Management and Staff of the Guaranty Trust Bank (SL) Ltd, Distinguished Ladies & Gentlemen I am pleased to be here with you this morning at the launching ceremony of the new logo of Guaranty Trust Bank (SL) Limited. We are all aware that change is inevitable in a dynamic world. And that change itself is dynamic, which is why we are all gathered here today. Distinguished Ladies and Gentlemen, a logo is a symbol or trademark designed for the clear and easy recognition of an institution by both its clients and its competitors. We in the Banking industry, as indeed the nation in general, have come to identify Guaranty Trust Bank with a particular logo in the recent past. The change from the old logo, which is two small squares flanking Guaranty Trust, to a new logo, which is a big orange square with a small white square at the top right side and GT Bank inscribed at the bottom of the orange square, is welcomed by the Bank of Sierra Leone.

Owing to their substantial day-to-day volatility and the interfaces with money laundering and other criminal activity, cryptocurrencies are unsuitable as a universal means of payment. On the other hand, cryptocurrencies are attractive as speculative assets. Crypto-assets is therefore a better term than cryptocurrencies. Central bank digital currencies Another possibility is central bank digital currencies (CBDC). A CBDC is a digital form of central bank money made available to the general public. A number of central banks, including Norges Bank, are assessing whether introducing a CBDC would be advisable and, if so, in what form. For the time being, banknotes and coins are the only form of central bank money, with a role to play both in a contingency and under normal circumstances. Effective electronic contingency arrangements are crucial for ensuring that the payment system is resilient to disruption. Cash is part of the overall contingency arrangements, in the role of last resort should the electronic contingency arrangements fail. Banknotes and coins will continue to be in use into the foreseeable future. However, the use of cash is relatively low in Norway compared with other countries and is declining. It is not impossible that cash usage, at some point in the future, will fall to such a low level that banknotes and coins can no longer be regarded as a generally accepted means of payment.

Following the financial crisis in Japan at the beginning of the 1990s, prices fell and households postponed their consumption as they were expecting prices to continue to fall. The Japanese central bank cut its policy rate to zero and let it remain there, but falling prices meant that monetary policy was nevertheless too tight, in real economic terms. The liquidity trap problem meant that growth was very low over a long period of time. For the three decades prior to the outbreak of the financial crisis in the early 1990s, the average GDP growth in Japan was just over 6 per cent a year. Following the financial crisis it has been just over 1 per cent a year. 5 Because of the risk of a liquidity trap it was difficult for the US central bank, on the basis of the information available at the time, to do anything other than cut the policy rate – the Fed 2 OTC instruments are bilateral financial instruments that are traded outside of the usual stock exchanges and market places, i.e. “over the counter”. 3 Bean (2009). 4 Bean (2009) and Taylor (2009). In BIS (2008) it is pointed out that low policy rates globally may have contributed to the crisis. Bubbles have also arisen on the housing markets in a number of other countries that burst in recent years. 5 See Figure 8 in the presentation material. BIS Review 162/2009 3 Funds Target rate – to 1 per cent.

As we review the text of Basel II to consider our next steps, it is easy to be impressed by some of its advanced techniques for quantifying the risk of loss. But the formulas in Basel II are not revolutionary. The advanced approaches to credit and operational risk contained in Basel II reflect the tremendous advances in risk management achieved among some of the most sophisticated banking organisations. Indeed, rather than inventing something new, the Committee adopted many of the sound practices that the industry had already identified. What is new in Basel II, and what matters most for supervision, is the marriage of two important trends. By building on these trends, Basel II will incorporate principles that are relevant for all supervisors. 2.1 First trend: qualitative assessments of internal controls The first trend that is captured in Basel II represents a shift in the focus of safety and soundness evaluations. In the past, supervisors emphasised the use of backward-looking evaluations of a bank’s performance to determine its financial condition. This drew our attention toward past results rather than future risks and a bank’s readiness to manage them. In contrast, today many supervisors focus more on qualitative reviews of the internal control structures that protect a bank against its specific risks. This represents a far more difficult way of evaluating a bank’s safety and soundness. It requires that we look beyond the numbers and into the bank’s internal processes.

