Low interest rate environment and systemic risks - current issues

Transcription

1 Erkki Liikanen Suomen Pankki Low interest rate environment and systemic risks - current issues 2016 RiskLab/BoF/ESRB Conference on Systemic Risk Analytics

2 Outline Introduction: regulatory changes and policy efforts after the crises Low interest rates and potential risks Shadow banking and systemic risks Conclusions 2

3 Post-crises policies and regulations Monetary policy has had an important role High debt levels in many countries have constrained fiscal policies, still the composition of expenditure can be more growth friendly Room for more structural reforms Bank regulation: More capital Better liquidity More stable funding 3

4 The low interest rate enviroment Long-term trends Declining real interest rates since 1990s Demographics Savings glut Secular stagnation? Post-crises challenges Debt overhang Prolonged unemployment Shifts in expectations concerning tail risks? Policy response has been very accommodative 4

5 Working-age population growth has slowed in advanced economies Annual change in the number of year-olds, %, 5-year moving average Advanced economies* *) Europe, North America, Australia, New Zealand and Japan. Source: UN

6 Decline of labor productivity in advance economies 10 Germany France United Kingdom United States Japan Finland Annual change in labour productivity*, 5-year moving average, % *) Output per hour worked. Source: Conference Board. 6

7 Central bank rates very low in all advanced economies ECB Fed BoE BoJ 7 % Source: Macrobond. patu32422@ohjauskorot_vert 7

8 Decline of long-term real interest rate in advanced economies Germany France United Kingdom United States Japan Finland 12 Real* yield on 10-year government bond, % *) Difference between nominal interest rate and actual 12-month inflation rate. Sources: Macrobond and OECD

9 Risk considerations under low interest rates Search for yield Déjà vu? Profitability of financial institutions Counteracting effects Issues concerning credit allocation evergreening? 9

10 Profitability of large euro area banks 10

11 Recent development in shadow banking Source: FSB. 11

12 New (or old) risks to financial stability? Direct links between banks and non-banks may have been reduced but risk of contagion from runs and asset fire sales persist New lending algorithms (in Fintech) yet untested through a full credit cycle International cooperation to curb jurisdiction shopping needed 12

13 Too much regulation - push to shadow banks? Capital requirements were light before the crisis Yet there was intensive pursuit to ever higher leverage (via use of certain shadow banking arrangements) So incentives to evade regulation seem independent of the prevailing level of regulation Given this, it is better to encounter shocks to financial stability with higher (rather than lower) risk buffers 13

14 Thank you! 14