samchain/econo-pairs-v1 huggingface dataset:
This gathering is the first regional meeting of governors amidst the turmoil, and so we should take this opportunity to exchange views and reflect on how the financial environment which is undergoing a major transformation as we speak, will have implications on our roles as central banks. Looking at the overall picture, what is now going on in Wall Street may remind us of what happened in our region 11 years ago. At a glance, the root causes of both events are strikingly similar: investors taking excessively high risks creating asset price bubbles, against the background of lax prudential and monetary policy. With today’s financial environment, however, changes in the regulatory requirements, market players, business models of financial firms, as well as economic conditions have all played a part in escalating the impact of financial turmoil through the creation of a broader and deeper financial system. What is unfolding right now is taking place in the world’s largest economy with deepest capital markets, most sophisticated financial instruments – and, let me also add, the most advanced risk management tools. Given the increased complexity and magnitude of the current crisis, this calls into question whether the tools available at hand to policy makers are adequate in ensuring economic stability, the essence of our mission as central bankers. No matter how large the storm is, we have to lean against the wind and adhere to a set of principles which central banks have been practicing.

Tarisa Watanagase: The changing financial environment and implications for central banks Welcome address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the 27th SEANZA Governors’ Symposium, Bangkok, 20 September 2008. *  *  *  Fellow Governors, Distinguished Guests, Ladies and Gentlemen, It is my privilege to extend a warm welcome to all SEANZA Governors and distinguished participants to the 27th Governors’ Symposium and the Central Banking Course. At the outset, I would like to take this opportunity to express my sincere gratitude to Mr. Jaime Caruana, the former Governor of the Bank of Spain, and currently the Counsellor and Director of the Monetary and Capital Markets Department of the IMF, who flew half way around the world to be with us today to share his views and enrich us with his experiences from a global perspective. This year’s theme of the Governors’ Symposium is “The Changing Financial Environment and Implications for Central Banks”. I believe you would all agree that the discussions on this topic couldn’t have come at a more appropriate time, given the current financial market turbulence we are encountering today. Right now, all eyes are focusing on what solution central banks will come up with to resolve the current global crisis.
For example, a positive supply shock – as a result of technological progress, for instance – could keep inflationary pressure low for a prolonged period. Expansionary monetary policy conditions could therefore be maintained. But if we look at financial stability, this situation entails the risk of a boom-bust cycle, which would require a tightening of monetary policy. A similar problem is conceivable if the economic outlook is so poor that raising interest rates would be inappropriate because of the risk of deflation. However, maintaining low interest rates would pave the way for potential imbalances, which – from the point of view of financial stability – would actually have to be countered by raising interest rates. Such situations make it clear that a single instrument cannot simultaneously achieve two objectives. A further problem is that a bubble is not easy to identify. Expecting us to be able to tell in advance whether damaging price imbalances are building up within certain asset classes is not realistic. First, that would require us to be better than market forces in assessing the fundamentally justified value of a specific asset. Second, it is not easy to clearly identify which variables are to be used as indicators of imbalances. A third problem is that we do not yet have any sound knowledge of the timing, effectiveness and required scope of the monetary policy response that would be necessary to counter financial imbalances.