‘Too large’, and central banks may find themselves accused of usurping the role of financial markets, harming innovation and inducing imprudent behaviour; fuzzying the boundary between monetary and fiscal policy, providing a ‘dangerous temptation for … the political class’1; or giving unmerited financial rewards to reserves holders.2 ‘Too small’, and central banks may be criticised for being asleep at the wheel3 at times of crisis; failing to play their part in ensuring an adequate supply of risk-free assets in the economy to maintain financial stability during peacetime4; or hampering the effectiveness of monetary policy transmission.5 Chart 1: Central bank balance sheets compared Source: Individual central banks’ published data, IMF The Bank of England has found itself on both ends of this debate in the past 10-15 years. Before the financial crisis, our balance sheet was modest, at 4% of GDP. Since then, and in direct response to the crisis, that figure has risen to around 30%: a more than seven-fold increase. Other regions have seen similar, or in some cases much larger, expansions (Chart 1). But by the UK’s own standards this is truly exceptional. You have to go back to the end of World War 2 or the early 18th century to find anything even approaching the same highs (Chart 2).

The issue here is not only the financial effort involved, but also the difficulty, from a political perspective, to explain to the public the need for a financial contribution to mechanisms benefiting wealthier countries for the time being. A case in point is the fall of the Radičová cabinet in Slovakia in 2011. Euro adoption – a conclusion In my view, euro adoption is in the best interest of EU Member States in the long run – given the high degree of business cycle correlation and market integration –, but several essential preconditions, added to the nominal criteria, need to be cumulatively fulfilled in order to make the most of these benefits. I have been on this job long enough to remember a time when the dominant view was that fulfilling nominal convergence criteria was enough for successful euro area membership. The paradigm appears to have shifted. First, the emphasis falls now on the sustainability of nominal criteria fulfilment. Second, achievement of a relatively high degree of income per capita convergence, prior to joining the euro area, is considered increasingly important, since too much catching-up in terms of real convergence poses the risk of more intricate economic cycle management in the absence of independent monetary policy. Third, another essential prerequisite is that the new institutional framework of the euro area has to prove its efficacy in preventing and addressing the imbalances menacing economic activity.

My speech will endeavour to outline the arguments that support the opt-in decision for Romania, but I believe that, despite the slightly different circumstances, the reasoning also holds true for other non-euro area countries – such as Poland, Hungary, the Czech Republic or Bulgaria. General remarks Before dealing with the arguments underpinning our position regarding the Banking Union, let me give you a short account of Romania’s recent economic history that should enable all of you to better understand our particular circumstances. No doubt the crisis has taken its toll on Romania’s economy, given the large imbalances which had been steadily accumulating during the boom years. Whether the crisis has ended or not on the European level is still a matter of debate. What may be said for certain is that Romania undertook the necessary adjustments during the 2009–2012 period and the preconditions for sustainable growth are now in place. Indeed, the outcome of these adjustments may already be seen in the 2013 economic performance, which hopefully marks a turnaround in Romania’s economic development: • rapid (judged by the current standards in the European Union) economic growth, namely 3.5 percent, • sizeable adjustment of the current account deficit, from the double-digit area (between 2006 and 2008) to 1.1 percent, • historically low inflation (1.55 percent at the end of the year), • fiscal deficit well below 3 percent.

The main risks and factors of vulnerability The scenario I have outlined also poses risks to our economy. Firstly, the improved international setting has been affected by higher global uncertainty, the result of recent proposals to curb trade, migratory movements and policy coordination. In this respect, mention should be made of the potentially adverse impact of the Brexit negotiations, given the highly significant trade and financial ties between Spain and the UK. Secondly, the rise in US long-term interest rates in late 2016, which partly reflects certain changes expected in the stance of its economic policies, has already impacted the European markets. While it is premature to conclude that this is the start of the normalisation of monetary conditions, it should be recalled that such normalisation will come about if, as is expected, the recovery in the advanced economies takes root. Within Spain, the level of public debt and of that of certain segments of the households and firms sectors remains at high levels, thereby generating high dependency on financing from abroad. This is a source of vulnerability, in particular to any future tightening in monetary and financial conditions on international markets. Finally, from a broader time perspective, the sizeable structural component of the unemployment rate, population ageing and low productivity are the main constraints on the sustained growth of our economy.

