Bank for International Settlements – BIS

Productivity growth has recently fallen back to or below the pre-pandemic trends, with the notable exception of the United States. In the latest BIS Bulletin, Deniz Igan, Tom Rosewall and Phurichai Rungcharoenkitkul examine how cross-country differences in productivity growth can be explained by structural factors, such as weak investment and population ageing, coming on top of pandemic-related disruptions. They conclude that boosting productivity in a sustainable way cannot be left to macroeconomic policies designed to bolster economic growth. Rather, the clearer path to long-term prosperity is through growth-enhancing structural policies. Read more at https://lnkd.in/eZXmUYNb #BISBulletin #Productivity

Do established principles of monetary policy still stand in an era of supply headwinds?  Deputy General Manager Andrea M Maechler tackles this question in an address to students at the The London School of Economics and Political Science (LSE).  She argues that inflation will probably be more volatile in future in the face of more frequent supply shocks, such as climate events which can push up food prices or a jump in energy costs due to geopolitical tensions.  Central banks have in the past tended to dismiss, or look through, such shocks. But if these shocks become a feature of the economic landscape, central banks will have to exercise care when assessing whether they can “look through” the inflationary effects of supply shocks. In some cases, central banks may have to lean more forcefully against inflation to contain the risk of transitioning to a regime in which high inflation becomes entrenched. “At times, forceful monetary tightening will be needed to ensure that inflation expectations remain anchored. In this vein, we also need to be mindful that monetary policy cannot shield the economy from adverse supply shocks that lower potential output,” she said. Looking forward, central banks will need to strengthen their analytical toolbox to assess the nature and transmission of supply shocks and how monetary policy should react to maintain trust in the purchasing power of money. 

The Basel Committee on Banking Supervision’s latest progress update on the adoption of the Basel Framework shows that member jurisdictions have made significant progress on implementing the final elements of Basel III standards for banks over the past year. Since the last progress update at end-September 2023, around half of the Committee’s 27 member jurisdictions published final rules for the revised credit risk, market risk and operational risk standards as well as the output floor. As a result of this progress, more than two thirds of member jurisdictions have now published final rules for all the final elements of Basel III, and these standards are in force (ie implemented by banks) in more than a third of member jurisdictions. The monitoring dashboard provides the implementation history of Basel standards by member jurisdictions, including the publication and implementation dates of their domestic regulations. The entire history is available for download from the Committee’s website. At the 13 May 2024 meeting of the Group of Governors and Heads of Supervision (the Committee’s oversight body), members unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in full, consistently and as soon as possible. They noted that the series of shocks to financial markets over the past few years once again highlighted the importance of having a prudent global regulatory framework in place and tasked the Committee with continuing to monitor and assess the full and consistent implementation of Basel III. Read more here: https://lnkd.in/enVmuxid #BaselCommittee #BaselIII

Housing costs represent a large portion of household expenditures, especially in advanced economies. Hence, they constitute a significant component of the consumer price index. These costs have continued to rise at a fast clip during the past two years in many economies, despite the intense monetary policy tightening phase. Has the housing component of the CPI evolved differently compared with past disinflation episodes? Is its strength a cause of concern for central bankers? In the latest episode of our BISness podcast, Deniz Igan speaks to Smita Aggarwal and argues that the answer to both questions is “yes”. She also unpacks the drivers and implications of the recent strong growth in housing costs. Listen to the podcast on the BIS website or your favourite podcast platform Read the BIS Bulletin for more at https://bit.ly/4eZO7EY #BISness #BISBulletin #HousingCosts #Podcast Apple Podcast: https://lnkd.in/ePtdFv7B Spotify: https://lnkd.in/egDXMMJj Our website: https://lnkd.in/eV2aHrYJ

Tsvetelina Nenova from the BIS Monetary and Economic Department is the winner of the 2024 Edition of the Ieke van den Burg Prize for her paper “Global or regional safe assets: evidence from bond substitution patterns”. This prestigious award is granted by the Advisory Scientific Committee of the European Systemic Risk Board to recognize outstanding research conducted by young scholars on a topic related to its mission. 📷 Adrian Petty/ECB

“A giant leap is what we need in the finance sector. To be more concrete, we need to make sure that our small experiments serve to realise a broader vision of the future financial system. Having a vision gives us a sense of direction. It helps us identify the most pressing gaps in our knowledge. And it tells us which experiments are the most important”, said General Manager Agustín Carstens at the fireside chat with MIT Digital Currency Initiative (DCI) Head of Programs, F. Christopher Calabia, CAMS In his interaction with students and faculty, Agustín Carstens summarized a vision that he and co-author Nandan Nilekani expressed about the future of the financial system called the “Finternet”. As proposed in their paper, the Finternet will allow different financial ecosystems to transact with each other more easily and instantaneously and “empower individuals and businesses by placing them at the centre of their financial lives”. A big thank you to MIT’s Digital Currency Initiative for hosting and providing a platform for these crucial conversations on the future of money and the role of public sector in its advancement. Learn more about Finternet: https://bit.ly/4avY628

