Vítor Constâncio: The future of monetary policy frameworks

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Vítor Constâncio: The future of monetary policy frameworks

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ESCB central banks welcome the publication of Foreign Exchange Global Code of Conduct

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: ESCB central banks welcome the publication of Foreign Exchange Global Code of Conduct

PRESS RELEASE25 May 2017The European System of Central Banks (ESCB) welcomes the publication of the Foreign Exchange Global Code of Conduct (Code) and related adherence mechanisms material. This is a significant global initiative to promote a robust, fair, liquid, open and transparent foreign exchange (FX) market underpinned by high ethical standards which benefits all wholesale FX market participants. Well-functioning financial markets are important to central banks in ensuring a smooth transmission of monetary policy to the real economy, from which all citizens should ultimately benefit.The ESCB central banks are strongly committed to supporting and promoting adherence to the Code in their jurisdictions, which together play a key role in the global FX market. To that end, they are committed to adhering to the principles of the Code when acting as FX market participants and likewise expect their regular FX trading counterparties to adhere to the Code.The ESCB central banks also encourage FX market participants in their jurisdictions to evolve their practices in such a way that they are consistent with the principles of the Code and to demonstrate their commitment by endorsing the Statement of Commitment annexed to the Code. The ESCB central banks look forward to witnessing the evolution of practices accordingly.For media queries, please contact Lena-Sophie Demuth, tel.: +49 69 1344 5423.Notes:The ESCB comprises the ECB and the national central banks (NCBs) of all EU Member States whether they have adopted the euro or not.The Foreign Exchange Global Code of Conduct and related adherence mechanism materials can be found on www.globalfxc.org.

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20170049 (OT,liquidity providing):35 mn USD alloted (fixed 1.4%, 100% allotment at margin)

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: 20170049 (OT,liquidity providing):35 mn USD alloted (fixed 1.4%, 100% allotment at margin)

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Risk of further bond market repricing persists but financial market stress is contained

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Risk of further bond market repricing persists but financial market stress is contained

PRESS RELEASE24 May 2017Repricing risks in fixed income markets remain significant Market pressure on euro area banks has receded amid persisting structural vulnerabilitiesContinued political uncertainty and potentially higher bond yields could trigger renewed debt sustainability concerns Brexit not expected to pose significant financial stability risk to euro areaSystemic stress indicators for the euro area have remained low over the past six months, according to the latest Financial Stability Review of the European Central Bank. The risk of a rapid repricing in global fixed income markets nevertheless remains. In the euro area, this could materialise via spillovers from higher yields in other advanced economies, in particular the United States. As investors continue to extend the duration of their fixed income portfolios, they are exposed to increased market risk. Significant vulnerabilities also remain for euro area banks. Market pressure on euro area banks waned over the past six months, with banks’ stock prices, in particular, increasing sharply. Low interest rates, however, continue to challenge banks’ profitability. In some regions, profitability prospects are still dampened by large stocks of non-performing loans (NPLs). A number of structural challenges also weigh on profitability prospects in several banking sectors, including overcapacity, a limited degree of income diversification and cost-inefficiencies.The risk that debt sustainability concerns may re-emerge has been revised upwards since the last Financial Stability Review published in November 2016. The ongoing economic recovery over the past six months has supported the outlook for the sustainability of euro area sovereign debt. A prolonged period of (geo)political uncertainty could, however, hamper economic growth and lead to higher risk premia. This would increase funding costs and could trigger debt sustainability concerns in some countries. Risks stemming from elevated debt levels are also present for the non-financial private sector, given the high levels of indebtedness of the euro area non-financial corporate sector, both by historical and international standards.Risks to euro area financial stability also stem from the non-bank financial sector. Investment funds have grown rapidly in recent years and have the potential to amplify financial stability risks. These vulnerabilities are closely linked to the risk of an abrupt repricing in bond markets. In this environment, the Review singles out four main risks to financial stability in the euro area over the next two years: The Review also contains three special features. The first special feature examines the decoupling observed recently between financial market conditions and economic policy uncertainty. The second presents an approach to identifying excessive household credit developments that relies on a concept of equilibrium debt based on fundamental economic factors. The third highlights the potential role and benefits of several co-investment strategies for addressing NPLs involving the private and the public sector.For media queries, please contact Lena-Sophie Demuth, tel.: +49 69 1344 5423.