In part, I do not consider the risk very large of Sweden alone getting caught up in a crisis where these very instruments will be the best for stabilising our economy. In part, we have seen that the exchange rate can be governed for fairly long periods of time by factors on the financial markets that are not primarily related to the real economy. Instead of acting as a shock absorber for business climate developments in Sweden that are out of synch with other countries, there is a risk that the krona, by weakening more than motivated by fundamental factors, could instead upset Sweden's possibilities for stabilising its development. The economic gains of remaining outside the eurozone thus appear uncertain, while recent research indicates that Swedish debate has probably undervalued the integration gains from EMU. When you hold your first euro banknote next year and take a closer look at it, you will be able to see that Sweden is actually present, on the European map that adorns one side of every banknote. May I be permitted the cautious interpretation of this as a sign of things to come? BIS Review 92/2001 5

At the same time, there has been a considerable decrease in prices for our imports, such as clothing, footwear and electronic equipment. From 2003 to 2008, this improvement in Norway’s terms of trade alone boosted national income by more than 20 per cent, or a good 4 per cent per year. The picture of Norway’s favourable situation has been reinforced by the very severe impact of the financial crisis on other western economies, while Norway seems to have emerged with nothing more than a mild downturn. Nevertheless, there are many challenges ahead. Chart 1 Relative labour costs Deviation from the average for the period 1970–2009 Per cent, 1990–20101 1 Figures for 2010 are an average for the period 1 January–19 August 2010. A rising curve indicates weaker competitiveness. Sources: Statistics Norway, Technical Reporting Committee on Income Settlements (TBU), OECD, Ministry of Finance and Norges Bank. Norwegian labour has never been as costly as it is now. Norwegian businesses may lose out in the competition for contracts given the current high level of spare capacity in other countries. There are frequent reports of businesses relocating activities to neighbouring countries, such as Sweden. Labour in Sweden is perhaps as much as 30 per cent cheaper than in Norway and the two countries are closely connected in terms of language and culture. The management of Norway’s oil wealth poses another challenge.

He is supposed to explain both what is happening and what would happen if such and such an action were taken.” 10 However, as he also points out: “The purpose is not that he should reach a conclusion of the type: this is how you should act now! … Any economically important decision must also be based on a number of human, ultimately political, assessments that the expert, the economic scientist, is by no means more qualified to decide on than other good citizens.”10 It can often be difficult to distinguish the object, ie exercise objectivity, from the perception of that object, ie subjectivity. Ragnar Frisch discusses this too. In an article written in 1936, he draws a line from the natural sciences through to the social sciences, where “… the difficulties of arriving at such unconditionally valid results become greater and greater. The reason for this is first and foremost that the whole system of ideas on which the natural sciences are based becomes increasingly more diffuse as one approaches the social sciences.”10 When I was a student here at the University of Oslo at the beginning of the 1970s, there was a fairly broad consensus that the problem of unemployment had been solved once and for all. The belief was that the economy could be fine-tuned through government management, control and regulation. A similar optimism prevailed with respect to economics in the years prior to the financial crisis.

First of all, securing price stability will make permanent all that we have gained in the process of the falling inflation. When price stability is achieved, macroeconomic stability will sustain and efficiency in the economy will increase. You should remember that by attaining price stability, a precondition for sustained growth and increase in employment would be fulfilled. As a result of all these macro economic gains, economic units will no longer take into consideration an uncertainty like inflation both in their investment and consumption decisions. They will be able to forecast for the long term and plan more securely. 4 BIS Review 63/2004 Since economic units can forecast better while making decisions, in this stable environment labor market will work better, and people will be able to find more permanent jobs. In a continuous inflationary environment, growth also has ups and downs and in the period of growth for the unskilled labor force, which is very common in our country, it takes a lot of time to find a job and in the contraction period loses the job very easily and quickly. Stable environment achieved with the falling inflation will accelerate the inflow of foreign capital and our competitiveness edge in the international markets will increase. I would like to highlight one more matter in light of the above-mentioned issues. Inflation is not a fact that declines all by itself.

