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Howard Lee: Keynote speech - ASIFMA China Capital Markets Conference Keynote speech by Mr Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority, at the ASIFMA China Capital Markets Conference, Hong Kong, 27 June 2023. *** Good afternoon, everyone. It's a pleasure to be here at the China Capital Markets Conference, and I'd like to thank ASIFMA for organising this event and inviting me to speak. Today's conference covers a wide range of topics, from opportunities and developments in China's capital markets to key trends like digital transformation, green and sustainable finance. As we all know, Hong Kong has always been the hub connecting Mainland and international markets, and currently intermediates two-thirds of cross-border direct investment and securities investment flows. It's an exciting time to be discussing how we can further leverage connectivity in China's and Hong Kong's financial markets and explore the key trends for the next stage of China's opening up. China's National 14th Five-Year Plan emphasises the importance of pursuing a higher level of opening up and promoting high-quality development. Despite the challenges presented by the Covid-19 pandemic, China's reform and opening up has continued to deepen. There are continued expansions of the Connect schemes, and foreign ownership limits on securities firms and mutual fund companies have been removed. These developments are encouraging and welcomed by the industry. Mainland authorities have reiterated that China will only open its door wider going forward, with Hong Kong continuing to play an indispensable role.

In closing, given the limited amount of time today, I could only briefly touch on two key themes in the broader opening up of China's capital markets. At the HKMA, we are continuously working with Mainland authorities and the industry towards new policy breakthroughs to better serve global investors and support the development of onshore markets. I warmly welcome your views and ideas on ways to further strengthen the connectivity between China's and Hong Kong's financial markets. Thank you, and I wish today's conference a great success. 3/3 BIS - Central bankers' speeches

1/10 BIS - Central bankers' speeches Same inflation figures as in the early 1990s, but a different situation When I had just left the Stockholm School of Economics and started working at the Riksbank in 1990, inflation in Sweden was around 10 per cent. Now when I returned to the Bank at the start of this year, the inflation figures were at the same level. The background to, and reasons for, the high inflation now and then differ, of course. But the important thing is that the conditions for rectifying the situation are much better now. Looking at economic developments on average over the past thirty years or so, we have had low inflation combined with good economic growth, Real wages have increased steadily – with one exception last year – and we have also had, and still have, stable public finances. One important reason for this is the reforms of wage formation and the economic policy frameworks that Sweden implemented in the mid-1990s to address pricewage spirals, cost crises and an economic policy that was unable to stabilise developments. The inflation target and the transition to an independent central bank with a strong mandate to maintain that target were part of this. Since then, the inflation target and a monetary policy that independently steers towards this target have been a cornerstone of economic policy in Sweden. This is also reflected in the new Sveriges Riksbank Act, which applies from the start of this year.

News conference 15 December 2022, 10.00 am Introductory remarks by Thomas Jordan Ladies and gentlemen It is my pleasure to welcome you to the news conference of the Swiss National Bank. I would also like to welcome all those who are joining us today online. After our introductory remarks, the members of the Governing Board will take questions from journalists as usual. Monetary policy decision I will begin with our monetary policy decision. We have decided to tighten our monetary policy further and to raise the SNB policy rate by 0.5 percentage points to 1.0%. In doing so, we are countering increased inflationary pressure and a further spread of inflation. It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term. To provide appropriate monetary conditions, we are also willing to be active in the foreign exchange market as necessary. The SNB policy rate change applies from tomorrow, 16 December 2022. Banks’ sight deposits held at the SNB will be remunerated at the SNB policy rate of 1.0% up to a certain threshold. Sight deposits above this threshold will be remunerated at an interest rate of 0.5%, and thus still at a discount of 0.5 percentage points relative to the SNB policy rate. With this tiered remuneration of sight deposits and open market operations, we are ensuring that the secured short-term Swiss franc money market rates are close to the SNB policy rate.

This is where we should bring our Ziel, our strategic objective, into our field of vision. And even more so since MREL requirements in the European Union are, on the whole, far more stringent than the TLAC international standards and their translation into other jurisdictions’ regulations. * ** Let me conclude by saying that, in 2022, after the first seven years of existence of the single resolution mechanism, it may be time to recall what Clausewitz rightly identified as the greatest difficulty: “to adhere steadfastly in execution to the principles which we have adopted.” That does not mean showing rigidity in technical implementation, on the contrary. It means taking a risk-based approach and conducting a balanced analysis of the best way forward in order to serve these principles in a relevant way. I will end my speech with another phrase of Roman wisdom: in medio stat virtus, virtue lies in the middle. I thank you for your attention.

In the aftermath of the crisis, the configuration of the world economy will be transformed as changes in the pattern of global demand take place, as demands for greater efficiency and lower costs occur, as actions are taken for a reduced role of government in the economy, as new regulatory regimes are being introduced, and as efforts are being undertaken to enhance our capacity to manage systemic financial crisis. Many of these changes will involve cross border arrangements and collaboration. We are all stakeholders with interest in what the post-recovery world will look like. Indeed, the issue of new economic models in the context of these developments is relevant not just to Asia but also for other parts of the world. We have seen how within the short period of less than a decade, the rapid escalation of debt-driven consumption in North America led to chronic financial and economic imbalances that has resulted in a significant economic dislocation on a global scale. Several lessons can be drawn from these developments. The Asian economic model for the future needs to be redefined if the economic progress is to be sustained, taking into account the global changes that are taking place. Asia's success which has been described as a “miracle” has been well documented. It has been acknowledged that “the miracle” is not the result of any one single factor but rather, a confluence of factors. Structural change and pro-growth policies were coalesced synergistically with hard work ethics.

To be more precise, the exchange rate can be used as a policy instrument when it is no longer possible to lower the interest rate because it is already zero. Unlike the policy rate, the exchange rate has no upper or lower limit, as Bennett McCallum pointed out early in the discussion of Japan's liquidity trap. 12 When the real economy and inflation can no longer be stimulated by cutting the policy rate, it is still possible to achieve the same stimulation by using the exchange rate as a policy instrument and depreciating the currency. This is the background to my proposal of a “Foolproof Way” for a small open economy to escape from a liquidity trap. 13 The Foolproof Way consists of the following three parts: 1. A price level target is introduced in the form of a path as I described earlier. In the event that unwelcome low inflation or deflation has already arisen, the price level target can be set correspondingly higher than the current price level. 2. An exchange rate target that is consistent with the price level target is announced and the exchange rate is pegged to this exchange rate target until the price level target is attained. If, for example, the price level is to be raised by 10 per cent, the exchange rate target is set so that the currency depreciates by 10 per cent. 3.

For these reasons alone, BIS Review 21/2005 3 the use of petroleum revenues may in periods deviate from the 4 per cent rule. Spending was also increased in response to the economic downturn. We can therefore safely affirm that the fiscal rule has been normative for fiscal policy. At the time of the introduction of the fiscal rule in 2001 projections pointed to a continued increase in the use of petroleum revenues. We had to expect this growth in spending to lead to weaker competitiveness in Norwegian manufacturing, either through higher wages or an appreciation of the krone. With wage growth in Norway higher than abroad, the competitive position of Norway’s manufacturing industry has weakened by about 15 per cent since the mid-1990s. Competitiveness is about 4 per cent weaker than the average for the past 30 years. The krone has been influenced by high oil and gas prices and prices for other Norwegian export goods. Monetary policy has also influenced the path for Norway’s relative costs, but the nominal value of the krone is about the same as 10 years ago. Strong growth in public spending and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. Over the past 30 years manufacturing has been scaled back in waves. The last wave occurred around the turn of the millennium, but a substantial decline also occurred in the period 1977 to 1984 and from 1987 to 1992.

Immigration can be divided up into people who intend to stay and people who are in a country temporarily, for 19 See also Olli Segendorf and Theobald (2019) for a more in-depth discussion. 16 [24] instance, to fill a shortage of labour. One problem with the official statistics is that they in many cases miss the temporary immigration. This can also make it more difficult to assess resource utilisation. If the supply of labour is greater than the measurement in the official statistics, there is more spare capacity than the statistics reveal, that is, resource utilisation is not as strained as the official statistics would imply. An improvement in the statistics in this respect would be desirable so that we have a better, more correct, basis to make our monetary policy decisions, for instance. Falling long-term real interest rates in Sweden and on the global financial markets I began by showing that the long-term real interest rate is important to the longterm level of the policy rate. In small open economies like Sweden, with free movement of capital, interest rates are strongly affected by interest rates abroad. This means that the long-term real interest rate in Sweden is largely determined by interest rates abroad. One difficulty in the monetary policy analysis is to calculate the long-term real interest rate, since this is not directly observable. There are many different methods for calculating it in the literature, but none that is generally accepted.

Sources: Adolfson, M., M. Andersson, J. Lindé, M. Villani and A. Vredin, (2007a), “Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Bank”, International Journal of Central Banking, vol. 3, December, pp.111-144. 10 For a more detailed justification of the decision to publish our own interest rate forecast, see Irma Rosenberg’s speech “Riksbank to introduce own path for the repo rate”, held on 17 January 2007. BIS Review 77/2008 9 Adolfson, M., S. Laséen, J. Lindé and M. Villani, (2007b), ”RAMSES – a new general equilibrium model for monetary policy analysis”, Sveriges Riksbank Economic Review, no. 2. Blinder, A.S. and C. Wyplosz, (2004), “Central Bank Talk: Committee Structure and Communication Policy”, Working Paper, prepared for the ASSA meeting, Philadelphia, January 7-9, 2005. Dincer, N.N. and B. Eichengreen, (2007), “Central Bank Transparency: Where, Why and with What Effects?” National Institute of Economic Research Working Paper 13003. Rosenberg, I., “Riksbank to introduce own path for the repo rate”, 17 January 2007. Pollard, P., (2004), “Monetary Policy-Making around the World”, Powerpoint presentation, Federal Reserve Bank of St. Louis. 10 BIS Review 77/2008

Under such circumstances, the central bank’s unambiguous commitment to attaining its objectives is an indispensable anchor. A credible central bank with a clear commitment to price stability can, and must, provide such a haven of trust and confidence within the complex and uncertain web of interrelations in a modern economy. This is precisely what the ECB is seeking to do. Our track record over the past, almost six, years shows that we have been rather successful. Thank you very much for your attention. BIS Review 66/2004 7

Equity financing is a key driver of innovation: it is better suited to the uncertainty and offers long-term returns associated with innovative projects. The euro area is seriously lagging behind in this respect: equity only accounts for 80% of GDP, compared with 122% in the United States. Integrated capital markets also require effective supervision. Here again, milestones have been reached thanks to the outcome of the recent review of ESAs towards enhancing their role. Concerning the supervision of financial markets, ESMA will as a first step contribute to furthering convergence of supervisory practices. Yet in the longer run, the scope of its direct supervisory powers should be expanded starting with the supervision of wholesale markets. Regarding the insurance sector, a particular attention was paid to strengthening the supervision of cross-border activities through EIOPA. I welcome also the enhanced EBA role on AML-CFT issues, an area where progress in the European framework is absolutely needed. Finally, the Capital Markets Union needs robust market infrastructure. Thanks to EMIR II, Europe has given itself powers – via ESMA – to directly supervise third country CCPs which have a systemic footprint vis-à-vis the EU. This being said, EMIR II is not the end of our journey. Much more needs to be done regarding either the role of the ECB or ESMA’s prerogatives over EU CCPs.

[4] The growing role of non-banks offers the benefit of diversifying sources of finance and can thereby help to ensure a smooth provision of funding to the real economy. [5] Evidence also suggests that a higher share of non-bank finance can help economies to recover faster from recessions,[6] when banks’ ability to lend may be impaired. [7] Crucially, however, the benefits of this diversification rely on making sure that the non-bank financial sector provides a stable source of funding, ensuring robust financing for companies in both normal and stressed market conditions. Liquidity and leverage – lessons from recent market events As the market footprint of non-bank financial institutions increases, new risks and vulnerabilities can arise. Let me discuss three in particular. First, the strong growth of the non-bank financial sector – especially the asset management industry – over the past 15 years has been accompanied by an increase in liquidity mismatches. A key contributing factor is that investors in open-ended funds – which account for the largest part of the investment fund sector – can typically redeem their shares on a daily basis without prior notice. This creates a liquidity mismatch especially in funds that invest in relatively illiquid assets, such as high-yield corporate bonds. Liquidity demand has become more procyclical as a result, especially during periods of financial market stress. During the pandemic, we saw how liquidity mismatches in open-ended funds increased demand for market liquidity, which amplified stress in financial markets.

And in response, the Bank of England had to intervene on financial stability grounds through temporary purchases of long-dated UK government bonds. While these new risks and vulnerabilities are evident, the non-bank financial sector has remained largely stable in recent months, despite the stress in the banking sector that emerged in March. Fund investors shifted their exposure from higher to lower risk assets, especially from high-yield corporate to government bond funds. Portfolio de-risking has also been evident in insurance corporations and pension funds, as higher interest rates have reduced incentives for the non-bank financial sector to search for yield. But there are no grounds for complacency here. Structural vulnerabilities from liquidity mismatches and leverage remain elevated despite recent de-risking. Moreover, bank and non-bank financial institutions can be closely interconnected through funding channels, ownership linkages and common risk exposures. The non-bank financial sector remains particularly exposed to asset price corrections and credit risk should corporate sector fundamentals deteriorate substantially. In addition, non-banks’ exposure to property markets has increased markedly in recent years, rendering institutions vulnerable to ongoing price corrections in real estate markets. Fragile risk sentiment and elevated vulnerabilities in parts of the non-bank financial sector could amplify negative shocks. Strengthening the resilience of non-bank financial intermediation Given the vulnerabilities in the non-bank financial sector, it is vital to further enhance its resilience, also from a systemic perspective. To date, the macroprudential policy framework has mainly focused on the banking sector, while the policy framework for non-bank financial institutions still needs to be enhanced.

Chart 6 GDP response to demand and supply shocks (y-axis: percentage change in response to one-standard deviation demand and supply shocks, x-axis: months) Sources: ECB staff calculations. Notes: The Bayesian SVAR includes monthly interpolated GDP, HICP, ten-year OIS rate, HICP energy and PMI suppliers’ delivery times. The SVAR is estimated using the Minnesota prior with the dummy coefficient prior. Shocks are identified using sign and narrative restriction methods. Technical details on the method can be found in De Santis, R. A. and Van der Veken, W. (2022), “Deflationary Financial Shocks and Inflationary Uncertainty Shocks: An SVAR Investigation”, Working Paper Series, No 2727, ECB. This leads me to believe that supply factors will remain, overall, the dominant determinant of inflation going forward. The persistence of the shocks When inflation is driven mainly by supply shocks, monetary policy should respond when the shocks are persistent to keep inflation expectations anchored and avoid that inflation becomes entrenched. Understanding the reasons for the persistence of current shocks and whether they may permanently lower potential is also crucial for designing the adequate policy response. There are two alternative explanations for the persistence of the supply shocks we have experienced. The first is that the economy has been hit by a sequence of temporary supply shocks, which have jointly created a persistent effect on inflation. In this case, potential output should remain broadly unchanged. And the lingering effect of the supply shocks on economic activity through real incomes and confidence could result in a negative output gap.

The economy is experiencing large, negative supply shocks pushing output and inflation in opposite directions. The correlation between estimated output gaps and inflation has become more blurred and uncertain than in the past. And the trade-offs facing monetary policy have become more complicated. In other words, monetary policy has become significantly more complex. In designing the appropriate monetary policy response, central banks need to make two key judgements: one on the origin of the shocks hitting the economy and another on their persistence. I will argue today that euro area inflation has been driven by soaring energy prices and enduring supply constraints even as the economy reopened after the crisis phase of the pandemic, unleashing pent-up demand. But the boost to demand from the reopening is fading, and we have no evidence as yet that supply shocks are having large and permanent effects on output potential. And if supply shocks durably lowered potential, our policy response would have to consider that they also affect demand by depressing current and future real income. Against such a backdrop, monetary policy has to ward off the risk of a de-anchoring of inflation expectations, which could lead to second-round effects in the form of excessive wage and price-setting dynamics. That implies adjusting monetary conditions and frontloading rate hikes. But so long as expectations remain anchored, the calibration of our policy adjustment should take into account the unprecedented uncertainty of the post-pandemic world.

There then remains only 1 per cent of the debt of 170 per cent, that is, the net debt service required in the long run to keep the debt ratio constant is only 1.7 per cent of disposable income.16 With this reasoning, a debt ratio of 170 per cent is sustainable with a considerable margin. Figure 3 Capital over assets for households, some large listed companies and Swedish banks Per cent 80 70 60 50 40 30 20 10 0 Sources: Dagens Industri (capital/assets 2011 for listed companies and Swedish banks) and the Riksbank (household net wealth/assets). surplus of disposable income in a “left-to-live-on” analysis – which is described in footnote 17 – is around 58 per cent. The current value of this surplus is then around 1 000 per cent of disposable income. When these figures are compared with a debt of 170 per cent and added to real and financial assets of 510 per cent, households’ leverage ratio and debt-servicing ability undoubtedly appear to be pretty good. 15 Isaksen, Lassenius Kramp, Funch Sørensen and Vester Sørensen (2011). 16 A high mortgage rate after tax could be 5 per cent. A long-run level for the repo rate of 4 per cent plus an historically-high spread of 3 percentage points gives a mortgage rate before tax of 7 per cent and after tax of approximately 5 per cent ((1-0.3)x7=4.9).

One of our colleagues did not meet these high standards recently. Our newly appointed Deputy Governor for Markets and Banking, Charlotte Hogg had previously not disclosed a relevant family relationship, as was required under our staff Code of Conduct. For those who have questioned whether we “get it”, we do. We know this honest mistake was also a serious mistake – one that was compounded by the fact that Charlotte Hogg had overseen the development of our new Code. We were clear upfront that there must be consequences for both her and the Bank. Our minimum response would obviously be what we would expect to see in the firms that we supervise. Let’s be absolutely clear about this baseline. In analogous situations in the private sector, we expect:  Evidence that the firm is taking the matter seriously;  Proportionate consequences for the individual, including some form of disciplinary warning and possibly some impact on remuneration; and  A wider review of lessons learned if there was any evidence that there was a systemic problem. 9 See page 16, Financial Reporting Council (FRC), “Corporate Culture and the Role of Boards: Report of observations”, July 2016. See Footnote 7 for details. With appropriate modifications to reflect the fact that it has a very different range of functions to a commercial bank and is accountable to a different range of stakeholders, including Parliament.

As you are aware, the comment period for the third consultative paper (CP3) closed at the end of July. If you have seen the “comments on CP3” page of the BIS website, you will not be surprised to hear that we have received over 200 responses. I must admit that this is more than we had expected, even if it is below the 250 responses we received on the second consultative document two years ago. Obviously, not all of the comments are mutually compatible, nor would it be feasible to incorporate them all. However, there are some substantive issues which have been raised, and I will mention some of these briefly in a moment. But just let me say first that the Committee is taking the comments very seriously and working extremely hard to resolve the issues that have been raised. What is most important to the Committee is the quality and consistency of the new Accord, and we are clear that this cannot be unnecessarily constrained by deadlines and timetables. Michelangelo once said that, having seen an angel in a block of marble, he carved until he set it free. From most of the letters of comment received by the Committee this summer, it seems that the industry sees an angel in the proposals and wants to carve away at the text until it’s been set free.

I should also stress that no formal decisions have yet been taken in this respect. As you probably know, the Committee will meet next month for the first time since the comment period closed. I can assure you that we will continue to do our utmost to ensure that you - the industry - can take advantage of the benefits of the new Accord at the earliest possible opportunity. Thank you for your attention. BIS Review 42/2003 5

Advocates of the secular stagnation hypothesis argue that this is a result of underinvestment in capital; others point to declining business dynamism, excessive household debt that leads to the misallocation of resources, and some attribute it to measurement errors given the expansion of the digital economy. And then, there are those who question the productivityenhancing-value of recent technological innovations. What is the value of an Apple Watch as compared to the invention of the internet? It is indeed a challenge to comprehend this rapidly changing complex system that we operate in, let alone diagnose it. We need to humbly recognise the boundaries of our understanding for now, but at the same time relentlessly expand the frontier of thinking and conduct robust deliberation on the implication for public policy formulations. The last paradox, one that is familiar to many policymakers, a disquieting calmness. In the financial markets, the VIX – a standard indicator to measure volatility in the global financial markets – is at its lowest in the last two years. In fact, it is close to the all-time low of below 10, last seen just before the global financial crisis. Yet, a quick scan of financial news would reveal significant uncertainty in the global economy, amid an ongoing series of policy adjustments in major economies, volatile commodity price movements and geopolitical tensions. To a large extent, this paradox is an outcome of the combined policy efforts by central banks and governments worldwide to maintain stability since the global financial crisis.

During my brief remarks this morning, I’d like to highlight three related topics that I believe are relevant to you as community bankers: the critical role that community banks play in the U.S. economy, particularly at the local level; trends in small business lending; and recent efforts to enhance the efficiency of the regulatory and supervisory framework. My comments today are my own and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System. The critical role of community banks Let me begin with some thoughts on what we seek to achieve through supervision. A core objective for safety and soundness supervision is to ensure that supervised entities are resilient. That is, a firm should be able to continue to operate and provide financial services across a wide range of economic and financial conditions. Supervisors and regulators can support this objective through our focus on stronger capital and liquidity, comprehensive risk management and robust governance and controls. All of this makes firms resilient to unexpected shocks and allows them to continue to serve their customers and communities. Resilience, however, is not the end objective. Rather, we seek to ensure that banks of all sizes contribute to the sustained and efficient provision of credit and other financial services to consumers and businesses that support the growth and stability of the economy. Community banks play a distinctive role in the provision of financial services, offering a wide range of products and serving specific segments.

Encouraging the entry of new firms equipped with the latest technology and institutional structure into the market constitutes one of the pillars of a well-designed competition policy, whereas the other pillar is to facilitate the elimination of sluggish firms, which have difficulty adapting to changes In a competitive environment, firms will begin to allocate more resources to activities focusing on productivity gains and enriching the product range. It is clear that the ability to access, produce and use information is very important nowadays. In such an environment, only those firms, which closely follow the changes in consumer tendencies, have flexible organizational structures, are institutionalized, are ready to cooperate with other firms and their research units, and draw up their resource allocation plans with a long-term perspective aimed at enhancing the production capacity, will prevail in the arena of global competition. To sum up, in the recent period, important steps have been taken to create an efficient competition environment in the Turkish economy. Indicators such as the growth rate, the increase in productivity, direct foreign capital inflows and the number of new firms reflect the outcomes of these steps. However, there are still many reforms and regulations to be made. In this framework, it is important that policies regarding the enhancement of the competition environment go beyond general implementations and are established by taking into account the sub-items and their interaction with each other. There is no doubt that information sharing and cooperation among public institutions make up an important part of these policies.

Durmuş Yılmaz: The role of competition policy and practices in attaining macroeconomic objectives Speech by Mr Durmus Yılmaz, Governor of the Central Bank of the Republic of Turkey, on the occasion of the 11th Anniversary of the Turkish Competition Authority, Ankara, 26 March 2008. * * * Ladies and Gentlemen, First of all, I would like to greet you all. We have convened here on the occasion of celebrating the 11th Anniversary of a distinguished institution of Turkey. The Turkish Competition Authority has served its critical function in the development process of Turkey with the studies it has conducted. Let me take this opportunity at the very beginning of my speech to say that I believe the contributions of the Competition Authority to Turkey’s development will continue in an increased capacity in the upcoming periods. The main objective of public policies is to increase prosperity. Under the current circumstances, where economies are becoming increasingly interrelated, raising the level of prosperity of our country is contingent on increasing the share it gets from the global value added. In the post-2001 period, the Turkish economy grew by approximately 7 percent on a year-onyear basis and considerably increased its share in the world export market. During this period, the private sector was the engine for growth, with the greatest contribution from the industrial sector. In the 23-quarter periods of uninterrupted growth process, private sector investments increased by 150 percent in real terms.

This prevention is geared to establishing instruments whose effects are as broad-based as possible, in other words, instruments that are independent of the specific causes that lead to crises. One general pattern in financial crises is that market and investor confidence plays a central role. 2 In general, when a bubble is being formed, soaring price trends are initially explained in “rational” terms. In the recent crisis, for instance, developments in the US housing markets were, for a long time, regarded as a logical and unproblematic consequence of state support measures or of innovation in the form of new financial products, as well as the constant inflow of capital from Asia. 3 However, when the first symptoms of a crisis become evident, the focus moves directly to other aspects. Which market participants are exposed? How heavily are they exposed? How can one’s own assets be safeguarded in the best possible way? The irrational optimism of the previous period is followed by a rapid loss of confidence and then by a flight to security. A broad-based loss of confidence of this kind can sometimes result in serious liquidity problems, even for fundamentally well-backed banks, thereby triggering far-reaching second-round effects. 4 2 Cf. Akerlof/Shiller (2008): Animal Spirits. 3 Cf. Reinhard/Rogoff (2008): Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison. 4 Cf. Acharya et al (2009): Manufacturing Tail Risk. A Perspective on the Financial Crisis of 2007–2009.

The developments in the EUR/CHF exchange rate depend on the foreign currency demand and supply between the euro area and Switzerland, Romania having no influence on its quotation. The EUR/RON exchange rate is relatively stable and it reflects the favourable performance of fundamentals. The recent depreciation of the RON against the CHF is therefore entirely attributable to the appreciation of the CHF versus the EUR, USD and other currencies, as a result of the Swiss National Bank removing the 1.2 floor, following the European Central Bank’s quantitative easing decision. The NBR’s intervention to bring the CHF/RON exchange rate back to the 14 January 2015 level is not possible, as the international arbitrage does not allow that only the CHF/RON exchange rate be influenced, while keeping unchanged the exchange rates of the leu versus the other currencies. BIS central bankers’ speeches 1 In order to reverse the impact on the CHF/RON exchange rate following the Swiss National Bank’s decision, the leu would have to appreciate versus the euro to approximately RON 3.7 per euro. This EUR/RON exchange rate level could be maintained only temporarily, as pushing the EUR/RON exchange rate down to a level much lower than that perceived by the market to be correct would require considerable foreign currency sales (amounting to EUR billions) not only for achieving this objective, but also for enabling the systematic interventions necessary for subsequently maintaining this exchange rate. This intervention by the NBR would have short-term effects and significant economic consequences.

However, we expect growth rates in China and India – the most important countries in emerging Asia in economic terms – to remain below potential in the near term, due to prior monetary policy tightening, high inflation, and sluggish external demand. Looking at the US, recent data suggest that the situation has improved slightly. However, this should not hide the fact that economic growth in the US is likely to remain sluggish. As you may know, unemployment is still high and the fiscal environment remains contractionary. For the euro area – Switzerland’s most important trading partner by far – the economic outlook has deteriorated since last autumn. Uncertainty BIS central bankers’ speeches 1 about an escalation of the sovereign debt crisis is undiminished. As a result, the euro area is likely to face a mild recession in early 2012. This short overview shows quite plainly: we still live in a world with substantial downside risks. Thus, the global economic situation might turn out to be worse than described above. One possible risk is a more pronounced slowdown in emerging market growth. This would reinforce the downturn in European countries. Another risk is that fiscal consolidation in the US may exert a greater drag on growth than projected today. But the main risk is – without doubt – a further escalation of the European debt crisis. Were such a risk to materialize, the consequences for the international financial and banking system – and in turn for global activity – would be severe.

