Transcript What is a Useful Central Bank?

What is a Useful
Central Bank?
Stefan Ingves
Norges Bank
18 November, 2010
Presentation Overview
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Crises as drivers for change: Nordic crisis in the 1990s and
the recent global crisis.
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Riksbank: Changes in organization, tasks and governance
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The nexus of monetary policy, financial stability and
macro-prudential regulation
Crisis to crisis
Bank-/ Inflation targeting
€referendum
regime
Formal
Currency
independence
crisis
1990
1995
2000
Financial
crisis
2005
2010
NEW MANAGEMENT
New cash
structure
Outsourcing statistics
Competence shift
Downsizing
Reorg. fewer depts.
Governance reforms
Organization
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Pre-1990: Operational tasks and detailed regulation
predominated.
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Trading room – to maintain stable exchange rate.
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Printing and distributing notes
Post-Crisis Organization
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No more fixed exchange rate, no in-house regulation
Outsourcing several activities
New monetary policy – inflation targeting
Gradually increasing focus also on financial stability
Accountability, openness and confidence
Moral suasion rather than hard tools.
Changes in Staffing
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From 1100-1200 (750 excluding companies) to 350
current.
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70 percent have academic degree and there are 50 PhDs.
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Clear focus on core activities.
Staff development (FTE:s)
1400
1200
Subsidiaries
1000
Riksbank
800
600
400
200
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
Staff allocation – Competence Shift
Governance
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From hierarchy to a flat organization.
A six person Board, mainly to ensure broad discussion on
monetary policy.
Drawing a line between policy decisions and other tasks.
Ideally, no involvement by Board in day-to-day
management
International issues are totally integrated
Governance reforms: a day at the
office for a deputy governor
2000
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”Executive Director” responsible for IT-,
Administration- and Market Operations
Departments
2004
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Responsible for ”preparing” stability
issues for the board. Heading the
financial stability coordination group.
2010
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No particular responsibility for any
specific part. Contributes to policy
discussions and policy decisions and
communicates them to the public.
Heads of dept., decide on…
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All issues related to the day-today running of the respective
department
The Management committee ..
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Co-ordination of all issues of
relevance across the bank (such as
rules and regulations, salaries,
budget allocation and operational
plan, follow-up, projects…)
Chaired by the Head of the General
Secretariat
Weekly meetings
Regular reporting to the Executive
Board
Conclusions from the global crisis
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Clear links between monetary policy and financial stability
Regulation and supervision – first line defence
Both regulation and monetary policy affect borrowers’
loan costs.
Regulation vs. Policy Rate
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Leaning against the wind
No contradiction between ”leaning” and stabilising
inflation and the real economy…
… but some challenges (e.g., identifying a leverage cycle).
Monetary policy is rather blunt; regulations can be more
specific towards the financial sector.
Challenges for Regulatory Design
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Finding the balance between increased regulatory costs
and reducing the risk and cost of crises.
Time-varying regulation is an interesting tool
Should central banks merge with supervisory authorities to
improve coordination and efficiency?
Choices for central bank governance on monetary policy
vs. financial stability.
Countercyclical capital buffer:1 Sweden
Vertical shaded areas indicate the starting years of system-wide banking crises.
1
The countercyclical buffer is 0 when the value of the credit/GDP gap is below 2, and 2.5 when it is above 10%;
for gaps between 2 and 10% the buffer is calculated as 2.5/8 times the value of the credit/GDP gap exceeding
2%.
Source: BIS calculations.
15
Financial Stability: a Riksbank task?
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Before 1990: No authority assumed responsibility for
overall financial stability analysis.
The supervisors need to focus on micro-supervision.
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How to formulate a mandate on FS? Currently:
”…promote a safe and efficienct payment system”
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Do we need an extension of our independence?
Why is FS a Central Bank Task
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Link to monetary policy
Link to large value payment system operated by central
bank
Preparedness to provide ELA presupposes knowledge
about overall situation of system.
The Global Crisis Showed Need to
Review FS Work
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Scope: Include more institution categories
SIFIs pose larger problems than previously expected
Liquidity developments are key
Contagion between submarkets and jurisdictions.
Crisis Experiences for Central Banks
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Be prepared for large and sudden demands for liquidity
support, incl in foreign exchange.
Review our framework for ELA
Focus more on liquidity vulnerabilities in cross-border
banks
Clarify the roles and mandates of the authorities in crisis
management.
Tools for FS
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So far: Only communication and moral suasion.
The Riksbank is analyzing its need for tools.
Some tools could be held at the Finansinspektionen – to
be called on by the Riksbank.
There is no conflict between MP and FS, but we need
focused tools for FS.
An Example: The Riksbank Would Have
Needed Tools to Stem Unsustainable
Lending from Swedish Banks in Latvia
250
45
200
30
150
15
100
0
50
-15
0
mar-05
-30
sep-05
mar-06
Utlåning
sep-06
mar-07
sep-07
mar-08
sep-08
Bytesbalansen
Utlåningen (vs), index 100=2003, Bytesbalansen (hs), procent av BNP
Källa: Reuters EcoWin
External Evaluation of the Riksbank
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2006: First external evaluation of the Riksbank’s monetary
policy during the preceeding five years.
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2011: Second evaluation, by Goodhart and Rochet. Will
include both MP and FS, including our mandate,
competencies and instruments for conducting FS work.
Final Words
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Current trends on staffing will continue: Fewer but more
qualified.
Governance issues: Seeking the optimal solution for MP,
FS and their interdependence
This is my thinking on how to become ”a useful central
bank”. Thank you.