Financial Stability Institute Chair Fernando Restoy recently spoke on financial crisis management and shared lessons for the European bank resolution framework. The 2023 banking crises in the United States and Switzerland tested those countries’ post- Great Financial Crisis resolution frameworks. While actions taken preserved financial stability, they deviated from standard procedures and required external support, highlighting areas for improvement. Restoy explained that there are strong reasons to extend resolution planning obligations to all banks whose failure could have adverse effects on the financial system. Crucially, resolution plans should include well defined requirements for a minimum amount of loss-absorbing liabilities in resolution. Those requirements should be calibrated to directly support the feasibility of the envisaged resolution strategy and ideally be composed primarily of debt instruments rather than equity as the latter might well largely disappear before resolution is triggered. In addition, Restoy maintained that planned resolution strategies should be more an array of options for deploying different tools than a rigid playbook. Importantly, experience shows that it is wise to put in place well defined procedures for the delivery of extraordinary external support in extreme circumstances. According to Restoy, the EU now has a great opportunity to address the deficiencies identified in the current bank crisis management framework, particularly with regard to the failure of mid-sized banks. The European Commission’s crisis management and deposit insurance (CMDI) legislative proposal is a highly valuable and internally consistent initiative whose spirit and main features should be preserved in the ongoing political negotiations. https://lnkd.in/ey8FA-v4 #FinancialStabilityInstitute #BankingReform #CrisisManagement #BankResolution

A new report from the BIS’s Financial Stability Institute describes the outcomes of a cross-border crisis simulation exercise conducted with financial authorities from seven countries in Latin America. The exercise took place in February 2024. Seventeen central banks, supervisory authorities and deposit insurers from Costa Rica, the Dominican Republic, Ecuador, Guatemala, Honduras, Mexico and Peru managed the simulated failure of a fictional regionally systemic cross-border banking group. This gave the participating authorities an opportunity to assess the effectiveness of their crisis management frameworks and cross-border cooperative arrangements and to identify areas for improvement. The report finds that the participants developed sound strategies for managing the crisis, focusing primarily on domestic solutions. However, owing to limitations in the available tools and funding sources, implementing a group resolution strategy proved challenging. Based on those findings, the report makes recommendations on topics including resolution tools, recovery and resolution planning, liquidity and funding, domestic coordination and cross-border cooperation and information-sharing. #FinancialStabilityInstitute https://lnkd.in/eh5wVZjH

The Basel Committee on Banking Supervision has approved the results of the annual assessment exercise for global systemically important banks (G-SIBs). The results will be submitted to the Financial Stability Board (FSB) before it publishes the 2024 list. At its 23–24 September meeting, the Basel Committee also finalised an analytical progress report on the lessons learned from the 2023 banking turmoil. This builds on its initial report on the turmoil, with a particular focus on its follow-up analytical work on liquidity risk. The report will be submitted to G20 Finance Ministers and Central Bank Governors and published next month. Considering the lessons learned from the turmoil, the Committee also discussed progress on its work to strengthen supervisory effectiveness by developing a suite of practical tools to support supervisors in their day-to-day work. At the meeting, the Committee took stock of recent market developments and risks to the global banking system and discussed a range of policy and supervisory initiatives. Regarding the series of operational disruptions in July, which resulted in outages across numerous sectors, the Committee highlighted the importance of banks’ operational resilience and management of third-party risks, and the systemic risks stemming from reliance on the same third-party software or service. The Committee also continued to review the comments received on its consultation proposing a Pillar 3 disclosure framework for climate-related financial risks. Read more here: https://lnkd.in/eMQ9hsQE #BaselCommittee #BaselIII

Sovereign defaults, payment moratoriums, financial and economic crises, sanctions, wars and natural disasters: all such events have macroeconomic consequences that expose creditor banks to potential losses. In the latest #BISQuarterly Review, Bryan Hardy, Patrick McGuire and Goetz von Peter provide a primer on how the BIS international banking statistics can be used to understand the geography of banks’ country risk exposures. The BIS consolidated banking statistics track banks’ exposures to country risk, that is, the risk arising from macroeconomic events or policies in a given jurisdiction. The statistics are compiled following supervisory practices, and thus provide information about on-balance sheet positions as well as off-balance sheet exposures. The data thus shed light on the way banks adjust their exposures in response to material changes in country risk. For instance, as Greece’s credit rating fell in 2010, banks shed exposures to borrowers in Greece and transferred risk out of the country. In 2022, cross-border claims and guarantees on entities in Russia also declined substantially, more so than the local operations of foreign banks in Russia. https://bit.ly/3MLj2YY #BISStatistics