At the same time, the risks involved in overemphasising the role of central banks in connection with such supervision and regulation also have to be borne in mind. Central banks could find themselves facing increased political pressure that could jeopardise their independence. If their credibility with regard to maintaining price stability were undermined, this could have devastating implications for the effective implementation of monetary policy. Institutional aspects And now, in the final part of my speech, I would like to look at some institutional aspects. To allow a more detailed analysis of systemic risks and how to keep them in check, we need a macroprudential framework in which various instruments can be combined to optimal effect. What is the best way of achieving this? Firstly, it is essential to recognise that ensuring financial stability as a whole is generally dependent on the decisions made by a range of different bodies. These need to act together in order to ensure financial stability. To create the necessary basis for a functioning macroprudential framework, the exact institutional set-up of the regulatory authorities is of the utmost importance. First and foremost, objectives, mandates and responsibilities need to be clearly defined. In Switzerland, for instance, FINMA – the Financial Market Supervisory Authority – is responsible for the regulation and supervision of individual banks. The SNB, on the other hand, is required to contribute to financial stability. With regard to Switzerland’s two big banks, there is a clear overlap between institutional and systemic risks.
For emerging markets, both these roles are powerful, and they put the financial sector at the center of any efforts to ensure economic and financial stability in the long run. The third observation is that the turmoil shows that the risk of systemic instability can be greater with financial globalization, and this raises an important question about the appropriate monetary policy framework for maintaining macroeconomic stability. For central banks, price stability remains the first and foremost objective of monetary policy. But in the context of today’s financial globalization when the source of systemic danger is clearly external, the idea that price stability in itself might not be enough to ensure macroeconomic stability is now gaining more acceptance. One approach to deal with this is to combine conventional monetary policy framework like inflation targeting with a macroprudential framework. The latter is aimed at addressing the risk to financial stability by  BIS Review 142/2008  1  implementing measures to counter excessive lending or the procyclical nature of the financial system. This is the approach that we have taken at the Bank of Thailand, and I will speak more on this later. So, the current turmoil is a reminder of things that can go wrong with financial globalization, and the three observations I cited point to the key challenge faced by policy makers in emerging markets. In this context and in relation to the financial sector, the challenge for policy is three-fold.

18.11.2020  Opening address of the conference “Consumers and the postCOVID mortgage market” ADICAE Margarita Delgado Deputy Governor  Good afternoon. I would like to thank ADICAE for kindly inviting me to address you on the opening of this conference on the post-COVID mortgage market. Allow me a minor comment regarding the conference title: I fear it is still too soon to talk about the mortgage market situation after COVID, although there is evidently no lack of will to do so. The latest science news on the progress of the different vaccines gives us hope that we may shortly look to the future without seeing the pandemic on the horizon. Let us trust this will be so. In any event, beyond the effects this health crisis may be having in the short term, housing affordability has been a very relevant subject in Spanish society for decades. Worldwide, we are one of the countries with the highest homeownership percentages, and the mortgage market has unquestionably been a decisive factor in making such housing affordability possible. This conference is directed at consumers, although if you will allow me the technical detail, national accounts treats house purchases as “investment”, not as consumption. This is clearly the case and, almost always, this is the most important investment that we “consumers” make in our lives. Given the importance and scale of this purchase, the authorities should watch over individuals’ interests.
They are detrimental to financial integration and, therefore, curb the Banking Union’s aspirations to act as a single jurisdiction. It does not seem reasonable that the implications, in terms of capital and liquidity, for a banking group that has a subsidiary in a Latin American country should be very similar to those that would prevail were the subsidiary located in another euro area country. 8/10  Naturally, the introduction of a genuinely European deposit guarantee scheme would complement and largely provide for this step forward in integration. Also, from a regulatory perspective, a sufficiently uniform legal basis is notably lacking in the euro area. Just as specific national regulations had to be harmonised, or recognised as equivalent, to enable the creation of the single market, it is necessary to change specific rules that prevent the development of a truly single market for financial services. It may well not be possible to achieve full harmonisation, but this will probably not be necessary. There are some critical areas, such as the prevention of money laundering, fit and proper rules and bank insolvency regulations, where a common, euro area-wide set of rules would boost market integration. And that would also improve the efficiency of supervision and resolution. The question of doing away with these barriers and harmonising regulations is gaining in importance.