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Report on the results of the Survey on the Access to Finance of Enterprises in the euro area – October 2016 to March 2017

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Report on the results of the Survey on the Access to Finance of Enterprises in the euro area – October 2016 to March 2017

PRESS RELEASE24 May 2017SMEs continued to signal improvements in the availability of external finance For the first time general economic outlook is seen as conducive to the availability of external finance SMEs signalled improved turnover and debt situations, along with stable profits and rising costsMany SMEs continued to pursue deleveraging, either as a way to achieve better credit ratings or to rebuild balance sheet capacity for the future.The European Central Bank (ECB) published its 16th report on the results of the “Survey on the Access to Finance of Enterprises”. The report provides evidence on changes in the financial situation, financing needs and access to financing of small and medium-sized enterprises (SMEs) in the euro area in the six months from October 2016 to March 2017, as well as comparing the situation of SMEs with that of large enterprises. This survey round was conducted between 6 March and 14 April 2017. The total euro area sample size was 11,724 firms, of which 10,712 (91%) had fewer than 250 employees. The financial situation of firms continued to improve. On balance, 19% of SMEs reported higher turnover (percentage unchanged) and 16% reported increased fixed investment (up from 13%). Cost pressures have also intensified, in particular for costs other than labour, with 50% of firms reporting an increase (up from 37%). While, on balance, only 3% of SMEs signalled an increase in their need for bank loans, the net percentage of SMEs reporting an improvement in the availability of bank loans increased for the fifth consecutive period (12%, up from 11%). For the first time since the beginning of the survey, SMEs indicated that the general economic outlook supported, rather than constrained, the availability of external finance (5%, up from 5%). Of the 32% of SMEs that had applied for a loan, 74% received the full amount requested (up from 69%) and 6% reported that their applications had been rejected (down from 7%). This survey round included two ad hoc questions on the appropriate level of debt and its determinants. About 40% of euro area SMEs indicated that they would like to retain their current level of debt, while 39% preferred less debt and only 7% of SMEs would like to incur more debt. As to the determinants of debt, 25% of SMEs cited the ability to borrow more in the future as the most important factor, while 20% mentioned the firm’s credit rating and 16% the risk of financial distress. The full report on the results of the survey can be found on the ECB’s website at http://www.ecb.europa.eu in the “Research & Publications” section under “Publications by activity”/“Statistics”, along with detailed statistical tables.For media queries, please contact Stefan Ruhkamp, tel.: +49 69 1344 5057.

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Announcing 20170049 (OT,liquidity providing), for 6 days deadline 09:45

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Announcing 20170049 (OT,liquidity providing), for 6 days deadline 09:45

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Benoît Cœuré: Interview with L’Obs

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Benoît Cœuré: Interview with L’Obs