Swiss economic outlook What does the economic outlook for Switzerland look like, given a baseline scenario with a world economy on a weak growth path as described above? After two years of fairly robust recovery, we expect the Swiss economy to slow considerably in 2012. The situation remains very challenging for Switzerland. On the one hand, the still very strong Swiss franc is weighing on export performance. Firms are suffering from compressed margins. If the difficult exchange rate situation persists, companies may consider relocating production capacity to other regions. On the other hand, the slowdown in external demand, as expected in our global baseline scenario, will likely weigh on investment spending and labor demand in the quarters to come. Although some recently released indicators point to a slight stabilization, we project the Swiss economy to grow only weakly over the next few quarters. Moreover, as mentioned before, there is a very high degree of uncertainty regarding the global outlook. This is also true for the Swiss economy, which depends particularly on economic conditions in the euro area. If the risk scenario of a further escalation of the debt crisis were to materialize, economic activity in Switzerland would suffer a much more pronounced slowdown than just described. Such a development would lead to a severe risk of deflation. Current Swiss monetary policy Given this highly uncertain outlook, the SNB is – more than ever – committed to enforcing the minimum exchange rate with the utmost determination at any time.

On the other hand, in line with my comments above, this objective could be made more symmetric, by clarifying that the degree of tolerance of above-target inflation deviations is the same as for below-target deviations.13 Also, in the current low inflation environment, with interest rates close to their lower bound, the inflation target should take into account the need for a sufficiently large buffer above zero, to provide more scope for conventional interest-rate policy. Irrespective of the final outcome, I am sure that the result of this review will strengthen the effectiveness of monetary policy in the euro area and its capacity to achieve its aims in the macroeconomic environment of the coming decade. I should like to conclude with a final reflection on the interaction between monetary and fiscal policy going forward. Experience in recent years suggests that appropriate interaction between these policies may decisively contribute to each of them achieving their objectives more efficiently. As I have attempted to emphasise, the ECB’s monetary policy action in response to the economic consequences of the pandemic has been rapid and decisive. Moreover, we are prepared to add further monetary stimulus, if necessary. Fiscal policy action has also been forceful. It is important that this action be maintained during the recovery, in a more focused way, and, if necessary, even increased.

At last week’s 4th ASEAN Informal Summit in Singapore, ASEAN leaders launched an Initiative for ASEAN Integration or “IAI”. It is intended to narrow the divide between the older and newer members of ASEAN and enhance ASEAN’s competitiveness as a region. It is a framework for the more developed ASEAN members to help those members that most need help, and in so doing make ASEAN prosper. To kick it off, Singapore is offering a package of IT training and assistance in human resource development to Myanmar, Laos, Cambodia and Vietnam, while China, Japan and South Korea have also offered assistance that falls within IAI’s broad framework. Of course, ASEAN’s future depends as much on external factors as it does on these direct initiatives to promote intra-ASEAN trade and investment, and build up the economic strength of individual members. Our economies are highly dependent on international trade, and it is in our interest to work together actively for a freer, more stable and secure global trading environment. ASEAN therefore needs to support an open, stable multilateral trading system under the WTO, and the early launch of a new round of trade negotiations. Strong multilateral rules are the foundation for world trade, and protection against anarchic bilateral and unilateral trade policies. Small countries could not survive without them; even large economies would be much poorer off in a tit-for-tat environment. Hence ASEAN strongly supported the candidacy of Dr Supachai Panitchpakdi for the Director Generalship of the WTO.

Banks should establish sustainable long-term relationship with the businesses to enhance consultancy and lending, especially with regard to the small and mediumsized enterprises. 6 BIS central bankers’ speeches Conclusions In conclusion, I would like to highlight that the current economic and financial situation in Albania requires maintaining the financial intermediation rates and addressing non-performing loans with priority. Collaboration with other public authorities has been successful; also, concrete action is expected to be taken on settling outstanding payments to private companies, and approving the proposed legal amendments on collateral execution. Today, the Bank of Albania proposed some additional measures aimed at inducing banks to lend more. These measures, which will be soon reflected in the regulatory framework, have a countercyclical nature and are in general temporary. This element, and the needed control mechanisms that accompany such measures, will encourage banks to respect the obligation to credit prudentially and soundly. Given that, at present, crediting has additional risks, the banks management and shareholders should ensure that these short and medium-term risks are covered by adequate capital. The outcome of these measures would improve if businesses understood and used them properly. To this end, the relationship between businesses and banks should be base only on transparent and professional collaboration. This should be better reflected in the media and transferred to the public. The Bank of Albania will assess the impact of these measures and monitor their implementation on regular basis.

In consultation with other important stakeholders in this BIS central bankers’ speeches 3 process, legal amendments to the Civil Procedures Code and to the Civil Code have been drafted. These amendments aim to accelerate the obligatory collateral execution, avoiding procedural delays caused by bank debtors. More specifically, the proposed amendments address the following: • Courts do not take measures to secure charges/sues, when the bailiff actions are rejected; • Courts do not take measures to secure charges and do not suspend the execution of collateral, when the debtor requests the invalidity of the executive title, arising from a bank credit; • Reduction by 50% of the initial price of the immovable property, placing an acceptable average for the debtor and the bank, and making clearer the value (price) of the item with which the second auction begins. We are informed by the Ministry of Justice that these amendments are in process of finalisation and this legal package will be sent for approval to the Council of Ministers and then to the Parliament of Albania. I take this opportunity to iterate the need for these legal proposals to be approved by the Assembly of Albania at an earlier time possible. Improvements in the legal framework and collateral execution practice would provide public authorities with new spaces to boost lending in Albania. 2 – Monetary policy pillar I mentioned earlier that Bank of Albania’s monetary policy has been easing recently, undertaking 6 consecutive key interest rate cuts.

Some CCPs are systemically relevant for multiple jurisdictions in view of the direct and indirect clients they serve worldwide and their interconnectedness with systemically important global banks. We have seen progress in making global CCPs safer and more resilient, starting with the safeguards introduced to address the shortcomings that the global financial crisis revealed. Today, clearing risks are much lower than they were ten years ago. And the robustness that CCPs have displayed since the outbreak of the pandemic shows that regulatory efforts are paying off. We should, however, continue to strengthen the resilience of CCPs. Last March we saw spikes in volatility and trading activity, coupled with a surge in liquidity and credit risk at the global level. Such situations call for closer cross-border regulatory, supervisory and oversight cooperation between CCPs, banks and public authorities. To prevent market fragmentation and preserve financial stability, both domestically and internationally, in the face of such adverse shocks, CCPs must meet the highest standards of financial and operational risk management. And an enhanced dialogue is necessary between CCPs, clearing banks and clients to ensure that, while managing their risks prudently, they each consider the impact that their actions may have on others and on the entire financial system. Central clearing is critical for sharing and managing risks effectively, and thus for supporting economic growth. Euro-denominated central clearing must not be a source of instability in the euro area or hamper the transmission of monetary policy.

We may already have entered into the next phase of the crisis: a sovereign debt crisis following on the financial and economic crisis. Fiscal policy challenges Most governments in the advanced countries will exit from the recession with the highest deficit and debt-to-GDP ratios recorded in times of peace. 2 BIS Review 51/2010 As can bee seen in the chart, the general government deficit in the euro area is expected, according to the latest projections by the European Commission, to exceed 6.0% of GDP in 2009, 2010 and 2011. In Japan, the government deficit-to-GDP ratio is foreseen to reach around 9.0% of GDP in these years, whereas the UK and US government deficits are expected to be in excess of 10.0% of GDP in the period 2009–11. These high government deficits are reflected in mounting government debt, which will reach 88% of GDP in 2011 in both the euro area and the United Kingdom, 100% of GDP in the United States and 200% of GDP in Japan. These developments are the consequence of sizeable fiscal stimulus measures and of interventions in support of financial institutions in many advanced countries, but also of the sharp contraction in economic activity. In the euro area, adverse fiscal developments are a cause of particular concern in several countries, generally those that did not exploit more buoyant economic times to firmly consolidate their public finances. In the United States, too, some States (e.g.

Therefore we are not positioning ourselves as a market that can match the supply and demand of Islamic products from domestic angle. 2 BIS Review 59/2008 Our objective is to make Hong Kong a platform for international intermediation activities for Islamic finance. What can we offer to the Islamic investors? Hong Kong’s advantages lie in its strategic location, highly developed financial markets and infrastructure, and a business-friendly free-market environment. We are strategically located at the heart of Asia with a broad hinterland that gives investors unique access to virtually every market in the Asia Pacific time zone. Almost all Asian countries are within reach by a three-hour flight from Hong Kong. What makes Hong Kong a natural destination for Islamic funds is our deep and highly liquid capital markets. Almost all of the most actively traded financial instruments are available for exchange in Hong Kong, and this gives Islamic investors a much wider choice of where to place their funds. More importantly, when it comes to investing in China, Hong Kong is about the only natural choice. Hong Kong has the largest and deepest Chinese equity and debt markets outside Mainland China. We are the first and remain the only major international financial centre that has banking business and financial products related to the renminbi. The development of a local renminbi bond market which started in the middle of last year has firmly positioned Hong Kong as a pilot market for China’s continuing financial market liberalisation.

Eddie Yue: Hong Kong’s possible role in Islamic finance Welcome address by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority and Executive Board Chairman of the Treasury Markets Association, at the Hong Kong Showcase on Islamic Finance, Dubai and Amman, 11-12 May 2008. * * * Ladies and gentleman, It is with great pleasure that I welcome you all to the Hong Kong Showcase on Islamic Finance, presented by members of the financial services industry in Hong Kong, and jointly organised by the Hong Kong Monetary Authority, the Hong Kong Treasury Markets Association and Hong Kong Trade Development Council, which is being held over two days in Dubai, UAE and Amman, Jordan. I would first like to thank Her Majesty Queen Rania Al-Abdullah of Jordan, who is hosting the Islamic Financial Services Board’s Annual Summit, the Central Bank of Jordan, and of course the IFSB itself, for graciously agreeing to allow us to organise this event under the auspices of the Annual Summit. This forum is indeed an excellent opportunity for the regulators, industry practitioners and investors in the Gulf region and Hong Kong to share new perspectives in the rapidly expanding area of Islamic finance, which transcends national borders and is fast penetrating global financial markets. Today we will be focusing on what Hong Kong has to offer and where it fits into this changing global financial landscape.

Although we can’t expect inflation to be exactly 2.0% very often (just four times since it was announced as the target variable in December 2003), inflation has been above target for most of the past six years. Both the extent of the overshoot and its persistence were greater than the MPC initially expected. The pain of that experience of high inflation over the past few years should remind us all why the UK attaches so much importance to keeping inflationary pressure under control and why we have an inflation target. Inflation is costly in all sorts of ways.1 It can destroy real incomes, for example by acting as a hidden tax2, and destroy wealth through a misallocation of resources. Those on fixed nominal incomes or who depend on savings income may be badly affected whereas it can inflate away the debts of others. And it generates a variety of other economic costs and distortions as changes in the general level of prices start to dominate the information contained in relative or “real” prices. Many of these costs are pernicious by being implicit; for example in businesses having to change price lists, or consumers having to spend more time looking for real value. The MPC could have set a tighter monetary policy to try and limit the rise in inflation. Why didn’t we? First, because we were pretty sure that the factors driving inflation higher were going to cause changes in the price level rather than being consistent with, say, excess demand generating persistently higher inflation.

Prasarn Trairatvorakul: Overview of the global economy Statement by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the International Monetary and Financial Committee (IMFC) Twenty-Fourth Meeting, International Monetary Fund, Washington DC, 24 September 2011. * * * On behalf of the Constituency representing Brunei Darussalam, Cambodia, Fiji, Indonesia, Lao P.D.R., Malaysia, Myanmar, Nepal, Philippines, Singapore, Thailand, Tonga and Vietnam. Global and domestic policy actions The IMFC is convening at a time when global growth outlook has dimmed considerably since our Spring meeting. Recovery in major advanced economies has weakened in the last several months. Meanwhile, growth in emerging market economies has moderated. Stresses in the Eurozone periphery have not abated and have impacted larger economies, undermining market confidence. Consequently, the clearest risks currently to the global economy are unstable debt dynamics, sluggish economic performance, banking sector funding stresses and policy responses perceived by markets as inadequate. Further, risk aversion in the current environment has already had an impact on emerging market economies, including those with strong fundamentals. Risks to the global economy and financial system demand decisive policy responses. For advanced economies with some fiscal space, this means a credible medium-term fiscal consolidation plan and policy flexibility to support growth in the near term. Eurozone economies under market pressure should deliver credible commitment to fiscal consolidation and implementation.

Ljube Trpeski: Goals and objectives of the monetary policy for the year 2001 Address by Ljube Trpeski, Governor of the National Bank of the Republic of Macedonia to the Parliament of the Republic of Macedonia on 6 February 2001. * * * Honorable, According to Article 3 of the National Bank of the Republic of Macedonia Act, the Central Bank is responsible for the stability of the domestic currency, the monetary policy and the overall domestic and international payments liquidity in the Republic of Macedonia. Furthermore, the National Bank, within its rights and duties, is responsible for providing and preserving sound banking system of the Republic of Macedonia. Given such defined legal duties and taking into account achievements in this area, it may be concluded that in 2000 the National Bank of the Republic of Macedonia, acting in compliance with the given rights, accomplished its legal duties. Stability of the domestic currency The stability of the domestic currency may be observed from two aspects: • Stability of the internal value of the Denar. It is expressed through its purchasing power, i.e. the price stability in the Republic of Macedonia; and • Stability of the external value of the Denar. It is expressed through the stability of the exchange rate of the Denar, i.e. its preservation at adequate level against other currencies. The preservation of the price stability is the primary objective of the monetary policy of the National Bank of the Republic of Macedonia.

Thus, measured according to the costs of living index, the annual rate of inflation in 2001 on December basis (December 2001 / December 2000) is projected to equal 1.2%. In that sense, the National Bank of the Republic of Macedonia will continue with its intention to preserve that inflation rate to low, stable and predictable level, which is in compliance with the empirically confirmed knowledge that the price stability creates the most favorable macroeconomic environment for accelerated, long-term sustainable economic growth. The second aspect of the domestic currency stability is preserving the stability of the Denar exchange rate. The National Bank of the Republic of Macedonia managed to preserve the nominal exchange rate of the Denar against the Deutsche Mark at the targeted level of Denar 31 per 1 Deutsche Mark. The exchange rate stability was preserved, despite the developments on the foreign exchange market, where the supply significantly exceeded the demand for foreign currency. As a result, the National Bank of the Republic of Macedonia intervened on the foreign exchange market in order to prevent the appreciation of the domestic currency – Denar. From the beginning of the year to December 31, 2000, BIS Review 9/2001 1 net-amount of USD 190.1 million was purchased on the foreign exchange market. Relating other currencies, the Denar fluctuated according to the changes of the exchange rate of the Deutsche Mark against these currencies on the world markets.

The financial crisis is a vivid reminder that there can be many risks to financial stability, and of the need for strong internal and external constraints on banks. Here, the “three pillars” of regulation, supervision, and bank culture must all play effective roles. Regulation establishes what is legally permissible for banks to do; supervision helps to reinforce those rules and evaluate whether the bank’s controls and other processes are conducive to safety and soundness; and bank culture sets the norms for what is appropriate behavior. 9 But, at the same time, these pillars are mutually reinforcing. Regulation and supervision, for example, attempt to address various market failures in banking that can contribute to excessive risk taking.10 Bank culture, in turn, helps establish norms in areas where regulation may be silent. In this way, regulation, supervision, and bank culture are complements, and deficiencies in any of these pillars can be problematic. For example, as we have seen in cases of unsafe or unethical behavior in recent years, strong regulation and supervision cannot substitute for deficiencies in bank culture—especially not on a timely basis. It is the public sector’s job to establish and enforce rules, but rules are inherently limited in their ability to constrain conduct and behavior. Much of our regulatory regime has been developed in response to financial problems that have arisen over time. Because regulation is typically reactive in this way, it may not always keep pace with the evolution of the financial system or the broader economic environment.

I think these goals are broadly shared by supervisors and banks alike, which suggests to me that the relationship between supervisors and banks does not always need to be adversarial. Indeed, a healthy dialogue helps this supervisory process to work well. For example, it is important that firms are proactive in revealing problems to their supervisors. And, individual institutions can certainly benefit from the horizontal perspective that supervisors bring to examinations. This perspective can highlight where the firm stands vis-à-vis best practices, or where there may be important vulnerabilities in its operations. Of course, there is an irreducible amount of tension built into this relationship, given that each party’s roles, interests, and responsibilities will not always coincide. Banks are naturally more sensitive to constraints on their profit opportunities or dividend policies and to the costs of regulation. They may also question how much protection is necessary—for example, how stringent the capital requirements or how severe stress testing assumptions should be. These are areas where I would expect perspectives to differ. Supervisors are principally focused on compliance with laws and regulations as well as issues of safety and soundness. They also bring to their work a perspective on financial stability that may not match the more narrow interests of the firm. For example, supervisors seek to address the externalities created by the failure of a systemically important firm by imposing higher capital and other requirements than the firm would likely select if left to its own devices.

The late New York intellectual Irving Kristol is reported to have said: “Don’t fall for fantastical notions that have nothing to do with the way people really are.”4 My experience of having worked in real time in the financial markets leads me to a different perspective on financial operators and markets than that of most of my colleagues 1 See www.number10.gov.uk/history-and-tour/prime-ministers-in-history/margaret-thatcher. 2 See “Were 364 Economists All Wrong?” Institute of Economic Affairs, www.iea.org.uk/sites/default/files/publications/files/upldbook310pdf.pdf. 3 See “Were 364 Economists All Wrong?” BBC Newsnight report by Stephanie Flanders, http://news.bbc.co.uk/2/hi/programmes/newsnight/4803858.stm. 4 See “Three Cheers for Irving,” by David Brooks, New York Times, Sept. 22, 2009. BIS central bankers’ speeches 1 at the Federal Open Market Committee (FOMC). This not only affects my views on the implementation of monetary policy, but also shapes my perspective on regulation. Monetary policy and regulation are intricately linked. When conducting its monetary policy, the Fed is governed by a dual mandate: creating the monetary conditions to foster maximum employment growth while constraining inflation and its alter ego, deflation. These goals cannot be realized without financial stability that results from effective regulation. As the FOMC now sets its sights on concluding the accommodative monetary policy it fashioned to stave off financial collapse and deflation, our supervision and regulation team is wrestling with developing the appropriate policy for dealing with the lingering effects of the financial crisis, and, most importantly, erecting a new regulatory framework to substantially reduce the chances of financial crises.

This is to say central banks should always have room to act, especially in response to an unforeseen emergency situation. So, given the benefits that central banks can gain from greater transparency and the rationale for having some limits, the challenge is to find the right balance in disclosure policy that maximizes the economic benefits of transparency while, at the same time, limits the unnecessary risks and provides flexibility to act when needed. The second issue I want to speak on today is the challenge to central banks in designing disclosure policies. On this issue, I want to begin by saying there is no absolute level of appropriate transparency. This is to say appropriate level of transparency to a central bank is not firm or fixed but always changing, depending on the circumstances which include the capacities of the central bank to provide information, the demand for information from financial markets and stakeholders, and how much BIS Review 10/2006 1 credibility does the central bank has. Such are the forces that eventually shape the extent to which the central bank should be transparent in the eyes of the public. Another point about disclosure policy is that disclosure policy cannot be separated from the central bank’s own communication policy. This is because data release by itself is mostly not sufficient. The central bank will need to communicate what those data mean and, on the basis of those data, what is the rationale for the central bank to pursue certain policies.

24 6 All speeches are available online at www.bankofengland.co.uk/speeches 6 As one example, VAT data from SMEs in a subset of industries have recently been used by the ONS when constructing output-based estimates of GDP. As with prices, the gains in sample size and granularity from using such administrative data are potentially large. The ONS’s Monthly Business Survey of activity typically relies on a sample of around 8,000 firms to represent this subset of SMEs. This is now being complemented 29 by VAT returns from around 630,000 reporting units. These new data augment, rather than replace, existing survey methods. They have the potential to improve the timeliness and accuracy of National Accounts data on aggregate economic trends. The ONS has its own Data Science Campus to spearhead these efforts. And new research organisations, such as the Alan Turing Institute, are doing excellent work applying new data and techniques to economic measurement. Another potentially fruitful area of exploration, when tracking activity flows in the economy, is financial data. Almost all economic activity leaves a financial footprint on the balance sheet of some financial institution. Tracking the flow of funds between financial institutions can help in sizing that footprint and thus, indirectly, in tracking economic activity. At the Bank, we have over recent years drawn on the Financial Conduct Authority’s Product Sales Database (PSD). This is a highly granular source of administrative data on owner-occupier mortgage products taken out in the UK. It contains data on close to 16 million mortgages since mid-2005.

Unlike a normal firm, part of the value of a bank does depend upon its capital structure. There is also a deeper point here about the wider benefits to the economy of the maturitytransformation services delivered by banks financing their longer-term loans with monetary 2 Basel 2 in effect required a minimum equity capital ratio of 2 percent. But under Basel 3 there is a greater focus on the equity that is truly free to absorb losses. As such, almost all regulatory deductions from capital are to be made from equity rather than being split across tier 1 and so-called tier 2 “capital” or made from total “capital”. Also, some risk-weights are increased; for example, on counterparty credit risk exposures. Together those changes mean that an old Basel 2 core tier 1 minimum risk-weighted asset ratio of 2% is equivalent to around 1% on a Basel 3 basis. Taking into account the capital conservation buffer and the surcharge for systemically important financial institutions, for the largest banks the Basel 3 equity minimum comes to around 10% (plus any Pillar 2 buffers). 3 For the original paper, see Modigliani and Miller (1958), “The Cost of Capital, Corporate Finance and the Theory of Investment”, American Economic Review, 48, 261–97. Later papers by the same authors addressed the implications for their result of tax, bankruptcy costs etc. 4 This assumes a bank’s post-tax return on equity is determined, given the riskiness of the bank’s business, in competitive global capital markets, with excess returns competed away.

More than four-fifths of that assessment rests on the extent of non-traditional non-insurance activities in a firm’s business model and on its interconnectedness to the wider financial system. Nine firms have been designated. It is vital that these systemic insurers, like systemic banks or financial market infrastructure, can be resolved in the event of failure without the need for taxpayer support and without disruption of the wider financial system. That’s why the development of resolution plans is a top priority. Nonetheless, given the externalities from the failure of a systemic insurer, it is of course preferable that their probability of failure is lower. That’s why systemic insurers will be subject to higher global standards. The Higher Loss Absorbency requirements, being developed now by the IAIS, will ensure that all of the activities of a systemic insurance group – but especially non-traditional, noninsurance activities – are backed with an appropriate minimum level of capital resources. Given the patchwork of capital standards across major jurisdictions, the first step towards applying these heightened resilience requirements is the development of the Basic Capital Requirement – an internationally comparable capital measure that will act as the baseline for additional resilience. Last week in Cairns, the FSB approved the final BCR proposal which will be presented to G20 Leaders at the Brisbane summit in November. It is simple and factor-based, contains a common valuation approach, and captures all activities of insurance groups.

Mark Carney: Putting the right ideas into practice Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Institute and Faculty of Actuaries General Insurance Conference, Wales, 25 September 2014. * * * Introduction It is an honour to be invited to address you today. Insurance is at the core of the new Bank of England. As regulator, we are tasked with ensuring the safety and soundness of the UK’s insurance companies and the protection of their policyholders. To discharge these responsibilities, we draw on the entire resources of the Bank. Fully one third of our regulatory staff – over 200 supervisors and 50 actuaries – are engaged in supervising insurance companies. But that is just the start. Our supervisors are supported by hundreds of credit risk analysts, scores of monetary policy experts and macro-financial analysts. As a central bank with responsibilities for both monetary and financial stability, we have a view of both the asset and liability sides of your balance sheets. And as a highly active participant in global financial reform, we influence the measures that are reshaping the global system. In all of our actions, we recognise the importance of insurance to the economy. The UK insurance industry makes a major, direct contribution: £ to annual GDP and 300,000 high-paying jobs including many of the 14,000 members of the Institute & Faculty of Actuaries. It is a major exporter with about 30% of premiums earned overseas.

20 The algorithm also puts some weight on smoothing of the interest rate path. For more information on COMPASS, see Burgess et al (2013). BIS central bankers’ speeches 17 Chart 29: Simulation of Bank rate and CPI inflation Path for Bank rate CPI inflation Per cent 1.5 Per cent 3 2.5 1 2 1.5 0.5 1 0 2013 2014 2015 2016 2017 -0.5 2013 2018 0.5 2014 2015 2016 0 2018 2017 February IR Simulation with a lower bound at 0% Simulation with a lower bound at 0.5% February IR Simulation with a lower bound at 0% Simulation with a lower bound at 0.5% Source: ONS and Bank Calculations. Simulations show optimal policy under full commitment. Were downside risks to inflation to materialise, this case is strengthened. Chart 30 shows the optimal policy paths if we assume the starting level of slack is larger in line with Chart 18. The interest rate path now implies that rates should be cut and held at their lower bound for longer. This alternative policy path returns output and inflation to target sooner, at the cost of a more significant over-shoot.

All of us have contributed to and are familiar with what has been accomplished in 2010. I will therefore refrain from listing our past achievements but concentrate on the things that remain to be done. Let us therefore start to think about our New Year’s resolutions for 2011. New Year’s resolution number one: let’s define a SEPA migration end date There is a consensus that an end date is needed for the migration to the SEPA credit transfer (SCT) and SEPA direct debit (SDD). Throughout 2010 representatives from almost every stakeholder group have been calling for a defined end date. Just recently a study conducted by BearingPoint revealed that more than 80% of the banks surveyed consider a binding SEPA migration end date to be necessary. In fact, the majority are in favour of an EU regulation to set one. 1 Of course it is no secret that, despite this general agreement, the details of such a regulation have been widely debated since the summer. For this reason, I had welcomed the European Commission’s decision to organise a public hearing on the issue, which took place last Wednesday. We in the Eurosystem have been very explicit in our comments on this topic and we have been calling for a regulation setting a migration end date for SCT and SDD. Indeed, we have gone one step further and have announced preferred dates, i.e. the end of 2012 for credit transfers and the end of 2013 for direct debits.

