samchain/econo-pairs-v1 huggingface dataset:
Fiscal positions in Asia were far weaker than they initially appeared to be because of the enormous contingent liabilities that governments faced as a result of the collapse of the banking systems. This limited the room for countercyclical fiscal policy, although each government moved eventually to put in place modest fiscal stimulus. This diagnosis of financial vulnerabilities led to a very substantial improvement in the quality of national balance sheets in the region. More on this later. Exchange rate regimes and the perils of the middle A second, and closely related lesson, relates to the exchange rate regime. In the crisis countries, the exchange rate regime of choice had been a fixed but adjustable peg. This was softer than a currency board – the possibility of adjustment was built into the arrangement, but it was presented as a commitment to a fixed nominal exchange rate for an indefinite period of time. Although these regimes of limited exchange rate flexibility had been regarded as a means of achieving economic stability, in fact they turned out to be a source of instability. Nominal exchange rates against the dollar had been held fixed for some time, while real effective exchange rates had appreciated significantly. Because of weaknesses in the financial system, the investment booms of the previous decade had not translated into increased productivity. As investors grew concerned about potential weakness, pressure on the exchange rate further intensified until it became unsustainable. Exchange rate intervention proved ineffective.

The more promising approach is to invest in the complement of institutions and policies that enable an economy to live more comfortably with openness. Focusing on those measures that will enable an economy to be more flexible and to adapt more quickly to change ultimately will be a more effective policy strategy. It is politically more difficult, but economically more effective than those solutions that seem to offer protection from competition and volatility. Crisis resolution A fourth lesson, or series of lessons, comes from our experience in crisis resolution. The strategies adopted to stabilize markets and then to foster recovery varied significantly across the crisis economies. Each involved a somewhat different mix of policy reforms and temporary financial assistance, tailored to the different conditions that prevailed. Where there was success, the common feature was what Larry Summers called the Powell Doctrine applied to international finance – the overwhelming use of force, with a clear strategy for resolution. The “force” in this sense applied both to the scale of financing made available relative to the need and to the quality of the policy measures. Very substantial resources were deployed in support of the recovery efforts, and a large share of the resources was made available upfront, in order to try to mitigate the liquidity problem and to stem the loss of confidence.
But one condition for macroprudential policy to work as intended is that there is a framework in place, with a clear division of responsibility and which clarifies how the various instruments should be used. One reason why monetary policy in Sweden has needed to give consideration to financial imbalances is because there has been no framework for macroprudential policy. While awaiting a permanent framework in Sweden, the Riksbank and Finansinspektionen started a joint council for cooperation on macroprudential policy at the beginning of 2012. But even if this council offers an important forum for analysis and discussion, it has no powers of decision-making and no tools of its own at its disposal. Two days ago, however, the Financial Crisis Committee produced a proposal for macroprudential policy in Sweden – which I will return to later on. Central banks should play an important role in macroprudential policy When drawing up a framework for macroprudential policy in Sweden, I think there are good reasons for giving the Riksbank a central role. One important reason is that the Riksbank has long been conducting extensive analysis of macroprudential policy issues. Ever since the Swedish bank crisis in the early 1990s, the Riksbank has gradually built up substantial knowledge and experience of analysing the risks that can threaten the stability of the financial system.

5  For a more detailed description of macroprudential policy, see for instance C. Nordh-Berntsson and J. Molin (2012), “A Swedish framework for macroprudential policy”, Economic Review, no. 1, Sveriges Riksbank, and my colleague Karolina Ekholm’s speech “Macroprudential policy and clear communication contribute to financial stability,” published on 30 March 2012. BIS central bankers’ speeches  3  focus for macroprudential policy is the risks in the financial system as a whole (see Figure 9). The supervision of individual institutions is, of course, also important to the stability of the financial system, not least as financial institutions are regarded as “systemically important”. But to capture the build-up of risks that could threaten the stability of the financial system – what are known as systemic risks – it is not enough to keep an eye on individual institutions. One needs to supplement this with a systemic, or macro, perspective. Macroprudential policy also requires appropriate tools. Let me discuss some of the macroprudential tools that could be useful to specifically manage the risks linked to house prices and household debt.6 Countercyclical capital buffers are one of the most discussed tools, and are a part of the Basel III international regulatory framework.7 The idea is to vary the capital requirements made of the banks; when there is strong credit growth, the requirements will be increased, while they will be reduced during financial stress, when there is otherwise a risk of a credit crunch.
Today, in my personal judgement, it might be considered that the first criteria (with a headline inflation significantly above 2% since summer last year and expected to remain there for months ahead), and the third one (with underlying inflation around or above 2% by most definitions) are fulfilled. At this stage, according to our December forecasts, the remaining one (about inflation remaining at or above 2% for the rest of the projection horizon) is not met. This could possibly change in the next quarters. However, we should be mindful of the uncertainty surrounding our 3year inflation projections in the extraordinary context we are going through, especially when price pressures are originating from sector-specific supply constraints with moderate signs of contagion so far to wages. And there is one additional element, calendar based, introduced by the sequencing: any rate hike should only happen after date X, the end of the net asset purchases. We should not pre-empt this calendar: it is about the credibility of the sequencing, and also about some caution on the most fragile of our criteria – the medium-term forecastbased one. This brings me to a key reminder: the forward guidance never calls for an automatic decision, and always preserves our possible assessment. In our own wording, it is an “expectation”, and the Governing Council has to “see” and “judge”: even if and when the three criteria will be fulfilled, we could take into consideration exogenous or exceptional contingencies, including geopolitical ones.