Interview with Benoît Cœuré, Member of the Executive Board of the ECB, conducted by Sophie Fay and Pascal Riché on 15 May, and published on 23 May 2017In the United States, the administration wants to reconsider the banking regulations put in place after the 2008 financial crisis. The United Kingdom is tempted to do the same in the context of Brexit. In France, Emmanuel Macron also thinks that the steps taken were excessive. Is this a threat to the stability of the financial system?Yes, the threat of deregulation exists. In many places there appears to be a temptation to revisit the financial regulation adopted by the G20 countries, which has been a huge project: we have strengthened the capital requirements and liquidity of banks, limited their size, regulated potentially dangerous products, such as derivatives, and started to put in order what’s known as shadow banking, which takes place outside the banking sector.It comes as no surprise that the financial industry dislikes these new rules. The large banks say that they hinder lending and increase the cost of capital. But this is not the case in the euro area, and even less so in France. Banks have significantly strengthened their capital base since 2010 and yet they have never made so many loans at such low rates.The temptation of a regulatory race to the bottom exists in any industry, but it is even stronger in finance. It took enormous political energy on the part of the Heads of State or Government, following the financial crisis, not to give in to it. But whenever this political will weakens, the temptation of a race to the bottom returns. Such a temptation exists in the United States, although for the time being the new administration has not expressed any desire to backtrack on financial cooperation, either in the G7 or the G20, which is comforting. Emmanuel Macron has also said that he wants to reconsider certain banking rules, notably on the required level of own funds.His comment was born of good intentions: to facilitate the financing of SMEs. But there are other instruments available for that purpose. It would be useful if, once a year, the ministers of finance and economic affairs of the EU were to examine the impact of regulation on the financing of businesses. But that must not be a pretext for dismantling what has been achieved at international level.Don’t technocrats have too much power now in relation to these issues?The agreements reached in the Basel Committee, which brings together central banks and supervisory authorities, have to be transposed into national law. As such, they are not binding. Politicians can always take back control. They are the ones who draw up and adopt the banking regulations. Should international technocratic fora be more transparent? Yes, probably. Mario Draghi has agreed to keep the European Parliament better informed about ongoing discussions.What needs to be done in order to limit the porous boundaries between the banking sector and the world of politics? In Europe, the answer is simple: the banking union should be taken seriously. The essence of the project is to “denationalise” supervision of large banks by entrusting it to the ECB, in order to harmonise supervisory methods and create distance between the supervisor and the supervised entity. Before the banking union, regulation and supervision of banks in each country was a kind of ecosystem, a co-production between the banks, the government and the banking supervisor. And we saw the results: some banks took excessive risks in the markets, while others, which were no longer viable, continued without sufficient supervision to finance projects which no longer made economic sense. Taxpayers had to clean up the mess. The banking union reduces the sociological proximity between banks and the administrative and political powers.As regards “sociological proximity”, the new French President is a former banker. Will the ECB will be more vigilant with regard to him?One should avoid accusations. Georges Pompidou and Henri Emmanuelli also worked for Rothschild! The French political authorities were in the vanguard of the banking union: it is an achievement and it was not self-evident in France. What matters today is continuing in that direction.Is financial deregulation a factor in the rise of inequality, as some are saying?Financial regulation has its rightful place within a framework for combating inequality. As the economists Philippe Aghion and Angus Deaton have said, combating inequality involves combating rent-seeking. And yet the big forces of change today, globalisation and technological progress, create rents. Tackling these is not easy, because there are “good” and “bad” rents. If we want innovation to flourish, rent-seeking has to be accepted, at least temporarily.Rent-seeking that obtains patents, for instance…Yes. In order to encourage people to innovate they need to be able to enjoy the fruits of their innovation. But if rents are excessive, a minority appropriates the benefits of globalisation and technological progress. Finance is necessary to fund innovation, but it may itself become an excessive source of rent-seeking. How?Large financial institutions naturally tend to grow in size in order to exploit