In the worst case, falls on the stock exchange that correct overvaluations can lead to financial instability, if share prices have been driven by pledged shares and if the market participants are in some cases unable to pay back their loans. This can result in panic sales, exaggerated falls in prices and credit institutes facing difficulties as a result of exposure to households and institutions that have become insolvent. This result risks leading to large fluctuations in the real economy. Critics of the Federal Reserve in the USA claim that when Alan Greenspan coined the phrase "irrational exuberance" in 1996, it was clear that prices on the stock exchange had risen too much and that this development should have been counteracted. Nothing was done and the rise in share prices continued until March 2000. Since then the stock exchanges have fallen, Nasdaq by 70 per cent, and the fall on the stock exchange risks pulling the USA down into a recession that could have been avoided. However, comes the objection; is it really possible to realise when a stock exchange has risen too much? The answer is that prices on the stock exchange must have some relation to the underlying development of productivity in trade and industry, to company profits and to the market's pricing of risks. Of course, it is not possible to determine precisely when the stock market has risen too much or when it is undervalued. However, it should not be too difficult to detect obvious deviations.

The euro exchange rate remains high by historical standards (6% in real terms above its average over the past decade). Finally, interconnectedness, which creates contagion inside Europe, also works well beyond the euro area. Banking and market pressures have been transmitted globally. Asia may be 6,000 miles away from Europe, but, for the financial markets the distance is less than 30 seconds. Origins and causes How could the crisis have been allowed to develop? There have been lags in the decisionmaking process. Fiscal discipline has not been respected in the past. European rules have not been implemented. Also, some policy decisions have produced unintended consequences. One example is private sector involvement (the so-called PSI) in sovereign debt resolution. On the face of it, it sounds totally appropriate. Economists like saying that, once debt has become unsustainable, it is better to reduce it immediately. Beyond simple economics, PSI is seen as necessary for eliminating moral hazard and ensuring market discipline. When investors have taken excessive risks, they should normally pay a price. Finally, PSI has a strong, and legitimate, political appeal: tax payers cannot be called to bear the consequences of the reckless behavior of borrowers and lenders. 2 BIS central bankers’ speeches However compelling, this line of reasoning misses an important point. The sovereign bond market is more than a means of financing governments. It is the pillar on which all financial systems ultimately rest.

Total completed foreclosures including short sales and deeds-in-lieu from the beginning of 2008 until the end of the third quarter of 2010 represent around 58 percent of all foreclosure starts over that same period. In addition, in each quarter the pace of foreclosure starts has exceeded the pace of completed foreclosures. At best, then, we are only halfway through the resolution process. To conclude where I began, the name “Great Recession” is also appropriate in that it reminds us not only of the severity of what took place, but also of the travesty that was avoided – that is, the second Great Depression. This was only possible with the aggressive monetary and fiscal policy actions that were undertaken both domestically and abroad. Much was learned in the process about how to effectively deal with a financial crisis, and much remains to be learned about how to prevent them from recurring in the future.

For the time being, bank profitability has only somewhat declined due to interest rate cuts, lower fees and higher provisions to weather such an adverse situation. However, it remains uncertain how the pandemic may affect credit portfolios in the most vulnerable sectors.8 It is therefore particularly important to monitor the portfolio quality indicators for the various Latin American banking systems, which in 2020 accounted for more than 50% of profits at Spain’s two largest banking groups, and which during the previous European sovereign debt crisis played a countercyclical role for the Spanish banking system. The worsening of the pandemic in Latin America since late 2020 points to heightened uncertainty in the short run. The next six months will be a race between new strains of the virus emerging and the vaccination campaigns, which in Latin America are progressing but gradually. Among the factors supporting the region’s continued recovery in activity is external demand, which may also benefit from new stimulus programmes passed in the United States and better price performances for certain commodities. The IMF forecasts GDP growth for the region of 4.1% in 2021, albeit again with notable differences across the economies.9 In the medium term, the crisis poses a series of significant risks and challenges, some global in scope and others more specific to Latin America. 7 Mainly credit support programmes, moratoria on payments by the most vulnerable borrowers and government guarantees.

