samchain/econo-pairs-v1 huggingface dataset:
The combination of complexity and manipulation has led to a loss of faith by investors in model outputs, and in particular risk weights, over the past few years. Surveys of investors suggest a fairly deep-seated scepticism about risk weights, with only a small fraction believing them trustworthy (Chart 9). From a low base, investor faith in these risk weights has continued to fall fast (Chart 10). These concerns appear to be reflected in the pricing of bank risk. Bank investors appear to have moved towards using simpler metrics, such as leverage ratios, when assessing capital adequacy. There is a positive correlation between banks’ leverage ratios and their market price-to-book ratios (Hoenig (2013)). No such correlation exists for banks’ regulatory capital ratios. Investors seem to have begun pricing the solvency risk they best understand. The lack of transparency about, and investor trust in, risk weights has important implications. For regulators, a lack of transparency can damage the power of market discipline in constraining risk-taking – so-called Pillar III of Basel. Or, put differently, the complexity of Pillar I of the Basel Tower (regulatory rules) risks emasculating Pillar III (market discipline). Pillar I has become Popeye’s forearm, Pillar III his bicep.3 For investors, uncertainty about banks’ true capital adequacy is priced. Where there is uncertainty, they will factor a premium into banks’ cost of capital. That may be one of the reasons many of the world’s largest banks have continued to trade at a discount to their equity book value.

As elsewhere, a regulatory regime of constrained discretion has given way to one with too much unconstrained indiscretion. This calls for regulatory repair. Without change, the current regulatory system risks suffering, like the Chicago teachers and the LIBOR fixers, reputational damage. Fortunately, there are early signs that regulatory change is afoot to place tighter constraints on this (in)discretion. The emergence of self-regulation To understand how we ended up here, it is useful to explore the historical contours of the regulatory debate. This is a history in roughly four chapters. Chapter 1 covers the period prior to the agreement of the first Basel Accord in 1988. Until then, a patchwork of national regulatory frameworks for capital adequacy operated. Some countries set capital adequacy standards based on simple measures of bank equity to assets – a leverage ratio. Others, including in the US, used risk-based standards with risk weights set by regulators for a small set of asset categories. Chapter 2 begins with the introduction of the Basel Accord. This was a landmark agreement: the first-ever genuinely international banking accord, based around an 8% bank capital ratio, with internationally-set risk-weights applied to a small set of banks’ assets. The Accord was explicitly designed to lean against an international “race to the bottom” in capital adequacy standards (Goodhart (2011)). It also helped ensure a level international playing field. Chapter 3 commences with the Market Risk Amendment to Basel I in 1996 and continues through to the Basel II agreement of 2004.
We are in such a complementary environment today. At present we see no evidence that low interest rates are contributing to leverage-driven financial imbalances in the euro area. Indeed, the most serious financial stability risks tend to be associated with excessive developments in bank credit, and there are no signs of that in the euro area on average today. However, were we to enter a conflicting environment, the logic of the Tinbergen rule would become more apparent. On the one hand, if for example a bond bubble were emerging but inflation was still low, raising rates to combat that financial stability risk would run contrary to our price stability objective. On the other hand, if inflation were rising banks but banks in the euro area were still repairing their balance sheets, raising rates could have damaging consequences for the banking sector. Given the hierarchical nature of the ECB’s mandate, if we were to face such conflicts, where price stability and financial stability point in different directions for the path of interest rates, we would have to put price stability first. This is our legal obligation. And from an economic point of view, in circumstances where financial stability effectively becomes a distinct objective from price stability, the Tinbergen rule implies there have to be instruments other than interest rates to address it. Those instruments are of course macro-prudential policies.