economies of scale, diversify, and reduce their financing costs. If they are too large, that creates a problem of competition and this creates rents. It also encourages a phenomenon specific to finance: being “too big to fail”. A large financial institution may take unreasonable risks because it knows that the public authorities will have no choice but to rescue it if something goes wrong… That race for size must be avoided by way of regulation.Another phenomenon specific to finance is rents being built up by individuals. A proportion of financial industry employees are remunerated at unreasonable levels when measured against their value to society, as Thomas Philippon and Ariell Reshef have clearly shown. This misappropriation is socially unjust and must be regulated. Hence the EU legislation aimed at regulating the distribution of bonuses. Some countries, such as the United Kingdom, have gone further in making senior bank managers criminally liable in the event of excessive risk-taking or lack of control. It is a political choice. France also could do it. All these rules reduce the risk of financial crises, which tend to deepen inequality. Too often in the past, taxpayers have borne the cost of bank recapitalisation post-crisis. And banking crises, by causing economic activity and employment to fall, hit the most vulnerable in our societies the hardest. Europe is endeavouring, with a set of new rules, to avoid the costs of these crises being borne by taxpayers, by calling on bank shareholders and creditors.What is Europe doing otherwise to combat inequality?To reduce inequality, redistribution instruments are needed, i.e. taxes and transfers. Only a legitimate, elected parliament can decide to tax some people to give to others. At global level, such a legislature obviously does not exist. At European level, it does. This is an extraordinary opportunity! It should be used effectively.The paradox of globalisation is that the greater the need for redistribution instruments, the more they are called into question. For example, it is becoming increasingly difficult to tax large companies, which are now operating on a global scale. The European Commission’s action in relation to Apple in Ireland is a good example of what needs to be done to regain control of globalisation. And its plan to harmonise the corporate tax base is a move in the same direction.The planets finally seem to be aligned in a way that permits the functioning of the euro area to be reformed. What do you think?A window of opportunity is opening. It must be seized. In electing Emmanuel Macron, the people of France have confirmed their attachment to the single currency. This gives the new president a strong mandate but also a responsibility to bring forward proposals to reform the euro area. For the ECB, this is good news.In the first round, half of the votes went to candidates who were very critical of the euro… This shows just how much the reform of the euro area is needed! The ECB is mindful of this every day, having to ensure the stability of a single currency with 19 different governments which are often pulling in different directions and labouring to manage and resolve crises. That lack of efficiency takes a toll on economic activity and employment.The euro brought stability during the financial crisis. The ECB’s monetary policy is supporting the economic recovery. The euro area has created around five million jobs since mid-2013. But there is still a major, existential problem of lack of trust in Europe and lack of trust between Europeans, as shown for example by cultural prejudices between the north and the south.Is this only a problem of trust? Isn’t there also a mechanical problem, a design defect, which makes the euro a cause of divergence, rather than convergence, between Germany and the other countries?It is not because of the euro that the unemployment rate is currently 4% in Germany and 10% in France. It’s because the economic policy responses before and after the outbreak of the crisis were very different in the two countries. Admittedly, at European level, there has sometimes been a lack of coordination; solidarity instruments need to be improved. But there has also been a lack of commitment to reform in some countries.Is Germany ready to accept more instruments of “solidarity”: a European budget, Eurobonds, etc.?There is a German prejudice – that Germany pays for the rest of Europe. This is largely untrue. Germany contributes to the European rescue plans in accordance with its economic weight, as do France and Italy. There are symmetrical prejudices in France; for example, the idea that unemployment in France can be explained by the euro being undervalued for German industry and overvalued for French factories. In fact, if unemployment is higher in France it is because the labour market is performing less well. We must overcome these prejudices, which fuel populism. Everyone needs to do their bit. This is something that Emmanuel Macron has understood very well. France is expected to make proposals about reforming the euro area. But to be credible, it must itself undertake the reforms necessary to bring the French unemployment rate closer to the best performers within the EU.

