samchain/econo-pairs-v1 huggingface dataset:
William C Dudley: The Federal Reserve's liquidity facilities Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Vanderbilt University Conference on Financial Markets and Financial Policy Honoring Dewey Daane, Nashville, Tennessee, 18 April 2009. *  *  *  Thank you for having me here today. It is a great honor to be on a panel with Peter Fisher and Bill Poole. I am the neophyte here in terms of central banking experience! Before I begin, let me emphasize that my comments represent my own views and opinions and do not necessarily reflect the views of the Federal Open Market Committee or of the Federal Reserve System. I am going to talk today about the Fed’s provision of liquidity to banks and dealers and to market participants more generally. I would break down our actions into three broad classes. First, we addressed the acute seizing up of inter-bank financing markets. For banks, we introduced the Term Auction Facility in December 2007 and for the primary dealers, the Term Securities Lending Facility and Primary Dealer Credit Facility in March 2008. In addition, the Federal Reserve entered into FX swap agreements with major global central banks in order to channel dollar liquidity to banks overseas. Second, we expanded our provision of short term financing beyond banks and dealers in order to alleviate constraints on highly rated corporate borrowers.

Since then, especially during the nineties, economists documented several puzzles in the behavior of households' consumption. For example, the results by Deaton and Carroll show that the ability of households to smooth consumption was imperfect and heterogeneous. This evidence challenged the predictions of models with complete markets and a representative agent. One of the main milestones in this literature in the early nineties was the development of economic models with uninsurable income risk and credit constraints that displayed rich cross-sectional heterogeneity in income and wealth, the so-called heterogeneous agent models, or Bewley-Huggett economies. The main takeaway from these earlier models is that one could rationalize the low observed real interest rate, inconsistent with representative agent models with complete markets, in a model in which households have precautionary savings motives to insure against income shocks. In this framework, the degree of income uncertainty and credit constraints shape wealth inequality and imply a real interest rate in equilibrium that better resembles that in the data. Another key development was the widespread increase in access to large-scale microdata, which helped the profession to evaluate existing economic theories and build better economic models. Microdata has been a cornerstone to the inclusion of heterogeneity into macroeconomic models, as it allows a deeper understanding of individual behaviors. Without it, theoretical models could not be adequately tested.
This means that a credit expansion process is likely to lead to some credit quality problems in roughly that time horizon. The average duration of the economic cycle (from boom to bust) is similar. This implies that if banks only look at contemporary bad loans to determine their credit risk policies, they will restrain credit and increase risk premia in the downturn. The higher cost of funding for bank-dependent borrowers will feed back to activity, reinforcing recessionary forces. I turn now to provisions. In Spain, until year 2000, loan loss provisions were strongly pro-cyclical (as in many other countries), because they were largely linked to the volume of contemporaneous problem assets. This static provisions are backward-looking, they are based on past events. Only are accounted for loan by loan when borrowers fail to repay or in some cases when the situation of the borrower deteriorates significantly. As a consequence, the ratio of provisions to total loans fell therefore during periods of economic growth and tended to rise considerably during downturns (see lower part of Graph 3). As a result of this, the latent risk of loan portfolios was not properly recognised in the profit and loss account under the old system. In periods of economic expansion the fall in doubtful loans went hand in hand with the decrease in provisions, which in turn allowed bank managers to improve bottom-line profits.

