February 17, 2021

Bache - Speech to Sustainable Vestfold and Telemark

Deputy Governor Ida Wolden Bache gives a speech to the Sustainable Vestfold and Telemark partnership.

February 17, 2021

Ramsden - QE as an economic policy tool

  • "With Bank Rate having been close to its effective lower bound since the Global Financial Crisis, the “new normal” has been for QE to be the primary monetary policy tool."
  • "Looking further ahead central banks around the world are grappling with the question of whether to provide the public with electronic money, or Central Bank Digital Currency, and the challenges and opportunities that such a decision could throw up in a possible “future normal”."
  • "I am confident that QE works as intended as a monetary policy tool... we also recognise that the effects of QE are likely to be state contingent, meaning that there is no single “effect of QE”."
  • "Whether the £200bn of QE we announced last March had the same impact is a complex question, and there are arguments in both directions as to whether its impact will turn out to have been larger or smaller."
  • "the MPC’s decisions have largely been taken ahead of rather than in response to Debt Management Office (DMO) announcements."
  • "cumulative transfers to HM Treasury [from the APF] have now reached over £100bn. The direction of these transfers is, however, likely to reverse in the future under many possible scenarios, once the economy recovers from Covid and yields start to rise."
  • "the Bank will publish later in 2021 updated analysis of how such factors [in QE reversal] are likely to influence the size and direction of future transfers. Certainly the transfers are material and worth highlighting – but they are a side-effect of QE, not its goal."
  • "Our approach to date has been to invest in sectors in proportion to the total outstanding eligible issuance accounted for by each sector in the UK economy. An important part of the design of the CBPS back in 2016 was to achieve the MPC’s aim of imparting monetary stimulus in a way that was sector-neutral, consistent with the remit given to the Committee by the Chancellor."
  • "My overall take on QE is still that it is a tried and tested tool; for me it is the marginal monetary policy tool at present. I said in a speech I gave in October that we had QE “headroom” remaining. And although we have announced £150bn more QE since then, that still remains the case. As the MPC highlighted again in the Minutes of its February 2021 meeting, if needed the Bank could re-evaluate some of its self-imposed constraints on gilt purchases to create more headroom."
  • "none of these requests are intended as a signal about the future path of monetary policy – they represented transparent contingency planning for possible future uses of our monetary policy tools."
  • "Those purchases are currently under way at a pace of £4.4bn/week. If we continued at that pace the programme would be complete by the start of November 2021; for that reason, and assuming no material worsening in market functioning, I would envisage some further slowing in pace at some point in the remainder of the year."
  • "while unemployment is forecast to peak at 7.8% in 2021Q3 and fall thereafter the risks remain skewed towards higher unemployment."

February 10, 2021
Bailey: The central bank balance sheet as a policy tool_image

Bailey - The case for an open financial system

  • "The UK has granted equivalence to the EU in some areas, but the EU has not done likewise to the UK. In a few areas – involving central clearing and settlement – there has been agreement by the EU to extend temporary equivalence to the UK, recognising, I think, the clear risks to financial stability that would have arisen had this not been done at the outset. It would be reasonable to think that a common framework of global standards combined with the common basis of the rules – since the UK transposed EU rules from the outset – would be enough to base equivalence on global standards. Less than this was enough when Canada, the US, Australia, Hong Kong and Brazil were all deemed equivalent. Continuing with the example of central clearing, the EU has recently made the US SEC equivalent for CCPs, subject to certain conditions. These conditions are already met by UK CCPs as they are a legal requirement in the onshored legislation, but equivalence beyond the temporary extension remains uncertain. The EU has argued it must better understand how the UK intends to amend or alter the rules going forwards. This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself."
  • "It’s not that UK rules might change independently – the equivalence process provides for reassessment of such decisions, so this should not be a problem. So, it must be the stronger form that they should not change independently. But that is rule-taking pure and simple. It is not acceptable when UK rules govern a system 10 times the size of the UK GDP and is not the test up to now to assess equivalence."
  • "the EU changes its rules in December to allow software assets to count as bank capital. The Basel Standards do not include intangible assets in bank capital, which would include software assets in the UK. We have not identified any evidence to support the notion that software assets have value in stress. On that basis, including them in bank capital would give a false picture of a bank’s loss absorbing capacity. We are therefore intending to consult on plans to amend this on-shored EU rule in order to maintain the previous requirements of excluding software assets from bank capital. This is in line with global standards and will enhance the safety and soundness of UK firms."
  • "none of this means that the UK should or will create a low regulation, high risk, anything goes financial centre and system. We have an overwhelming body of evidence that such an approach is not in our own interests, let alone anyone else’s. That said, I believe we have a very bright future competing in global financial markets underpinned by strong and effective common global regulatory standards."