However, less than 5% of the losses were insured, compared to 40% in developed countries2. Over the last five years, the region experienced a series of high-profile and very painful disasters such as the Tohoku Earthquake and Tsunami in Japan, floods in Thailand, and the Super Typhoon Haiyan in the Philippines. Losses from these three disasters are estimated to be close to USD 360 billion3, about the average GDP of the Philippines and Thailand in 2012. As these economies were underinsured, the bulk of the financial burden was ultimately borne by the governments. 4. The development of catastrophe risk management in Asia is still at a nascent stage, compared to more mature markets in the US and Europe. Yet Asia is expected to continue to experience a rise in natural catastrophe losses, as a result of climate change, and rapid population growth, urbanization as well as economic concentration in heavily exposed regions. So With this confluence of factors, the financial burden from natural catastrophes is expected to intensify. 1  “Source: EM-DAT – The International Disaster Database”. 2  “Risk Financing is Key to Building Resilience Against Disasters – Study”, ABD, 31 January 2013. 3  “Based on Swiss Re and Aon Benfield’s estimates”. BIS central bankers’ speeches  1  Minding the protection gap in natural catastrophe risk management 5. Going forward, governments can no longer act as the “insurer of last resort”.
Fraziali Ismail: Non-performing loans in East Asia and the Pacific practices and lessons in times of COVID-19 Opening remarks by Mr Fraziali Ismail, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the webinar and the launch of World Bank’s Report on non-performing loans (NPL) in East Asia and the Pacific, 27 October 2021. * * * A very good morning to everyone! It gives me great pleasure to welcome you to this webinar in conjunction with the launch of the World Bank Report on “Non-Performing Loans in East Asia and the Pacific: Practices and Lessons in Times of COVID-19”. This event comes at a time where many of us in the region are still navigating through uncertainties with the pandemic. Recovery in many regional economies including Malaysia has begun to gather pace in recent periods in tandem with the recovery in global economic activity. However, the outlook remains subject to large downside risks as the potential for new variants of COVID-19 remains high. These developments are also happening amid the gradual expiry of policy support extended to households and businesses affected by the pandemic. The unprecedented level of support extended has so far helped to keep loan impairments at bay. But, as these measures are gradually unwound as the economy recovers, we would expect to have much greater visibility on the true asset quality of banks.

That said, it is equally important for policymakers to ensure that mechanisms for swift NPL resolution remain appropriate, not only to prevent an accumulation of legacy NPLs in the banking sector but also to provide borrowers impacted by this pandemic an opportunity to bounce back once the crisis abates. Such a balanced approach helps to preserve the value and productive capacity of borrowers in turn limiting long-term damage to the economy. For Malaysia, work is underway to strengthen legislation which will expand the coverage of businesses that can benefit from court-sanctioned recovery mechanisms. This will help flatten the insolvency curve and avoid more permanent scarring, if NPL cases were to spike. Admittedly, this is an area where there are opportunities to do more and one where all of us can potentially learn from each other. Concluding remarks Let me conclude. Looking ahead, we are cautiously optimistic that the tide may be finally turning in this crisis. However, we certainly can’t conclude that the COVID-19 pandemic is firmly behind us. We humbly admit that the virus has wrong footed us several times. The hallmark of good policymakers is to, as the saying goes, “hope for the best, but prepare for the worst”.
Costs in the Swedish manufacturing industry have fallen in the last 15 years in comparison with those in a large group of countries (see Figure 3). Swedish exports have increased dramatically and the current account is showing a large surplus. The development of real wages is an additional way of illustrating that wage formation has functioned better in the last 15 years than in the 1970s and 1980s. In the period 1997-2007, the average increase in real wages was 2.5 per cent per year. There has not been such an extended period with real wage increases since the 1960s. This can be compared to the period 1970-1992, when the average increase in real wages was 0.7 per cent. Real wages actually fell in several years during the 1980s and early 1990s (see Figure 4). Wages and costs in the current agreement period I now come to my second point, which concerns wages and costs in the current agreement period. As far as we can judge at the moment, cost increases will be higher in the current agreement period than in the preceding agreement periods. Wage increases will be somewhat higher and the development of productivity much weaker.

Higher wage agreements in 2007 than in preceding agreements I personally was rather optimistic ahead of the rounds of collective bargaining in the spring of 2007 in the sense that they would mainly be conducted in good time before the old agreements expired and without serious conflicts, and that they would result in wage increases that were compatible with the Riksbank's inflation target. My assessment was based on three factors. Firstly, the economic conditions prior to the bargaining rounds were good. Wages had increased moderately in the preceding years and there was spare capacity on the labour market. Secondly, wage formation had improved since the crisis at the beginning of the 1990s. Thirdly, the monetary policy framework had improved and thereby the conditions for maintaining low and stable inflation. The public's expectations were that inflation would be around the target of 2 per cent per year. At the same time, my assessment was that the risks were on the "upside", that is that it was possible that wage increases could be higher. There was strong growth in the economy and employment was increasing rapidly. Despite the positive experience of the preceding years, there was a possibility that the rounds of collective bargaining could be much less straightforward than expected. Market forces could also push up the rate of wage increases to higher levels. I became more concerned when the content of the agreements became apparent. The levels of the agreed wage increases were significantly higher than in the preceding rounds of collective bargaining.
Many of these Middle Eastern banks service Islamic financing needs. Singapore welcomes more banks from the Middle East to set up here and to partner us in the growth of our financial centre. Beyond Middle Eastern banks, we have also seen international banks such as Citigroup and Standard Chartered introduce Islamic finance and murabaha products from Singapore. More financial institutions are using Singapore as a launch pad for innovative new Islamic products. Singapore will continue to co-operate with market participants and other countries like Malaysia, Indonesia, Bahrain, Kuwait and the UAE on the development of Islamic finance. Integration of Awqaf into Islamic finance Let me now turn to waqf. Historically, the revenue generated in waqf has been applied to traditional uses like maintenance of religious buildings. But this is changing. Proceeds from the estates are now used to contribute more widely to society. Rules governing the administration of waqf have become increasingly progressive. In Kuwait and Qatar, revenue from waqf has been used to build hospitals, universities and commercial and office complexes. Townships have even been built in Morocco. Such innovative financial uses help to unlock the economic potential of waqf. In Singapore, we have the example of an integrated mixed-development at Bencoolen Street, comprising a mosque, service apartments and a commercial complex. This was made possible through the innovative financing solution provided by the launch of the musyarakah bond. MUIS, which administers a number of waqf, has also made use of the proceeds to fund Islamic education.