It is namely the case that the preliminary works to the Sveriges Riksbank Act emphasise that the monetary policy instruments shall only be used to maintain price stability, and thus not to promote a safe and efficient payment system.3 We sometimes say that monetary policy shall take financial risks into account, as it can be difficult to stabilise inflation around the target if households are forced to rapidly reduce their debts.4 Such difficulties could arise, of course, but for me it is not consideration of the inflation target that mainly justifies letting monetary policy take financial risks into account. Instead I perceive taking financial risks into account to follow on from the task of “supporting the objectives of general economic policy with the aim of achieving sustainable growth”. A monetary policy that leads to an unhealthy build-up of credit or other financial imbalances is scarcely compatible with sustainable growth. But this task, like the task of stabilising economic activity, is subordinate to the inflation target. Monetary policy’s consideration of financial risks must therefore be weighed against the inflation target and economic developments. 1  For a tool to be sufficient to meet the inflation target and attain a balanced development in economic activity, it is necessary for the economy to mostly suffer demand shocks, not supply shocks. This observation is sometimes called the divine coincidence, an expression coined by Blanchard and Gali (2007). 2  See the Riksbank (2013a) p. 3. 3  See Bill 1997/98:40, p. 54. 4  See, for example, the Riksbank (2013b).
According to SWIFT data, almost 40% of transactions are denominated in euro. It truly is the second most important currency in the world after the dollar. The European Commission has recently taken steps to further strengthen the role of the euro, which are most welcome. iv Among other things, the Commission has launched the Capital Markets Recovery Package that introduced targeted amendments needed to develop euro-denominated derivatives for energy and raw materials. 1. Supplying euro denominated safe assets and enhancing Capital Markets Union An international currency is only as strong as the safe assets it can offer. The euro sovereign debt market is still fragmented and only a few Member States are issuing global assets in a sufficient quantity. In this regard, there have been interesting recent developments in Europe. In June 2021, Europe launched Next Generation EU (NGEU) which will raise over 800 billion euros through a joint issue of European bonds. More broadly, the deepening of European Capital Markets Union should, at end, be instrumental. v It would help both for the allocation of capital within the euro area and for the stability and balance of the International Financial System. Such an initiative is important as we face new policy challenges. The transition to a greener economy will require immense financing, and the digital transformation will also require both public and private investments. This all calls for investments in global public goods to be increasingly managed at the EU level. Two open questions remain.