And this despite the fact that several Latin American countries adopted more stringent restrictions on people's movement and activity – and at an earlier juncture – than other emerging economies. Some of the region’s structural characteristics may have been behind the region’s greater vulnerability to the pandemic. Among these, analysts have pointed to high poverty levels, lower institutional quality compared with other emerging economic areas, high informal employment rates, the relative fragility of health systems and the high proportion of the population living in urban areas. 2 Defined as loans and other claims on households and non-financial corporations in the respective country or region, excluding public sector entities and financial institutions. 3 Further, as Chart 1 shows, these exposures rise to one-third of the total when risk-weighted. Lastly, defaulted exposures in Latin America represent more than 40% of all such exposures outside of Spain. 4 On data at 22 February 2021 2 The pandemic and the containment measures adopted led to a sharp drop in economic activity from March 2020. Thus, in 2020 Q2, activity in the region contracted by 14% in quarter-on-quarter terms. In 2020 H2, the situation began to recover. Among other factors, this was thanks to the gradual easing of lockdown measures, the Chinese economy returning to near pre-pandemic levels of growth and the favourable performance of financial markets, which has seen capital flows return to the region.

In the first half of 1973, the global economy is in full expansion. The preceding few years have been marked by mounting inflationary pressures (Chart 1). Norges Bank Economic perspectives 2023 2 Chart 1 High and variable inflation in the 1970s Consumer prices. Four-quarter change. Percent 16 OECD Norway 14 12 10 8 6 4 1973 2 0 1966 1971 1976 1981 1986 Sources: Statistics Norway and Norges Bank In Norway, too, prices are rising quickly. “Price problems”, as they are called, are a source of political concern. In summer 1973, the Price Problems Commission, headed by Deputy Governor Hermod Skånland, presents its report. The commission recommends closer cooperation between the authorities and the social partners to bring inflation under control. But the recommendation is not immediately followed.1 The price problems prove to be much worse than feared. On 6 October, war breaks out in the Middle East. The war is not only fought with military weapons, but also with economic weapons. The Arab OPEC countries impose an oil embargo on the major industrial economies in response to their backing Israel. Oil prices nearly quadruple. Petrol prices not only soar, but there are petrol shortages. Those of you a few years older than I am may remember the Norwegian ban on weekend driving. The following year, consumer prices in Norway rise by more than 10 percent, triggering a price wage spiral.

We can go one step further and ask whether this long-tailed distribution of board connectivity has any systematic relationship with the long tail of companies’ productivity performance. Controlling for other firmspecific factors, such as their size and sector, it appears that it does. Indeed, this relationship is both statistically significant and economically meaningful (Table 3). As a thought-experiment, imagine comparing two otherwise-identical companies except for their degree of board connectivity. One company has a board whose members are in the upper decile of the connectivity distribution; it is one of the “in-crowd”. Another has a board drawn from the lowest connectivity decile; it is one of the majority in the “out-crowd”. Average annual productivity growth for the in-crowd company is around 1 percentage point higher than for the out-crowd company. I am indebted to the doyen of monetary and financial economics, Professor Charles Goodhart, for many things. But among them is the following, the only corporate governance joke I know. Question: what is the difference between a shopping trolley and a non-executive director of a company? Answer: a shopping trolley has a mind of its own. The evidence here rejects the null hypothesis in Charles’s joke. It is unclear whether, for Facebook fanatics and Twitter addicts, higher numbers of friends and followers translates into higher levels of productivity and well-being. My casual empiricism suggests, sometimes, it might not. But for companies, the empirical evidence suggests connections do matter. For companies’ productivity, connectivity counts. Indeed, it may help account for the UK’s long tail.