Øystein Olsen: How does the key policy rate operate? Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME), BI Norwegian Business School, Oslo, 25 September 2018. * * * Accompanying charts of this speech. Introduction Just over a week ago, we marked the tenth anniversary of an event that shook the global economy. The Lehman Brothers bankruptcy added fuel to a smouldering financial crisis, which gathered strength and spread quickly. Financial market activity came to a halt. Investors demanded high risk premiums. Faced with a crisis that could lead the economy into a deep recession, central banks cut policy rates sharply and injected liquidity into the market. It was the beginning of ten years of historically low interest rates and the use of unconventional instruments. It would take a long time to get economies back on their feet again. For Norway, the financial crisis brought an abrupt end to a three-year long period of gradual increases in the key policy rate. In the course of autumn 2008, the key policy rate was lowered three times, by a total of 2.75 percentage points. By the following summer, the key policy rate had been lowered further, to 1.25 percent. Even though growth in the Norwegian economy picked up fairly quickly, Norwegian interest rates over the next few years were influenced by a persistently low international interest rate level.

As a rapidly growing region, greater regional financial 2 BIS central bankers’ speeches integration will support the more effective and efficient intermediation of Asia’s sizeable funds towards meeting the investment opportunities of the region. Efforts to enhance cross-border financial linkages and advance financial integration have also intensified in Asia in this decade, mainly through the progressive liberalization of the financial sector, the pooling of resources to promote the development of domestic capital markets and the integration of payments and settlement systems. These developments have also seen the growing presence of Asian financial institutions in the region. In 2011, central banks in the ASEAN region have endorsed an ASEAN Financial Integration Framework which will pave the way for greater market access and operational flexibility for qualifying financial institutions. This represents the collective commitment of the region in the efforts to strengthen the region’s capacity to intermediate regional and international financial resources to productive activity in the region. A third imperative is the alignment of the financial sector to Asia’s demographic trends. Demographic profiles vary widely across Asia and have a significant impact on economic potential of the region. For many parts of Asia, demographic developments foreshadow significant changes in consumption, health and educational patterns. These changes have reinforced the significance of domestic sources of growth. Asia’s rising domestic demand has been supported by the development of a much broader range of financing options.

When evaluating possible packages of quantitative reform, an important validation point for the PRA is whether the resultant liability values, including the risk margin, are adequate relative to the transfer values implied by actual buy-out transactions. If current liability valuations were to be insufficient to fund these observable transfer costs, then the balance sheet would lack the resilience that it would be expected to have under Solvency II and a key safeguard of policyholder protection would be put at risk. In other words, we could no longer be confident enough that if an insurer failed in the future, its liabilities could be safely transferred to a third party. The long-term security of policyholder benefits would then be in question. The PRA is continuing its work to assess the extent to which different reform combinations lead to an adequate transfer value being achieved and see this as a key validation tool when assessing the merits of any package. Page 8 Regulation I now come to the final R – regulation – and want to focus remarks today specifically on the work to reform the existing regulatory framework for insurers – Solvency II. The interlinkages between the first three Rs I have covered help explain why such regulatory reform needs to be considered as a package: changes in one part of our regulatory and supervisory framework have consequences for others.

However, given the uncertainty inherent in assessing future performance of long-term assets, it is particularly important that the regulatory regime does not allow firms to over-anticipate future profits on these assets, before it is clear whether the profits will truly be earned. In the reform process, we are challenging ourselves to consider the extent to which the existing Solvency II regulations are unduly constraining diversity and innovation in firms’ MA portfolios. And we are contemplating changes that we consider will loosen requirements in a few key areas. To materially expand MA portfolios in the absence of a sound quantitative basis is again likely to be detrimental to policyholders and could also threaten the resilience of the BPA sector. This is why any work to further extend MA eligibility needs to be coupled with firms having effective risk Page 7 management and a reassessment of the appropriateness of the quantification of the MA. Resilience As noted earlier, for very long-term business – with liabilities that can stretch several decades into the future – it is critical to make appropriate assumptions when undertaking balance sheet valuations and when calculating the amount of capital that is required now to support that business. This brings us to the third R, which is resilience.

Moreover, life expectancy has grown sharply in the last 45 years, meaning that generally it is now necessary to save for a longer retirement period. The relatively well-financed occupational pension plans in Switzerland – one of the few countries in the world to have a mandatory system – also contribute to the high saving rate. This system helps to accumulate the savings that will be necessary in future to support the growing numbers of pensioners and years spent in retirement. 7 Many countries with ageing populations do not have a comparable system in place. Contributions to occupational pension schemes are currently recorded as savings in the national accounts. This mandatory pension 7 It can be assumed that even more capital will have to be saved in future to maintain occupational pension benefits at their current levels. Page 9/13 system with its high contribution rates thus also influences the high saving rate in Switzerland. The saving rate in Switzerland is at this high level because the Swiss population is rapidly ageing and we have a relatively well-financed pension system compared with other countries. In other words, there is an economically plausible reason why Switzerland has a current account surplus. Against the backdrop of demographic developments, when corrected for statistical distortions, the current account surplus or savings surplus is not excessive but entirely legitimate. I will now turn to the last factor contributing to the persistently high current account surplus, and that is the distinctive industrial structure of the Swiss economy.

The Riksbank, too, is keeping a close watch on the financial system’s stability. In times of financial unrest, such as recently, the Riksbank steps up its oversight as a matter of routine, above all as regards financial enterprises. If problems were to arise with bank liquidity, for instance, they would create difficulties not only for monetary policy, in that the interbank market would function less well, but also for other parts of Sweden’s economy. The Riksbank therefore monitors the potential effects that financial unrest could have on the financial sector’s solvency and liquidity. BIS Review 83/1998 -6- The analysis of the situation is supplemented with an ongoing exchange of information with the competent authorities in this field. Stockmarket unrest of this kind also leads to heightened surveillance of the flow of payments in the Riksbank’s payment system, RIX. Judging from the available statistics, the Swedish banks are in a better position than many of the international banks, with lower direct exposures to the countries involved in the crisis. Perhaps one could say that Sweden’s bank crisis did at least result in Swedish banks becoming much more efficient at risk management. Central banks throughout the world have accordingly become more watchful. No one can remain passive if world economic growth continues to slacken as a consequence of financial problems. BIS Review 83/1998

Through these successive waves, the world financial system found itself with almost every link in the credit chain – in the chain of trust – having been weakened or broken. That is evident in surveys of the public’s trust in industry: banking and finance are firmly rooted to the foot of the league table of trust, in the UK and internationally (Chart 6). That loss of trust is mirrored in aggregate bank lending in the UK, in particular to companies, where annual growth has fallen from a peak of 23% in March 2008 to around zero now (Chart 7). And this has in turn been reflected in the largest and most synchronous global economic slowdown since the Great Depression. Confidence and credit So how is trust, and thereby credit, to be restored? To date, the answer has been to rely on the one sector whose credit has not been seriously questioned – governments and central banks. There has been large-scale provision of government and central bank credit over the past two years in an attempt to ease pressures and shore up breaks in the private sector credit chain. These interventions have been unprecedented in size during peacetime. The total potentially on the table is in excess of $ trillion.7 That is roughly $ for every man, woman and child on the planet. Half of the world’s 20 largest banks have needed direct government support. Central bank balance sheets in the major financial centres, including in the UK, have more than doubled in size.

8 The predicted effect Chart 7: The reduction in investment has been driven by firms that expect a resolution soon is quite powerful: at least in this highly stylised set-up, halving the expected duration of the uncertainty (i.e. doubling q) has the same impact on the required rate of return on new investment as doubling the chances or scale of the bad outcome. Directionally, at least, I think the evidence provides some support for this effect. The Sources: Decision Maker Panel and Bank calculations. fact that protracted declines in investment were seen only in 2018, some time after the referendum but increasingly close to (what was expected to be) the exit date in March 2019, is consistent with it. So too is Chart 7. Taken from the latest Decision Maker Panel survey, it suggests that the firms who’ve cut back the most on their investment spending tend to be those who also expect a relatively early resolution to Brexit. Firms who think the process will take longer – and obviously those (in blue) who don’t consider Brexit an important factor in their decisions to begin with – have been less aggressive in their response. One implication is that the overall hit to investment is worse than it need be if firms have unrealistic expectations about how rapidly the situation is likely to be resolved.

This is achieved through projects such as the e-bill platform, which was launched last year, and the e-cheque initiative, which is scheduled to be launched next year; ii) Second, we will take proactive steps to facilitate the development of mobile payment services, and iii) Third, we will put in place a robust legal and regulatory framework to manage the risks that may arise from these new technologies. Let me elaborate below on the second and third components of this strategy. III. Embracing the m-commerce opportunities in HK 14. Talking about m-commerce, I believe that, if there is an “app” that would guide market players to search for a place to launch their m-payment business with any of these key words – “market readiness”, “policy support”, or “sound regulatory framework”, the choices to pop up on your app screen would likely include Hong Kong. Let me explain. (a) Market readiness 15. In terms of market readiness, the relevant statistics clearly indicate that Hong Kong is ready and willing to embrace m-commerce. According to some research, the market size of Hong Kong’s mobile commerce exceeded $ billion in 2012, and is expected to reach near $ billion by 2015. 2 16. These online shoppers are well-equipped for mobile payment. The mobile subscriber penetration rate in Hong Kong, which stood at 237% as of May 2014, is one of the highest in the world. Moreover, many of the new smartphones shipped to Hong Kong are NFC-enabled. 17.

With a limited battery life of an hour and weighing more than a pound, that might not be entirely surprising. But another key reason was probably this – there was no m-commerce at that time. (b) The present – opportunities offered by m-commerce/m-payment 5. Let’s fast-forward to 20 years later after the birth of the first smart-phone, and get back to the present. We are all witnessing the sea change in the landscape of e-commerce, and are enjoying its huge benefits. 6. Most smartphones are much lighter now and have much longer battery life. But more importantly, what was once known as “e-commerce” is expanded by what we now call “m-commerce”. It is the name of the game. 7. People are no longer satisfied with buying or selling things online using their desktop or notebook computers. They want to do these in both the virtual and the real world anywhere, anytime, using their mobile devices like smartphones or tablet computers. 8. Let’s face it: businesses can take place in the virtual marketplace, but people don’t live there. Books can be made digital, but coffee cannot. We still enjoy – and need – physical goods and services. That’s why “m-commerce” is becoming the “game changer”, as it fills the gaps of “e-commerce” by making it portable and connecting the virtual world with the real world. 9. Furthermore, the penetration power of m-commerce has been significantly boosted by new marketing tools made possible by combining mobile technology with Big Data analytics.

4/9 BIS central bankers' speeches MAS has comprehensively expanded its liquidity facilities – in four ways: what currency we lend in; how long we lend for; what rate we lend at; and what collateral we take. The MAS USD Facility has helped to maintain stable US Dollar funding conditions. Since its introduction in March last year on the back of a swap line with the US Federal Reserve, the MAS USD Facility has provided $ 25 billion to banks for use in Singapore and the region. Alongside the extension of the Fed swap line, MAS has extended the USD Facility to endDecember 2021. The MAS SGD Term Facility has extended the tenor of Singapore Dollar lending from overnight to up to three months. The facility was set up pre-emptively to meet higher precautionary demand for SGD liquidity by banks and finance companies. This helped promote more stable funding conditions and support credit intermediation to businesses and households. The MAS SGD Facility for ESG Loans has provided funding at 0.1% to financial institutions for lending to small and medium enterprises under the ESG loan schemes. The Facility, which has helped to reduce the borrowing costs for viable businesses, has been extended till end-September 2021. As of 31 March 2021, about $ billion was lent to eligible financial institutions, catalysing around $ billion of ESG loans and benefitting more than 22,000 firms. Utilisation of the Facility was lower in 2021 compared to 2020 as the cashflows of firms improved.

Assets under management in Singapore grew by 17% year-on-year, to $ trillion as at end-2020, driven by strong inflows into traditional and alternative investment strategies 10 as well as valuation gains 11 across major asset markets. The FinTech sector has also continued to do well. Investments in FinTech firms based in Singapore reached a record $ billion in 2020, an increase of more than 30% from 2019. In the first quarter of this year, FinTech companies here already raised more than $ million. The financial services and FinTech sectors created 2,500 net jobs last year. We expect the financial sector to continue to create good jobs this year. Financial institutions expect to create about 6,500 new hiring opportunities 12 this year, with strong demand in areas such as technology, wealth management, corporate banking, and insurance. 13 The financial services sector has exceeded both the value-added and employment targets set by the Industry Transformation Map (ITM) for 2016–2020. Growth in value-added during this 5-year period averaged 5.4% per annum, above the ITM target of 4.3%. The sector, together with FinTech, added an average of 4,700 net jobs per annum, above 7/9 BIS central bankers' speeches the target of 4,000. MAS has started reviewing the ITM strategies and targets for the next 5 years. MAS has been studying in depth how the financial services landscape will transform and what Singapore must do to remain competitive in the coming decade.

We should take great care not to roll back this important achievement, or to water down its implementation to an extent that it would no longer be seen as a credible framework. Notwithstanding the significance of the reinforcements put in place for the policy framework, I believe that there is still room for further legislative action where the financial sector is concerned. In addition to a better performing banking sector, an increased role of capital markets could help to support both growth in Europe and the financing of the real economy. To fully reap the benefits of capital market integration, the regulatory environment needs to be harmonised further and, potentially, to be adapted. The joint paper of the ECB and the Bank of England on a better functioning securitisation market in the EU has set out a number of proposals in this regard. Furthermore, a better regulation of financial benchmarks is BIS central bankers’ speeches 3 necessary to restore the confidence and trust of citizens and market participants in the financial system. A swift adoption of the relevant Commission’s proposal is of utmost importance. Discussions will also continue on the shape and structure of our banking sector and the regulation of the shadow banking sector. Finally, over and beyond this focus on concrete short and medium-term measures, we should bear in mind that Economic and Monetary Union still remains an incomplete structure.

• The facts therefore served as a stark reminder that self-regulation just doesn’t work, primarily because of the imperfections in certain financial markets, which are neither transparent nor efficient (like the CDS market for example) and can generate potentially huge negative externalities. Thus, regulation and supervision were once again elevated to their rightful role after the crisis – a role they should never have lost. By way of an aside, I note that the crisis was triggered in the United States by unregulated entities (conduits) or banks that weren’t applying Basel 2 requirements (investment banks which theoretically were regulated by the SEC). By contrast, French banks for example, where supervision was at times branded “intrusive”, managed on the whole to get through the different phases of the crisis relatively unscathed. ii) What rules should apply to finance? • Once a consensus had been reached over the need to reinforce financial regulation and supervision, the next question was naturally: what kind of regulation? • The principle that guided the regulators, notably on the Basel Committee, was that finance should once again be made useful to the economy: that it should serve the economy rather than govern it.

7 These include losses as a result of both malicious acts (eg cyber attack, infection of an IT system with malicious code) and non-malicious acts (eg loss of data, accidental acts or omissions); and involving both tangible and intangible assets. 8 http://www.bankofengland.co.uk/pra/Pages/publications/ss/2017/ss417.aspx 9 From around £ billion to nearly £ billion. Data are taken from Solvency II returns. They include direct property holdings, loans and mortgages secured on commercial and residential property and real estate investment funds. Some of the change may be due to reclassification of reporting by insurers. 10 Source: Article 132 of the Solvency II Directive https://eiopa.europa.eu/regulation-supervision/insurance/solvency-ii 7 All speeches are available online at www.bankofengland.co.uk/speeches 7 Conclusion In conclusion, the search for yield on Solvency II capital is changing insurer behaviour. In response we are spending more time understanding how risks are changing, including through more in-depth supervisory reviews. Our approach to supervision remains forward looking and judgment based. We will use all the supervisory tools available to us to ensure that UK insurers are adequately capitalised and managing their risks prudently. 8 All speeches are available online at www.bankofengland.co.uk/speeches 8 Speed of recovery in house prices Discount assumption £ billion 12 Undiscounted 0% p.a. Risk-free rate 1% p.a. 10 Risk-free rate + 100bps 2% p.a.

It is therefore more 2 Source: Record of the November 2016 Financial Policy Committee Meetings published 6 December 2016 http://www.bankofengland.co.uk/publications/Documents/records/fpc/pdf/2016/record1612.pdf 3 http://www.bankofengland.co.uk/pra/Pages/publications/ss/2016/ss1816.aspx 4 All speeches are available online at www.bankofengland.co.uk/speeches 4 difficult for insurers to assess credit and other risks. Investing in and managing these assets also requires different skills. For example, when bonds are downgraded, an insurer may expect to be able to sell them. But when a direct investment begins to go wrong, the insurer will probably only be able to sell at a fire-sale price. It needs the capability to renegotiate and restructure the debt. One particular area of growth has been equity release mortgage lending. Life insurers take on almost all of the flow of new equity release mortgages in the UK. This now stands at around £ billion or 1.4% of non-linked assets. We published a discussion paper on Equity Release Mortgages last year. A typical such mortgage is a loan to an older borrower that does not require regular interest payments. Instead interest accrues over time and is repaid, together with the principal, from the proceeds of the sale of the house when the loan becomes due. That is usually when the borrower either dies or goes into long-term care. Borrowers have a ‘no negative equity guarantee’. It protects them from being required to pay back any more than the value of their property. In economic terms, the insurer has sold the borrower a put option on the house.

Since 2004 – that is, before the crisis – average productivity growth among the 99%-ers has averaged only 1%. This suggests that, among a significant swathe of UK companies, levels of productivity must have flat-lined or fallen. This lower tail of companies shares one important feature with the upper tail: neither is confined to particular regions or sectors. Near-zero rates of productivity growth among the 99%-ers are a feature of all regions and almost all sectors (Table 1). Even the best-performing region (London) and best-performing sector (professional, scientific and technical) in the lower tail has mustered productivity growth of only 2% and 4%. 11 Cornell University, INSEAD and WIPO (2017). Department for Business, Energy & Industrial Strategy (2017). 13 Department for Business, Energy & Industrial Strategy (2017). 14 These numbers control for differences in the sectoral composition and sizes of firms between the countries in question. Further detail of the method used here is set out below Chart 7 in the annex. 12 5 All speeches are available online at www.bankofengland.co.uk/speeches 5 We can look more precisely at the fraction of firms who have seen effectively no rise in productivity since before the crisis. 15 For the UK as a whole, that amounts to around half of them. For some regions and st sectors, the fraction of firms that have stood still in the 21 century is closer to two-thirds. This tail of seriallystagnating companies is long indeed.

The MPC helps to determine monetary conditions in the UK, with a view to hitting a 2% inflation target on a sustainable basis. Monetary conditions in the UK remain highly accommodative by any historical metric. Bank Rate currently stands at 0.5%, as it has stood for much of the past decade. That is, by some margin, lower than at any time in the Bank’s 324-year history, which it celebrates next month. With headline inflation running at around 2.4%, this means inflation-adjusted interest rates in the UK are currently significantly negative. The MPC has also undertaken asset purchases amounting to almost £ trillion since 2009. This has provided additional monetary stimulus to the UK economy, at its peak equivalent to a further reduction in interest rates of up to around 2.5 percentage points. 52 Taking account of that would put inflation-adjusted interest rates into even more deeply negative territory. 50 As discussed, for example, in Carney (2017). For example, Ramsden (2018) and Tenreyro (2018). 52 Estimated based on simple ready-reckoners. There is a high degree of uncertainty around these estimates. In the May 2014 Inflation Report, the MPC judged that QE had a peak effect on GDP of around 2.5% in 2013. The range of QE estimates in Joyce et al (2011) would suggest that would have a percentage point impact on annual inflation of roughly half that amount. Joyce et al (2011) also suggest as a ready reckoner than a 100bp cut in interest rates would boost inflation by 0.5pp.

2 And we have taken further steps in this direction over the past two years in particular. But what are the reasons behind this development towards greater openness? I think there are two reasons – democracy and efficiency. The first concerns our role as an independent authority. The second is linked to the fact that our communication with the financial markets and the general public is essential for monetary policy and the financial system to function efficiently. 1 Page 38 in Blinder, A. S., (2006), “Monetary Policy Today: Sixteen Questions and About Twelve Answers”. I Fernandez de Lis, S. and F. Restoy (ed. ), Central Banks in the 21st Century, Banco de España. 2 See, for instance, Eijffinger, S. and P. Geerats, (2006), “How Transparent are Central Banks?” European Journal of Political Economy, vol. 22, 1-21. BIS Review 106/2007 1 Our independence requires openness The Riksdag and ultimately therefore the Swedish people have given the Riksbank considerable independence. But this is a “freedom with responsibility” that goes hand in hand with the requirements for insight and accountability. This is how things should be in a democracy. Openness is also something that traditionally imbues the Swedish public administration system in general. One of the corner-stones is the principle of public access, which means that the authorities’ activities should as far as possible be carried out in an open way. And this also applies to the Riksbank, of course.

These issues include a regulatory framework that promotes financial sector development without compromising financial sector stability, the optimal adoption of international standards for bank supervision, a level-playing field among different domestic financial players, and the competitiveness of the Thai financial system in the ASEAN context of Qualified ASEAN banks, and so on. Ladies and Gentlemen, I believe that the efforts put forth by the BOT will fulfill the objective of enhancing competitiveness and ensuring long-term macroeconomic and financial stability. However, we cannot do this alone, especially in a world of global economic uncertainty, domestic challenges and diminishing fiscal room. A common vision among all stakeholders is necessary for policy coordination. The advanced economies that are now experiencing public debt crisis offer valuable lessons for emerging countries as well as Thailand where planned fiscal spending will add to fiscal debt. I believe that at this crucial juncture, many countries, Thailand included, still have time to manage possible future fiscal stresses. Austerity by means of cutting public spending is one conventional way to achieve fiscal consolidation. However, most emerging and developing countries still require essential infrastructure investment to unleash their own growth potential. Austerity without growth would be futile. Therefore, what is needed is constructive fiscal consolidation rather than dogmatic austerity programs. Prudential cuts can be combined with infrastructure spending to raise competitiveness levels and ensure sustainable long-term growth. Rest assured that the BOT will do everything possible to create a stable long-term economic environment in which businesses can prosper. Thank you. BIS central bankers’ speeches 3

14 BIS central bankers’ speeches Appendix Chart 1 – GDP wealth and employment GDP Chart 2 – GDP in different recessions Real GDP (Peak = 100) 1929 Crash 120 1970 Recession 1980 Recession 115 1990 Recession 2008 Recession 110 Index, 2007 = 100 150 Employment Wealth* 140 130 105 120 100 110 95 100 2007 2009 2011 2013 2015 90 90 0 1 2 3 4 5 6 7 8 Number of years following onset of recession Sources: ONS and Bank calculations. * Total net wealth; the property component of wealth is estimated for 2015 using by growing the 2014 figure by the rate of increase in house prices. Sources: ONS and Bank calculations. Chart 3 – GDP and disposable income per head Chart 4 – Measures of disposable income per head GDP per head Indices, 2007 = 100 Indices, 2007 = 100 105 Real Net National Disposable Income (RNNDI) per head 100 100 95 Real Household Disposable Income (RHDI) per head Real median household disposable income (equivilised)* 95 2005 2007 2009 2011 Sources: ONS and Bank calculations. BIS central bankers’ speeches 2013 105 90 2015 2000 2003 2006 2009 2012 90 85 80 2015 Sources: ONS. * Data show income per households with these equivilised in size to make them comparable.

A major reason for this is the debt brake, which is extremely important for monetary policy and contributes to safeguarding an independent monetary policy. By pursuing a monetary and fiscal policy oriented towards stability, the negative impact of the crisis on the Swiss economy could be mitigated. As the events of the last two years have brought into focus, the monetary policy of a small open economy must also be able to rely on healthy fiscal policies in other countries. The debt crisis and the way the markets perceived it have considerably impaired the conduct of monetary policy in Switzerland. To fulfil its mandate, the Swiss National Bank has had to take far-reaching measures, such as setting a minimum exchange rate against the euro. BIS central bankers’ speeches 1

This is in sharp contrast to the first half of the year, when the payroll tax cut expired, tax rates on higher income households were raised, a series of taxes associated with the Affordable Care Act took effect, and spending was reduced due to the sequester and the gradual winding down of foreign military operations. Moreover, the sustained contraction in spending and employment by state and local governments appears to be nearing an end. I wish that I could report that the improved pace of growth of economic activity led to a corresponding increase in the rate of improvement in labor market conditions. But such was not the case. As I noted earlier, the average monthly change of nonfarm payroll employment over the second half of the year, at 184,000 per month, was somewhat below the 204,000 average monthly increase of the first half. In addition, growth of aggregate hours worked by private sector employees was somewhat slower in the second half than in the first. The source of this apparent anomaly is the fact that labor productivity, or output per hour worked, rose rapidly over the second half of the year after being essentially unchanged over the first half. This is a perfect example of the double-edged sword of productivity growth. In the longrun, sustained strong productivity growth is what boosts real living standards. However, in the short-run it can depress job creation.

While this is good from the point of view of fiscal management, it was not conducive to debt market development, in the sense that we did not have a representative yield curve for the Hong Kong dollar. As we all know, a liquid and deep debt market is an important component of a financial centre. The HKMA therefore decided to develop a local debt market through a two-pronged approach, namely to develop a market of high quality Exchange Fund paper, and to build an efficient financial infrastructure. A market for exchange fund paper In order to facilitate the development of a Hong Kong dollar debt market, the HKMA rolled out the Exchange Fund Bills and Notes programme in 1990. This initiative has been very successful in creating a yield curve for Hong Kong dollar. As of today, the yield curve has been extended up to 10 years and serves as a benchmark for debt instruments issued by other entities in the local market. In order to maintain a liquid market for the Exchange Fund paper, the HKMA has also put in place a market-making system under which market makers are obliged to quote two-way prices. Currently, 26 banks in Hong Kong have been appointed as market makers, and tenders of Exchange Fund Bills and Notes of maturities between 3 months and 10 years are held regularly. These arrangements have been effective to help promote the liquidity of the Exchange Fund paper and enhance the credibility of the Hong Kong dollar yield curve.

One of our colleagues did not meet these high standards recently. Our newly appointed Deputy Governor for Markets and Banking, Charlotte Hogg had previously not disclosed a relevant family relationship, as was required under our staff Code of Conduct. For those who have questioned whether we “get it”, we do. We know this honest mistake was also a serious mistake – one that was compounded by the fact that Charlotte Hogg had overseen the development of our new Code. We were clear upfront that there must be consequences for both her and the Bank. Our minimum response would obviously be what we would expect to see in the firms that we supervise. Let’s be absolutely clear about this baseline. In analogous situations in the private sector, we expect:  Evidence that the firm is taking the matter seriously;  Proportionate consequences for the individual, including some form of disciplinary warning and possibly some impact on remuneration; and  A wider review of lessons learned if there was any evidence that there was a systemic problem. 9 See page 16, Financial Reporting Council (FRC), “Corporate Culture and the Role of Boards: Report of observations”, July 2016. See Footnote 7 for details. With appropriate modifications to reflect the fact that it has a very different range of functions to a commercial bank and is accountable to a different range of stakeholders, including Parliament.

