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Financial integration and stability

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Financial integration and stability 3

Financial integration and stability 4

Speech by Gertrude Tumpel-Gugerell, Member of the Executive Board of the ECB,
Closing remarks for the ECB colloquium “European integration and stability” in honour of Gertrude Tumpel-Gugerell,
Frankfurt am Main
It was over 12 hundred years ago here in Frankfurt, where Charlemagne (Charles the Great) introduced a wide reform of the coin system. At the great synod in Frankfurt in 794, he not only harmonized the coins with respect to weight, size and design, he also decided that the new coins would be commonly introduced and accepted, making the “Carolingian Denar” the common currency and means of payment on both sides of the Rhine.
An impressive example of early stage financial and monetary integration, which shows that such integration has been preoccupation throughout history.
This afternoon’s discussion centred around financial integration and stability, the challenges of this relationship and the broader link to overall European integration.
Central banks – also the ECB – have always set out the great benefits of financial integration. For very good reasons – I think:
An integrated financial market is the basis for a smooth and equal transmission of monetary policy, it increases the efficiency and overall welfare of the economy, and enhances the resilience of the financial system from risk diversification.
We have promoted the integration of the euro area’s financial market with concrete action – particularly in the area of payments systems and market infrastructures, in which I had the pleasure to work on for the past 8 years.
For example, we created an integrated real time large value payment system, TARGET, which today is the first market infrastructure to be completely integrated and harmonized at the European level. [This has been instrumental to the integration of money markets and wholesale banking activities in Europe.] We have also supported very much the creation of the Single Euro Payments Area (SEPA) in the area of retail payments and have decided to setup a fully harmonized platform for securities settlements, T2S.
But despite our commitment and our support for financial integration, we also had to learn – with the experience of the past 4 years in mind – that financial integration and financial stability do not always go hand in hand. Indeed we have witnessed that in a financially integrated market risks can spread and spillover to other segments of the financial market, increasing the likelihood of contagion of financial fragilities and systemic risks.
So has this recent experience changed our view about the benefits of financial integration? Not at all!
It is true that the cause of the financial crisis has many dimensions – which we still need to study carefully. But a key issue has been loose regulation and supervision, opaqueness of financial products and practices, massive mispricing of risk and a distorted allocation of resources.
In my view, financial integration remains not only a fact and necessity of today’s financial markets, but an irreversible process, a process that we do not wish to reverse.
Instead, we need a more resilient financial sector!
For this, we need financial integration and sound policies guarding our markets. Only with appropriate policies, the benefits of financial integration can outweigh its potential risks.
First and foremost, we need to strengthen financial market regulation and supervision. And when I say strengthen, I do not only mean stricter rules, greater buffers and better risk management, but also:
•    that regulation and supervision is uniformly applied.
•    that banks’ business models and corporate governance become more sustainable[, internalizing the costs of their risk taking and potential failure]
•    that financial market activities become more transparent with respect to financial innovations, practices and risk assessments
•    and that the soundness of the system as a whole has to be ensured.
The systemic dimension of financial market actors’ – but also governments’ – actions was not sufficiently recognized before the crisis. Traditional banking supervision was designed to look at individual institutions’ risks in isolation. Today, we know better.
And a lot of progress has been made in this regard. In Europe, we have established the European Systemic Risk Board (ESRB) and three pan European supervisory authorities. And similar institutions were setup across the Atlantic in the US.
I often hear and I am often asked: Is it because we have the euro?
We cannot make our common currency responsible for issues caused by market failure, lack of regulation and supervision and undisciplined fiscal expenditure.
I am convinced that maintaining price stability is the best contribution a central bank can make for macroeconomic, but also financial stability. However, we also have seen that price stability may be a necessary condition for financial stability but not a sufficient one.
Moreover, we have seen that the materialization of systemic risk and financial instabilities can lead to deep recessions with great economic costs, carrying risks for medium term price stability as well.
Does this mean that monetary policy should be used to preserve financial stability? Not primarily!
We should not violate the Tinbergen principle: a separate policy instrument for every policy objective.
The first best policy for preserving financial stability and specifically to prevent systemic risks from materializing is macroprudential supervision.
Of course, we cannot judge yet, the success and the effectiveness of the newly established macroprudential supervisors – here in Europe and across the Atlantic in the US. But, I am convinced that if we are wary on financial innovations, potential activities shifting to unregulated markets segments or entities and we are mastering the analytical challenge of measuring systemic risk, this undertaking will be a very successful one.
I have started my central banking career in the 70ies when the fight against inflation and macroeconomic instability was a big challenge. From this period I have kept my conviction that you have to lean against the wind.
So, I believe, that we as monetary policy makers should not shy away from our responsibility to contribute to preserving financial stability.
Having said that, I believe that we at the ECB are well prepared for this task.
First, with our medium term orientation on price stability, we have the framework to take into account in a systematic way more medium term developments and potential imbalances occurring at that horizon.
Second, our two-pillar monetary policy strategy foresees that we not only take into account economic but also money and credit developments when setting interest rates. Such money and credit development can help to identify financial market imbalances and unsustainable credit and asset price developments and can serve as early warning indicator for financial fragilities.
And third, we have a framework to implement monetary policy in a flexible way, allowing that we can react swiftly when fragilities occur.
Still, we should be modest as well. It is true that before the crisis, we have seen signs of imbalances – imbalances at the global level and imbalances in local markets in the euro area and we have warned that correction could take place in an abrupt manner. But it is also true that nobody – also not at the ECB – has seen such a severe and deep crisis coming.
Therefore, we also learned our lessons:
•    that the financial sector is absolutely crucial, for macroeconomic outcomes and monetary policy transmission. This link we still have to better research.
•    that public policies at international, but also national level are all intertwined. National policies – macroeconomic and fiscal policies – can have a systemic effect on the whole euro area. It took this crisis to really understand this. And the euro countries need to prove now that it can work, that we can make policies consistent and can recover trust and confidence.
•    The euro countries took the necessary steps to pave the way put of the crisis. As a central bank we have made our contribution to overcome the deep recession we experienced only 2 years ago, contributing to bring back trust and confidence.
Now it’s time to address new challenges:
First, governments have to work on regaining confidence, putting the necessary reforms in place
Second, the regulatory reform which is on its way has to be fully implemented
And third, the unwinding of our non-standard monetary policy measures has to go forward as financial conditions improve, not least to prevent moral hazard and delay in the needed financial sector restructuring
We should not forget that the European Monetary Union came a long way. The Werner report 40 years ago, the establishment of the European Monetary System 30 years ago, the Delors report 20 years ago and finally the the establishment of the European monetary union a bit more that 10 years ago. We must not undermine this great achievement. The serious currency turmoil and fluctuations in the 50 years preceding the European Monetary Union, notably the exchange rate shocks in the 1980s and the crisis at the beginning of the 90s should be a reminder how precious the current achievement of a monetary union is.
Like with financial integration, I believe that the European Monetary Union and more integration and consistency of public policies on a European level is a fact, a necessity and an irreversible process. What we need to ensure are sound and sustainable policies for an ongoing success.
Copyright © for the entire content : European Central Bank, Frankfurt am Main, Germany.

