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Financial Stability Report 2020 : vulnerabilities and risks
No full textThe annual Financial Stability Report communicates Norges Bank assessments of the financial stability outlook. The Report discusses cyclical and structural developments at banks and other financial institutions and in financial markets and the Norwegian economy that are of importance for vulnerabilities and risks in the financial system. The Report also points out measures that can contribute to financial stability. Norges Bank’s Monetary Policy Report with financial stability assessment includes an ongoing assessment of financial imbalances and the banking sector, Norges Bank’s monetary policy assessments and the decision basis for the countercyclical capital buffer for banks. In the Financial Infrastructure Report, Norges Bank assesses vulnerabilities and risks in the financial infrastructure. The report Norway’s Financial System provides a comprehensive overview of Norway’s financial system, its tasks and the performance of these tasks. Norges Bank’s Monetary Policy and Financial Stability Committee discussed Financial Stability Report 2020 at its meetings on 23 September and 27 October 2020.publishedVersio
Opacity and risk-taking: Evidence from Norway
Get PDFThis paper investigates how balance sheet opacity affects banks' risk-taking behavior. We measure bank balance sheet opacity according to two metrics: the ratio of available-for-sale (AFS) securities and the ratio of off-balance sheet items. We show that balance sheet opacity is positively correlated with realized bank risk. Specifically, banks with more AFS securities have lower realized risk, while banks with more off-balance sheet items have higher realized risk. The correlation between opacity and risk depends on both macroeconomic variables and bank characteristics. The positive relationship between bank opacity and bank risk is weaker for better capitalized banks and banks that are subject to more market discipline. The relationship is also weaker during periods of favorable market conditions. Motivated by this analysis, we then investigate how regulation affects bank opacity. We show that higher capital requirements reduce bank opacity and bank risk through a portfolio rebalancing channel.publishedVersio
Bonds, currencies and expectational errors
Get PDFWe propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict bond and currency returns. The model also creates the downward sloping term structure of carry trade returns documented by Lustig et al. (2019), difficult to replicate in a rational expectations framework. Consistent with the model, we find that variables that predict bond and currency returns also predict survey-based expectational errors concerning interest and FX rates. The model explains why monetary policy induces drift patterns in bond and currency markets and predicts that long-term rates are a better gauge of market’s short rate expectations than previously thought.publishedVersio
Expectations switching in a DSGE model of the UK
Get PDFRational expectations (RE) has been dominant both in the economic literature and in the macromodels routinely used in central banks. The RE assumption has recently come under attack as one of the drawbacks of the Dynamic Stochastic General Equilibrium (DSGE modeling) paradigm. This study attempts to investigate whether other ways of modeling expectations would necessarily find a better support in the data. We investigate the relevance of the RE assumption by introducing regime switching into the expectations formation of an otherwise standard DSGE model by Justiniano and Preston (2010). In our model, expectations switch between RE and Adaptive expectations (AE). The model is estimated on UK data using Bayesian techniques. By introducing a switching mechanism, the model explains the data better than both the pure RE and the pure AE models. Expectation formation switches to AE during changes in monetary policy and the financial crisis. The dynamics of the economic system is different under the two expectation regimes. Hence, should the UK economy switch to an AE regime after Brexit, or as a consequence of the COVID-19 pandemic, the dynamics of the economic system could be substantially more uncertain than under RE, given the model.publishedVersio
Pengepolitikkens rolle i en koronatid
Get PDFForedrag av sentralbanksjef Øystein Olsen på et seminar i regi av Senter for monetær økonomi (CME)/Handelshøyskolen BI, 6. oktober 2020.publishedVersio
Countercyclical capital requirement reductions, state dependence and macroeconomic outcomes
Get PDFWe use bank-, loan- and firm-level data together with a quasi-natural experiment to estimate the impact of capital requirement reductions on bank lending and real economic outcomes. We find that capital requirement reductions increase lending both to households and firms at the bank- and loan-level, and that the increased lending to firms translates into higher capital investment at the firm-level. Furthermore, the transmission of lower capital requirements to the real economy has a "double state-dependence". The first state-dependence relates to the characteristics of banks. Specifically, the transmission of lower capital requirements to lending is stronger for banks with lower capital ratios. We interpret this result as capital requirement reductions having a larger effect when they are more binding. The second state-dependence relates to the characteristics of the corporate sector. Specifically, the transmission of lower capital requirements to real economic outcomes - via bank lending - is weaker for firms with higher default risk or more leverage, suggesting that capital requirement reductions is most effective in terms of boosting real economic outcomes when firms are financially sound.publishedVersio
The demand for safe liquid assets and the implications of issuing a Central Bank Digital Currency for bank funding instruments
Get PDFThe pros and cons of issuing a Central Bank Digital Currency (CBDC) is currently debated by Norges Bank and other central banks. A CBDC would grant access to the central bank balance sheet to a broader set of economic agents, including for example companies or individuals. How such access would be designed or administered are topics of the discussion. One dimension to consider is the potential impact on the stability of the financial system through the effect of CBDC issuance on bank funding markets. This article provides an overview on research related to the demand for financial institutions’ funding instruments and derives implications for the issuance of a CBDC. A key message is that CBDC has the potential to substantially crowd out bank funding instruments due to its superior safety features.publishedVersio
Ansvarlig forvaltning og aktivt eierskap
Get PDFTale ved visesentralbanksjef Jon Nicolaisen i Norges Bank, 19. november 2020.publishedVersio
Digitale sentralbankpenger og realtidsbetalinger
Get PDFForedrag av visesentralbanksjef Ida Wolden Bache på Finans Norges betalingsformidlingskonferanse 5. november 2020publishedVersio
Norges Banks vurdering av interbanksystemet NICS, og DNBs og SpareBank 1 SMNs oppgjørsbanksystem mot internasjonale prinsipper for finansielle infrastrukturer
Get PDFNorges Bank skal etter sentralbankloven fremme et effektivt og sikkert betalingssystem, og overvåke betalingssystemet. Norges Bank gir konsesjon og fører tilsyn med oppgjørssystem for pengeoverføringer mellom bankene. Tilsynsansvaret følger av betalingssystemloven kapittel 2. Norges Banks overvåking bygger på internasjonale prinsipper. Norges Bank vurderer systemer under tilsyn og overvåking etter standarder utarbeidet av CPMI og IOSCO. Denne rapporten presenterer Norges Banks vurdering av interbanksystemet Norwegian Interbank Clearing System (NICS), og DNBs og SpareBank 1 SMNs oppgjørsbanksystem etter disse standardene. Hovedkonklusjonen er at systemene oppfyller de fleste prinsippene, men at det er behov for enkelte forbedringer. Norges Bank følger opp gjennom overvåking- og tilsynsarbeid at forbedringene gjennomføres.publishedVersio