Once people have gotten used to live digitally – remote working, e-commerce, telemedicine – the economy and society are going to change in a variety of ways. The financial sector is well-plugged into digitalisation. Those financial institutions that adopt deeper end-to-end digitalisation, who are able to use digital platforms for their business operations that today are conducted in person or on paper, are going to have a strong competitive advantage. New opportunities in particular areas of financial services are harder to tell. Impact investing may become a stronger growth opportunity. We have already seen some financial institutions launching impact funds to seek higher returns by investing in companies which are focused on combating the pandemic or providing solutions to deal with the associated health risks. Healthcare and supply chain resilience have taken on added importance, and there seems to be interest among asset managers to invest in these areas. Pandemic risk insurance is another area that might see good growth. There is now a much heightened awareness of pandemic risks. Although pandemic risk insurance has been around for some time, it never really took off. I think you are going to find demand for risk management and insurance solutions to address some of these pandemic-related areas of risk. The financial sector is fundamentally in the business of risk management. Covid-19 represents the materialisation of an extreme kind of risk.

Obviously, the euro area aggregate figures mask the large heterogeneity among Member States, where gross debt ranges from 10% of GDP in Estonia to 157% in Greece. This notwithstanding, it goes without saying that general debt levels in European countries need to decline, also in view of long-term demographic challenges. Turning to private sector debt, Japan faced severe adjustment needs in the corporate sector, with debt of non-financial corporations declining from 130% to 80% of GDP in the 15 years that followed the peak in economic activity. In the euro area, the debt level of the aggregate non-financial sector never reached the peaks seen in Japan and aggregate household indebtedness is also comparatively lower in the euro area. However, in those euro area countries which experienced housing bubbles, the household sectors have been facing much stronger adjustment problems. Here, again, euro area averages mask significant heterogeneity across Member States. In fact, some euro area countries have seen strong capital inflows and unsustainable debtfinanced economic expansion. This has not only brought the risk of reversal, as seen after 2008 when private capital inflows dried up and domestic demand collapsed, it has also led to economic divergence within the euro area. Some countries have lost heavily in terms of competitiveness relative to their peer euro area countries. Regaining this competitiveness will indeed be a more gradual and tedious process.3 The credit-financed housing boom in countries like Ireland and Spain led to residential property prices more than doubling in the seven years leading up to their peak.

2 See also “Comparing the recent financial crisis in the United States and the euro area with the experience of Japan in the 1990s”, Monthly Bulletin, ECB, May 2012. BIS central bankers’ speeches 1 Both episodes clearly share elements of a “balance sheet recession”, where strong credit expansion ends with a sharp correction in asset prices, thereby triggering the need for significant balance sheet adjustment. Yet, the scope of the required adjustment in the euro area when viewed at the aggregate level differs markedly from that in Japan, even if some euro area countries struggle with excessive leverage. In Japan, the sharp fall in equity prices from the peak of 1989 led to losses of almost 80% in the two decades that followed. Real estate prices also precipitated, with urban land prices declining by about 40%. By comparison, at the euro area aggregate level, equity prices fell by about 50% and have already rebounded from their post-Lehman trough, while residential property prices have fallen by a mere 3% since their peak in 2008. Moreover, the levels of indebtedness across sectors clearly differ. As for fiscal imbalances, the fiscal response in Japan meant an increase in public debt from 67% of GDP at the start of the 1990s to about 240% in 2012. For the euro area as a whole, the increase was much smaller, with aggregate debt increasing from below 70% in 2008 to 92% in 2012.

Against this background, some further work needs to be done on the harmonisation of the oversight framework for securities clearing and settlement in the European Union. The continuous absence of such a harmonised oversight framework generates a number of undesirable effects. However, after the recent ECOFIN decision, I am very optimistic that we will soon see the finalisation and adoption of the ESCB-CESR recommendations for securities clearing and settlement. • The relevance of collateral for liquidity issues has been clearly recognised by central banks. During the past ten years, central banks have – especially in the context of the Committee on Payment and Settlement Systems and other Basel committees – focused jointly their attention on the use of collateral in financial transactions, 6 BIS Review 130/2007 including the cross-border use of collateral. 4 Cooperation in this respect is very useful and, especially for emergency situations, I would think that central banks –by enabling the cross-border use of collateral – could make a positive contribution to financial stability. Ladies and gentlemen, let me now close my introductory remarks by once again welcoming you all and by thanking all of those who have been involved in preparing this conference, in particular Daniela Russo and Mark Manning. 4 CPSS report on “Cross-Border Collateral Arrangements”, Bank for International Settlements, Basel, January 2006. BIS Review 130/2007 7

However, new vulnerabilities have emerged, especially a broadbased deterioration in the fiscal positions in a number of non-euro area EU countries, a number of which are currently under excessive deficit procedures. As Chart 8 on slide 13 illustrates, it needs to be kept in mind that the stock of outstanding foreign currency loans in these countries, while no longer increasing, remains sizeable, which makes the quality of exposed banks’ assets vulnerable to exchange rate risks. Given that the exposures to the CEE region are rather concentrated among some euro area countries’ banking sectors, the risks remain material in these cases. The third risk that has been identified within the euro area financial system is that of heightened financial market volatility if macroeconomic outcomes fail to live up to expectations. Until the increase in volatility experienced this month, the stock markets in the euro area had broadly stabilised after a strong recovery in 2009, which mainly reflected the impact of improving macroeconomic news and better corporate earnings prospects. Chart 9 on slide 14 shows that most conventional valuation measures, such as the long-term price-earnings ratio do not suggest that valuations are particularly high by historical standards. But there is a risk of heightened financial market volatility, if expectations of macroeconomic outcomes are disappointed. I would also like to briefly comment on the current state of the euro area securitisation markets. The securitisation markets were rendered dysfunctional by the financial crisis for a variety of micro and macroeconomic reasons.

I want to look at one other aspect of the market over this quiet decade – distributional impact. Distributional effects are not a part of the Bank’s statutory primary objectives of price and financial stability. This is not because they do not matter. They certainly do, and access to housing is included in the Government’s economic policy, which the Bank has a secondary objective to support16. It is because these are issues primarily for elected authorities rather than technocratic ones, and there are more effective tools to address them. One cannot ignore that housing booms shift wealth towards existing and generally older homeowners and can therefore widen intergenerational inequity. The large increase in house prices in the decade leading up to the financial crisis came with a large expansion in mortgage debt. Much of the £ increase in household mortgage debt over that period represented borrowing by first time buyers and those moving up the housing ladder to finance an increase in housing wealth for those further up the ladder. Moreover, an increase in house prices often leads to higher rents which are predominantly paid as transfers from non-home owners to existing home owners, potentially even further restricting the ability of prospective first time buyers to put a foot on the housing ladder. As well as increasing intergenerational inequity, this shift in housing wealth also risks widening inequity within the younger generation going forwards as housing wealth is passed down within families17.

Of importance, Islamic financial institutions must be open to rethinking their traditional business models and approach to doing business. In particular, the openness to forge digital partnerships and strategic alliances has the potential for the co-creation of innovative solutions. Globally, 82% of incumbents are expected to increase fintech partnerships in the next three to five years. 2/3 BIS central bankers' speeches Collaboration with the fintech community should therefore become the norm. For example, collaboration with crowdfunding and peer-to-peer financing startups can be a win-win growth opportunity. Through such partnerships, banks would be better able to service smaller businesses by referring potential borrowers not meeting their targeted credit profiles to these lending platforms. In return, these platforms can refer its borrowers that have gained scale to the banks for larger financing. Bank Negara Malaysia is supportive of the growth of fintech, including Islamic fintech. At the same time, as a regulatory body with a mandate for financial stability, we need to ensure that risks to the financial system and customers arising from innovations are properly managed. This is why we have developed the Regulatory Sandbox which allows new fintech solutions to be introduced in a live and controlled environment. It provides a “safe” environment where any risks and failures can be better managed. The time to market for new innovative products can also be reduced, which would otherwise be a hurdle under the traditional regulatory process. Its flexibility is also expected to better improve accessibility, affordability and attractiveness of financial products and services.

The repo rate, which is set on the basis of monetary policy considerations, indicates the level at which the Riksbank wants the overnight rate to lie. Interest rates with a slightly longer duration are determined in the financial markets and usually display a fairly stable relationship to the existing repo rate and expectations of its future level. During periods of financial turmoil and crisis, however, various risk premiums rise and this may disconnect the short-term market interest rates from their normal relationship to the repo rate. That weakens the impact of monetary policy Financial stability in terms of a functioning payments system and financial markets is thus essential for the Riksbank to conduct an efficient monetary policy. As can be seen, for a long time the Riksbank has been working intensively on issues relating to financial stability. This assiduous effort, which hardly attracts any attention under normal circumstances, provides a good foundation for crisis management. And this brings me to an account of all the measures taken over the past two months. 2 BIS Review 140/2008 Poorly functioning markets require special measures The crisis we are currently experiencing did not originate in the Swedish financial system. But the global financial turmoil has been imported to Sweden and has had repercussions on the Swedish financial system. As I already mentioned, these consequences became clear when the crisis escalated in the aftermath of the Lehman Brothers bankruptcy filing. Several components of the fixed-interest market have not been working as well as usual.

BIS Review 140/2008 3 The lack of trust between banks has complicated their long-term funding, including financing that only extends a few months into the future. The banks have therefore been forced to borrow in the market for shorter and shorter terms. Even though financing could be found, it has become much more difficult for the banks to manage liquidity and the risks also increased. In an effort to enable the banks to restore more normal conditions, the Riksbank has provided three- and six-month SEK loans so that funding is available at longer maturities than what the markets can currently provide and longer than what the Riksbank would normally offer. These loans will continue for as long as the need exists. The Riksbank is thus offering the banks an opportunity to replace short-term financing with the longer-term funding which the market normally provides. These measures are clearly aimed at improving the functioning of the fixed-income market. However, they should also help to ensure that short-term market interest rates revert to a more normal relationship with the repo rate, thereby strengthening the impact of monetary policy. Two institutions receive special liquidity assistance The Riksbank can also provide liquidity to individual institutions if extenuating circumstances are present. Such assistance has been given to Kaupthing Bank Sweden and Carnegie Investment Bank. These loans are against collateral and carry an interest rate that is higher than normal borrowing costs (penal rate). Both the Riksbank and Finansinspektionen (Swedish Financial Supervisory Authority) consider the banks to be solvent.

Regardless of any specific decision a firm may decide to make, I strongly support more transparency in financing and payouts, including share repurchase programs. In my view, public policy should aim to eliminate distorting incentives and to encourage instead the role of market discipline. Transparency is a necessary ingredient for market discipline to be effective. 3. Accounting Accounting issues have gotten a lot of attention this past year. It may be helpful to distinguish between the business of accounting and the rules of accounting. I would first like to discuss the business of accounting. The accounting business has gone through a dynamic period of change over the past several years. A number of this country's accounting firms were considering or had already begun the separation of their consulting business from their more traditional accounting and auditing business well before this past year's turmoil. In this process, accounting firms face a difficult challenge. Once a firm has done a thorough job in its accounting and auditing business, it is well positioned to apply its firm-specific expertise to a consulting problem. However, accounting firms are no longer allowed to provide accounting and consulting services to the same organization. Thus, the challenge for accounting firms is how to develop a business model that will allow them to maintain some of their natural economies of scope and at the same time avoid the conflicts of interest proscribed by law. On a broader level, it seems to me that the accounting industry also faces important personnel issues.

These initiatives reflect a tradition in our country of cooperation between the private and public sectors that is a major reason for the effectiveness, efficiency, and flexibility of our financial markets. Let me touch briefly on what some of these proposals and new measures entail. 2 BIS Review 57/2002 On the private sector side, the New York Stock Exchange approved a wide-ranging set of changes which it submitted to the Securities and Exchange Commission in August. These proposals include proposed improved corporate governance standards as well as related changes to certain other rules on its books. Among its proposals, the New York Stock Exchange would require all listed companies to have a majority of independent directors as well as nominating/corporate governance committees and compensation committees composed entirely of independent directors. The NASDAQ Board of Directors also approved a number of improvements in corporate governance measures in May and July. Its proposals range from requiring shareholder approval for the adoption of all stock option plans to increasing and strengthening the role of independent directors and the authority of audit committees. The Business Roundtable, which represents the business community, stands firmly behind the proposals of the New York Stock Exchange and NASDAQ to improve listing requirements. The Conference Board has endorsed reforms to stock option plans. Moreover, the major rating agencies are committing more of their resources to analyzing the quality of financial accounting and governance at the companies they cover - efforts that will complement the private sector reforms.

Its advocates say that one of the advantages of a target for nominal GDP is that it forces the central banks to give consideration to developments in the real economy and not just to inflation. In general terms, a nominal GDP target would appear a fairly unnecessary complication in this context, particularly if one already conducts a policy that means there is scope, or even an obligation, to give consideration to the real economy – through a flexible inflation-targeting policy, such as the one conducted by the Riksbank and the Bank of England, or that conducted by the Federal Reserve, with a dual mandate to strive for both price stability and a good development in employment.15 A counterargument of a more practical nature is that inflation targeting can be based on better data. While the CPI and other relevant price measures are published every month, GDP and the GDP deflator are only published quarterly, and with a relatively long time lag. Moreover, the CPI is only revised in exceptional cases, while GDP data are revised almost routinely, and sometimes substantially. One argument that I think also weighs heavily, from a practician’s point of view, is the difficulties I foresee with regard to communicating a nominal GDP target. The inflation target is now fairly well accepted and the general public appears to understand it. It would probably be a different matter with a nominal GDP target.

Over the past few months, the staff of our institutions have been in very close contact, preparing together the terms of the contract and finding appropriate solutions to a rather diverse set of challenges. I would like to ask you, Mr Chairman, to extend our warmest thanks to the staff of the Bank of Russia for their efforts to address all pertinent issues. The new three-year cooperation programme will start on 1 April and will focus on banking supervision and internal audit. In the area of banking supervision, the Eurosystem will support the Bank of Russia in its gradual implementation of the internationally accepted principles of the Basel Committee on Banking Supervision that are commonly known as the Basel II framework. The financial market turmoil that emanated from the US subprime mortgage crisis has highlighted, among other things, the importance of transparency and of sophisticated and effective risk management standards and practices in banks. The Basel II framework provides an advanced approach to capital measurement and capital standards. It represents the regulatory response to the increasingly complex and globally integrated financial markets, where credit risks are often passed from the originators of bank loans to a wide range of investors, instead of remaining on the books of the originating banks. Indeed, the Basel II framework was conceived to support banks in the implementation of advanced risk management standards with the overall aim of improving the stability and soundness of the financial system in all the economies around the world.

In particular, we should set in place mechanisms for the monitoring of and individualised guidance for the unemployed, based on statistical profiling techniques targeting the unemployed and available vacancies. Possible changes in the sectoral structure of employment also advise reinforcing lifelong learning. It would also be desirable to retain the possibility of training contracts, with the greatest possible flexibility, for youths and firms. Finally, the current arrangements on hiring rebates should be reviewed and priority given to those aimed at the elderly and lesserskilled, with ongoing monitoring of their effectiveness. 4.3. Addressing the challenge of population ageing Population ageing is one of the biggest challenges the Spanish economy faces. Illustrating this is the foreseeable course of the dependency ratio, which currently stands at 29.5% and will increase by more than 25 pp in the next 25 years. The determinants include most notably one of the highest rates of life expectancy in the world and a very low fertility rate. This suggests it would be worth introducing measures promoting life-work balance, increasing support for families and offering more opportunities in the labour market, especially for young women with children. The latter are frequently economically affected to 7 a greater extent by the decision to become mothers. Further, migratory policy should be adapted to bring it better into line with labour market needs. Population ageing effects weigh down particularly on public finances.

Adopting this culture of assessment in economic policy design should be one of its pillars. Allow me now to give you a brief overview of the impact of the pandemic on economic activity. Subsequently, I shall briefly address the content of the economic policy strategy I have just outlined. Details of this content are, in any event, in a document I forwarded to the Chair of this Committee to be distributed among its members. 2. The economic crisis caused by the coronavirus pandemic The pandemic has had an extraordinarily acute impact. In Q1, China saw the biggest decline in its GDP in history. In the United States, the unemployment rate rose to record highs. And euro area GDP fell by 3.6% in the same period. In Spain, despite the fact the lockdown measures only affected the last fortnight of Q1, GDP slumped by 5.2%, also the biggest quarter-on-quarter decline in our recent history. The fact that virtually all of the restrictions linked to the state of alert have been in force for more than half of Q2 will necessarily mean a significantly sharper decline in activity in this 2 period. On Banco de España estimates, this contraction in GDP might stand at between 16% and 22% relative to its Q1 level. The severity of the crisis has been particularly visible in employment. The adjustment from mid-March to end-May affected more than 26% of total employment. In parallel, the number of firms registered in Social Security records has undergone the biggest fall in its history.

While European labor markets are not – and will never be – as integrated as in the United States, goods, services, and capital markets are now fully unified, in many regards to a greater extent than in any other countries. Our studies show that business cycles tend to be more and more synchronized with time, an evolution which allows for greater efficiency and sustainability for a common monetary policy. This shows that monetary union is a self sustaining process: convergence can be a result, as much as a condition of economic integration. This has been termed the "endogeneity of optimum currency area" effects. Enlargement of the euro area As I said before, in contrast with some gloomy predictions made ten years ago, the euro is a success story. Far from being a closed Club, the Euro area is open and has a true calling for covering all the EU members, in so far as they fulfil the convergence criteria. Indeed, adopting the Euro can be seen as a legal obligation for all EU members once they have fulfilled the Maastricht convergence criteria. Monetary union is an on-going process. Starting in 1999 with 11 members, the Euro area has regularly expended. On 1 January 2001, Greece joined the Euro area. More recently, on 1 January 2007, Slovenia was the first of the 10 New Members 2 BIS Review 43/2007 States entered into the EU in 2004 to adopt the Euro; this brought the current number of members of the Euro area to 13.

In such circumstances, it would be extremely penalizing to give up the possibility of real exchange rate adjustments. This shows that there is no single model of monetary cooperation which could be duplicated around the world. It is up to each group of countries to find their own sustainable path to economic integration. Will monetary union evolve towards closer political union? As you well know, these are difficult times for European political integration. The Treaty creating a Constitution for Europe was not ratified by two founding members of the European Community. As a consequence, the future of political integration is fraught with uncertainties. These raise several important questions for the future. Has the process of political integration stalled or just paused? What is the appropriate institutional framework for an enlarged Europe? These are questions best left for the historians and political scientists to answer. But one question is essential: can monetary union progress and survive without a full fledged political union? Can we – to quote, Otmar Issing, my former colleague in the ECB's Executive Board – have "a currency without a state"? For me, like for Otmar Issing, the answer is clear: yes, we can. From the start, the European project has ventured into unchartered territory. We have created an institutional framework without any historical precedent and model. This is especially true for monetary policy, BIS Review 43/2007 3 where we have transferred the decision making powers to a supra national entity.

It is mainly because the French economy has preserved and strengthened its competitiveness over a long period that we have, in the past four years, enjoyed growth that is robust and more rapid than that of the other large European countries, while also maintaining a large current account surplus. The multipartisan strategy of low inflation and competitiveness, conducted consistently and tenaciously over a long period, must be steadfastly pursued in the single currency context. Fourthly, the gradual change in the mindset governing our perception of economic phenomena The objective of durable, sustained and non-inflationary growth, which could force unemployment down to its low tidemark, could be more easily achieved if Europe and France gradually adopted an open attitude towards the important “factors of production”, namely labour, capital and technical progress. For a long time, persistent mass unemployment, the structural causes of which were poorly understood, led to the adoption of certain neo-Malthusian attitudes: efforts to reduce the available workforce in order to curtail unemployment, spurning productivity-enhancing investment thought to contribute to higher unemployment and, finally, wariness towards technical progress, which was seen as a potential destroyer of jobs. Little wonder that after seeking to limit the available workforce, capital stock and technical progress, Europe and France saw that their non-inflationary growth potential was still not as high as they would have wished, despite the significant advances made in recent years. Fortunately, a profound change in perspective is underway in Europe and France, and we are discarding neo-Malthusian attitudes.

3/4 BIS central bankers' speeches We are publishing the first issue of the report today and are going to release it on a regular basis, eight times a year, prior to the quiet period. We hope that this material will be interesting and useful to a wide range of readers. 4/4 BIS central bankers' speeches

In my view, three other major prerequisites are needed in order to foster robust, sustainable growth and durable job creation, namely : the continuation and strengthening of a policy designed to keep in check unit production costs, the improvement of the competitiveness of the economy, through ambitious structural reforms and lastly, the completion of a fully integrated European capital market. Raising the potential output growth and enhancing the competitiveness of the economy: If Europe wants to secure sustainable growth at levels that are as high as possible, the key variable is potential output growth. The level of potential output growth can firstly be raised thanks to investment: business leaders are completely free to invest wherever they want in Europe or elsewhere in the world. It is thus important that we create economic, legal and fiscal conditions that are as favourable as possible to investment in Europe. The investment appeal of Europe is crucial in this respect : the more we invest, the fewer inflationary pressures we will have, and the stronger potential output growth will be. BIS Review 60/2002 1 Another way of raising potential output growth is to increase the quantity of available labour and to boost gains in labour productivity: the fast transformation of information systems is likely to accentuate the structural transformation of the economies.

Peter Pang: Sukuk as a viable fund-raising and investment instrument Opening remarks by Mr Peter Pang, Deputy Chief Executive of the Hong Kong Monetary Authority, at the HKMA-BNM Joint Conference on Islamic Finance, Hong Kong, 14 April 2014. * * * Dato’ Muhammad Ibrahim, distinguished speakers and guests, ladies and gentlemen, 1. Good morning. It gives me great pleasure to welcome you all to this Islamic finance conference jointly organised by the Hong Kong Monetary Authority and Bank Negara Malaysia (BNM), with the support of the Treasury Markets Association. I am particularly grateful to Dato’ Muhammad Ibrahim, Deputy Governor of BNM, who leads a delegation of Islamic finance experts from Malaysia to share with us their experience and knowledge on a wide range of matters concerning sukuk, from the latest developments of the global sukuk market to the practical issues in structuring sukuk products. 2. This conference marks the third Islamic finance-related event organised in collaboration with BNM within the past year or so, following an Islamic finance workshop held in March last year and the first meeting of the Joint Forum on Islamic Finance between Hong Kong and Malaysia held last December. This series of events is a testament to our determination to deepen co-operation with Malaysia in the development of Islamic finance. 3. The theme of today’s conference is “Sukuk as a viable fund-raising and investment instrument”.

The Basel Committee’s two recently published studies on RWA variability have compared banks’ estimates of risk-weighted assets on hypothetical portfolios of financial instruments (for the trading book) and credit counterparties (for the banking book). To give you an idea of the size of the task, in the case of the banking book, for example, the Committee collected banks’ probability of default (PD) and loss-given-default (LGD) estimates for 46 sovereigns, 77 banks, and more than 1,200 large corporates. Both reports suggest that the underlying differences in risk remain the core driver of differences in risk weights and capital requirements, as intended. However, there are also supervisory and practice-based variations, and they are material. While it is difficult to be precise on how much variation is “too much”, the observed range of practice-based variations analysed by the two studies appears too wide. To give you a flavour of that: just taking the banking book results alone, two banks with exactly the same assets could report capital ratios that differ by 4 percentage points – the most conservative bank would report a regulatory capital ratio of 8% when the least conservative one would report 12%. Of course, this simply compares the extremes in the sample – many banks were much closer to the average. But if outsiders have no way of identifying who is “average” and who is an “outlier”, this variance is clearly too wide to underpin confidence in the measurement of bank capital. So what are we doing about it?

Chart 17 Impact of TLTRO III on bank lending volumes to enterprises https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html 12/14 5/19/2020 Pandemic central banking: the monetary stance, market stabilisation and liquidity (net percentage of banks, over the past and next six months) Source: ECB bank lending survey (BLS). Note: Net percentages are defined as the difference between the sum of the percentages for “contributed considerably to an increase” and “contributed somewhat to an increase” and the sum of the percentages for “contributed somewhat to a decrease” and “contributed considerably to a decrease”. Conclusions We continue to monitor market developments closely. In the context of the current extraordinary and severe macro-financial environment, we must ensure our monetary stance provides sufficient accommodation and guards against the escalation of tail risks associated with procyclical financial amplification mechanisms. We continuously examine each of our measures (individually and as a package) to assess whether these are still adequately calibrated and appropriately sized to provide the necessary degree of accommodation in this uncertain economic environment. Accordingly, we are fully prepared to further adjust our instruments if warranted. This includes increasing the size of the PEPP and adjusting its composition, by as much as necessary and for as long as needed. Reproduction is permitted provided that the source is acknowledged.  [1] I am grateful to Danielle Kedan and Julian Schumacher for their contributions to these remarks. [2] See my blog post entitled “The monetary policy response to the pandemic emergency”, 1 May 2020.

The big banks’ published plans on strategy and capital-building envisage a further improvement in their capital situation. According to these plans, and measured in terms of loss-absorbing capital, by the end of 2014, Credit Suisse and UBS are likely to have already met the risk-weighted capital requirement of 13% which will apply from 2019. Moreover, these plans will lead to a substantial increase in their leverage ratios by the end of 2014. The SNB acknowledges the big banks’ progress to date and recommends that they consistently and fully implement their plans, in order to further strengthen their resilience and, in particular, to improve their leverage ratios. Improving the leverage ratio is all the more crucial given the growing importance of this indicator as a measure of banks’ resilience. Credibility of model-based risk-weighted assets The risk weighting of assets plays a key role in determining the capital requirement for a bank. All of the bank’s on and off-balance-sheet positions are multiplied by a risk weight. The riskier the position, the higher the weight. The figure for risk-weighted assets (RWA) represents the sum of these risk-weighted positions. Required capital, in turn, is defined as a percentage of RWA. There are two different approaches for setting risk weights. Under the standardised approach, risk weights are prescribed for broad asset classes. Under the model-based approach, by contrast, banks can use their own internal models to determine the risk weights for different assets.

The credibility of RWA based on banks’ internal models is increasingly being called into question by market participants, analysts and authorities worldwide. It is widely accepted that a bank’s risks can, in principle, be more accurately quantified using the model-based approach than using the standardised approach. Yet banks’ internal models are extremely complex and can vary widely between banks, owing to the use of different model choices and model parameters. This can result in different capital requirements for banks with a similar asset structure. This makes it difficult to accurately assess a bank’s resilience, and to compare one bank with another. BIS central bankers’ speeches 1 To increase the usefulness and credibility of the model-based approach, in-depth analyses need to be carried out to determine whether and to what extent the model-based approach and the standardised approach lead to differences in RWA. The standardised approach does have shortcomings. Yet, since it is independent of bank-specific modelling assumptions, it provides market participants with an additional point of reference for assessing both the level of and changes in model-based RWA. Differences between the two approaches must be well explained and have a sound economic rationale. If the analysis does not reveal any substantial inexplicable differences, this will strengthen market confidence in the modelbased approach. Otherwise, appropriate measures should be considered. This could, for instance, entail setting a floor for some model-based RWA, such as that recently introduced for banks in the US.