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Sunak to use budget to expand apprenticeships in England

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Sunak to use budget to expand apprenticeships in England 5

LONDON (Reuters) – British finance minister Rishi Sunak will announce more funding for apprenticeships in England when he unveils his budget next week, the government said on Friday.

Employers taking part in the Apprenticeship Initiative Scheme will from April 1 receive 3,000 pounds ($4,179) for each apprentice hired, regardless of age – an increase on current grants of between 1,500 and 2,000 pounds depending on age.

The scheme will extended by six months until the end of September, the finance ministry said.

Sunak will also announce an extra 126 million pounds for traineeships for up to 43,000 placements.

Sunak’s March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.

Sunak is also expected to announce a “flexi-job” apprenticeship scheme, whereby apprentices can join an agency and work for multiple employers in one sector, the finance ministry said.

“We know there’s more to do and it’s vital this continues throughout the next stage of our recovery, which is why I’m boosting support for these programmes, helping jobseekers and employers alike,” Sunak said in a statement.

(Reporting by Andy Bruce, editing by David Milliken)

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UK seeks G7 consensus on digital competition after Facebook blackout

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UK seeks G7 consensus on digital competition after Facebook blackout 6

LONDON (Reuters) – Britain is seeking to build a consensus among G7 nations on how to stop large technology companies exploiting their dominance, warning that there can be no repeat of Facebook’s one-week media blackout in Australia.

Facebook’s row with the Australian government over payment for local news, although now resolved, has increased international focus on the power wielded by tech corporations.

