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Global liquidity: a view from Basel

Jaime Caruana

General Manager, Bank for International Settlements

International Capital Markets Association Annual General Meeting and Annual Conference

Paris, 26 May 2011

Bernanke Set To Kick Off New Year With Monetary Policy Prognosis

Federal Reserve Chairman Ben Bernanke is wasting no time talking about the economy and monetary policy in the new year. Bernanke will be testifying before the Senate Budget Committee on both monetary and fiscal policy Friday morning. He will also have comments and likely take questions about fiscal policy, but the main focus of financial markets will be what the Fed chief has to say about the recent improvement in consumer spending, manufacturing and other facets of economic activity and what that implies for monetary policy.

Comprehensive report on Portugal by Banco de Portugal - Financial Stability Report November 2010

 

The Portuguese financial system is facing several serious challenges, arising from the international financial instability, particularly marked in Europe during 2010, and worsened, in the Portuguese case, by the need of adjustment of structural imbalances, which are becoming more severe.

 

Ben S. Bernanke - Monetary Policy Objectives and Tools in a Low-Inflation Environment - full speech 15 October 2010

The topic of this conference--the formulation and conduct of monetary policy in a low-inflation environment--is timely indeed. From the late 1960s until a decade or so ago, bringing inflation under control was viewed as the greatest challenge facing central banks around the world. Through the application of improved policy frameworks, involving both greater transparency and increased independence from short-term political influences, as well as through continued focus and persistence, central banks have largely achieved that goal. In turn, the progress against inflation increased the stability and predictability of the economic environment and thus contributed significantly to improvements in economic performance, not least in many emerging market nations that in previous eras had suffered bouts of very high inflation. Moreover, success greatly enhanced the credibility of central banks’ commitment to price stability, and that credibility further supported stability and confidence. Retaining that credibility is of utmost importance.

Clueless banks happy to drift in sea of inexactitude

Do the world’s leading banks have a firm grip of the true value of their assets, their true exposure to risk (including the likelihood of their borrowers defaulting) and their own true capital strength? And if they do have such information at their fingertips, are they accurately communicating it into the public domain for the benefit of regulators and shareholders?

Such questions ought really to be top-of-mind for any politician or regulator who is seeking to re-regulate the banking sector in the wake of the global financial crisis. They are also questions which—depending on the answers—might cast doubt on the legitimacy of the results of the recent European Union “stress tests” designed to confirm the capital strength of 91 European banks and their ability to survive another downturn.

ECB: inflation to stay around 1% in the near term keeping interest rate low

Over the last few months, since our (Hearing at the Economic and Monetary Affairs Committee of the European Parliament) meeting in December 2009, the euro area economy as a whole has continued to gradually recover. But there are a number of issues, related to country and financial market developments, which have led to an intense discussion about the euro area and its functioning. This makes today’s discussion all the more timely.

ECB chief Jean-Claude Trichet warns against complacency

Jean-Claude Trichet cautioned against a relapse into complacency and failure to carry through on promised financial reforms on the final day of the Federal Reserve’s annual retreat at Jackson Hole on Saturday.

ECB and Managing risk: The role of the central bank in a financial crisis

 

Speech by José Manuel González-Páramo, Member of the Executive Board of the ECB
at Risk Europe 2009; Frankfurt am Main, 4 June 2009

 

1. Introduction

Ladies and gentlemen,

It is a great pleasure for me to be speaking here at Risk Europe 2009. Over the last few years this annual conference has succeeded in gathering together the brightest minds in both academia and financial practice in the area of risk management, offering interesting and topical discussions and providing valuable insights into future developments in this field. And I’m sure you will agree with me when I say that the challenges faced by risk managers in the financial world have rarely been more complex than they are at present. I would like to focus today on how a central bank can help the risk management community to address these challenges. I will also highlight the restrictions that I see in central banks’ operational leeway. However, I will not consider the macro-prudential role of a central bank, recognising that this is a topic large enough to merit a separate discussion.

A few years ago, it would probably have been unusual for a central banker to be giving a speech at a conference on risk. Today, we know that central banking and risk management are very much interconnected. First, central banks have played a key role worldwide – through their operations in financial markets – in alleviating the implications of the dramatic intensification of banks’ liquidity risk since the summer of 2007. It is no exaggeration to say that central banks have become the best friends of banks’ liquidity risk managers. Second, central banks have learned that their own financial risk management is crucial if they are to deliver, in a prudent manner, the best possible liquidity support for strained markets and financial institutions.

While central banks have certainly done a lot, there are no shortage of proposals for other things that central banks should do. Having the ability to create unlimited purchasing power at short notice without being constrained by internal liquidity considerations, central banks have often been regarded as having limitless power to resolve economic crises.

Such discussions concerning the limits on central banks’ ability to intervene – and the dangers if these limits are ignored – are not new. One of the most famous discussions on this topic is Milton Friedman’s presidential address to the American Economic Association in 1968, entitled “The role of monetary policy” [1]. The address consisted of three main sections: the first on “What monetary policy cannot do”; the second on “What monetary policy can do”; and finally a third on “ How should monetary policy be conducted?”

While opinions on monetary policy have changed a lot since 1968, I would like to follow the structure of Friedman’s address – focusing, however, on central banks’ policies for the management of financial crises.

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