As temporary support measures have expired, the fiscal stimulus has gradually petered out and, with the economy expanding faster than previously forecast, public finances have also recovered faster than expected. The accelerated pace of the economy provides an opportunity to reach a structurally adjusted fiscal balance at an earlier stage than expected. However, although the current fiscal policy framework may be relatively transparent and predictable, it does not seem to provide a sufficiently strong incentive to take advantage of unexpected fiscal windfalls in a counter-cyclical fashion. Consequently, monetary policy has been forced to carry a larger share of the burden of adjustment than would be desirable from the standpoint of an optimal policy mix. As inflation hits social groups differently, fiscal policy can be effectively used to support the most vulnerable groups in the economy. However, as the immediate impact of inflation on the fiscal balance is positive - as revenues are in practical terms price-indexed during times of high inflation - it is important that fiscal policy resist the temptation to allow increased revenues to feed into expenditures more than is necessary. From the standpoint of the monetary authorities, while providing support to vulnerable groups, the fiscal authorities could prioritise tightening the fiscal stance and take advantage of the strong economic growth to close the budget deficit. The war in Ukraine still poses significant risks to the global economy. However, as the global energy and food crisis is resolved and monetary and fiscal stimulus is withdrawn, the prospects for global disinflation improve.

That is why, as I explained in my letter to the Chancellor, we believe that a slowdown in the economy this year, creating a margin of spare capacity, will be necessary to dampen price and wage pressures and ensure that we fulfil our remit by returning inflation to the target. And growth is now slowing quite sharply – broad money growth is falling, business surveys point to particularly weak output growth in the second quarter and growth is likely to remain subdued for the rest of the year. Where Bank rate will ultimately need to move to bring inflation back to target is impossible to judge now. Decisions on Bank Rate will be made one month at a time in the careful way that the MPC has developed over more than ten years. But there should be no doubt that the BIS Review 79/2008 1 MPC is prepared to take whatever action is needed to return inflation to the 2% target and to keep expectations of inflation in the medium term anchored to the target. The fact that growth and inflation are heading in opposite directions has led some commentators to question our monetary framework. Target growth not inflation is the cry. I could not disagree more. This is precisely the situation in which the framework of inflation targeting is so necessary. Without it, what should be a short-lived, albeit sharp, rise in inflation, could become sustained.

The baseline scenario reflects those events believed to be the most likely to occur with the information at hand at the closing of the Reports. There are risks, however, that, if materialized, could reshape the macroeconomic outlook and thus alter the course of monetary policy. About the external scenario, it is still early to know how the policy rate increase in the United States will affect the global economy. A first look shows that the markets have taken it calmly, stock prices rose and the dollar lost some value against the other currencies. Of course the way this process will unfold is an important source of risk, especially because of existing differences between what market expectations suggest and Fed’s statement about how fast and how far it will raise the rate. Plus there is divergence in the monetary policy among the developed countries and its potential effects on the global value of the dollar. To the extent that this continues, the pressures for a more appreciated dollar will persist, affecting commodity prices and our own currency. In China, an abrupt adjustment is now less likely, but doubts remain about how its economy will contribute to the recovery of global activity and commodity prices, especially now that they are rebalancing growth toward consumption and services. Finally, the complex situation in Brazil and the need for further tightening in some Latin American economies continue to pose a major risk. A worsening of the economic outlook in the region would affect external demand and possibly financing conditions facing Chile.

It is estimated that the share of foreign trade of the Euro area will be only about 10% of GNP in comparison to about 30% for Germany today. And over the long term, the Euro should become almost as widely used as the US dollar is today. One conclusion to be inferred from this is the following: since Turkey has close trade, service and financial links with Europe, and as the only country connected to Europe in a Customs Union (CU), which I hope will evolve over time towards full membership, the EMU will create completely new conditions in Turkey’s international and European relations. Therefore what will happen in Europe will be decisive for Turkey in the years ahead. It will be a challenge for the Turkish authorities, as well as for bankers and businessmen. One of the most important prerequisites for a successful monetary union is a sufficient degree of economic convergence among the potential members. From that standpoint the degree of convergence among the EU countries is remarkable, particularly as regards the convergence criteria; stable prices, stable exchange rates, low long-term interest rates and healthy public finances. In addition to these criteria, the Maastricht Treaty requires that all member countries in the EU must grant independence to their central banks before the Monetary Union and the establishment of the European System of Central Banks (ESCB). The reason behind the requirement of independent national central banks is that fixing exchange rates and unifying currencies requires a common monetary policy.

Eddie Yue: Opening keynote - "Scaling up sustainable finance in Asia" conference Opening keynote by Mr Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, at the ASIFMA "Scaling up Sustainable Finance in Asia" conference, Hong Kong, 17 March 2023. *** Alice, Diana, distinguished guests, ladies and gentlemen, Good Morning, Let me start by thanking ASIFMA for inviting me to this Sustainable Finance Conference. It is my great pleasure to share with you Hong Kong's vision and the concrete steps being taken to strengthen our leading role in green and sustainable finance. As we come into Spring after a colder-than-usual winter, this is a good time to talk about the advances that happen when the right ecosystem is combined with the right opportunities. In the financial world, green and sustainable finance brings extraordinary opportunities. And if we are looking for the best ecosystem for these opportunities to flourish, Hong Kong is the place. The climate challenge to Asia is huge, and urgent. Meeting this challenge will require substantial investment – some $ trillion over the next three decades based on market estimates. China alone will require more than 100 trillion yuan. The multi-trillion-dollar funding need can hardly be met by the public sector alone, and climate finance plays a crucial role here. It helps the public sector raise funding from the market to finance climate projects and initiatives. It also mobilises private capital to directly fund climate actions.

We are the first Asian jurisdiction mandating climate-related disclosure across the financial sector by 2025, in line with the global framework set by the Task Force on Climate-related Financial Disclosures. We also made an early commitment to adopting new standards promulgated by the International Sustainability Standards Board. Hong Kong adopts the Common Ground Taxonomy jointly developed by China and the EU. We are now exploring the development of a green classification framework on the basis of the China-EU taxonomy, in order to provide the necessary disclosure and guidance to inform capital allocation and encourage market discipline. The HKMA has set clear rules – for example by formulating clear supervisory requirements and integrating climate-risk into the supervisor-driven stress-testing framework. The various regulatory requirements help build climate resilience into our banking and financial sector. In the process, financial intermediaries such as banks also act as facilitators to help the real sector adapt and transition, in line with global consensus and commitment to achieving carbon neutrality. Second, on data. Currently, there is a lack of accessible, standardised data and analytics support in the market. It presents a challenge, not just for climate risk management but for other purposes such as portfolio assessment and business development. We are working with other regulators and the private sector to address these issues, by improving data accessibility and developing a data repository and analytics capability for the industry. We are making good progress.

The vigorous productivity growth has been another positive surprise in the performance (Figure 5). At the start of the 1990s there were no indications that this would be the case. Why then would the Government have appointed a productivity delegation? The firm productivity gains have, of course, been crucial for the increases in real wages. But they also have meant that companies have not needed to hire new staff on the same scale as before, which has contributed to the weak employment growth in recent years. We really do not know why productivity has improved so strongly even if there are a number of hypotheses according to which the IT explosion, deregulation and increased global competition are significant explanations. For the Riksbank, it is important to understand this better if we are to be able to produce accurate forecasts of inflation. Of even greater importance, of course, is to do what is possible through economic policy to ensure that the positive performance can continue. In the long run higher real wages presuppose increased productivity. Two problem areas However, not everything has been as positive. Labour supply has not developed as well as one might have hoped. There are currently large groups outside of the labour market and employment has increased at a slower rate than is desirable over the past ten years.

This crisis could generally be described as a dramatic end to almost twenty years of stabilisation policy problems. The Swedish economy had been characterised by an unsustainable rise in costs, which had originated in price and wage increases that constantly came on a collision course with the fixed exchange rate. The result was repeated devaluations, modest economic growth, poor productivity growth and more or less stagnant growth in real wages. The performance was markedly weak both compared with earlier periods and in relation to other countries. During the crisis years the situation was aggravated further. Unemployment increased fourfold in the course of a few years and the central government finances deteriorated dramatically. Interest rates rose unchecked and the interest rate differential vis-à-vis Germany occasionally came to several percentage points. Favourable results Today, a little more than ten years after the crisis, the situation is completely different. The new focus of stabilisation policy – which involved crucial changes in the framework for both fiscal and monetary policy – has meant that inflation now remains relatively stable around the target of two per cent (Figure 1). The lower inflation rate has not been associated with weaker growth in output, rather the opposite. GDP growth has averaged roughly half a percentage point higher a year in the past decade than in the two previous decades, and the fluctuations in the real economy also appear to have lessened (Figure 2).

Clarity is also needed concerning liquidity commitments to off-balance sheet vehicles, and the magnitude of assets that may be BIS Review 3/2008 3 re-intermediated back onto the balance sheets of euro area financial institutions. The process of improving clarity, which started when Q3 2007 financial statements became available, will be advanced further when institutions publish their annual audited accounts for 2007 as a whole. Given the uncertainties, the adjustment process in the financial system in the coming period may be challenging, and we have to be prepared to the materialisation of risks at any time. That being said, there are mitigating factors, including a broadly favourable economic outlook, the largely sound balance sheets of households and firms, and the generally sound capital positions of core financial firms. This should not, however, provide any grounds for complacency given the heightened uncertainties. In a fluid environment where financial system conditions may unexpectedly change, prudence is of the essence both for policymakers and financial institutions. Concerning the role of financial institutions and supervisory authorities in coping with the financial turmoil, I would submit three observations. First, given the underlying factors of the financial stress, and in order to re-establish confidence within the financial system, it is crucial to promote a widespread consistent valuation of complex structured products as well as an adequate disclosure by banks of all their exposures, in particular related to the US subprime mortgage sector.

The repatriation of funds will be even larger if we compute the amount over a longer period. Such arrangements are extractive in nature, and will have longer term implications for the development of a strong domestic industry. We need higher reinvestment by insurers to support the protection and risk management needs of our population and businesses. Intra-group reinsurance arrangements have also resulted in unnecessary outflows when such risks are well within the capacity of the onshore market. A handful of insurers have continued to disregard arrangements that have been put in place to optimise onshore capacity, ceding large amounts to group reinsurers. This is not an acceptable behaviour. It must change. Going forward, we expect insurers to review these practices and fully support optimisation arrangements. In parallel, more must be done to develop domestic underwriting expertise, especially in specialist risks. More must be done to create high income jobs. More needs to be done to improve remuneration packages at entry and middle levels, to attract young talents and retain expertise. The data we collated is stark. It is a clear conclusion. The data points to a prolonged underinvestment in talent, with fewer than 1 in 10 of the industry workforce today having any form of professional qualification. From another angle, the industry has yet to realise its potential, in part due to a lack of long-term commitment from domestic shareholders. The industry needs domestic shareholders that have a long term outlook and can support the deepening of our market.

For example, the share of household after-tax income that families owe for servicing debts and paying for housing (including property taxes, homeowners insurance and rents) has declined sharply over the past two years and is now back to levels last seen in the late 1990s. Households have cut the total amount of debt they owe. They are also refinancing outstanding debt to take advantage of the lowest mortgage interest rates since the mid 1950s. We expect the increased rate of mortgage refinancing now in place to continue over the near term. This represents another means by which households can free up income for other uses. Now, let’s consider the slow housing recovery. Housing market activity – both new construction and sales – remains depressed. On the construction side, total housing starts are running at just 600,000 units per year (seasonally-adjusted) in recent months. This is up from 530,000 units at the trough in the first quarter of 2009 but it is still extremely low by the standards of the last 50 years. In fact, the rate of new construction is so low that there is barely any net growth in the U.S. housing stock these days. One reason why so little housing is being built is that many existing homes stand vacant. We estimate that there are roughly 3 million vacant housing units more than usual. And more vacancies are added daily as the foreclosure process moves homes from families to mortgage lenders.

Since the number of homes cannot adjust quickly, rising demand during a boom typically leads to rapid rises in prices and unregulated rents. Eventually, of course, the amount of housing supplied responds to changes in demand. So, how did the economic expansion and contraction affect New York City’s housing market? For a mature city, the city saw an unusually strong boom in housing sales, construction and prices. This expansion actually began in 1996 and continued even in the aftermath of the 9/11 attack. Since 2007, however, New York City’s market has turned down. This decline started later than the nation’s and prices have fallen less sharply. Now, prices appear to have stabilized. This pattern can also be seen in Manhattan’s rental market. After a long period of rising rents, the market weakened substantially from 2007 to 2009, and rents have rebounded moderately in 2010. New York City has not been spared from the high rates of mortgage delinquencies characteristic of this recession. Manhattan’s delinquency rates are elevated although they remain markedly below the national average. By contrast, pockets of distress are much more prevalent in the outer boroughs, all of which have delinquency rates, per owner-occupied unit, above the national average. The relatively mild recession and the recovery in the City are lending support to both home prices and sales. Also positive, compared with the rest of the country, are the City’s low mortgage leverage rates and a low share of homes with underwater mortgages.

The impact of monetary policy occurs with long and variable lags. Our analyses indicate that a substantial share of the effects occurs within two years. A time horizon of two years when setting interest rates allows monetary policy to contribute to stabilising production. This horizon prevents monetary policy in itself from causing unnecessary fluctuations in the economy. The sharp rise in labour costs in recent years carries with it a potential for higher unemployment. The interest rate is an effective instrument for countering lower demand and growing unemployment when measures to stimulate demand do not translate into higher wage growth or unstable financial markets. However, there is little monetary policy can do to prevent an increase in unemployment that is driven by high cost inflation. A pre-condition for an effective interplay between wage settlements and monetary policy is that the response pattern in monetary policy is known and consistent. When the response pattern in monetary policy is known and consistent over time, the social partners can take into account monetary policy responses when negotiating wages. In 2002, wage growth was higher than we had expected up to the wage settlement in the spring of 2002. In spite of the rise in unemployment, the wage settlement in 2002 indicated that the social partners still perceived the labour market as tight. Preliminary figures indicate annual wage growth between 5½ og 6% in 2002, which is substantially higher than projected.

We have taken into account that an interest rate change will affect the krone exchange rate. It is assumed that monetary policy credibility remains intact. Developments in the krone exchange rate have a considerable impact on inflation in a small economy such as Norway. Our analyses, which are based on relationships in the Norwegian economy over the past 20-30 years, indicate that it takes some time for the effects of a lasting change in the exchange rate to pass through to consumer price inflation. The effect seems to be strongest the second year and then shows a gradual decline. A sustained appreciation of the effective krone exchange rate of 5% could reduce the rise in consumer prices by a quarter percentage point the first year, by close to half a 2 percentage point the second year and about a quarter percentage point the third year . Our analyses indicate that a sustained increase in wage growth of 1 percentage point will, in isolation, push up consumer price inflation by a quarter percentage point the first year and half a percentage point the second year. The mandate implies that the interest rate must be adapted to the outlook for the Norwegian economy. If it appears that inflation will be higher than 2½% with unchanged interest rates, the interest rate will be increased. If it appears that inflation will be lower than 2½% with unchanged interest rates, the interest rate will be reduced. This orientation of monetary policy will normally also contribute to stabilising output and employment.

Heng Swee Keat: The first Shariah-compliant ETF in Singapore Congratulatory remarks by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Launch of Daiwa FTSE Shariah Japan 100 ETF at SGX Centre, Singapore, 27 May 2008. * * * President and CEO, Daiwa Asset Management, Mr Michihito Higuchi Vice-President and Head of Listings, Singapore Exchange, Mr Lawrence Wong Distinguished guests Ladies and gentlemen, good morning. I am pleased to join you at this ceremony to mark the debut of the Daiwa FTSE Shariah Japan 100 Exchange Traded Fund (ETF), the first Shariah-compliant exchange traded fund to be launched in Singapore. The Daiwa FTSE Shariah Japan 100 ETF will provide retail and institutional investors the opportunity to access the Japanese capital markets via a Shariah-compliant product traded on the Singapore Exchange (SGX). ETFs are one of the fastest growing asset classes in the investment funds industry. They aim to track the performance of indices and provide access to a wide variety of markets. As at the end of 2007, global assets managed via ETFs are estimated to have increased by 41% over the previous year to reach about $ billion while the total number of primary listings has increased by 64% to 1,171. There are currently 18 ETFs listed on SGX covering regional markets such as the AsiaPacific and ASEAN, and individual markets such as China, India, South Korea, Taiwan and Japan, as well as alternative investments such as gold and commodities.

One of the most important is determined by what we know about the functioning of the economy and the effects of monetary policy. Not everyone agrees, however, that transparency is a good thing for attaining financial stability. Many people argue that so-called constructive ambiguity is the best way to avoid problems of moral hazard in the banking industry. I believe, however, that transparency is important in this area as well. Banks that are "too big to fail" from a systemic point of view will in any case count on support from the government. Especially when it comes to countries like Sweden, which experienced a severe banking crisis not so long ago, it is likely that support to banks that encounter financial problems will be expected if nothing else is being communicated. Another risk associated with constructive ambiguity is that it could limit the motivation of central banks to seriously consider what to do in a crisis. In other words, it could provide an excuse for not thinking the issues through. However, if you are not prepared, you could easily become the bank's prisoner in a time of crisis. Through deeper analysis of the "too big to fail" problem and open communication of crisis strategies, it should be possible if anything to mitigate the moral hazard problem. If you can show that the banks do not need to be systemically important, it should make banks even more uncertain about the possibility of receiving support than any policy of constructive ambiguity.

In 2012, the Chilean economy will grow in the 3.75%–4.75% range, after growing 6.2% in 2011 (table 2). In this scenario, headline inflation will drop to around BIS central bankers’ speeches 3 3% in the first half of 2012, and will hover around that figure through the end of the projection horizon, this time the fourth quarter of 2013 (figure 7). These projections use as a working assumption that the real exchange rate will be fairly unchanged over the next two years, based on our assessment of its current level, which is within the range that is thought to be consistent with its long-term fundamentals. The appreciation of the dollar in the global market has also affected the Chilean peso. The peso/dollar parity has depreciated around 10% between the statistical cutoff of this and the latest Monetary Policy Report. Over the same period, the level of the real exchange rate has also risen, almost 4%. This behavior of the dollar has eased to some extent the exchange rate pressures that were being felt in emerging economies by mid-year (figure 8). Regarding monetary policy, in a baseline scenario where the effects of external uncertainty over our economy are bounded, the working assumption used is that the MPR will follow a path that in the short term is comparable with what can be inferred from the various expectations surveys (figure 9).

The news is mostly good—longer-run inflation expectations in the United States have remained remarkably stable at levels broadly consistent with the FOMC’s longer-run goal. Inflation uncertainty has increased, but this does not appear to be due to unmoored longer-run expectations. The one surprising wrinkle worth further study is the increasing divergence in views about future inflation, including the high share of those expecting deflation, and what this portends for the future. Table and Figures References Armantier, Olivier, Fatima Boumahdi, Gizem Kosar, Jason Somerville, Giorgio Topa, Wilbert van der Klaauw, and John C. Williams. “What Do Consumers Think Will Happen to Inflation?,” Federal Reserve Bank of New York Liberty Street Economics, May 26, 2022. Armantier, Olivier, Leo Goldman, Gizem Kosar, Giorgio Topa, Wilbert van der Klaauw, and John C. Williams, “What Are Consumers’ Inflation Expectations Telling Us Today?,” Federal Reserve Bank of New York Liberty Street Economics, February 14, 2022. By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. Armantier, Olivier, Gizem Kosar, Jason Somerville, Giorgio Topa, Wilbert van der Klaauw, and John C. Williams. “The Curious Case of the Rise in Deflation Expectations,” Staff Report 1037, October 2022. Board of Governors of the Federal Reserve System, Statement on Longer-Run Goals and Monetary Policy Strategy, January 24, 2012. Board of Governors of the Federal Reserve System, 2020 Statement on Longer-Run Goals and Monetary Policy Strategy, August 27, 2020.

I will explain tax and banking reforms in more detail in the forthcoming parts of my speech. Improving economic productivity is fundamental for achieving price stability and concurrent sustainable growth in the long run, that is to say an increase in real income and welfare. A rise in total factor productivity is expected to be one of the core dynamics of sustainable growth to be attained in the next 10 years in Turkey. The manufacturing industry has recently witnessed a boost in productivity. The critical point here is that increases in productivity should be reflected on all sectors and become sustainable. Therefore, it is very important that labor education and institutional governance is improved through research and development of technology, which will provide a constant increase in total factor productivity. Graph 11: Partial Productivity and Real Earning Indices (1997=100) 170.0 Productivity 150.0 Real Earning 130.0 110.0 90.0 70.0 2004Q3 2004Q1 2003Q3 2003Q1 2002Q3 2002Q1 2001Q3 2001Q1 2000Q3 2000Q1 1999Q3 1999Q1 1998Q3 1998Q1 1997Q3 1997Q1 50.0 Source: SIS. Sustainable increase in employment In Turkey, sustainable growth depends on the increases in productivity and capital stock as well as on the enhancement of labor supply and labor quality. For this reason, determination of the structural obstacles standing in the way of employment and the establishment of policies aimed at their removal bear much significance.

Bandid Nijathaworn: The current financial crisis, lessons learned, and future implications Keynote address by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the 11th SEACEN Conference of Directors of Supervision of Asia-Pacific Economies, Bangkok, 29 July 2009. * * * Distinguished Speakers, Participants, Colleagues, Ladies and Gentlemen, It is my pleasure to be giving this morning’s keynote address for the opening of the eleventh SEACEN Conference of Directors of Supervision of Asia-Pacific Economies under the theme: “The Current Financial Crisis, Lessons Learned, and Future Implications.” This forum gives us an excellent opportunity, at this crucial juncture, to discuss the recent global financial crisis and to share amongst ourselves the experience as well as the lessons learned, so that we can further strengthen and improve our financial systems and supervision. Looking at the agenda, it is certain that the discussion in the next two days will be a most valuable one. So far, the SEACEN economies, one way or another, have all been affected by the current global financial turmoil. As central bankers and regulators, we are faced with the important task of putting in place future regulation, and the obvious place to start is to ask the questions whether the crisis could have been prevented or mitigated in the first place, and how the lessons learned from the current crisis can be used to prevent the next crisis. These are not easy questions to answer.

(2016) document similar patterns in real interest rates around the world. 6. Within our central framework for understanding its determinants, R* is the price that equilibrates supply and demand in the capital market. On one side of the market, households accumulate wealth and use capital as a means of storing that wealth. Households’ accumulation of wealth is the result of their desire to smooth lifetime consumption. On the other side of the market, firms require capital to produce. They choose the optimal quantity of capital to use, equalising the marginal costs and marginal returns. See Bank of England (2018) for details. 7. See Cesa-Bianchi et al. (2022). 8. Estimates of the underlying trends in the structural factors that drive Global R* are obtained for 1950–2015. The trends are extracted using a statistical filter and to avoid so-called ‘end point’ problems the latest data are omitted. Given the frequency of the releases of some data series and because the model focuses on a five-year real interest rate, the sample period therefore ends in 2015. See Cesa-Bianchi et al. (2022) for details. 9. The table also shows that varying the simulation assumptions results in simulations that imply falls in Global R* that vary between 1.1 and 3.3 percentage points. 10. As shown in Cesa-Bianchi et al. (2022), the dynamic paths of the structural model simulation and statistical estimate differ more in other parts of the sample period, so do not imply exactly that same change in Global R* over all subsamples. 11.

The International Financial Corporation (IFC) – an institution member of the World Bank Group that Romania joined in 1991 – has supported the Romanian banking sector by investing in various Romanian banks, especially during the privatization process. I welcome the current involvement of the World Bank in projects that aim to improve the health and education sectors, to reduce poverty, as well as projects focused on climate issues. Lastly, I thank you for the invitation to take part in this event. I am honored to be here, celebrating 30 years of renewed partnership and cooperation between Romania and the World Bank. To the team in Bucharest Office of the World Bank – which I considered, during these 30 years, as being competent and dedicated, aligned with our endeavors – I extend my warmest congratulations. Happy anniversary! At the same time, I would like to take the opportunity to express my appreciation for the management and staff of the World Bank in Washington for their work in pursuing the Bank's mission to foster sustainable development and promote social prosperity around the world. Thank you for your attention! 2/2 BIS - Central bankers' speeches

Autonomous monetary policy: Autonomous monetary policy is a kind of “absorber” of economic shocks. It is meant to reduce their impact and smooth the economic cycle. It prevents an economic contraction being borne by the unemployed and those on low incomes more than is necessary. Domestic monetary policy does that via the Czech National Bank. Certainly, the more flexible is your economy (public finances, the labour market and so on), the easier it is to cope with shocks and the less monetary policy is needed. However, the case of the Eurozone shows how tricky it is when the absorber in the form of monetary policy is switched off and nothing replaces it. The shocks are bigger and hurt more. Listeners themselves can answer the question of whether the labour market and labour law are likely 1/4 BIS central bankers' speeches be made more or less flexible (and dismissals made easier) in the future. In doing so, they will answer the question of whether there will be a need in the future for more or less domestic monetary policy in the Czech Republic, a country whose conservative population is so averse to upswings and downswings. 3. The “convergence trilemma”: The standard “monetary trilemma”, which you know very well (a country cannot simultaneously have a fixed exchange rate, an open capital account and autonomous monetary policy), is accompanied in a converging economy of our kind with something I call the “convergence trilemma”.

Germany gained unification in exchange for the euro. The southern countries (Italy, France and Spain) gained the stability of the German mark because they were unable to create such a currency at home. And those who were tied to the German mark long before the euro was created (Austria and the Netherlands) simply remained bound to Frankfurt after the Eurozone was established, only the Bundesbank building was replaced all of a sudden by the ECB building. There’s no basic euro story like this in the Czech Republic. Why should we try to create one artificially? Our story is one of maintaining monetary stability across regimes and governments and of keeping the koruna as the name of our currency continuously since the time of Emperor Franz Joseph (his monetary reform established a new currency – the crown, or koruna – throughout the Austro-Hungarian Monarchy in 1892) regardless of totalitarianism and the horrors of the 20th century. Neither the Nazis, nor the Communists had any tendency to rename the currency and kept this old monarchist name despite otherwise changing basically everything, and for the worse. Our country – unlike the rest of the Central Europe – has never experienced hyperinflation in its modern history, and this monetary stability has always served the entrenched mentality of small Czech savers well. Domestic scepticism about the euro – that’s our authentic Czech story. 6.