In the published accounts it will be deducted from the book value of the credit items that produce it. It is not considered a reserve to be integrated in the regulatory own funds. The annual accounts shall report the various solvency provisions (or value adjustments), and their method of computation. The statistical provision is not a tax-deductible expense although banks can use an asset account of anticipated taxes (i.e. the impact on the profit and loss is neutral but still negative in terms of cash flows). Finally, given the considerable internationalisation of our banking system in recent years, it is important to keep in mind that the statistical provision is required on an individual level of all the members of a consolidated banking group. It is not possible to counter a positive statistical provision requirement in one bank with a negative one in another bank of the same group. This individual bank approach reinforces the statistical provision requirement and squares well with the fact that expected losses arise at an individual bank portfolio level. By now, you are probably wondering about the real impact of the statistical provision in the Spanish banking system. As far as the profit and loss account is concerned, the statistical provision for depository institutions represents around 12% of 2001 total operating margin. At the end of 2000 the statistical fund reached 15% of its maximum amount (remember there is a cap of three times the latent risk) and at the end of 2001 it stands at 27%.
However, I call upon the institutions of the Paris financial centre to continue demonstrating prudence and responsibility in their search for client resources. The Banque de France and the Prudential Supervisory Authority will be vigilant in this respect. It is vital that market conditions be fully accounted for in setting the level of interest on financial products, whether offered by banks or life insurers. It is also best if preference is given to the collection of long-term savings that are indispensable for financing the economy. Indeed, I am actively seeking the support of the government with regard to this objective. The Bank will seek to ease the individual adaptations required by these numerous new regulatory frameworks. In particular we will strive to facilitate the management of liquidity and collateral, notably by continuing to support the mobilisation of lending to the economy via refinancing operations with the central bank, but also via markets. In this perspective, and at the initiative of the Banque de France, a Paris financial centre working group has been set up to develop innovative and safe securitisation mechanisms that should allow banks to make better use of the pool of claims on their balance sheets and to strengthen their financing capacities. The Bank will also continue to mobilise all parties concerned, and in particular companies, in order to accelerate and successfully implement France’s migration to SEPA payment instruments that should be finalised by 1 February 2014 for credit transfers and direct debits.

But remote events do happen – and by their nature we cannot always see them coming. Researchers at the World Bank have recorded 13 borderline or full-blown financial crises since the late 1970s, involving at least one Financial Stability Forum (FSF) member country. 1 And there are well known incidents not on the list: including the 1987 crash, the less developed countries’ debt crisis and LTCM’s near collapse. So we are fortunate in having a time of relative calm to work out together how we should react when a problem does arise. And we have in the FSF a body that was established “to co-ordinate the efforts of …various bodies in order to promote international financial stability, improve the functioning of markets, and reduce systemic risk” 2 . In its first 7 years, much of the FSF’s focus has been on the identification and assessment of risks in a rapidly changing financial system; it has played a valuable role in building a common understanding among authorities and among market participants of what the risks are and how they can be reduced. However, that level of progress has been less apparent on putting in place arrangements for handling and resolving cross-border crises. During that period a number of countries, including the UK, have improved their processes for handling financial crises – including for crises sparked by business continuity events.
The Chart shows that Malta trends lower than either of the two groups. However one also notes that costs in the stressed countries have been levelling off, so that Malta’s competitive advantage has somewhat narrowed. This suggests that Malta must remain extra attentive to the factors that influence competitiveness. Over the course of the crisis, Malta’s economy was never in need of austerity measures, which in itself is a manifestation of economic and financial-sector resilience and good governance. But at this stage, we need to ensure that our competitive edge is not eroded. Structural and fiscal policies in the Euro area Turning to current policy issues at the Euro area level, one of the major challenges is the choice of the right instruments, or finding the proper balance between demand-oriented and supply-oriented policies. In view of the serious damage caused by the financial crisis, there is widespread realization that a durable solution to the current economic stagnation needs to be built around a structural reform programme. Over time these reforms would result in a greater degree of competitiveness, improving the growth potential of the economy. In the short run, however, such supply-side reforms often involve transitional costs. Hence the importance of demandside measures that alleviate the impact on those that are negatively hit by structural reforms. This would prevent deflation and high levels of unemployment. Unfortunately, the choice of policy instruments has been severely constrained by the absence of space to manoeuvre on the budgetary side.