In this context, the idea of a global currency did not prosper in the academic debates – and even less so in policy discussions. One recent exception stands out, to which I would like to pay a special tribute. In 2010, Michel Camdessus launched the Palais Royal initiative. This initiative sheds light on the shortcomings of the International Financial System, in particular its global governance and an overreliance on a single central currency. The initiative suggested a greater role for SDRs and enhanced cooperation between the World Bank, the IMF and the G20. However, other major projects have in parallel been assigned higher priority for instance the successful creation and development of the euro - or have been dictated by necessity - for instance the strengthening of the global financial safety net (GFSN) induced by the great financial crisis and then the Covid crisis. That said, there have been significant progress such as the increase of IMF resources, the two special drawing rights (SDR) allocations (including the last one of 650 billion USD in 2021) and the creation of the Resilience and Sustainability Trust (RST) on the 1st of May by the IMF, which will help deliver the G20 commitment to rechannelling at least 100 billion USD of this allocation to the countries in need. 2. The dangers of a fragmented financial system  Page 3 sur 7 But there are dangers ahead.
However, the pattern of its recovery is, so far, relatively weak in comparison with other similar cyclical phases. The financial restructuring being implemented by certain large corporations, which has limited their ability to spend on new projects, and persisting factors of uncertainty over the pick-up in demand may have been behind the as-yet subdued response of this investment component Goods exports expanded at a faster rate than their markets, despite the loss of competitiveness induced by the appreciation of the euro. This favourable result was offset, however, by the sluggish behaviour of tourism and by the rise in imports, boosted by the euro appreciation. Consequently, net external demand exerted a significant contractionary effect on GDP, which has run into the opening months of 2004. It should be borne in mind, moreover, that the employment adjustment in the industries most exposed to foreign competition may be reflecting the fact that the defence of market share is, in some cases, based on unsustainable processes that erode the economy’s overall competitiveness in the medium term. 4  BIS Review 39/2004  Notable among the achievements in 2003 was the improvement in inflation which, after starting the year at a rate of 4%, ended it at 2.6%. This sizable downward adjustment partly reflects the removal of certain transitory elements from the index which had had an upward effect in 2002, but it was also the result of the restraining impact of import prices, favoured by the euro appreciation and the slowdown in oil prices.

But part of it is up to us. For banks, the tiering mechanism adopted last September reduces the cost of negative interest rates by nearly EUR 4 billion for European banks, of which around EUR 800 million for French institutions. These figures are significant enough to be worth quoting, feel free to do so as well. As regards insurers, two points should be stressed. First, the return on non-unit linked life insurance products needs to further decline. Second, the measures taken at the end of last year regarding the profit-sharing reserve. This reserve, which belongs and will continue to belong to policyholders, can henceforth be taken into account in the calculation of insurers’ solvency ratio. I supported the adoption of this measure because it brings French practices into line with that of the other countries concerned, in particular Germany. However, it will never be able to compensate for insufficient solvency. Adapting to the low interest rate environment also requires increased vigilance with regard to the quality and pricing of loans. This is the role of the Haut Conseil de Stabilité Financière (HCSF – High Council for Financial Stability), chaired by Bruno Le Maire; last December we issued a recommendation on the maturity of mortgage loans and associated debt burden. It applies to all new loans issued since January. This means, in short, no more excesses, and a rapid change in behaviour. Otherwise, we might see a capital surcharge for non-compliant loans, although that is not part of my wishes.
Further, measures have been set in place to mitigate the effects of banking crises, when they occur, on the public coffers and the economy in general. As regards solvency requirements, the reform agenda has practically concluded, while awaiting the Basel Committee’s final agreement on the so-called Basel III accord. Today I shall focus on the second objective of the international reform agenda, i.e. on the package of measures aimed at smoothing the management of bank crises while preserving financial stability and minimising the use of public funds. At the base of the regulatory reform in this area is the work of the Financial Stability Board (FSB) conducted at the behest of the G-20 following the Lehman Brothers debacle. In 2011 the FSB published the Key Attributes of Effective Resolution Regimes for Financial Institutions, which lay down the principles for ensuring an orderly resolution of banking institutions. Indeed, the Key Attributes specify the powers and tools the administrative authorities should have to see through the orderly resolution of non-viable banks, ensuring the maintenance of their core functions and their restructuring at the least possible cost to the taxpayer. The Key Attributes further envisage the availability of recovery and resolution plans for each institution that set out a roadmap ahead of a potential crisis situation. Lastly, they establish the principle whereby bank shareholders and creditors are those who should bear the bulk of the costs of the crisis.