We will be working with firms to make sure these expectations are clear, and will also ensure that the way in which the transitionals apply is transparent to 2 Full version of the speech "Milestones of preparation for Solvency II" BIS central bankers’ speeches 3 all market participants. This includes how transitional measures might apply to books of business that are subject to a Part VII transfer, and the frequency with which some of the transitional measures need to be re-calculated. The cap on the level of benefit firms can derive from the technical provisions transitional presents a practical challenge, given that it will require firms to be able to produce estimates of their solvency position on an ICAS basis for a period after the end of that regime. Clearly it would be unreasonable and unrealistic to expect ICAS models to be maintained and run once Solvency II has been implemented. Therefore we will be exploring with firms ways in which they might be able to satisfy the requirement to approximate ICAS solvency positions in a cost-effective and efficient way. Conclusion I will add a very quick word on the process of internal model approvals before summing up. I consider it vital that our approval process is entirely consistent across firms, and that the timing and communication of our decisions is consistent with orderly markets.

We are in a different place with insurance: we consider that the levels of capitalisation secured under the current regime are consistent with our objectives, and therefore, unlike in the banking case, we see a low risk to those objectives in allowing firms plenty of time to adapt to the new standard. European legislators foresaw this and therefore (very sensibly in my view) included within the Directive transitional measures which allow firms significant breathing space as they adapt to the new regime. As a safeguard, the benefit from the transitional deduction from technical provisions (TDTP) is capped to make sure financial resources cannot drop below those required under the current UK regime as a result of using the transitional. The practical expression of the stance I have just described is therefore that the Bank will allow full use of transitional measures by those firms that qualify to use them, and that the transitional asset created by the TDTP will qualify as Tier 1 capital. This is consistent with the approach being taken across Europe, and I was glad to see Gabriel Bernardino’s recent comments on this topic. He said: ‘‘It is also fundamental that market analysts and investors understand that Solvency II adjustments and transitional measures are a legitimate part of the regime.

To be sure, the Central Bank is assigned the task of containing inflation with particular acuity on behalf of the public and the authorities, and the Bank is required to wield the weapons in its arsenal whether people like it or not. The Bank attempts to carry out that task as well as it possibly can. In the service of that task, the Bank is granted more independence than are most government-owned institutions. One could ask why this is so. What makes it necessary? The explanation lies not least in the fact that the legislature – in Iceland as elsewhere – has realised that the battle against the disease called inflation could be lengthy and uncomfortable. As time passes, the treatment of the disease could generate unpleasant side effects, and it might be tempting to do away with those side effects in the vain hope that the illness will somehow cure itself. Indeed, we have heard this irresponsible notion expressed in various quarters recently. Anyone who has come down with a persistent illness is familiar with the physician’s demand that the patient complete the course of treatment prescribed to him. If he does not, he runs the risk that the bacteria attacking him will become resistant to the medicine best suited to fight them, with the result that the medicine will work poorly or not at all the next time it is needed. The tactic of last resort under such circumstances is to prescribe a much stronger dose, which inevitably produces much more dire side effects.

Banks should therefore maintain these surpluses in future, or should establish and increase them in line with their risk profile. As before, the SNB will regularly assess whether the countercyclical capital buffer needs to be adjusted due to mortgage and real estate market developments. If the momentum in these markets picks up again, additional measures to limit the affordability risk in mortgage lending should be taken into consideration. 2 BIS central bankers’ speeches

Sir Andrew Large: Financial stability oversight - past and present Speech by Sir Andrew Large, Deputy Governor of the Bank of England, at the London School of Economics, London, 22 January 2004. * 1. * * Introduction: Globalisation and the Financial World The financial system has been in the vanguard of globalisation of economic activities. The past 30 years or so have seen a transformation of the financial scene. Just as the financial world has become significantly more complex with an ever more inter-connected global network across firms and countries, so too has the challenge been transformed for those involved in financial stability oversight. That is my theme tonight. Much of what I am about to say may be familiar. But what I have tried to do tonight is to tie these subjects together - to provide a picture of the whole area we grapple with. So I may have exchanged some depth for breadth in the interest of getting home tonight. I would like first to consider what financial stability oversight is and why it is important. Then, what has changed in the financial market place and the challenges that this has brought. And finally the response of the public authorities to these challenges. 2. What is financial stability oversight? Unquestionably financial stability is a critical ingredient in a high performing market economy, although its definition has been an elusive subject of endless fascination to generations of commentators.

Real effort is needed to try to understand the dynamics of collective, and sometimes irrational behaviour of firms, their clients and counterparties - particularly behaviour that could lead to one-way markets. In a downward market they can be the scourge of stability and destroyer of liquidity. 3. Financial stability and public policy The business of oversight of, and possible intervention in, the financial system falls to public authorities. The justification for this involvement is accepted by all but the freest of free marketers. 1 Raymond Goldsmith, Comment on Hyman Minsky’s “The Financial Instability Hypothesis: Capital Processes and the Behaviour of the Economy” in C P Kindleberger and J-P Laffargue Eds, Financial Crises: Theory, History and Politics. Cambridge University Press (1982). BIS Review 5/2004 1 Financial stability can be looked on as a public good. And the costs to society of crises and instability can go well beyond the cost borne by players within the financial services arena itself. Not only is it important in providing an effective monetary transmission mechanism, but collapse and instability can lead to decline in aggregate demand and a rise in unemployment. Research suggests that the average cumulative output loss of a banking crisis in an emerging market economy is nearly 14% of GDP, and up to 25% in developed countries.2 The roles and aims of the public authorities - a combination of supervisors, central banks and government - embrace two interdependent fields.

The supply of labour was relatively ample in manufacturing and retail trade in this region. The construction industry, services and the local government and hospital sectors reported that there was a limited supply of engineers, project managers and nurses. In Helgeland, manufacturing and primary industries play a more important role than in region North. The public sector also plays a greater role than in the country as a whole, partly because public institutions such as the Brønnysund Register Centre, the National Library, the Norwegian National Collection Agency and the Norwegian Broadcasting Corporation's licence division are located there. Nordland is the largest producer of farmed fish in Norway. Over 126 000 tons were produced in 2005 according to Statistics Norway. Salmon accounted for the bulk of production. Salmon prices are high at present. Prices have fallen somewhat since June, but are still high, generating solid earnings in the industry. Employment is rising in the region and unemployment is at its lowest level observed for several years. The development of the Skarv Idun fields is expected to boost employment and activity ahead, either directly through new supply contracts for enterprises in the region or through onshore support facilities in connection with field development. Field development can also generate a positive spillover into services, construction and manufacturing. In Norway, inflation has edged up since the cyclical upturn started. The year-on-year rise in the consumer price index (CPI) was 2.2 per cent in July.

Reports from the regional network indicate that capacity utilisation is high in the construction industry and in manufacturing, particularly among suppliers to the petroleum industry. There were reports of shortages of engineers and project managers. Many of our contact enterprises in corporate services also reported increasing skills shortages. On the other hand, idle capacity is reported in retail trade and in household services. There are limitations to how much the supply of Norwegian labour can increase ahead. Labour participation rates are at a historically high level, particularly when taking into account demographic developments. Developments in the labour market are similar to the profile observed ahead of the period of accelerating wage and cost inflation that started in 1998. Several factors can explain why wage growth has been moderate so far during this cyclical utpurn. An increase in inward labour migration and the opportunities provided by an international labour market may have resulted in greater emphasis on the high wage level in Norway relative to our trading partners. Inward labour migration has also contributed to reducing bottlenecks in some industries. Developments in region North are fairly similar to the situation in the other regions of the country. Region North reported prospects of solid growth in most industries. Manufacturing, retail trade and the local government and hospital sectors expected moderate growth in investment. The service sector expected zero growth in investment. There were reports of moderate employment growth in all sectors, with the exception of the local government and hospital sectors where growth was unchanged.

The Riksbank monitors the financial sector with a systemic perspective. If we hadn’t realised it before, one clear lesson from the crisis of 2008–2009 was that monitoring individual institutions is not enough. We and other authorities around the world learnt that we have to keep our eyes on the connections between the banks and how they are affected, as a whole, by developments on the markets. Among other means, the Riksbank influences financial market participants through the analyses we make and the recommendations we issue in the Financial Stability Reports. Another important role for the Riksbank is being the country’s representative in several forums that set the standards for the financial sector, primarily the Basel Committee on Banking Supervision, the European Systemic Risk Board (ESRB) and the Committee on Payment and Settlement Systems (CPSS). At the same time, it is worth pointing out that, at present, the Riksbank does not have any sharper tools than words in the preventive work or macro-prudential supervision. We can warn and recommend, but when it comes to real measures, other authorities currently hold responsibility. It is a difficult task. Always raising a warning when everything seems to be going well seldom makes you popular. Financial stability policy is of great importance for Swedish households Preventing future crises is an important task – as is being able to manage them if they break out anyway. I hope that this speech has clarified why Swedish households are dependent on financial stability.

Ultimately, whether we transform and succeed will depend on our finance professionals taking ownership of their own professional development. IBF will continue to introduce new platforms to help our finance professionals do just this. IBF has recently launched the MySkills Portfolio. This is an online tool which can be a useful resource for individuals to plan and manage their learning. MySkills Portfolio allows individuals to track their training progress and receive programme recommendations based on their training goals. It also functions as a repository of training records. Most of all, IBF is about building a community. Today we celebrate our latest cohort of IBF Fellows and Distinguished Fellows. These individuals have contributed their time and expertise, not just on policy ideas, but also as speakers, trainers and mentors to our young finance professionals. All of you compete vigorously when it comes to business – and that is good. But together we have created something unique here in Singapore’s financial sector: a shared vision for building up our capabilities; working towards the greater good; looking out for one another and bringing people along. And we must bring our people along. This is what will help ensure that our financial sector grows from strength to strength; that we create good job opportunities for Singaporeans; that we build up skills and raise standards across the industry; and that all those who work in the industry enjoy the fruits of growth. Thank you once again for your strong support, and I wish everyone an enjoyable evening.

It’s not mission creep, it’s not a politicisation of our mandate, it is our core business and core duty. As regards the Eurosystem, in addition to our primary objective of price stability, it just happens that environmental protection is among our secondary objectives: but this is only an icing on the cake, if I may put it this way. So I would like to focus today on what I will call the macroeconomics of climate change. I will not spell out everything we do as supervisors: first disclosure of risks, climate stress tests at present and financial institutions’ transition plans tomorrow. I would instead like to talk about what is at least as important – modelling the economic effects of climate change – but Page 3 sur 8 about which we currently know less. I will first acknowledge a veil of uncertainty, before nevertheless establishing four firm convictions. A veil of uncertainty As we try to understand and figure out how climate change will shape macroeconomic changes, the “veil of uncertainty” is primarily due to future political decisions regarding climate change mitigation. For instance the initial level and evolution of a carbon price, or the amount of green investment and public subsidies will be particularly relevant. This is why we are currently working on several scenarios, both over short and longer term.

This quadrant [slide 4] shows four categories of possible shocks linked to the transition. They can have a positive versus negative impact on supply, and a positive versus negative impact on demand respectively. They are not mutually exclusive, and may combine or succeed one another. Their stand-alone probability is hard to assess at this stage, but there are reasons to believe that the upper-left one (the negative supply shock) is slightly more probable than the Page 5 sur 8 others. However, given the large range of shocks, their sources and macroeconomic effects – which could include a positive scenario of large green private capex v – [slide 5], we must continue our modelling, in line with our first commitment in relation to the ECB’s climate agenda: we committed in July 2022 to “assess the macroeconomic impact of climate change and mitigation policies on inflation and the real economy”. vi But being uncertain about the combined macroeconomic effects does not mean being passive or inert on action now. What we can already derive from these scenarios is a set of four firm convictions and prescriptions. 1. A shock that is global and certain >>> an orderly transition - First, climate transition entails structural changes to the global economy that are both universal and certain, with an overall and possibly negative supply shock that will generate frictions and costs in terms of the necessary reallocation of production factors.

In addition, the current repo rate of 3.75 per cent is comparatively low, not least when one considers that inflation is around 3 per cent. The next question is how much importance should be accorded to each of the various factors and which side of the balance carries most weight. As regards the excessively high inflation at present, we have tried to analyse whether there are grounds for supposing that it stems from the Swedish economy having been more “overheated” during the recent upswing than we counted on earlier. The preliminary conclusion I believe can be drawn is that the explanation does not lie there. Most things suggest that inflation ought to fall back next spring as the transitory factors that pushed prices up drop out of the change figures. An alternative approach to whether the high inflation is temporary or more permanent involves looking at the development of by far the most important component of costs, namely wages. In that wage agreements have been completed, it is possible to arrive at a comparatively firm picture of how wages are developing, at least during this year and next. With reasonable assumptions about productivity, most things suggest that unit labour costs should be in line with the inflation target. This presupposes that the registered increase in inflation expectations, above all among labour market organisations, does not show up in wage increases; if that were to happen it would be very unfortunate and face monetary policy with new challenges.

New products, market practices, and especially technologies are going to emerge; some of these might create new risks that were unforeseen when the post-crisis reforms were developed. As unintended consequences come to light and new risks emerge regulators may need to make changes to regulation over time, what I am going to refer to as ‘dynamic adjustments’. Being open to making such adjustments does not mean undermining the objectives behind the post-crisis regulatory framework or changing the level of resilience in the banking system regulations are aiming for. On the contrary, it is by making dynamic adjustments that we can ensure the regulatory framework continues to deliver on the reforms’ objectives and ensures that the resilience that policy makers injected into the system post-crisis endures. To ensure this is the case we will need to follow a set of principles to guide us towards when it is appropriate to make dynamic adjustments. Principles for making dynamic adjustments What might these principles look like? Here are my current thoughts. Principle 1: decisions about dynamic adjustments should be made with reference to the objectives of the original regulation and/or of regulators. For the Bank, prudential regulation is relevant to a number of our primary and secondary objectives: most obviously the PRA’s microprudential objectives and the FPC’s macroprudential objectives, but also the MPC’s monetary policy objectives given the role banks play in the monetary transmission mechanism. 9 All speeches are available online at www.bankofengland.co.uk/speeches 9 Principle 2: decisions about dynamic adjustments should be evidence-led.

Although synchronised movements in bond rates is unsurprising given the high degree of substitutability between relatively safe sovereign bonds, synchronisation at the short end of the yield curve is not warranted if cyclical positions differ. Such concerns prompted the Monetary Policy Committee of the Bank of England and the Governing Council of the European Central Bank to push back against the recent upward movements in the short end of the yield curve in our respective policy statements in July. The MPC took this further at our latest meeting by offering explicit forward guidance on the future path of policy rates and asset purchases. The guidance is similar to that already adopted by the Federal Open Market Committee, but differing in details that reflect the different position of the UK economy. In particular, we signalled our intention not to countenance tightening policy until unemployment has fallen to at least 7%. In addition, while our guidance is subject to two price stability overrides similar to those of the Fed relating to internal and external BIS central bankers’ speeches 3 measures of inflation expectations, we have also added a financial stability override determined by our Financial Policy Committee. This guidance is intended primarily to clarify our reaction function and thus make policy more effective, rather than to inject additional stimulus by pre-committing to a time-inconsistent “lower for longer” policy path in the manner of Woodford (2012).

Many member countries of the International Monetary Fund have adopted such a code in the form of signing for following the principles of outlined in a general data dissemination system and, at a more stringent level, a special data dissemination system. The Central Bank of Sri Lanka is a signatory to the IMF’s General Data Dissemination System. The final message In summary, if statisticians are desirous of supporting economic development, they should necessarily produce and supply statistics to meet the requirements of the market. It is essential that they produce such statistics as a readily usable product that could be sold in the market at a price. It is now time in Sri Lanka for the private statistics-producers to enter the vast market of information. The universities in this sense are in an advantageous position, because they have the best human talents with them. It is unfortunate that they sit idly on this vast wealth of resources. It is time that universities in Sri Lanka reorient themselves to gain advantage from the market resources and become financially self supporting. In addition, the universities should train their statistics students to become entrepreneurs of statistics rather than becoming employees of agencies that may plan to hire statisticians. BIS Review 36/2009 3

Access to Markets Third, Southeast Asian economies need to boost external demand by strengthening their access to the major developed markets. In the short term, there is little we can do about the cyclical downturn. But for the longer term, favourable and assured access to key trading partners will allow Southeast Asian countries to maximise benefits from free trade and globalisation, and make themselves more attractive to investors. One basic approach is to promote multilateral trade, and contribute to a successful outcome of the Doha Development Agenda of the World Trade Organisation (WTO). But we need to complement the multilateral approach with bilateral Free Trade Agreements (FTAs) with our key trading partners. This is why Singapore is actively pursuing an FTA strategy. We have concluded FTAs with New Zealand, Japan, and the European Free Trade Area (EFTA), and hope to conclude agreements with the US and Australia very soon. Singapore’s aim is not just to boost our own trade links with our FTA partners, but also to catalyse broader economic engagement between ASEAN and its trading partners. This is indeed happening. After New Zealand concluded its FTA with Singapore, Australia and New Zealand proposed starting a Closer Economic Partnership Agreement with ASEAN. Last year, ASEAN and China agreed to set up an ASEAN-China FTA within 10 years. Weeks later, Prime Minister Koizumi of Japan proposed a Japan-ASEAN Comprehensive Economic Partnership, to be modelled on the Japan-Singapore bilateral agreement.

We need to imbue our young with entrepreneurial instincts and attitudes, through their school education and life experiences. At the same time, the government should cut red tape, create more economic space for private enterprise, nurture high-potential local enterprises and develop a culture tolerant of risk-taking, experimentation and honest failure. A self-renewing, self-sustaining entrepreneurial culture will not emerge overnight, but we are making some headway. Ten Singapore companies made it to this year’s list of Forbes’ Global 200 companies with revenues under $ billion. This ranks among the largest number of companies for any country. A third area of focus is the development of our human capital, both local and foreign. Singaporeans rank highly in technical skills, and our students often top international mathematics and science competitions. But we need to improve our soft skills, such as people skills, management skills, communications skills, as well as cultural and artistic skills. We will also continue to welcome foreign talent to work, live and play here, to add to our talent pool. Fourth, we need to identify, nurture and promote new areas of growth in both manufacturing and services, the two complementary engines of our economy. The continuing emergence of lower-cost locations spurs us to constantly review and refresh our manufacturing value proposition, be it in refining our division of labour, exploiting economies of scale through shared facilities, or undertaking more innovation and R&D work.

And arguably, since the crisis, that relationship has become more important to our understanding of inflationary pressure in the economy. Before the crisis the supply side of the economy posed far fewer puzzles. Productivity grew at a relatively steady rate around 2% a year and we had, or thought we had, a relatively clear idea of labour supply. The MPC certainly did not need to give as much attention to the evolution of the supply side of the economy as its present day counterpart. That is not just my recollection as the Treasury representative on the Committee from 2002 to 2007. It is borne out by the minutes – the rate of mentions of ‘supply’ and ‘productivity’ in the minutes of MPC meetings in the past decade has been about twice that in the decade prior to the crisis. As my colleague, Ben Broadbent has pointed out, pre-crisis the MPC could navigate primarily by demand and output. Changes in unemployment lagged changes in demand and output and, in the UK at least, the relationship between pay and unemployment appeared relatively stable. 5 The post-crisis uncertainty over productivity and the dependence of economic growth on labour supply has, as Ben suggests, led the MPC to depend more on the labour market as a guide to spare capacity in the economy and on the relationship between pay and unemployment as a guide to domestically generated inflationary pressure in the pipeline.

1-17 Haldane, Andrew G. (2017) ‘Work, Wages and Monetary Policy’ speech given at the National Science and Media Museum, Bradford IMF (2013) ‘The dog that didn’t bark: has inflation been muzzled or was it just sleeping?’ April World Economic Outlook, Chapter 3 Mishkin, Frederic (2007) ‘Inflation Dynamics’ NBER working paper 13147 Nagel, S and Malmendier, U (2011) 'Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?’ Quarterly Journal of Economics, Vol126(1), pp373-416 Phillips, A W (1958) ‘The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861–1957’ Economica, Vol. 25, No. 100, p. 283–99 Pizzinelli, Carlo and Bradley Speigner (2017) ‘Matching Efficiency and Labour Market Heterogeneity in the United Kingdom’ Bank of England Working Paper No. 667 Saunders, Michael (2017) ‘The Labour Market’ speech given at the Resolution Foundation, London Stiglitz, Joseph (1997) 'Reflections on the natural rate hypothesis' Journal of Economic Perspectives, 11, 3–10 Yellen, Janet (2017) ‘Inflation, Uncertainty and Monetary Policy’ Speech at the "Prospects for Growth: Reassessing the Fundamentals" 59th Annual Meeting of the National Association for Business Economics, Cleveland, Ohio 18 All speeches are available online at www.bankofengland.co.uk/speeches 18

Therefore, with respect to member supervision, MAS will redefine the scope of regulatory responsibilities between MAS and exchanges so that overlaps faced by intermediaries who are members of different exchanges, and at the same time regulated by MAS, are minimised. To elaborate, exchanges typically supervise intermediaries to ensure that they comply with the exchange rules, uphold high standards of market integrity and are financially sound. MAS, on the other hand, supervise intermediaries for compliance with MAS’ statutory licensing requirements pertaining to systemic and conduct risks. 23. In practice, exchange rules can and do overlap with the statutory requirements under the Securities and Future Act. The regular dialogue and co-ordination between MAS and SGX have allowed us to manage inspection visits in a way that reduces the burden on intermediaries who are both licensed by MAS and are members of SGX. 24. However, this will become more challenging when more than one exchange operates in Singapore. For example, an intermediary that is licensed by MAS, can also be a member of both SGX and ICE Futures; it should not have to undergo three separate inspections a year, especially if a number of areas are duplicative. 25. In the US which has many more exchanges, they have either set up a separate industry SRO to undertake member supervision in the case of the securities market or relied on an exchange to play a “lead SRO” role in the futures market. 26.

There was, moreover, no departure from the Bank’s prudent approach to reserve management and the reserves remained well above the minimum statutory level. This was the case even during periods of rising international oil prices, which inflated the import bill, and in 2007 when the public started to convert Maltese lira holdings into euro and to hold on to euro earnings in anticipation of the change to the euro. Another favourable element during the ERM II phase was the comfortable surplus position on the capital and financial account, which more than offset the current account deficit. A combination of substantial inflows of FDI and inward portfolio investment flows provided strong support to the Maltese lira. The Central Bank of Malta’s credibility - based on its track record in delivering exchange rate and price stability - as well as the small size of Malta’s financial market probably also helped to ward off any unwanted attention. The absence of volatile short-term capital flows into and out of the country during this period supports this impression. Finally, Malta’s experience points to the importance of a shared vision between the government and the central bank on policy objectives, as well as of a holistic approach to achieving them. In this regard, the continued acceptance by economic operators of the need to support the fixed exchange regime facilitated the authorities’ task in imposing the fiscal and monetary discipline necessary to meet the nominal convergence criteria.

Looking ahead, this boost to public finances is likely to be reversed when 4/8 BIS - Central bankers' speeches inflation comes down, at which point deficits will creep up again. This is something that politicians should keep in mind as they plan their government's spending and taxes for the years ahead. The monetary policy response Times are clearly challenging for central banks. It is difficult for monetary policy to address supply-side shocks that are both inflationary and recessionary at the same time. If such shocks do not last for long, it might be appropriate to wait and see whether inflationary pressures will recede by themselves without any additional strain being put on the economy by higher interest rates. This was not the case this time however, and central banks were not able to just wait and let inflation spread through the economy. Because once the inflationary mind-set has taken hold, it is very difficult to change. Businesses and consumers must have confidence that central banks are determined to bring inflation down to its target, even if they cannot do it overnight. Before I discuss the latest monetary policy decisions of the Governing Council of the ECB, let me take a brief detour into not-so-distant history. Late in autumn of 2021, we were quite confident in the Governing Council that most of the supply-side inflation pressures caused by the pandemic would fade by the coming spring.

Ben Broadbent: The economics of deflation Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, at Imperial College Business School, London, 27 March 2015. * * * The CPI in February this year was no higher than in February 2014. This is the first time the UK has failed to record positive annual inflation for over 50 years. Inflation was briefly negative in late 1959 and early 1960. Before then, you have to go back to the early 1930s, and the agonies of the Great Depression, to find a period when UK consumer prices fell over a sustained period (Chart 1 plots three-year rolling averages of inflation). Because of the depth of the economic downturn at that time, and the more recent stagnation of Japan, the weakness of price inflation today has raised fears in some quarters about the risks of sustained deflation in this country. The MPC’s objective is not simply to prevent prices from falling: it is to ensure they rise at the target rate of 2% a year. Because of the attention it’s been getting, however, I’m going to focus today on negative inflation specifically. I’ll divide the substance of my remarks in two. One part will discuss the basic economics – how and why it matters if prices decline over a protracted period – the other, the frequency and implications of deflation in the historical data. Chart 1 Deflation last seen in 1930s Source: ONS and Hills,Thomas, Dimsdale (2010).

In my few months so far as General Counsel at the New York Fed, I am increasingly mindful of the value of cognitive diversity and inclusiveness within the Bank’s Legal Group. Former prosecutors may view an enforcement matter differently than former defense lawyers. A regulatory lawyer who studied economics might not have the same insight as a lawyer whose background is in political science. A compliance officer may spot a problem in our policy that a regulatory lawyer would not have considered. Managers—myself included—whose tenure at the Bank spans decades, may not see shortcomings in communication or organization that are glaring to newer arrivals. When different views are brought to the table, risks are better understood and better decisions get made. As you progress in your careers, I encourage you to seek out other views. One way to do this is to expand your professional network to lawyers in other countries. We are likely to face similar problems and it can be enlightening, as my meetings this week in Beijing have been, to learn from each other about possible solutions. Conclusion The circumstances of modern corporate practice demand increased attention to risk and professionals mindful of managing risk with a view to promoting broader organizational and public purposes. Whether or not you practice law, the virtues of issue spotting, listening to your clients, and speaking up will serve you well in your professional careers. They are invaluable tools for the task of risk management—a shared task of corporate officers, and one that extends beyond professional bailiwicks.

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And at times of heady growth, this entails very bad press and is difficult for the bank to assume, particularly if the competition is lax in its lending standards. Naturally, it is tempting to imitate the competition when a strategy produces short-term profit. Those banks that decide not to follow this path will undergo pressure from the market and shareholders to imitate their rivals and boost those business areas that are proving profitable at that time. Risk culture plays a crucial role in being able to withstand such pressure. 6/13 Let us not forget that runaway credit growth and the subsequent build-up of structural imbalances on the balance sheet do not produce evident negative effects during an upturn. On the contrary. Such growth enables banks to increase their profitability, entailing a false sense of security and of good times that – mistakenly – warrants growing risk-taking. Even the supervisor itself may succumb to this false sense of security. However, this strategy is heading for disaster if there is a change in cycle. The scale of potential losses will be directly proportionate to the volume of lending irresponsibly granted. Both supervisors and banks must be fully aware of the road ahead in this situation, looking always to the long term. As I said earlier, supervisors and supervisees have an interest in common: for banks to continue servicing their customers in the future.