Though the latest Budget and OSR plans imply a somewhat bigger fall in the public spending share of GDP than in the mid-1990s, this is offset by a smaller rise in the tax burden. Taking tax and spending together, the projected impact is broadly similar. Public borrowing fell by over 8 percentage points of GDP between 1993/4 and 1998/9, compared with a 9 percentage point fall projected over the next five years in the coalition government 2010 Budget. 10 It is also important to recognise the profile for total public spending conceals significant variations between different areas of spending. But the overall total is not being cut back as dramatically as some of the media headlines suggest. The broadest measure of public spending – Total Managed Expenditure – is still set to rise in cash terms at 1.5% per annum over the four years to 2014/15, not far below the targeted inflation rate of 2%. The profile for real spending in future years is not dissimilar to the mid-1990s when there was also a virtual standstill in the real growth of spending. In the 1990s, the public spending squeeze was also accompanied by a significant reduction in employment in the public sector, not dissimilar to the figures currently projected by the Office of Budget Responsibility. Despite this, unemployment fell in the 1990s from over 10% of the labour force to around 5% later in the decade because the private sector generated many more jobs than were lost in the public sector.

The original Basel Capital Accord was itself a landmark event, revolutionary in providing a common capital assessment approach, now used by over 100 countries. However, it has obvious limitations that have become more significant over time. It has become less and less reflective of the risks of our largest organizations, and, accordingly, has become less and less integral to our ongoing supervision of them. Basel I, as we all know, includes such shortcomings as: a) its failure to recognize differing credit quality within the same general asset type; b) its varying the capital charge with the credit exposure’s legal form, such as whether it is on or off balance sheet; and c) its simplistic approach to risk transference and credit risk mitigation. More generally, Basel I was not structured to keep pace with the rapid rate of financial innovation that we have seen in internationally active banks. It clearly has created incentives for capital arbitrage, with banks able to structure transactions with the primary goal of minimizing regulatory requirements without a commensurate reduction in risk. Similarly, it has resulted in distortions in bank activity, by creating a tax on certain activities while understating the risk for others. BIS Review 35/2005 1 These have combined to make the regulatory capital metric less informative to investors, supervisors and counterparties, and have eroded the principle of adequate risk-based capitalization that the Basel Accord was designed to promote.

In this framework, the Bank of Albania continued to work on the consolidation of inter-institutional collaboration, through the National Payment System Committee (NPSC), which it chairs. The Committee has initiated several projects, most importantly the projects on the compilation and implementation of the draft-strategy for the reformation of the small value payments market, the increase of financial inclusion and the assessment of remittances market. The successful accomplishment of the main legal obligations is supported by a range of other functions of the Bank of Albania. I will now briefly mention some of the improvements in these activities. 5. Other activities of the Bank of Albania 7/9 BIS central bankers' speeches In the field of statistics, the Bank of Albania has intensified its work to align the methodology on statistics with the international standards and their harmonization with the acquis communitare. In concrete terms, the methodologies on the preparation of financial soundness, interest rates, financial accounts and international reserve indicators are revised. The Statistics Code of Practice at the Bank of Albania was adopted for the first time. This code ensures integrity, quality, access and confidentiality in using and reporting the statistics, according to the international standards. Also, the Bank of Albania, for the first time, published the policy and calendar of statistics review, which ensures full transparency related with the review of released statistics. Since June, Albania implements the IMF‘s Enhanced General Data Dissemination e-GDDS). Some of the statistics are compiled by the Bank of Albania.

It has facilitated the development of new financial instruments and investment strategies, and it has radically changed trading mechanisms. It should also have made it easier for both financial institutions and their regulators to measure, monitor and manage risk. But the electronic revolution, as it applies to our financial systems, has clearly had a very positive impact on the efficiency of all our financial markets and no doubt still has a long way to go. Other major drivers include: the effects of rising living standards and the associated increase in financial wealth; and the consequences of ageing populations in many of our countries with a related emphasis on private pension provision. They include also the impact of fiscal policies which are now typically directed to limiting budget deficits and reducing public sector debt and of monetary policies directed at consistently low inflation as a necessary condition for sustainable economic growth. Many of these trends seem likely to encourage a continuing relative shift in savings and investment patterns towards private sector capital market intermediation, although such intermediation will often be carried out by banks or within banking groups. I've no doubt that you can all think of other important drivers of change in our financial systems. And all of this before we even come to EMU!