“We will hold these companies to account and bridge the gap between what they say they do and what happens in practice,” Britain’s digital minister Oliver Dowden said on Friday.

“We will prevent these firms from exploiting their dominance to the detriment of people and the businesses that rely on them.”

Dowden said recent events had strengthened his view that digital markets did not currently function properly.

He spoke after a meeting with Facebook’s Vice-President for Global Affairs, Nick Clegg, a former British deputy prime minister.

“I put these concerns to Facebook and set out our interest in levelling the playing field to enable proper commercial relationships to be formed. We must avoid such nuclear options being taken again,” Dowden said in a statement.

Facebook said in a statement that the call had been constructive, and that it had already struck commercial deals with most major publishers in Britain.

“Nick strongly agreed with the Secretary of State’s (Dowden’s) assertion that the government’s general preference is for companies to enter freely into proper commercial relationships with each other,” a Facebook spokesman said.

Britain will host a meeting of G7 leaders in June.

It is seeking to build consensus there for coordinated action toward “promoting competitive, innovative digital markets while protecting the free speech and journalism that underpin our democracy and precious liberties,” Dowden said.

The G7 comprises the United States, Japan, Britain, Germany, France, Italy and Canada, but Australia has also been invited.

Britain is working on a new competition regime aimed at giving consumers more control over their data, and introducing legislation that could regulate social media platforms to prevent the spread of illegal or extremist content and bullying.

(Reporting by William James; Editing by Gareth Jones and John Stonestreet)

 

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Britain to offer fast-track visas to bolster fintechs after Brexit

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Britain to offer fast-track visas to bolster fintechs after Brexit 7

By Huw Jones

LONDON (Reuters) – Britain said on Friday it would offer a fast-track visa scheme for jobs at high-growth companies after a government-backed review warned that financial technology firms will struggle with Brexit and tougher competition for global talent.

Finance minister Rishi Sunak said that now Britain has left the European Union, it wants to make sure its immigration system helps businesses attract the best hires.

“This new fast-track scale-up stream will make it easier for fintech firms to recruit innovators and job creators, who will help them grow,” Sunak said in a statement.

Over 40% of fintech staff in Britain come from overseas, and the new visa scheme, open to migrants with job offers at high-growth firms that are scaling up, will start in March 2022.

Brexit cut fintechs’ access to the EU single market and made it far harder to employ staff from the bloc, leaving Britain less attractive for the industry.

The review published on Friday and headed by Ron Kalifa, former CEO of payments fintech Worldpay, set out a “strategy and delivery model” that also includes a new 1 billion pound ($1.39 billion) start-up fund.

“It’s about underpinning financial services and our place in the world, and bringing innovation into mainstream banking,” Kalifa told Reuters.

Britain has a 10% share of the global fintech market, generating 11 billion pounds ($15.6 billion) in revenue.

The review said Brexit, heavy investment in fintech by Australia, Canada and Singapore, and the need to be nimbler as COVID-19 accelerates digitalisation of finance, all mean the sector’s future in Britain is not assured.

It also recommends more flexible listing rules for fintechs to catch up with New York.

“We recognise the need to make the UK attractive a more attractive location for IPOs,” said Britain’s financial services minister John Glen, adding that a separate review on listings rules would be published shortly.

“Those findings, along with Ron’s report today, should provide an excellent evidence base for further reform.”

SCALING UP

Britain pioneered “sandboxes” to allow fintechs to test products on real consumers under supervision, and the review says regulators should move to the next stage and set up “scale-boxes” to help fintechs navigate red tape to grow.

“It’s a question of knowing who to call when there’s a problem,” said Kay Swinburne, vice chair of financial services at consultants KPMG and a contributor to the review.

A UK fintech wanting to serve EU clients would have to open a hub in the bloc, an expensive undertaking for a start-up.

“Leaving the EU and access to the single market going away is a big deal, so the UK has to do something significant to make fintechs stay here,” Swinburne said.

The review seeks to join the dots on fintech policy across government departments and regulators, and marshal private sector efforts under a new Centre for Finance, Innovation and Technology (CFIT).

“There is no framework but bits of individual policies, and nowhere does it come together,” said Rachel Kent, a lawyer at Hogan Lovells and contributor to the review.

($1 = 0.7064 pounds)

(Reporting by Huw Jones; editing by Jane Merriman and John Stonestreet)

 

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