And it introduces a cooperative approach to CCP supervision, involving all relevant supervisors and central banks in “supervisory colleges” to ensure that CCPs are properly overseen across Member States. The global regulatory push towards central clearing has contributed to making CCPs extremely important parts of the global financial system. In 2009, just 40% of all interest rate derivatives contracts were cleared through CCPs, but by 2017 this had increased to 83%1. New developments and current challenges The rising importance of CCPs means that their supervisory framework needs to be reformed. Most clearing is now done across borders and is strongly concentrated in a limited number of EU CCPs, which have become systemically important for the EU as a whole. Two of these CCPs are based in the United Kingdom. Currently, they clear around 95% of eurodenominated interest rate derivatives and around 30% of euro-denominated repos. Thus, a significant disturbance involving a major UK CCP could affect financial stability and market functioning across the EU. On top of this, most of the liquidity provided by central banks tends to be channelled through the repo market. The United Kingdom’s withdrawal from the EU means the supervisory framework for non-EU countries must be adapted. EU authorities must continue to be able to not only closely monitor UK CCPs but ensure they comply with EU regulations.

Why are downturns after financial crises more likely to result in a prolonged period of weak activity and elevated unemployment – a slump, in other words? There are, I believe, two main reasons. The first is the unduly sharp and sustained decline in confidence. Over-confidence and underestimation of risks during the pre-crisis boom gives way to extreme caution and a preference for safe, rather than risky, assets – a shock to “animal spirits”, if you like. When investment is costly to reverse, that is likely to result in a sharp reduction in capital expenditure (e.g. Dixit and Pindyck, 1994). Similar arguments apply to durable expenditures by consumers. The near-seizure of the international financial system after the collapse of Lehman Brothers administered a particularly large adverse shock to animal spirits. Although that event is gradually receding into the past, it has been superseded by uncertainty surrounding the ability of the euro area to resolve the indebtedness and competitiveness problems of the periphery. Substantial policy steps have been taken since the summer, including the launch of the European Stability Mechanism, steps to set up a banking union, and the ECB’s announcement of its willingness to purchase the short-dated debt of troubled sovereigns. But it will be a long time before a resolution is complete and the consequent uncertainty is likely to weigh on demand for some time yet.

Zeti Akhtar Aziz: Unlocking finance, expanding impact Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Responsible Finance Summit “Unlocking Finance, Expanding Impact”, Sasana Kijang, Kuala Lumpur, 30 March 2016. * * * It is my distinct honour and pleasure to welcome you to Malaysia and to this Responsible Finance Summit for 2016, with the theme "Unlocking Finance, Expanding Impact". The theme gives strong recognition to the essential role of finance in driving sustainable development and growth in the world today. It is now almost a decade since the eruption of the global financial crisis. Despite the challenges, much progress has been made to forge a vision for a stronger post-crisis world. Whilst having to strike a balance between pursuing financial stability and the potential increased costs to financial intermediation, efforts have been made through the global financial reforms towards more sustainable financial systems. This includes the recalibration of financial regulations to curb tendencies for excessive leveraging, strengthened regulatory and supervisory systems that are forward looking and responsive to risk, as well as provisioning standards that reduce procyclicality and that restrain the build-up of risks. In addition, advancing consumer protection, furthering financial education and literacy as well as improving access to financial services have remained important long-term items on the agenda. In tandem with these efforts to strengthen financial stability, the role of finance is also being re-examined to enhance its positive impact.

Speech Embargo 26 September 2016, 11:30 am Financial market infrastructures: Walking the line between stability and innovation Sibos 2016 Thomas J. Jordan Chairman of the Governing Board, Swiss National Bank * Geneva, 26 September 2016 © Swiss National Bank, Zurich, 2016 ∗ The speaker would like to thank Giuseppe D’Alelio and Andreas Wehrli for their valuable support in preparing this speech. He also thanks Simone Auer, Petra Gerlach, Sébastien Kraenzlin and SNB Language Services for their assistance. Page 1/6 Introduction I am delighted to open Sibos 2016 and welcome you all warmly to Geneva. Sibos is the annual gathering for financial market service providers. This sector, which is responsible for nothing less than the backbone of the financial system, is currently experiencing a surge of innovation. It is therefore a great honour for Switzerland to be hosting this important conference at this time of transformational change. Around the world, Switzerland is often seen as a haven of stability and continuity. The highly international Swiss financial sector benefits from the exceptional stability of our country’s political and legal structures. At the same time, Switzerland manages to be innovative; it is regularly among the top performers in global innovation rankings. 1 The Swiss financial industry plays an important role here. You will not find the ‘Crypto Valley’ on any map, but a financial technology (fintech) cluster going by this name has sprung up in the Canton of Zug.

Recent developments in the SIC system Amid all these longer-term visions, we should be careful not to overlook changes that are just around the corner – or indeed, have already been introduced. So let me return to the present and talk about developments in cashless payment transactions that are already having a tangible effect on central banks around the world. For obvious reasons, my remarks will be based on the situation in Switzerland. As I have already mentioned, one of the SNB’s statutory mandates is to facilitate and secure the operation of cashless payment systems. One of the key ways in which we perform this duty is through our strategic guidance of the SIC payment system. This includes approving technical changes to the system and the rules of conduct for system participants, fixing operating hours and rates, and deciding who is granted access to the SIC system. At the same time, the SIC system is operated not by us, but by SIX Interbank Clearing; system participants are involved in the decision-making process and therefore play a direct part. This configuration makes SIC a market solution. Another feature is that the SIC system is used to settle not only interbank payments, but also a large proportion of retail payments. 8 By virtue of its role in SIC, the SNB has a substantial influence on retail payments in Swiss francs and is, in turn, also impacted by dynamic forces at work in this area.

This was a commercial dispute between AIA and policyholders, which had to be resolved bilaterally between them, whether through negotiations, industry-based dispute resolution mechanisms or the courts as a last resort. MAS could not intervene. But MAS had a responsibility to ensure that policyholders had full information of what AIA was offering them, what this was worth, and what other alternatives they had. MAS also had a strong interest in seeing IDRO, the industry based dispute resolution mechanism, work. Thus what MAS did was to ensure that information was disseminated promptly, accurately and adequately, so that policyholders could make a considered decision. We issued a policyholders’ guide to help affected policyholders understand their own policies and the options available to them. AIA was asked to issue a public statement to explain fully and clearly its support package and adjudication process. MAS also made it clear to the industry that if any dispute arose over the jurisdiction or authority of IDRO, it would have had to contemplate introducing statutory and regulatory mechanisms for dispute resolution. Full disclosure and working dispute resolution mechanisms are preconditions for a disclosure-based regime and self-reliance to work. The AIA dispute simmered for many months. Eventually AIA responded to the concerns of policyholders, including those raised by CASE on their behalf, by revising and substantially improving its offer. As this offer addressed many of the earlier concerns, MAS welcomed it publicly.

Anita Angelovska Bezoska: Journalists are one of the main transmitters of monetary policy messages Address by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of Macedonia, at the Journalist Workshop - 2018, organized by the National Bank of the Republic of Macedonia, Skopje, 25 December 2018. * * * Distinguished media representatives, Welcome to the fourth Journalist Workshop hosted by the NBRM. I am glad to see you in greater numbers this year, which is confirmation of your interest in the topics that will be the focus of today’s event. Allow me to take a brief look at several basic, yet important aspects of central bank communication: 1. Why is central bank transparency and communication important and needed? 2. How has central bank communication evolved over the years? What were the challenges in the period after the outbreak of the global crisis and how were they addressed globally? 3. Challenges in central bank communication in the Republic of Macedonia. A comparison between the current and the past transparency level and central bank communication shows an exceptional transformation in this segment. The need for strengthening central bank transparency was brought to the fore for the first time in the 1990s, implying enhanced communication with the public, including the media. This change is associated with the concept of central bank independence, or the independence of the monetary policy from fiscal policy.

As a result, dealers were, it is true, able to carry high levels of inventory and to accommodate easily shifts in the demand for market-making. But they were also vulnerable to falls in asset prices and tightening in wholesale markets conditions. When faced with severe stress, they were forced to withdraw from market-making altogether. In short, when conditions became really testing, market liquidity, like bank capital, proved to be an illusion. With regulation tighter, it may well be harder for market-makers to absorb inventory when end investors wish to off-load assets; market liquidity may start to fall away at an earlier point. The risk of another complete failure of market liquidity should be much reduced. But market participants will not always be able to sell what they want, where they want and when they want. BIS central bankers’ speeches 5 Investors need to recognize this change in market structure and adjust accordingly. In this respect it is perhaps worth observing that it is currently quite puzzling that, when market participants seem to be worried about market liquidity and the impact of regulation on market making, liquidity risk premia seem to be so compressed. It does raise questions over whether liquidity risks have been properly priced. Central bankers are, of course, supposed to worry about new risks. But I would not want to leave you with the impression that nothing has improved in the financial stability world.

Gent Sejko: Address at the “Neither old nor new, I am simply Lek!” awareness campaign launch Address by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of awareness campaign: “Neither old nor new, I am simply Lek!”, 17 November 2021. * * * Honourable Professor Civici, Honourable Dr. Treska, Dear participants, colleagues, and media representatives, I have the pleasure to welcome you in this very important day for the Bank of Albania on the occasion of launching the awareness campaign: “Neither old nor new, I am simply Lek!”. This new initiative of our institution in the field of financial education is part of a broad corpus of programmes and projects in the framework of comprehending and taking care of the national currency and banknote. It is the materialisation of the Bank of Albania’s efforts to fulfil the recommendations of the Albanian Parliament embodied in the resolution on the assessment of our institution activity, for eliminating the use of outdated terms “new lek” -“old lek”. We are conscious, that unfortunately, this happens perpetually, not only in day-to-day communication amid citizen, also in their economic and financial interactions, thus becoming either intentionally or not a source of misunderstandings. Before presenting this campaign, allow me to briefly address this phenomenon on the historical perspective, how it has arisen.

I do not derive much comfort from these statements because in most cases operating systems and the software applications running on them count internally with a conventional date system that may not be Y2K-compliant. These systems typically also need to connect and interact with other systems that use conventional dates, so these interfaces must be tested for Y2K-compliance. More broadly, mere assertions that computer applications are unaffected cannot be seen as a substitute for the rigorous 1 See Testimony of Governor Edward W. Kelley, Jr. Before the Committee on Commerce, Science, and Transportation, U.S. Senate. April 28, 1998. BIS Review 56/1998 -2- assessment, remediation, and testing efforts that should be undertaken by financial market participants worldwide. The increasing extent of cross-border, financial-market activity has been much remarked on in recent years. Perhaps less well known is the fact that this activity is dependent on a large, geographically diverse, and highly computer-intensive global infrastructure for each of the key phases of this activity -- from trade execution through to payment and settlement. As an example, consider the daily financial market activities of a hypothetical US-based mutual fund holding stocks and bonds in a number of foreign jurisdictions. Such a mutual fund would likely execute trades via relationships with a set of securities dealers, who themselves might make use of other securities brokers and dealers, including some outside the United States. The operational integrity of the major securities dealers in each national securities market is critical to the smooth functioning of those markets.

", Economic Commentaries No 2 2021, Sveriges Riksbank ECB (2022), ”Convergence report”, European Central Bank 2022 Erikson, Henrik (2021), ”Central bank bond purchases and premiums – the Swedish experience”, Staff memo December 2021, Sveriges Riksbank Erikson, Henrik and David Vestin (2021), “Pass-through of negative policy rates”, Economic Commentaries No. 9 2021, Sveriges Riksbank Flodén, Martin (2016), ”The Riksbank’s bond purchases affect government finances”, speech 9 November 2016, Sveriges Riksbank Flodén, Martin (2018), ”The Riksbank's balance sheet: How large should it be in the future?”, speech 13 April 2018, Sveriges Riksbank Gustafsson, Peter and Tommy von Brömsen (2021), “Coronavirus pandemic:The Riksbank's measures and financial developments during spring and summer 2020”, Economic Review 2021:1, Sveriges Riksbank Kjellberg, David and M. Åhl (2022), “The Riksbank’s financial result and capital are affected by higher interest rates”, Economic Commentaries, no. 8 2022, Sveriges Riksbank Krishnamurthy, Arvind and Annette Vissing-Jorgensen (2011), "The effects of quantitative easing on interest rates: channels and implications for policy", Brookings Papers on Economic Activity, Fall 2011 Levin, Andrew, Brian Lu and William Nelson (2022), ”Quantifying the costs and benefits of quantitative easing”, manuscript, Hoover Institution Nordström, Amanda and Anders Vredin (2022), ”Does central bank equity matter for monetary policy? (2022)", Staff memo December 2022, Sveriges Riksbank Riksbank (2014), “Financial Stability Report 2014:2”, Sveriges Riksbank Riksbank (2015), ”Minutes of the monetary policy meeting in February 2015”, Sveriges Riksbank Riksbank (2016), “Repo rate cut to -0.50 per cent”, Press release 11 February 2016, Sveriges Riksbank.

2 BIS central bankers’ speeches Several factors suggest that these developments are not purely cyclical. On the demand side, estimates by the ECB, as well as the IMF and the European Commission, suggest that – with the exception of Greece – the majority of current account adjustment in deficit countries has been “non-cyclical”.3 “Non-cyclical”, however, does not mean “structural”. What it means is simply that, though falling demand did depress imports during the crisis, potential growth has fallen as well. Thus, when the output gap closes, current account positions should not substantially worsen. “Non-cyclical”, however, does not mean “structural”. What it means is simply that, though falling demand did depress imports during the crisis, potential growth has fallen as well. Thus, when the output gap closes, current account positions should not substantially worsen. On the supply side, there is also evidence of structural shifts in deficit countries that should help sustain their export performance. Cost competitiveness – measured in terms of real effective exchange rates deflated by unit labour costs (ULCs) – has improved strongly since the start of the crisis. In most cases real effective exchange rates now stand close to 1999 levels or even below. That suggests much of the pre-crisis “excesses” have been reversed. To give some examples, in Ireland the improvement in cost competitiveness from peak to trough is close to 50 percentage points. In Greece and Latvia the figure is around 30 percentage points.

Emerging market economies in Asia, Europe and Latin America have accounted for an increasing share of global output. Several hundred million people have been lifted out of poverty. So what went wrong? Or in the words of Rimbereid: “And the cause of the depression? Theories conflict, as if surrounding a virus not yet discovered. Was it due to the far too unrestricted life of share trading? Or was it because the hand of the state constantly interfered with its unnatural contagion? Or did the virus worm its way into the calculating machine itself?” 4 4 6 Øyvind Rimbereid (2008): Herbarium, p.56. (Unofficial translation by Norges Bank’s translators). BIS Review 16/2009 Substantial trade imbalances developed between industrialised countries, particularly the US, on the one hand and emerging market economies, particularly China, on the other. This is partly due to government budget deficits and low private saving in the US since the 1990s, and partly due to export-led growth in China, particularly over the past few years, combined with strong competitiveness and a managed exchange rate. In short, rich countries borrowed and developing countries saved. The imbalances grew when oil and other commodity prices rose markedly. Financial market participants found it too difficult to channel capital. Longterm interest rates were too low, the search for yield too aggressive and compensation for risk-taking too meagre. With long-term loans in ample supply, demand for residential and other property became excessive in almost the entire western world.

At the same time, the long-standing challenges to promote access to basic financial services and improve financial literacy of the people at large remain our priorities. For this reason, we need to redouble our efforts to enhance our banking, finance and technological know-how. We also need to make sure that a wealth of knowledge and experiences is effectively shared among members of the CLMVT. BIS central bankers’ speeches 3 The last one is to leverage on specialized financial services that some of our members are ready to offer. For Thailand, progress has been made to create financial ecosystem to meet growing regional demand for specialized financial services. In the capital market, Thailand allows entities from CLMV countries to raise funds from the Thai capital market with the introduction of more accommodative rules on capital account and taxation. Since 2013, the Lao government and firms from Lao PDR have issued baht-denominated bonds, worth 28 billion baht in total, to support large-scale infrastructure projects. In addition, the Bank of Thailand supports multinational corporations operating in the region to establish regional treasury centers in Thailand. As of now, there are 13 companies holding Treasury Center licenses, of which 4 have been granted in the past 3 months. Ladies and Gentlemen, The work to develop domestic financial sectors and strengthen financial connectivity will always be a work in progress. The Bank of Thailand is committed to working with our counterparts in CLMV countries to develop the financial industry and enhance regional financial integration.

The higher productivity growth is instead due to an unusually large rise in total factor productivity, which is usually ascribed to technological and organisational improvements. Historically, the broader impact of technological changes has lagged since it takes time to adapt an organisation and technology to each other in order to fully take advantage of the innovations. It is therefore possible that the large-scale investment in ICT at the end of the 1990s is only now beginning to make a clear impact in the form of organisational improvements, cost cutting and higher productivity growth. In addition, ICT developments have led, by enabling more efficient production in networks and at a distance, to new sectors in the service industries being opened to trade and international competition. Another important factor in this process is the increasingly strong interaction between ICT, trade and product markets, which enables outsourcing of labour-intensive stages of goods and services production to low-wage countries. 3. Globalisation and the structural changes in the world economy The access to new information technology is thus one of the conditions for the new trade and production patterns that are emerging.

Regulators must be prepared to take early and decisive corrective actions to forestall a build-up of risks in individual banks and the banking system as a whole. BIS central bankers’ speeches 1 Further, contagion amongst banks is a fact of life. Financial systems can be severely stressed by their weakest points, even if it involves a single bank or a group of small banks. The Northern Rock episode in the UK was an example in the earlier phase of this crisis. The Spanish cajas or regional savings banks are now another. The largest Spanish banks are widely acknowledged to be well capitalised, to have lower exposure to the property sector and to have well diversified earnings internationally. But until the troubles in the cajas are resolved, even sound Spanish banks are being penalised by higher funding costs, and citizens and tax payers too are exposed. Confidence is therefore about banking systems, not just about individual banks. This is all the more why regulators have to be vigilant in spotting weaknesses and requiring corrective actions, both across a system and in individual banks. The weakest point matters. International regulatory reforms The global financial crisis has prompted a major review of international regulatory standards. We have achieved much, with the new rules developed through the Basel Committee on Banking Supervision and the Financial Stability Board – new rules on the quantity and quality of capital and liquidity and the ongoing work to strengthen cross-border supervision and resolution frameworks for global banks.

The offensive component of a comprehensive Swiss strategy must be an unequivocal commitment from politicians, regulators and financial sector representatives to competition and free markets. Such a commitment will foster innovation which will ensure the long-term viability of Switzerland as a leading global financial center. A commitment to competition includes a firm commitment to an effective regulatory system based on transparency, proportionality, predictability and an uncompromising fight against abuse. Such a regulatory framework does not stand in opposition to a commitment to free markets. To the contrary, it strengthens free markets by upholding the integrity of markets. Regulatory authorities must not loose sight of the primary aim of regulation: to uphold the integrity of markets and not to impede the functioning of markets. Let me conclude my brief formal comments with a specific example of how innovation in the face of global competitive pressures can foster the viability of the Swiss financial center. In recent years, hedge funds have become an important segment of the global asset management industry. Recent figures indicate that total assets invested in hedge funds are approaching the USD 1’000 billion mark. In comparison, the total size of the open-end mutual funds industry in the United States is USD 7’500 billion. According to industry figures, the annual growth rate of the hedge fund industry appears to have accelerated to a level in excess of 15% in recent years. These figures suggest that investors increasingly look for largely unconstrained investment activities with a focus on absolute return.

The underlying picture now appears to be one of gently rising household spending. This is being supported by highly accommodative credit conditions and now-positive growth in inflation-adjusted wages. And then, of course, there is the World Cup. Without wishing to tempt fate, England’s recent sporting success on the football field (and cricket pitch) has probably added to that feel-good factor among Englandsupporting consumers. The “smile count” on my recent visits to Wales and Scotland was also as high as I can remember, although I suspect that may have been the weather rather than the football. Of course, there are always some data – and, indeed, some football teams – which disappoint to the downside. That is what data does. But waiting for something to turn up is not a prudent strategy in life. And 19 All speeches are available online at www.bankofengland.co.uk/speeches 19 waiting for everything to turn up is certainly not a prudent strategy for monetary policy. That is why the MPC has signalled, and I have voted for, a modest reduction in monetary stimulus provided the economy evolves as expected. Monetary policy guidance like this is not unconditional; it depends, as it should, on how the economy performs. From my conversations with household and businesses, such guidance is both understood and helpful to them when planning their spending and borrowing.

Therefore, it was opted to establish this conditionality and to promote an integration process designed to bring about sizes that would enable the institutions to be more efficient and to more readily obtain funding from the markets; to implement capacity-reduction plans; to introduce management changes; to write down balance sheets with a charge to private funds; to convert savings banks into banks, and to raise capital on the markets. True, a plan of this scale and complexity does not enable difficulties to be overcome overnight. Yet it is not an overstatement to say that, once the process has been concluded, it will have brought about a reform that should be valid for many years. Let’s now look at our economy’s biggest problem: the difficulties our legal and institutional framework poses for job creation and which mean that, even in good times, Spain is one of the countries with the highest unemployment rates in the world. Earlier I referred to the importance of identifying and acknowledging problems. It suffices to look at the figures available and, in particular, at our very high unemployment rate – at 21.3% – to see that we have a serious home-grown problem, stemming from the shortcomings of our legal and institutional framework. Pick up a copy of The Economist and go to the final pages, where there is a table with the economic data for the 40 biggest economies in the world.

3 See inter alia Report No. 29 (2000–2001) to the Storting, Guidelines for economic policy, Ministry of Finance, and the Regulation on Monetary Policy of 29 March 2001. BIS Review 147/2010 1 That it is tempting, but dangerous, for a government to focus on short-term gains was a lesson Greek politicians learned this spring. Government spending exceeded revenues over a long period. Accounts and official statistics were fudged. Politicians may have hoped to secure a quick admission for Greece into the euro area, with the advantages this would bring. They may have also believed that high government spending and low taxes might help their re-election prospects. Instead, they now have to steer the country through harsh reforms and substantial cuts. 4 The Norwegian economist Finn Kydland received the Nobel Prize for economics in 2004 for having shown that on the whole, monetary policy decisions are better if policymakers delegate interest rate setting to an independent central bank under a clear mandate. 5 As a central bank we must adhere to the mandate we have been given and be able to set the key rate based on a professional assessment. 6 This is a system that lays a solid foundation for making good decisions. 3. We make decisions under uncertainty Independence alone does not guarantee good decisions. Even if an independent central bank is better positioned to avoid having short-term expediency and changing preferences dictate interest rate policy, its decisions must be made under considerable uncertainty.

In other areas of society, it is not always the case that those who are qualified to make good decisions also have the power to implement them. In the interest of democratic governance there may be good reasons why this is so, but the decision-making process will then require considerable attention. We can concentrate on promoting an understanding of the decisions we make. We must be transparent about what we do, and explain premises, economic relationships and results. Our decisions must be well communicated and understood. If we are unsuccessful in this respect, our reputation may be impaired. Independence, transparency and good decisions are intertwined. Independence is a precondition for keeping promises. Keeping promises was the topic of my lecture here two years ago. 38 We must also communicate and explain interest rate decisions to the public so that they have confidence that we are discharging our duties properly. Transparency is a precondition for accountability and that was the topic of my lecture here last year. 39 Today I have been speaking about how we can arrive at decisions that are good ones. Adequate institutional arrangements, high-quality professionals and appropriate routines are important elements for doing just that. Hans Rasmus Astrup died in 1898, twelve years after this building was completed. Astrup’s two daughters sold the house to the Norwegian Academy of Science and Letters a few years after their father’s passing. They gave the Academy a gift of 106,000 kroner to go towards buying the house. The remaining funds were raised from donations.

Calibrating PEPP This brings me to the second question – the calibration of the PEPP. By removing duration risk from the market, PEPP reduces the bond free-float ratio –the share of bonds that need to be held by private price-sensitive investors relative to total bond supply (see left chart on Slide 8). In the absence of our new measures, this ratio would have gradually increased on the back of the large coronavirus-induced increase in debt issuance, thereby putting upward pressure on bond yields. The PEPP envelope has been calibrated with a view to restoring and preserving financial conditions that are consistent with bringing inflation back to the pre-COVID-19 inflation path. The evidence speaks for itself. Upon the announcement of the PEPP, and again in response to our actions last week, the euro area GDP-weighted yield curve has shifted downward measurably, and today it is not far from the level we observed before the outbreak of the crisis (see right chart on Slide 8). In view of the historically weak inflation outlook and the already accommodative stance, the question arises whether our actions are sufficient and proportionate. In answering this question, the Governing Council assesses whether the benefits of achieving a faster return of inflation to levels closer to 2% outweigh the potentially adverse side effects. In other words, it assesses how long the “medium term” should be, given current circumstances.

Nor Shamsiah Mohd Yunus: Launch of the Joint Report on naturerelated financial risks in Malaysia Speech by Ms Nor Shamsiah Mohd Yunus, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the launch of the joint report with the World Bank “Exploring nature-related financial risks in Malaysia”, Kuala Lumpur, 15 March 2022. * * * Good morning and welcome to today’s launch of our joint report with the World Bank, Exploring Nature-related Financial Risks in Malaysia. Over the last three years, the Malaysian financial sector has stepped up its response to the urgent and existential threat posed by climate and environment-related risks. Joint efforts by regulators and the industry to better understand, assess and manage climaterelated risks have made substantial progress. In the Financial Sector Blueprint 2022–2026 recently released by Bank Negara Malaysia, we further reiterated our vision, and expectations, for the financial system to facilitate an orderly transition, towards a greener economy. The financial sector has a crucial role to play in this. To that end, key tools and frameworks are being put in place to: (i) channel financial flows and increase funding solutions towards a greener economy; (ii) strengthen supervisory oversight and address the appropriate treatment of climate and environment-related risks in prudential frameworks; and (iii) address knowledge and data gaps around these risks. Even as we continue to move these priorities forward, we are aware that climate change is not a standalone environmental threat.

The Committee has also indicated that it will take appropriate account of the likely efficacy and costs of its purchases when adjusting their size, pace, and composition. While noting that purchase activity will depend on these factors, the 1 The FOMC also directed the Desk to reinstate its previous policy of rolling over maturing Treasury holdings into new issues. See the Desk’s Frequently Asked Questions for more information. In practice, the amount of maturing proceeds will be quite small, since securities maturing within the next three years were sold as part of the MEP 2 This excludes about $ billion of MBS trades scheduled to settle in the future. 3 I would like to thank members of the Markets Group Staff, including Katherine Femia, Lorie Logan, Linsey Molloy, Roman Shimonov, and Nathaniel Wuerffel, who contributed to the preparation of these remarks. BIS central bankers’ speeches 1 Committee has not specified the time at which purchases will be complete or the total expected size of the purchases. Instead, under this conditional, outcome-based approach, the Committee has enacted a policy that will adjust to incoming information about labor market conditions and the broader economy, as well as its ongoing assessment of the efficacy and costs of purchases. Retaining the flexibility to adjust purchases is an important feature of the program, given our relatively limited experience with the use of the balance sheet as a monetary policy tool and the uncertainty about the policy’s effects.