All the curves start from a common point of 100 in 2008. Setting the Maltese economy aside for a moment, several considerations stand out. The real GDP of the Euro area has yet to return fully to its 2008 level, and the same can be said about the United Kingdom. In fact, the Euro area economy is currently 1.9% smaller than in 2008, while the British economy is 0.5% smaller. The Euro area average is composed of countries recovering at different speeds. For example, Germany is a top performer in the Euro area, though its economy has lagged somewhat behind the United States. In fact, German output is currently 4.8% higher than in 2008, while in the U.S. it is 6.5% higher. Where does Malta fit in all this? As the Chart shows, Malta compared favourably throughout the crisis and the aftermath. The contraction at the trough in 2009 was relatively moderate. The path taken in the recovery has been stronger – in fact consistently stronger – than in the other economies shown in the Chart. Output is at present 12% higher than in 2008. I believe that a number of factors have shaped the course taken by the Maltese economy. Malta passed through a liberalization and restructuring experience that saw the exit of inefficient entities and businesses mostly prior to E.U. accession in 2004.
Greater transparency in this form cannot eliminate policy uncertainty, but it can reduce it to a level closer to what the members of the FOMC individually confront. Alongside these changes in the conduct of monetary policy, the Fed today operates with a significantly greater degree of deference from the Executive branch than was true for most of its history. Executive branch officials do not comment publicly on the desirable course of monetary policy, and it would be unusual today for a White House or Treasury official to admit to seeking to influence in private the actions of the Chairman or the FOMC. These improvements in the de facto degree of independence with which the Fed operates are the result of changes in behavior and practice of the Executive branch. They are not written into law. They probably were aided by improvements in monetary policy transparency and by the favorable results the Fed has delivered under the past two chairmen. And they are in part the result of a broader recognition that monetary policy credibility depends significantly on both the de jure and de facto independence of the central bank. Changes in practice based on knowledge and learning may be as important as what is established by law in contributing to the independence of the central bank. The formal institutional arrangements of the central banks around the world have changed more over the last few decades than those governing the Fed. Central bank independence is much more firmly established and more widespread.

Security of payments The rapid development of e-commerce in recent years and the increased use of electronic channels to initiate payments pose new challenges related to ensuring the security and customers’ data. As of September 2019, it has become mandatory in Europe to implement strong customer authentication. This means that when an electronic payment is initiated, at least two independent elements from different categories – knowledge, possession and inherence – must be used in the process. In the case of remote payment transactions, e.g. via internet, an additional requirement is introduced to perform so-called dynamic linking – linking the code for each transaction to a specific amount and a specific payee. These requirements are implemented by the payment service providers in our country. For the practical implementation of these regulatory requirements, new technologies are again coming to the rescue. Recently, biometric authentication has shown great potential by providing verification of elements characterising the user: fingerprint, iris scanning, facial recognition, etc. Many payment service providers in Bulgaria have already introduced similar customer identification methods using mobile banking applications. Apart from convenience, this leads to a significant increase in the security of the payment process, allowing the use of biometric data for customer identification. On the occasion of the forthcoming review of the Second Payment Services Directive, a comprehensive assessment of the impact of strong customer authentication on the level of payment fraud is to be carried out.
Policymakers are, therefore, now engaging with the crucial distinction between those parts of a bank’s capital structure that absorb losses in a going concern – namely, equity – and those that can smoothly absorb losses in resolution or liquidation. The recent G20 Leaders Summit called on the Financial Stability Board to produce plans over the coming year for the level and location of goneconcern loss-absorbing capacity (or GCLAC) in global banks and dealers. In a nutshell, this  1  See Financial Stability Board (2013), ‘Narrative progress report on financial reform’; Tucker (2012), ‘Banking in a market economy - the international agenda’, published in AFME (2012), Investing in Change: A book of essays on financial reform in Europe; and Tucker (2013), ‘Competition, the pressure for returns and stability’, published in Dombret and Luciuis, Stability of the Financial System; Illusion or Feasible Concept. BIS central bankers’ speeches  1  will be a policy for the amount of term bonded debt issued by banks, and where in the group structure it is issued from. I believe that in time the Basel Capital Accord could usefully be recast so that it has distinct components for going-concern and gone-concern requirements.

