Archive

Lane - Opening remarks

Welcome address by Philip R. Lane, Member of the Executive Board of the ECB, at the Joint ECB-IMF-IMFER Conference 2024


Philip R. Lane's speech at the Joint ECB-IMF-IMFER Conference underscored the importance of integrating advanced methodological developments and granular data into the ECB’s policy framework. He highlighted the crucial role of heterogeneity in understanding economic behaviors and the benefits of employing multi-sectoral and multi-country models to analyze diverse economic impacts. Surveys and granular datasets are increasingly central to the ECB’s analytical framework, informing monetary policy by offering insights into bank-, firm-, and household-level activities. Lane emphasized the use of these tools in understanding the macroeconomic implications of varying conditions and noted the advancements in understanding monetary policy transmission due to the availability of detailed financial data. Overall, Lane expressed confidence that academic research and detailed data analysis would continue to enhance the ECB’s policy decisions.

###

- Positivity: 85
- Uncertainty: 30

Saporta - Let’s get ready to repo!

The Bank of England's balance sheet plays a key role in helping it achieve its financial stability and monetary policy objectives. Vicky discusses the Bank’s latest thinking on the future of its balance sheet, and how it will manage the transition towards a demand-driven system for supplying reserves.


Victoria Saporta's speech focuses on the transition of the Bank of England’s monetary policy operations from a supply-driven framework to a demand-driven operating framework. This transition is critical for achieving stable interest rate control and financial stability. She highlights the importance of using Short-Term Repo (STR) and Indexed Long-Term Repo (ILTR) facilities to manage reserves efficiently. As quantitative tightening (QT) progresses and the Term Funding Scheme with additional incentives for SMEs (TFSME) unwinds, money markets are expected to face a shift from abundant reserves to more balanced conditions. This shift means that market rates may rise slightly above the Bank Rate. Saporta stresses that a repo-led framework offers more flexibility and efficiency than a gilt-led framework, enabling a responsive and stable monetary policy environment.

###

- **Positivity:** 70
- **Uncertainty:** 50

Benjamin - Late call

Exchanging collateral as security has become the norm between financial market counterparties. That has made the system much safer. But counterparties need to be prepared for the potential liquidity need from sharp margin calls in stress. And enough collateral has to be collected during good times, via initial margin or haircuts, otherwise that can allow the build-up of excessive leverage, which can unravel and destabilise the system in bad times.

Nathanael Benjamin’s speech focused on the evolving landscape of collateral management and its significant impact on financial stability and monetary policy. He highlighted the shift in risk-taking from traditional banks to non-bank financial institutions (NBFIs) since the global financial crisis, noting that this has increased interconnectedness and the need for robust collateral management. Key challenges include the liquidity demands arising from sharp increases in margin requirements during times of stress and the interaction between initial margin requirements and leverage. He stressed the importance of international and domestic measures to address these issues, including the work being done by the Bank of England to enhance system-wide resilience through things like reforming margin practices and developing a new repo lending facility for NBFIs. He also underlined the importance of transparency, stress testing, and preparing market participants for substantial liquidity needs to mitigate procyclical behaviours and prevent liquidity crises.

###
- Positivity: 75
- Uncertainty: 50

Bowman - Liquidity, Supervision, and Regulatory Reform

Governor Michelle W. Bowman's speech emphasizes the importance of revisiting and improving the regulatory framework in light of the failures experienced by Silicon Valley Bank, Signature Bank, and First Republic Bank. The speech highlights the need to consider various elements, including bank capital regulation, supervision roles, and potential vulnerabilities from fintech partnerships. Bowman underscores the significance of improving the operational readiness of the Federal Reserve’s tools, particularly the discount window and payment services, to ensure robustness during times of stress. She calls for a pragmatic approach in liquidity reforms, highlighting the interdependencies among various funding sources. The speech also stresses prioritizing core risks in banking supervision to prevent oversight failures and advocates for thoughtful, fact-based regulatory reforms, while emphasizing the value of public discourse and procedural rigor to ensure regulatory effectiveness and long-term resilience of the banking system.


- Positivity: 75
- Uncertainty: 60