BANK Of ZAMBIA CYBER SECURITY IN THE FINANCIAL SERVICES SECTOR WORKSHOP SPEECH BY DR. DENNY H. KALYALYA GOVERNOR – BANK OF ZAMBIA MONDAY, 6th MAY 2019 INTERCONTINENTAL HOTEL, LUSAKA, ZAMBIA CYBER SECURITY IN THE FINANCIAL SERVICES SECTOR WORKSHOP, SPEECH BY DR. DENNY H. KALYALYA, GOVERNOR – BANK OF ZAMBIA – 6 MAY 2019 Chief Executives of Financial Institutions in Zambia, Representatives from MEFMI, Members of staff from Bank of Zambia and other Financial Institutions Distinguished Resource Persons, Dear Participants, Ladies and Gentlemen. I am honoured to welcome you all to this important workshop on “Cyber Security in the Financial Services Sector”, which is being jointly conducted by the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) and the Bank of Zambia. This workshop aims to discuss financial sector vulnerabilities arising from cyber threats and risks and to develop the necessary skills and tools to make the sector resilient. Let me take this opportunity to extend a special welcome to our facilitator Dr. Rukanda. I am sure the delegates will greatly benefit from your experience and vast knowledge on the subject. Ladies and gentlemen, as you are all aware, Information and Communication Technology (ICT) have over the years permeated all aspects of our lives and in particular, have become the mainstay of the world’s financial sector infrastructure.

In this regard, the UK starts from a vulnerable position with household debt at 140% of disposable income.6 There are some signs that underwriting standards are becoming more lax, with the proportion of new mortgages at high loan-to-income ratios now at an all-time high.7 The increase in house prices in the past year means we can expect the proportion of high loan-toincome mortgages to grow further in the coming year even if the housing market begins to slow. This is concerning because a durable expansion requires mortgages to be serviceable over their lifetime not just when interest rates are at record lows. The vulnerabilities associated with debt build up over longer periods than the ups and downs with which monetary policy is usually concerned. In that sense, the credit and business cycles are distinct. Using monetary policy now to target indebtedness would risk undershooting the inflation target and damaging growth. For all of these reasons, monetary policy is the last line of defence against financial instability. Raising interest rates today would be the wrong response to this potential vulnerability tomorrow. Fortunately, we are not up the proverbial creek without a paddle. We have many of them which we can use to steer towards two objectives. The first is to ensure that the banking system is resilient. To that end, the Bank is conducting a stress test to assess how well major banks and building societies can withstand a sharp housing market correction during a prolonged and painful recession.

Rather than appeal to the stately Duchess of York on which my predecessor sailed, I will look to the trusty canoe – a craft that can navigate the most rapid and treacherous waters…provided its paddlers work in sync. Those economic currents are flowing swiftly, with the economy expanding at an annualised rate of 4% and jobs growing at a record pace.2 But there are rapids ahead, with old imbalances persisting and new ones emerging. The economy is still over-levered. The housing market is showing the potential to overheat. And the current account deficit is now at a record level. Navigating these hazards requires close coordination between all those in the boat; that is, between fiscal, monetary and prudential authorities. Tonight I want to explain the Bank’s contribution to delivering a durable expansion characterised by balance in the macroeconomy, the housing market, and the financial sector. Before doing so, I would like to join the Chancellor in paying tribute to two individuals. The first is Sir David Lees, who as Chairman of Court has overseen the transformation of the governance and responsibilities of the Bank. David, I am extremely grateful for your support during my first year as Governor. I’m also enormously grateful for the wise counsel of Charlie Bean during the past year. Always working, Charlie is tonight discharging his duties as President of the Royal Economic Society. Throughout his career, at the Treasury, in academia and at the Bank, Charlie has been a leading thinker and practitioner in the pursuit of macroeconomic balance.

In this connection, it should be emphasized that, because of the inherently partisan nature of politics, and for other reasons as well, the government or state is not well-equipped to make credit decisions. Recent experience here in Asia, and before that in the former command economies of Eastern Europe, makes clear just how dangerous “policy lending” can be. Decisions as to who gets credit and who does not must be left to private initiative within a context where those making the decisions have a major stake - their own capital and economic livelihood. If the system is working properly, those receiving credit will be the most efficient, competitive, and profitable - those most capable of producing the stream of goods and services that will enable the economy to grow and, as a result, for living standards to rise. The purpose of supervision - preserving financial stability This, then, is the fundamental tension of commercial banking - how to meet the credit needs of a healthy and expanding market economy, which necessarily entails the taking of calculated risks, and yet preserve the confidence of depositors whose savings are the raw material that enable banks to perform their essential functions. Negotiating that tension, helping banks meet that challenge, is the critical task of supervision. And so what is the purpose of supervision in the 21st century? What are the objectives? How can those objectives be best pursued? Let me say first of all that there is no quick-fix or single answer.

In turn, this means that a country-specific shock will be harder to handle for stabilisation policy. However, large asymmetric shocks occur fairly seldom, no more than a handful of times in the course of a century and as long as the shock – be it of internal or external origin – affects all countries within the monetary union, this poses less of a problem since the common monetary policy can respond to such a shock. If the monetary union also has a floating exchange rate, it will act as an automatic stabiliser. The principal gains to be anticipated from joining a monetary union come from an improved functioning of the economy and an increase in foreign trade. A common currency means greater price transparency and therefore stiffer competition in, primarily, markets for tradables. In a country with a floating exchange rate, small- and medium-sized companies often find it too costly to hedge against currency risk when exporting or importing. When joining a monetary union, the absence of currency risk provides a greater incentive to trade, an incentive that will grow with the size of the union. Also, a common currency means that transaction costs for currency trading disappear. 1 Already Mundell (1961) noted that “[e]xcept in areas where national sovereignty is being given up it is not feasible to suggest that currencies should be reorganized…” (p.664). BIS Review 73/2006 1 However, when a country is weighing loss against gain, both are difficult to quantify.

Similarly, a comprehensive review of the Spanish tax system is needed to ensure that the different taxes meet their goals in the most efficient and effective manner possible. A comparison between the Spanish tax structure and the European average reveals a smaller proportion of indirect tax revenue in Spain, with lower effective taxation on consumption 18 On average, in the period 2015-2019, public expenditure on education and public investment in Spain stood at 4% and 2.9% of GDP, respectively, 0.9 pp and 1.5 pp less than in the EU. 19 and a significant revenue gap in terms of green taxation. The White Paper for the Reform of the Tax System, published in March, presents a diagnosis of the Spanish tax system. The demographic trends that are expected over the coming years, particularly the spike in the dependency ratio,19 will place the pension system under considerable pressure. The reforms approved in 2011 and 2013 significantly enhanced the financial sustainability of the pension system in the medium term. However, should the pension system’s revenue not increase, the adjustment would be made chiefly by reducing the benefit rate.20 The first part of a new pension system reform was approved towards the end of last year. Among other measures, this reform indexed pensions to inflation and removed the sustainability factor. According to AIReF projections and the European Commission’s Ageing Report, the two measures mean that pension expenditure will grow by between 4.1 pp and 4.3 pp of GDP in the period 2019 to 2050.

There is also a very high degree of complementarity between the financing of investment projects, such as those envisaged in the NGEU programme, and the implementation of structural reforms. In particular, according to Banco de España estimates, if a careful 18 selection of NGEU projects were accompanied by various structural reforms to ease the rigidities in the product and labour markets, the potential growth rate of the Spanish economy could reach around 2% by the end of that decade, nearly 1 pp higher than at present. (vi) The fiscal consolidation challenge Maintaining high levels of government debt over time is a source of vulnerability and leaves less fiscal space in the event of adverse macro-financial shocks. In the coming years, public indebtedness will remain very close to or even exceed current levels, unless an ambitious fiscal adjustment plan is implemented. Specifically, various simulations indicate that if no fiscal adjustment is made in Spain in the coming years, the pressure exerted by population ageing on public expenditure will drive up the government debt-to-GDP ratio. Conversely, under an alternative scenario in which a consolidation effort is made – one consistent with maintaining the structural primary balance envisaged in the Banco de España’s latest macroeconomic projections for 2024 –, the government debt ratio will stand at levels close to 120% of GDP in the coming decades.

Pursuant to authority delegated by the Board of Governors, the New York Fed plays a significant role in the supervision of some of the largest financial institutions in the United States and most of the foreign banks that do business in the United States. Supervision means the monitoring, inspecting, and examining of financial institutions to ensure that they comply with rules and regulations, and that they operate in a safe and sound manner. Supervision of financial institutions is tailored based on the size and complexity of the institution. The New York Fed also participates in much of the Federal Reserve’s work in the international arena. We manage the foreign reserves of the Federal Reserve System and the United States Treasury. We offer deposit and custody accounts, and provide related services, to foreign official institutions, including other central banks. And we maintain a current understanding of foreign markets and laws. Our analysis helps us to carry out our responsibilities and to assess the risks posed by an increasingly interconnected global financial system. Risk in banking Now that you have some idea of what the New York Fed does, I will share some thoughts on the roles of risk in banking. For starters, and to state the obvious, risk is inherent in banking. Economic growth requires taking chances. Taking risks is part of what banks do. When depositors leave their money in a bank, they are actually lending it to the bank.

SMEs can enjoy lower financing costs offered by this scheme with a 2% reduction in financing rate. Sukuk issuers also benefit from the three year extension of the double tax deduction for additional expenditure incurred for sukuk issued under Ijarah and Wakalah principles. Other cost savings for sukuk issuers include reduction in professional fees relating to due diligence, drafting and preparation of prospectus; and various fees charged by Securities Commission Malaysia and Bursa Malaysia. Islamic finance is anchored on sustainable values beyond profit The unique propositions of Islamic finance are drawn from its underlying Shariah principles that have universal applications, which fundamentally advocate the prevention of harm or attainment of benefits. All Islamic finance transactions must reflect Islamic values which are ethical and fair. Any financial conduct or transaction relating to goods or services that are contrary to Islamic principles are prohibited, thus promoting fairness, equality and justice. As such, Islamic finance practitioners are duty-bound to observe the norms of high ethical conduct to uphold the values and the sanctity of Shariah. Businesses can therefore take assurance that their financial needs are well served, managed and protected. For the halal industry, players could benefit greatly from appropriately raised funding and protection, which ultimately nurture an end-to-end halal ecosystem. Beyond this, the Islamic financial system also promotes Value-based Intermediation (VBI). Through VBI, Islamic financial institutions are encouraged to adopt more structured frameworks to assess how they create value and impact, particularly in response to changing economic, social and environmental conditions.

By early 2016 mortgage debt to income ratio had dropped to 97%. It remained around that level until Covid, due in large part to house prices growing more in line with earnings. I should make clear here that London – and to a lesser extent the South and East – was very much an outlier during this period (Chart 1). For example, in London, house prices increased by 35% and the house price-toearnings ratio rose by 200 percentage points. The market in London was probably driven by the sheer weight of demand given employment patterns. But investor flows – including from abroad – and migration may have also played a role. Nationally, however, the picture over this period is of a less active market more in line with economic growth and with households staying longer between house moves. A simple thought experiment illustrates the unusual and quiet nature of the market for the UK as a whole over this period. In Chart 2, the blue line shows the flow of new mortgage borrowing since 2000. After rising through the first half of the decade, new lending drops of dramatically during the financial crisis. The red line shows what the flow of borrowing would have looked like, if, taking house prices at their outturn levels, mortgage transactions had levelled off at their financial crisis peak rather than falling back.

Chart 1: House price: earnings Chart 2: Flow of new mortgage borrowing House price to earnings ratio Whole UK South and East London Quarterly mortgage lending £ 14 80000 12 70000 10 8 60000 Value of new lending if transactions remained at pre-crisis levels 50000 40000 6 4 97 99 01 03 05 07 09 11 13 15 17 19 30000 20000 2 10000 0 0 Value of new mortgage lending 99 00 01 03 04 05 07 08 09 11 12 13 15 16 17 19 Quarterly value of new mortgage transactions, excluding pure remortgaging. Counterfactual assumes that the number of mortgage approvals remains at its pre-crisis peak, while house prices and LTVs follow the realised out-turn. This exercise therefore doesn’t take into account potential feedback from transactions to house prices. 4 All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice 4 What lay behind this relatively “quiet” decade for the UK housing market? Housing is a very complex market with multiple drivers on both the supply and the demand side. There is a great deal of debate in the academic literature about the drivers of house prices and the role played by credit conditions. These provide a number of lenses through which to look at the UK housing market over this period. Housing supply is for obvious reasons an in-elastic market in most countries.

In embracing new leading edge technology, the potential for the Islamic financial industry to provide new products and services will be enhanced. It also represents the potential to increase access through a wider range of new delivery channels, including enhancing efficiency while reducing costs for consumers and businesses. IT needs to be leveraged on in making strategic decisions in the alignment of the business, in elevating the institutional capacity and operational efficiency and strengthening risk management capabilities. Despite the more challenging and dynamic environment we have seen, Islamic finance has continued to emerge as a vibrant and resilient form of financial intermediation that is increasingly being embraced on a global scale to become an integral part of the international financial system. In the process of its development, it has further expanded the set of opportunities for the participation by the international financial community and thus increases the inter-linkages both within and between economic regions of the world. In enhancing these new linkages and greater integration, Islamic finance is envisaged to contribute towards unlocking new potentials that would bring mutual benefits, and in doing so, enhance our overall prospects. Thank you. BIS Review 121/2007 5

It is therefore very welcome that labour market reforms have recently been implemented in several countries where rigidities were considered to be particularly onerous, such as Spain[20], Italy, Portugal and Greece, and here in Germany too, some years ago. France is still lagging behind and although a labour market reform is now being discussed, whether it is sufficiently ambitious to significantly lower the equilibrium unemployment rate remains to be seen. Although increased flexibility in labour markets will produce a better outcome in the medium term, some reforms may create losers in the short term[21]. It is only natural that such reforms are opposed by those fearing short-term personal losses, even when the reforms are eventually beneficial for society as a whole. We should take such concerns seriously. There are policies, however, that can help to mitigate or compensate for the negative short-term effects. First, labour market reforms should be sequenced carefully, in such a way that a negative short-term effect on employment is ideally felt only when the recovery is gaining momentum. This could in practice mean that employment protection is liberalised only when reforms to increase nominal wage flexibility have been carried out. This can have a quick effect on reducing unemployment even shortly after its implementation[22]. Second, active labour market policies can help to reallocate workers across sectors of the economy while an adjustment is taking place. Third, expansionary fiscal and monetary policy can also dampen the negative short-term impact of labour market reforms.

Jarle Bergo: The economic outlook Address by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), to invited foreign embassy representatives, Norges Bank, Oslo, 31 March 2005. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 16 March and on previous speeches. Please note that the text below may differ slightly from the actual presentation. The references and the Charts in pdf-format can also be found on the website of the Norges Bank. * * * Your Excellencies, ladies and gentlemen. First of all, I would like to thank you for taking the time to attend this event. It provides me with an opportunity to present Norges Bank’s view of the economic outlook. This year marks the centennial of the dissolution of the union between Norway and Sweden. Historically, an important part of nation-building has been the establishment of a monetary system and a central bank. In Norway, the stage was set for the introduction of a national currency in autumn 1814. With the prospect of a union with Sweden, a clause was included in the Constitution saying that Norway would maintain its own bank and its own monetary system. The monetary unit was the specie daler. In 1875, the Storting (Norwegian parliament) decided to join the currency union that Denmark and Sweden had established two years earlier. The specie daler was then replaced by the krone.

For these reasons alone, BIS Review 21/2005 3 the use of petroleum revenues may in periods deviate from the 4 per cent rule. Spending was also increased in response to the economic downturn. We can therefore safely affirm that the fiscal rule has been normative for fiscal policy. At the time of the introduction of the fiscal rule in 2001 projections pointed to a continued increase in the use of petroleum revenues. We had to expect this growth in spending to lead to weaker competitiveness in Norwegian manufacturing, either through higher wages or an appreciation of the krone. With wage growth in Norway higher than abroad, the competitive position of Norway’s manufacturing industry has weakened by about 15 per cent since the mid-1990s. Competitiveness is about 4 per cent weaker than the average for the past 30 years. The krone has been influenced by high oil and gas prices and prices for other Norwegian export goods. Monetary policy has also influenced the path for Norway’s relative costs, but the nominal value of the krone is about the same as 10 years ago. Strong growth in public spending and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. Over the past 30 years manufacturing has been scaled back in waves. The last wave occurred around the turn of the millennium, but a substantial decline also occurred in the period 1977 to 1984 and from 1987 to 1992.

Meanwhile, the positive contribution of the increased net exports as a result of the reduced demand for imports partially limited the slowdown of growth in 2009. BIS Review 68/2010 GDP Growth Rates GDP Growth Rates Gross Domestic Product (Annual Percentage Change) (Seasonally Adjusted) 10 27 5 24 0 -5 21 -10 18 -15 1 2 3 4 1 2 2006 3 4 1 2 2007 3 4 1 2008 2 3 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 12 3 4 1 2 3 4 4 2009 2003 Source: TURKSTAT. 2004 2005 2006 2007 2008 2009 Source: TURKSTAT, CBRT. 17. The transformation that the Turkish economy has undergone in the post-2001 period has caused major changes in the employment structure. The share of the agricultural sector in employment was 35 percent in 2002, while, this ratio fell to around 23 percent in 2007. However, with the recent economic slowdown, this trend reversed temporarily and the share of agricultural sector in employment increased to approximately 25 percent in 2009. 18. While global turmoil took a heavy toll on industrial employment, it had a scant impact on employment in construction and services sectors.

Durmuş Yilmaz: Recent economic and financial developments in Turkey Opening speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the 78th Ordinary Meeting of the General Assembly, Ankara, 20 April 2010. * * * I. Introduction 1. Esteemed Shareholders, Distinguished Guests and Members of the Press, Welcome to the 78th Ordinary Meeting of the General Assembly of the Central Bank of the Republic of Turkey. 2. I would like to start my speech with a brief evaluation of the global financial crisis that deepened to spread over the whole world in the final quarter of 2008 and took its toll throughout 2009. Later on, I will summarize the key macroeconomic developments that took place in Turkey in 2009. Finally, I will share my evaluations pertaining to inflation developments and monetary policy implementations. II. Global economic developments Distinguished Guests, 3. The effects of the financial crisis, which first started in advanced countries and deepened mainly due to the bankruptcy of some major financial firms in the USA in September 2008, continued to dominate financial markets throughout 2009. Accordingly, growth rates slumped globally but particularly in advanced countries. Owing to extensive liquidity operations led by central banks and large-scale government interventions, the effects of the crisis started to subside as of the second half of 2009 and the global economy exhibited signs of a slow and gradual recovery. 4.

This will make it possible to make instant payments 24 hours a day, seven days a week, and is expected to be ready at the end of 2018. It will also be prepared to be able to handle other currencies than the euro. One alternative could therefore be for 21 See “Payment patterns in Sweden” at www.riksbank.se/sv/statistik/betalningar-sedlar-och-mynt/betalningsstatistik/. 22 Swedish Retail and Wholesale Council (2018). “När slutar svenska handlare ta emot kontanter?” (When will Swedish traders stop accepting cash?) Research report 2018:1 http://handelsradet.se/wp-content/uploads/2018/01/Sammanfattning-2018_12.pdf. 23 Cash payments are instant: When the seller has received the payment in the form of cash, the payment is settled. If cash is unavailable, a need arises for the rapid transfer of money between different participants in other ways. Swish is an example of such a solution. 24 Companies combining financial services with software technology. 25 Retail payments are payments of lower value and between private individuals, companies and authorities. A distinction is made in retail payments between cash payments and payments in the form of account transfers. 26 Sveriges Riksbank “The Swedish retail payment market”. Riksbank Studies, June 2013. 9 [15] the Riksbank to open a central bank account in Swedish kronor in the European system for instant payments. The ECB’s menu of systems for creating a single market for payments will mean that economies of scale can be utilised even more and is thus basically a positive development. There are also plans among some Nordic banks to create a pan-Nordic payment infrastructure with joint products.

But interest in this market at the retail level has been slow to develop. The paper is predominantly held by banks for liquidity purposes and a small part is held by institutional investors. There are a number of reasons behind this lack of retailer interest. First, at least until recently, the real interest rate has been low and sometimes negative, and so the yield of Exchange Fund paper has not been attractive. Second, as issuer, the Hong Kong Monetary Authority does not have the capacity to market the paper at the retail level. And, quite understandably, the banks who are recognised dealers and market makers are not keen to market the product for us in view of the possible impact on their deposit base. Third, there is no convenient market infrastructure, in terms of both market information and mechanisms for participation, through which retail investors can access that market. 1 BIS Review 84/1999 They may be other reasons. But to the extent that these three reasons are significant, our plan here to list the longer term paper, what we call the Exchange Fund Notes, on the Hong Kong Stock Exchange, and have trades settled through the established securities clearing system of CCASS, at a time when there is a significant positive real interest rate, should effectively address them. According to this plan, Exchange Fund Notes will be listed on the Hong Kong Stock Exchange on 16 August 1999.

Future demand growth has been judged to exceed what the economy can cope with in the long term without generating higher inflation. To date, however, price trends - not least in the domestic economy - have been lower than we had expected, even though our forecasts were below those of most other observers. One recent event is the notable fall in share prices. To date, however, this seems to be more of a desirable normalisation than a fall that endangers economic activity. There are also more and more indications that the recent strong growth of production and employment is tending to slacken. To date, however, that has been broadly in line with our earlier assessment. Finally, there is the rather mixed information about the ongoing wage negotiations. This year’s wage outcome is, if anything, somewhat lower than expected. At the same time, it looks as though several of the demands that have been presented are a little bit high in relation to the inflation target, particularly considering the risk of future wage drift in an increasingly strong labour market. These are matters we will be deliberating in the Riksbank in the run up to the next Inflation Report and monetary policy meeting in December.

As both a user and a partner, we can affirm that the quality of the Office’s statistical output has increased immensely over the transformation period. Examples include the publication of national accounts according to international standards and the compilation of data on the government debt and deficit. The Czech National Bank focuses mainly on monetary and banking statistics and balance of payments statistics. The harmonisation of the monetary statistics with European standards was recently completed in both main components balance sheet statistics and interest rate statistics. Monetary and credit aggregates and interest rates are now methodologically comparable with the data of other EU Member States. Speaking of harmonisation, I must mention the calculation of another convergence criterion - long-term interest rates. This calculation is based on long-term government bond yields on the secondary market. The Czech National Bank thus provides the statistical foundation for assessing this criterion. International standards such as the IMF’s 5th Balance of Payments Manual are also observed when compiling the balance of payments. The balance of payments is now published every month and the required items are also broken down geographically. In recent years, much attention has been devoted to the category of foreign direct investment, where the data are published in very detailed geographical and sectoral breakdowns. The balance of payments is perhaps the best example of co-operation between the Czech Statistical Office and the Czech National Bank.

And third, globalisation leads to imbalances of democracy and sovereignty, leading many to lament a loss of control and to lose trust in the system. As Dani Rodrik has argued, there is a trilemma between economic integration, democracy and sovereignty. 26 Common rules and standards are required for trade in goods, services and capital, but those rules cede or, at best pool, sovereignty. To maintain legitimacy, the process of agreeing those standards needs to be rooted in democratic accountability. Much will be required to create a more inclusive, sustainable globalisation but part of the solution is a more flexible and open trading system for services and for small and medium enterprises (SMEs). Freer trade in services can help to resolve external imbalances.27 With barriers to services trade currently up to three times higher than those for goods, the Bank estimates that eliminating this differential could reduce the excess deficits of the US by up to one third and of the UK by up to one half. Freer trade for SMEs and services would spread the benefits of global markets much more widely than traditional, more multinational-based free trade in goods. SMEs employ 60% of workers. More women work in services than men. The digital revolution28 could help to ensure trade is available to the smallest companies as well as the largest. And freer trade in services could help rebalance the trilemma from prescriptive supranational rules to more differentiated, national approaches to achieve common outcomes. The post-crisis reforms of financial services offer a model.

Ongoing financial sector reform will also build financial sector resiliency. Thailand’s financial master plan, now in its second phase, continues, and focuses on liberalization through increased competition, raising efficiency, and strengthening the financial infrastructure. On the third issue, global current account imbalances remain problematic, as they did before the global crisis. As long as structural problems remain in the US and Euro economies and China retains its present economic policies, it is likely global imbalances will persist into the medium term with the risk of a disruptive correction down the road. Such a correction may be particularly painful for small open economies. Firmer policy coordination between large economies is needed to ensure a smooth resolution of global imbalances. Ladies and Gentlemen, I am close to the conclusion of my talk today. I have given you my assessment of the global economy, my thoughts on our policy options going forward, and how monetary policy should be poised, pre-emptive and perceptive. One theme I emphasized today was the global environment of fluid capital and its attendant risks. As a point of departure, let me address how you, as the investor, can thrive in such a world of risk while investing in Thailand. There is no easy answer. Different investment strategies face different risks. Investors themselves are the most qualified for evaluating and managing their own risk exposures given their investment opportunities.

With the emergence of truly cross-border banks the question is how to share the burden. To what extent would the taxpayers in one country be willing to support the depositors in another country? And to what extent would the depositors in the second country be willing to rely on the potential future support of the taxpayers in the first country? A similar problem applies when a central bank considers providing emergency liquidity assistance to a cross-border bank. Such funding is inherently risky. If not, the market would typically be able to provide the funding. Such assistance is also likely to affect the entire banking group. What happens if a bank is systemically important in one smaller country but not in another perhaps larger country? The smaller country will probably have greater incentive to save the bank but may end up paying for the entire group, if the larger country refuses. Also, there are conflicts of interest if the bank is reconstructed. Any such reconstruction is risky and it is therefore uncertain whether the taxpayers would be willing to take these risks in another country. A third challenge is how to achieve joint assessments. In Europe, there is an agreement to share views and assessments if there is a crisis. However in my opinion, that is not sufficient. In a crisis, most countries are likely to present assessments that support their national interests.

Also, compared to purely national banks, many cross-border banking groups have a more complex structure. This makes the analysis and information gathering more difficult. The functional specialization of cross-border banks also complicates supervision and information gathering. If a cross-border banking group concentrates all its credit assessments in one country it will be difficult for the supervisor in another country to assess the risk of the bank in that country without efficient supervisory cooperation and exchange of information. Further, if the bank puts all its liquidity management in a third country, extensive information sharing will be needed in order for any supervisor to get the full picture of the group’s total risks. In principle the parent bank – and therefore the parent bank’s supervisor – should have a full overview but in a crisis, positions may change quickly and thus complicate the collection of all relevant information. Such extensive information sharing becomes acute in a crisis but is also necessary in the day-to-day supervision. A second challenge is that conflicts of interest multiply. Banking problems can be very costly and the ultimate guarantee for financial stability can only be given by the government, since only the government has the power to tax. In most countries the deposit guarantee schemes are only able to 2 BIS Review 96/2006 finance the problem if it is confined to minor banks. For systemic problems, the government would have to intervene. With predominantly national banks, how this is done is fairly straight-forward.