Many consider the lack of cross-border mergers as proof that much remains to be done in terms of market integration and diversification. In any event, scant cross-border consolidation, particularly in a setting of clear overcapacity of the European banking sector, is symptomatic. On this matter, the ECB, in its latest stability report7, published a study on the degree of overcapacity of the sector in Europe and the potential implications for bank business. In keeping with the conclusions of the study, excess capacity may lead to operating below margin in the face of heightened competition. That would preclude making the necessary investments for the future of banks and their adaptation to new technologies and new operators (e.g. in systems), creating “zombie”-like banks that weigh down even further on the sector’s profitability. The study details those banks with a return on equity (RoE) that is lower than the median of 6% over three years, but the most worrying group would be that of banks with an RoE of less than 3%, no less than around 25% of the total. The study concludes with the need to address restructuring and mergers, showing a clear preference for cross-border as opposed to national mergers. On the ever-controversial matter of mergers, I have stated on several occasions that our role as supervisors is not to decide which mergers are desirable and which not.
In many areas, we have identified the necessary tasks only in general terms. Progress in figuring out the details and the implementation path and how to coordinate the efforts on a cross-border basis is more limited. I would particularly highlight the cross-border coordination problem – regulatory oversight is national, but many financial firms and infrastructures operate on a global basis. Effective reform requires mutually consistent global standards – and while international cooperation to date has been good on many fronts, progress is uneven, and the devil is in the details of implementation. We need all national authorities to resist the temptation to favor domestic financial interests over the interest of achieving a true level playing field globally. And we should resist the urge to favor locally controlled infrastructures where global solutions would better advance the collective financial stability interest. Instead we should work to ensure fair access to global infrastructures. Also, it is important that national regulators have access to data and a role in the regulatory oversight of such global infrastructures when that is relevant to their own national financial stability agendas. In the United States, I think we have made more progress in bolstering the resilience of our banking institutions than we have on the other tracks. There are two elements to this. The first element is the increase in capital that has already occurred. The major U.S. banking institutions are much better capitalized today than they were in the fall of 2008.

Institutions are better able to aggregate and assess their risk exposures within short time periods and stress testing means that there is a better understanding of how these exposures might perform in adverse environments. But our task remains unfinished. While progress on reforming compensation practices is welcome, I recognize that there is still much to be done before we can truly say that incentives are lined up in a way that fully supports financial stability objectives. We have work to do on the information front too. Consider the issue of international regulatory access to data. Currently U.S. bank regulators do not have access to the consolidated global balance-sheet information of the foreign banks that operate in the United States (or vice versa for that matter). Our examiners see data associated with the foreign firms’ U.S. operations, but not how that fits in with their operations abroad. Without certain specific types of consolidated global information, it is difficult to place the U.S. operations of a foreign firm in their global context, and make informed judgments about the adequacy of such firms’ capital and liquidity buffers. For example, liquidity is often managed on a global basis, and key business lines are frequently managed globally, even if they reside in multiple legal entities located in different jurisdictions. Making progress in establishing protocols that would enable bank regulators to share more relevant confidential supervisory information on a cross-border basis would be a significant advancement.
A lively discussion is also underway at present on whether central banks should use policy rates to a greater extent to correct imbalances on individual markets. For example, the Riksbank has been encouraged in the media to prevent a bubble developing on the housing market. We naturally take house prices into account in our macroeconomic assessments, and the Riksbank’s interest rate policy has in turn, through its effect on the households’ interest expenses, a considerable impact on the development of prices on the housing market. But the repo rate is not a suitable instrument for the fine tuning of individual markets. It affects, positively or negatively, demand in the economy in a very broad sense. At present, we are conducting the policy that we believe is necessary to meet the inflation target and support the recovery of the Swedish economy. When it comes to preventing systemic risks such as a prolonged unbalanced development of the housing market, the repo rate is too blunt an instrument to do the job on its own. The repo rate should only be considered if the systemic risk is such that it affects our possibility to meet the inflation target and support the stabilisation of the real economy and the financial markets. There are instead other and probably more important factors than the repo rate when it comes to avoiding an unbalanced development of the housing market. This perhaps relates above all to effective regulation and supervision.