So summing up, as with the Concordat, a country’s prudential regime could be judged as complying with the Core Principles even though it does not ensure that the distribution of capital across a banking group leaves its individual entities adequately capitalised. Finally, the Capital Accord7 – now in its third incarnation – applies to banking groups on a consolidated basis (or at a sub-consolidated basis for different tiers of a group). The Accord gives jurisdictions an option to apply capital requirements on a solo-basis to individual legal entities as an alternative to applying the requirements to consolidated groups of legal entities8, but there is no requirement to exercise that option. Again, then, there is no hard rule that ensures a sensible distribution of capital across individual entities within a group. If you cannot fit all that together, you can be excused! Here’s an attempt to make sense of it. There appears to be a disconnect between the Concordat (consolidated supervision); the Core Principles (both consolidated and solo perspective recognised as important, but no mandated solo capital requirements); and the Capital Accord (consolidated and sub-consolidated, with solo subject to deductions allowed but not required). Or, put another way, each of the three BCBS documents does an important job but none of them addresses the distribution of capital across a group. That is a gap. Do not assume that this is a theoretical point. It is one reason there have been attempts by regulators to shore up the financial soundness of local subsidiaries during the crisis.
Jarle Bergo: Household saving and the economic outlook Speech by Mr Jarle Bergo, Deputy Governor of the Norges Bank (Central Bank of Norway), Oslo, 3 October 2005. Please note that the text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 21 September, Inflation Report 2/05 and on previous speeches. The references and the charts in pdf-format  can also be found on the website of the Norges Bank. *  *  *  Introduction First of all, let me take the opportunity to thank you for your invitation to speak to you this morning. Most of you in the audience today are in daily contact with the public to give them advice about saving and investment decisions. Some of these decisions can have considerable impact on a household’s financial situation. In addition, overall developments in the economy are a result of all these individual decisions. In any case, it is important that all of these decisions are based on the best possible information. Savings motive and forms of saving One decision we take as individuals is how much of our current income we are not going to spend on consumption immediately. In other words – how much we are going to save. We can save directly in the form of fixed assets such as residential property or by investing in financial assets.

Households that save in banks or invest in other forms of financial assets make funds available to others. Banks convert some households’ savings into loans for other households wishing to finance house purchases, for instance. If we look at the household sector as a whole, savings accounted for about five per cent of household disposable income in 2004,1 which has been the level of saving for the past few years. These are funds that are channelled to the business sector in Norway or abroad to finance investment there. There may be various reasons behind a decision to save. In many cases, the objective is to spread consumption evenly through the course of a lifetime. Another reason may be the desire to leave behind an inheritance. For most people, the level of income will fluctuate through life. Most of our income is earned while we are economically active. Once our working career is over, we will have little to live on if we have not set aside capital as we earn or have secured our retirement by some other means. A hundred years ago, a common way of “saving” for old age was to have a large number of children. A large family increased the probability of some of the children growing up and being able to support their parents when they were old. By looking after family property, and perhaps expanding it, subsequent generations could also be provided for.
Chart: Output and employment  3  The gaps express deviations from estimated trends in seasonally adjusted figures for mainland GDP and CPI adjusted for tax changes and excluding energy products (CPI-ATE), respectively. The trends are estimated using a Hodrick Prescott (HP) filter on quarterly data with λ=40000. The output gap is a technical estimate and does not fully correspond with the output gap in Norges Bank’s Monetary Policy Report. 4  The correlation between these two data series is highest when the output gap is deferred 4–5 quarters into the future. BIS central bankers’ speeches  3  The path from changes in output to inflation passes through the labour market, among others. We have seen that when economic growth has picked up, unemployment5 has declined one to two quarters thereafter. The relationship between the “output gap” and the “unemployment gap” is fairly strong. This is a useful observation because GDP figures are published with a considerable lag and often subject to revision, while unemployment data are published at the end of each month and are not revised. If there is uncertainty about the GDP figures – which there often may be – falling unemployment can be an indication of a recovery in economic growth. Chart: Unemployment and wage growth Labour market developments, in turn, affect wage growth, as illustrated by the blue line in the chart. High unemployment results in low wage growth, and vice versa. The chart shows that in periods of falling unemployment, wage growth6 moves up fairly rapidly.

Bandid Nijathaworn: Macroprudential policies and capital flows – managing under the new globalization Remarks by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Conference on Macroprudential Policies, organised by the People’s Bank of China (PBC) and the International Monetary Fond (IMF), Shanghai, 18 October 2010. *  *  *  Thank you Chair, First, let me thank the PBC and the IMF for the invitation. It is an honour to be here, and to be given the opportunity to share my view on this panel. Given time limitations, and the fact that capital flows are important developments in the region at this time, I want to use this opportunity to discuss three issues. The first is the context of the current capital flows to Asia. The second is managing capital inflows and the role of macroprudential policies, where I will draw on Thailand’s recent experience. And the third is my view on what we need to do to deal more effectively with the capital flows challenge. At this time, capital inflows to Asian emerging markets have been large and persistent, posing challenges for policy. The first challenge involves a macroeconomic dilemma that centres around the tension between appreciation pressures, inflation development, and growth prospect. The second stems from financial stability concerns associated with potential build-ups of macroeconomic imbalance, risk of asset price bubbles, and the possibility of an abrupt reversal of inflows.