Charles Bean: Pension funds and quantitative easing Speech by Mr Charles Bean, Deputy Governor for Monetary Policy of the Bank of England, to the National Association of Pension Funds’ Local Authority Conference, Cotswolds, Gloucestershire, 23 May 2012. All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  *  *  *  Thank you, Joanne (Segars), for that kind introduction. When I was invited to address this conference, I was asked to discuss how the Monetary Policy Committee’s asset purchases – colloquially, though rather inelegantly, known as quantitative easing or QE for short – affect pension funds. I was actually quite pleased to be assigned this brief, as in my view some of the commentary regarding QE has taken a rather partial view of its effects. Not only is the adverse impact of QE on pension funds often exaggerated, but the excessive focus on QE as a cause of low long-term risk-free interest rates also risks distracting attention from other factors driving yields which may present a more durable challenge to the sponsors and trustees of pension funds. To begin with, it may be helpful if I remind you how QE works and what it seeks to achieve. QE essentially involves us trading one liability of the state – gilts – for another – monetary claims on the Bank of England.1 The maturity structure of our purchases is designed to ensure that the gilts are largely sourced from private sector non-bank investors, such as insurance companies, pension funds and hedge funds.
In going beyond profit, VBI is set to be one of the drivers for Islamic financial institutions to assist entrepreneurs to grow their businesses. This would require an understanding of the entrepreneurs’ specific needs and circumstances prior to recommending a particular product or service, rather than focusing on a predetermined range of services. Islamic financial institutions are also expected to assist and guide businesses to adopt sustainable business practices. The financing model for businesses and SMEs will be more holistic; including provision of environmental-friendly business solutions, entrepreneurship training and consulting services. This model can better assist aspiring businesses to improve efficiency and reduce costs, which will lead to greater sustainability. Before I end my remarks, I would like to emphasise that the practice of Islamic finance is not and should not be exclusive to Muslims. Many of its underlying ideas, the pursuit of economic justice and risk sharing align with traditional and conventional economic thinking. Mutual insurance companies which derive from risk sharing, limited-purpose banking which moves away from interest-based or fractional banking and equity financing, are all ideas consistent with Islamic finance principles, and are practised across the world without any reference to the religion. Indeed, Islamic finance is for all. I hope that today’s programme will lead us to a step closer in bridging Islamic finance and businesses.