those which, given their significance, would not be wound up in the event of insolvency, are required to hold a minimum volume of loss-absorbing instruments in the event of resolution. This is known as the MREL (Minimum Required Eligible Liabilities) requirement. 4/10  Accordingly, the European regulations are precisely tailored to the new resolution principles and contain provisions that minimise the likelihood of crises resulting in the disbursement of sizeable public funds. That said, the challenges posed by the practical implementation of these provisions are manifold. For example, the relative rigidity with which it is stated that receiving public aid generally implies the non-viability of an institution and, therefore, facilitates the activation of the resolution (or, where appropriate, winding-up) process, considerably constrains the supervisor’s management of financial crises. It might be advisable to make this aspect of the regulations more flexible, albeit maintaining, in any event, the subjection of any public support to the prevailing State aid arrangements managed by the European Commission. Yet the main challenge for the industry and its supervisors stems, to my understanding, from the potential implications of the new resolution framework for banks’ business models and for the structure of the banking sector. Allow me to expand on this. The demands of the regulations would point, in principle, to a configuration of the financial system that, in simple terms, would comprise two groups of relatively differentiated banks.
Muhammad bin Ibrahim: The polemics of governing law in Islamic finance – recent developments and the way forward Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the International Shariah Research Academy for Islamic Finance–Institute of Islamic Banking and Insurance (ISRA-IIBI) 2nd Annual International Thematic Workshop 2010: “The Polemics of Governing Law in Islamic Finance”, London, 29 November 2010. *  *  *  Let me first thank the organizers for inviting me to speak at this ISRA-IIBI 2nd Annual International Thematic Workshop 2010. Although I very much regret not being able to be in London in person, I am thankful for the many advances of modern technology for the opportunity to briefly address all of you this morning. I am also happy to note that this event is a continuation of international collaboration between the organizers, the International Shariah Research Academy for Islamic Finance (ISRA), the Institute of Islamic Banking and Insurance (IIBI) and Thomson Reuters, following the success of the inaugural workshop held last year. The theme of this year’s workshop, “The Polemics of Governing Law in Islamic Finance: Recent Developments and the Way Forward”, is most apt. With the emergence of Islamic finance as a new growth area in the global financial landscape, this Workshop provides an excellent forum to exchange views and information on topical legal issues in Islamic finance.

The starting point in revising laws is therefore to ensure that the governing laws allow for the conduct of Islamic finance business. A closely related goal is to consider removing elements in existing laws, including the non-regulatory laws, which may render the conduct of Islamic finance business uncompetitive or inefficient. Initial considerations would involve changes to ensure that Islamic finance is placed on a level playing field with conventional finance. The purposes and objectives of the governing laws for Islamic finance are known to be largely similar to conventional finance from the financial regulation standpoint. Notwithstanding this, an ideal approach is devising a legal framework for Islamic finance that sanctions the statutory obligations for Shariah compliance in the governing law. This approach however, may not be feasible as preference for religions concerns can be seen to be contradictory to the principles of secularism and parity of beliefs rights in certain jurisdictions. We may need alternative approaches. I will revisit and elaborate on these points in greater detail at a later part of this speech. In Malaysia, the new Central Bank of Malaysia Act 2009 explicitly codifies the duality of the Malaysian financial system which shall consist of the conventional financial system and the Islamic financial system. In this regard, Malaysia has taken the approach to enact regulatory laws that are, at least for banking and takaful (Islamic insurance) industry, separate from conventional finance as the legal foundation for the conduct of Islamic finance business.
An even bigger increase was noted in long term insurance policies sold through digital channels by retail banks, which more than doubled in the first half of this year when compared with the second half of 2019. 8. Some may argue that the rising trend in the use of non-F2F channels for distributing banking services would have continued with or without Covid. But we could not deny the fact that the pandemic has injected a strong catalyst into this trend. So while we all embrace technology, and very much enjoy the convenience brought about by that, also we must not lose sight of the additional conduct risks involved. We have seen complaints, for example, that sales staff might have deliberately conducted investment transactions for vulnerable customers through internet banking in order to circumvent controls for safeguarding the interests of those customers. 9. There are indeed issues that warrant our attention to ensure that a customer-friendly online journey will not compromise adequate customer protection. For example, on the use of technology such as video conferencing for distributing long term insurance products, the Insurance Authority has provided guidance on measures to address challenges, such as difficulties in obtaining wet signature from customers for the insurance policies, as well as the potential intermittent interruption during the sales process which do not exist in a physical F2F environment.

The HKMA is also working hard at the moment to provide the industry with further guidance and practical examples to address difficulties of banks on issues such as how to identify vulnerable customers in an online environment so that the bank can accord them with extra care during the sales process. 10. Despite all these efforts in offering more detailed guidance to the industry, I’m sure you would agree that having such additional guidance alone cannot achieve the desired outcome. We do very much need the support of a sound bank culture, because culture is the invisible glue that holds a bank together. In fact, if one really thinks through the implications of the latest trends, culture does not become less important in the current environment. Quite the opposite, culture has actually assumed an even more critical role in times of pandemic. And for that reason, we should remind ourselves repeatedly of the need to keep up the momentum in promoting sound bank culture in order to counter the additional risks brought about by the pandemic. Our continued effort in the cultural landscape 11. So probably it will be useful if we quickly revisit what a “sound” culture should look like and what the core elements are? At the HKMA, we always emphasise that there is no one single formulation of “sound” culture. And each bank needs to map out its own path according to its desired culture, values and behavioral standards.