Governance to prevent systemic risks – the road ahead I would now like to say a few words about the road ahead for the authorities’ efforts to prevent systemic risks. Today, the Riksbank has an overall responsibility for the financial system. Finansinspektionen is responsible for the stability of individual institutions, but also has a responsibility for the system as a whole. Together, our task is to try to steer the financial system away from instability and towards stability. The main responsibility for this of course lies with the banks themselves. The institutional frameworks give Finansinspektionen the effective tools that directly affect behaviour – the possibility to change the capital requirements, impose sanctions, prohibit or stipulate measures and, ultimately, to withdraw permits and licenses. The role of the Riksbank, on the other hand, is to exert influence by conducting a dialogue with the participants and issuing warnings about the risks that arise. The “Financial Stability Report”, which we publish twice a year, is a central tool in this work. The idea is that our warnings should influence the banks in the following way: if the Riksbank points out that a risk has arisen at a bank, the bank itself should take action to retain the confidence of the market in its operations. If the bank itself does not take action, the bank’s counterparties and customers should at least react and take account of the risk in their pricing.
In his survey of the range of research results, Joe Gagnon finds roughly similar median results for studies focusing on programs in the United States, United Kingdom, and euro area—citing a 4 / 13  BIS central bankers' speeches  median effect of about a 50-basis-point reduction in 10-year yields for a purchase equal to 10 percent of GDP.22 Regarding costs, in a recent exploration of strategies for defeating the zero lower bound, former Federal Reserve Chairman Bernanke dispels some of the common critiques of balance sheet programs (which he calls quantitative easing).23 He points to unrealized worries about an upsurge in inflation, collapse of the dollar, currency war, and rise in household leverage, and he questions the effects in promoting asset bubbles and inequality. He notes that fiscal risks associated with quantitative easing must be balanced against benefits of tools that enhance policymakers’ ability to meet their policy objectives in the face of a serious economic downturn or disinflation. Lesson 2: The Fed could control interest rates even with a large balance sheet An additional concern—that the Fed would not be able to control interest rates with a large balance sheet—proved to be surmountable. As I described earlier, the Fed successfully introduced new tools and counterparty relationships into a new operating regime that delivers interest rate control irrespective of the level of reserve balances in the banking system.

May I, at this point, request that we stand and observe a moment of silence in honour of our past late Governors; R C H Hallet, Valentine S Musakanya, Bitwell R Kuwani, Luke Mwananshiku and Leonard Chivuno and many other former employees of the Bank who passed away during the last 40 years. Thank you. It is important to mention here that most of the former Governors have continued playing critical roles in the financial sector and I can proudly say that three of them today serve as chairmen of commercial banks. In conclusion, Ladies and Gentlemen, may I again welcome you all to this conference, and I urge you to be open and constructive during the deliberations. I thank you. 4  BIS Review 48/2004
5 Two sets of initiative are discussed here: changes to the regulation of banks’ risk-taking; and changes to the terms of the social safety net to improve its time-consistency. It is too early to know whether these measures will be sufficient. But recent events suggest some mix of these measures is surely necessary. 2. Evolution in the banking safety net  The three longest standing state insurance devices for the banking system are liquidity insurance, deposit insurance and capital insurance. These offer protection to different parts of banks’ capital structure, respectively wholesale deposits, retail deposits and equity. So how have risks to banks’ balance sheets – in effect, the “insurable interests” of the state – evolved over time? And how, in turn, has this evolution shaped the design of the banking safety net? The UK provides a useful historical case study. Chart 1 plots UK banks’ balance sheet against GDP since 1880. The ratio is flat for almost a century, at around 50%. Over this period, banks’ assets grew roughly in line with money spending. But from the early 1970s, this pattern changed dramatically. By the start of this century, bank balance sheets were more than five times annual UK GDP. In the space of a generation, the insurable interests of the state had risen tenfold. By itself, this expansion of balance sheets need not imply that the state was bearing greater implicit risk. For example, banks could have self-insured by holding larger buffers of capital and liquidity.

In particular, five such strategies were clearly in evidence: •  Higher leverage: The simplest way of exploiting the asymmetry of payoffs arising from limited liability is to increase leverage. For example, if the capital ratio of the hypothetical bank were to halve from 10% to 5%, the beta of the bank’s equity would double (Figure 2). In that event, the imbalance between privatised gains (above the zero axis) and socialised losses (below the zero axis) would increase. Private investors would harvest more of the upside and export more of the downside. There is clear evidence of this strategy being pursued over long sweeps of history (Chart 2). Chart 7 looks at the behaviour of UK banks over the past decade; it plots their leverage against the riskiness of their assets. UK banks migrated North-West over the past ten years, with balance sheet expansion financed by higher leverage. Because UK and European banks were not subject to any regulatory restriction on simple leverage, there was no effective brake on this leverage-fuelled expansion. Higher leverage fully accounts for the rise in UK banks’ returns on equity up until 2007. It also fully accounts for the subsequent collapse in these returns. The highleverage strategy pursued by UK and European banks rather effectively privatised gains and socialised losses. •  Higher trading assets: An alternative means of replicating the effects of higher leverage is to increase the proportion of assets held in banks’ trading books.