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Central Clearing and Risk Transformation
Get PDFThe clearing of over-the-counter transactions through central counterparties (CCPs), one of the pillars of financial reform following the crisis of 2007-2008, has promoted CCPs as key elements of the new global financial architecture. It is important to examine how these reforms have affected risks in the financial system and whether central clearing has attained the initial objective of the reform, which is to enhance financial stability and reduce systemic risk. We show that, rather than eliminating counterparty risk, central clearing transforms it into liquidity risk: margin calls transform accounting losses into realised losses which affect the liquidity buffers of clearing members. Accordingly, initial margin and default fund calculations should account for this liquidity risk in a realistic manner, especially for large positions. While recent discussions have centred on the solvency of CCPs, their capital and 'skin-in-the-game' and capital requirements for CCP exposures of banks, we argue that these issues are secondary and that the main focus of risk management and financial stability analysis should be on the liquidity of clearing members and the liquidity resources of CCPs. Clearing members should assess their exposure to CCPs in terms of liquidity, rather than counterparty risk. Stress tests involving CCPs should focus on liquidity stress testing and adequacy of liquidity resources.publishedVersio
Segmented Money Markets and Covered Interest Parity Arbitrage
Get PDFThis paper studies the violation of the most basic no-arbitrage condition in international finance — Covered Interest Parity (CIP). We find that the CIP puzzle largely stems from funding liquidity differences, reflected in the marginal funding rates of the main arbitrageurs. With severe funding liquidity differences, it becomes impossible for FX swap intermediaries to quote prices such that CIP holds across the full rate spectrum. A narrow set of global top-tier banks enjoys risk-less arbitrage opportunities as dealers set quotes to avert order flow imbalances. A situation with persistent arbitrage opportunities emerges as an equilibrium outcome due to the constellation of market segmentation, the abundance of excess reserves and their remuneration in central banks’ deposit facilities.publishedVersio
Covered Bonds and their impact on investors, banks and the real economy
Get PDFRemarks by Jon Nicolaisen, Deputy Governor of Norges Bank, at the European Covered Bond Council (ECBC) Plenary Meeting, Oslo, 6 April 2017
Monetary Policy Report with financial stability assessment 2/17
Get PDFThe Report is published four times a year, in March, June, September and December. The Report assesses the interest rate outlook and forms the basis for Norges Bank’s advice on the level of the countercyclical capital buffer. The Report includes projections of developments in the Norwegian economy. At the Executive Board meeting on 14 June 2017, the economic outlook, the monetary policy stance and the need for a countercyclical capital buffer for banks were discussed. On the basis of that discussion and the advice of Norges Bank’s executive management, the Executive Board made its decision on the key policy rate at its meeting on 21 June 2017. The Executive Board also approved Norges Bank’s advice to the Ministry of Finance on the level of the countercyclical capital buffer. The Executive Board’s assessment of the economic outlook and monetary policy strategy is provided in “The Executive Board’s assessment”. The advice on the level of the countercyclical capital buffer is submitted to the Ministry of Finance in connection with the publication of the Report. The advice is made public when the Ministry of Finance has made its decision
Relationships Between Nominal GDP and Financial Variables in OECD Countries
Get PDFI look at the short-term relationship between nominal GDP and credit and nominal GDP and house prices in 20 OECD countries. In the recent years central banks have become increasingly concerned with financial stability. These concerns sometimes lead to trade-offs for monetary policy. One important policy question is how the variables related to financial stability is related to different macroeconomic aggregates followed by the central bank. I find considerable similarities in the short-term relationship between the variables across the countries in the data set. The cross correlations are notably large, and there are relatively stable lead/lag structures across most countries. I also develop a synchronization indicator which shows that the variables tend to follow the same growth cycles
Sterk vekst i forbrukslån
Get PDFForbrukslån har vokst raskt de siste årene. Forbrukslån står for en liten andel av husholdningenes totale lån, men en stor andel av utlånstapene til husholdningssektoren. Ligningstall tyder på at mye av forbrukslånene holdes i eldre aldersgrupper. De høye rentene på forbrukslån gir aktørene betydelig utlånskapasitet og gjør at de tåler høye tap. Mye av forbrukslånene er gitt av spesialiserte banker som i stor grad finansieres med innskudd garantert av Bankenes sikringsfond.publishedVersio
Decomposition of the Increase in Household Debt
Get PDFAverage debt among Norwegian households has increased substantially over time. A decomposition analysis shows that debt growth to a great extent reflects higher incomes and higher house values. For homeowners, debt growth has also been driven by an increased willingness or ability to borrow. For home buyers, both first-time buyers and homeowners buying a new home, reduced borrowing related to the value of the dwelling has curbed the increase in debt. This is in line with the expected effect of a new regulation setting stricter requirements for residential mortgage loans.publishedVersio
Strong Growth in Consumer Credit
Get PDFConsumer credit has grown rapidly in recent years. While consumer credit accounts for a small share of total household debt, it represents a substantial portion of household sector credit losses. Tax assessment data indicate that a considerable portion of consumer debt is held by older age groups. The high interest rates on consumer credit give lenders substantial lending capacity and enable them to absorb high losses. A substantial share of consumer credit has been extended by specialised banks that are largely funded by deposits guaranteed by the Norwegian Banks’ Guarantee Fund.publishedVersio
Årstalen 2017
No full textTale av sentralbanksjef Øystein Olsen til Norges Banks representantskap og inviterte gjester, torsdag 16. februar 2017
The Purpose and Scope of Monetary Policy
Get PDFSpeech by Governor Øystein Olsen at the Centre for Monetary Economics (CME) / BI Norwegian Business School on 26 October 2017