20170048 (MRO,liquidity providing):15915.5 mn EUR alloted ( 100% allotment at margin)

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: 20170048 (MRO,liquidity providing):15915.5 mn EUR alloted ( 100% allotment at margin)

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Announcing 20170048 (MRO,liquidity providing), for 7 days deadline 09:30

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Announcing 20170048 (MRO,liquidity providing), for 7 days deadline 09:30

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Statement by European Commission and ECB staff following the conclusion of the seventh post-programme surveillance mission to Ireland

MIL OSI – Source: European Central Bank – Press Release/Statement

Headline: Statement by European Commission and ECB staff following the conclusion of the seventh post-programme surveillance mission to Ireland

PRESS RELEASE19 May 2017Staff from the European Commission, in liaison with staff from the European Central Bank, visited Dublin from 16 to 19 May to conduct the seventh post-programme surveillance (PPS) review mission for Ireland. Staff from the European Stability Mechanism also participated in the meetings on aspects related to its Early Warning System. The main objective of PPS is to assess the country’s capacity to repay loans granted under the former EU-IMF financial assistance programme and, if necessary, to recommend corrective actions. While the outlook for the Irish economy remains bright, external risks are significant. Ireland has made substantial progress in addressing crisis legacies, including by repairing private sector balance sheets, reducing public debt and creating employment. Growth of the domestic economy remains robust, driven by positive developments in the labour market, consumption and core investment. However, some of the striking headline figures are heavily distorted by activities of multinational enterprises, including highly variable investment in intangible assets and aircraft. In this context, recent efforts to develop complementary economic indicators are welcome as they could improve the data available to policymakers. Risks to the economic outlook remain tilted to the downside. Uncertainty surrounds the final outcome of the negotiations between the UK and the EU under Article 50 of the Treaty on European Union. Moreover, possible future changes to international tax and trade policies are another potential source of asymmetric shocks.High external uncertainty puts an even greater premium on prudent fiscal policy amid calls for a ‘recovery dividend’. The general government deficit continues to decline, yet the underlying fiscal effort diminished in 2016. This reflects the government’s policy of exhausting all available fiscal space, which received a boost from corporate tax windfalls in 2015-2016. In the future, it would be prudent to use such funds to accelerate deficit and debt reduction, in particular as many indicators suggest that the economy is already operating close to its potential. Moreover, prudent expenditure management remains essential also to ensure compliance with EU fiscal rules in 2017. The resilience of public finances to economic fluctuations and adverse shocks could be strengthened by broadening the tax base. In particular, there is scope for a shift toward more sustainable and growth-friendly sources of revenue. The planned “rainy day fund” and the announced 45% public debt-to-GDP target go in the right direction, but will need to be spelled out in more detail. The ongoing spending review provides an opportunity to improve the efficiency of public expenditure and reorient it to address capacity constraints and promote inclusive and sustainable recovery.The recovery of the Irish banks continues but is yet to be completed. Several years after the crisis, banks have deleveraged and their capital positions have significantly strengthened. The quality of the banks’ assets has improved mainly as a result of ongoing restructuring, asset sales as well as rising collateral values. Non-performing loans continue to decline but the share of long-term arrears, especially mortgages is still significant. The strong initial take-up of the “Abhaile” aid-and-advice scheme for mortgage debtors in distress could lead to a broader use of personal insolvency. It is important to continue to ensure the adequacy of provisioning practices.Subdued credit demand and the banks’ legacy issues are still a drag on their profitability, but the outlook for credit growth is improving. While new lending is picking up, on aggregate both households and firms are still repaying more than they borrow. So far, the growth in new lending has been largely confined to specific categories within mortgage and corporate loans. Irish banks are still vulnerable to market distress in the euro area, or possible spillovers from the UK following its decision to leave the EU. Concerns remain that the draft bill enabling the Central Bank of Ireland (CBI) to cap interest rates on variable rate mortgages, if enacted, could have negative implications for the transmission of monetary policy, financial stability and bank competition.Residential property prices accelerated recently and will need to be closely monitored. On top of brisk economic growth, demand side policies may have exacerbated recent price trends, yet the fundamental issue remains insufficient housing supply. Completions of new residential housing units increased in 2016 but the supply of homes remains well below estimated demand fundamentals. The government has repeatedly and actively intervened in the residential property market but it will still take time to deliver an adequate supply of new homes. Certain building requirements still present a barrier to the construction of apartments, while the new National Planning Framework could facilitate a more stable housing market by enabling a coherent spatial distribution of housing and supporting infrastructure. Current price developments are not being driven by credit. The annual review of the macroprudential measures in the mortgage market provides an opportunity to ensure that the calibration of tools remains appropriate.The mission would like to thank the Irish authorities for the helpful and open discussions.The next PPS mission is planned to take place in the autumn of 2017.