This was the reason why Singapore had initiated the Asia-Middle East Dialogue (AMED). AMED would help to share developmental experience, promote greater understanding and serve as a bridge between the two regions. Before stepping down as Prime Minister, I stepped up Singapore's relations with the Middle East, and continue to do so in my present capacity. In the past three years, I have visited almost all the Middle Eastern and the Maghreb countries – Egypt, Algeria, Jordan, the Gulf States, Iran, Israel and the Palestinian Territories – to name a few. Trade and investment between Singapore and the Middle East have shot up. To date, Singapore companies have secured more than $ billion worth of projects. Funds from the Middle East managed in Singapore have increased to around $ billion. But there is room for greater growth. I have started a second round of visits to the Middle East, beginning with Abu Dhabi this year. I want to further strengthen Singapore's relations with them. Let me now turn to the theme of today's conference – integrating awqaf into the Islamic financial sector. I have dealt at some length on relations between Asia and the Middle East because I wanted to put this conference in a larger context. The evolution of awqaf and Islamic finance is in a sense about how Muslims are adapting traditional concepts to modern living and how Islamic finance is moving out of the Middle East into the rest of the world.
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.

This year, we are advancing to a deep dive into the incentive systems of front offices in retail banks. 16. Based on what we have learned from the self-assessment exercise, we noted that banks’ culture effort in the area of incentive systems is still very much an area of “work-inprogress”. And having appropriate incentive system is such an important piece for inducing desirable behaviour that we have decided to intensify our efforts on this theme. 17. Up till now, we have not seen any guidance published on stylised approach to incentive systems, I guess because the design and implementation of such systems are very much dependent upon the characteristics of individual banks. But we have decided to take up this challenge by looking into the incentive systems of front offices in 20 retail banks, and aim to provide some useful guidance, or at least reference points, to the industry. 18. As you can imagine, the Focused Review on this subject is a very large-scale exercise. We are examining the front-office incentive systems, as well as analysing the perception and behaviour of front-line staff, in 20 retail banks in Hong Kong. So far, as a key component of this review, we have completed an industry-wide employee survey to gauge frontline employees’ views on their banks’ incentive systems and culture. We are encouraged to see the active participation of surveyed bank staff, with an overall response rate of around 70%.
Moreover, although the ECB’s supervisory decisions are formally adopted by its Governing Council – which also defines monetary policy – these are prepared and pre-agreed by an independent Supervisory Board, meaning that the Governing Council acts only under the principle of non-objection. Hence, when defining the institutional model of the banking union, the European legislator has set great store by preventing conflicts of interest between micro-and macroprudential supervision and monetary policy, on one hand, and between supervision and bank resolution, on the other. The aim is to mitigate the risk of monetary policy, geared to maintaining price stability, being tainted by considerations relating to financial stability, and to separate as far as possible the policies aimed at preventing solvency crises, which are pursued by the Single Supervisory Mechanism, from those geared to managing such crises, which are the remit of the Single Resolution Mechanism. The appropriate functioning of this model, based on the principle of separation, nevertheless requires the intense cooperation and coordination of the different authorities involved. In the case of the interaction between monetary and prudential policies, the necessary cooperation arises from the complementarity, at least in the medium term, between macroeconomic stability and financial stability and, above all, from the potential impact of the instruments available in one area on the objective pursued in the other.

Banking union The development of the banking union has had an appreciable impact on the organisation of supervision in Europe. In particular, national supervisors have relinquished competencies to European authorities, although solely in the area of prudential oversight and resolution policy for deposit-taking institutions. Competencies relating to oversight of the solvency of other intermediaries – such as insurance companies or investment firms – and of compliance with rules of conduct by all financial institutions remain under the stewardship of the national authorities. These, as is moreover appropriately reflected in the report presented today, actively contribute to the supervisory and resolution functions exercised in respect of significant banking institutions at the European level, and they retain their jurisdiction over less significant institutions. Accordingly, the relinquishing of sovereignty entailed by the banking union has not generally altered the organisation of financial supervision at the national level, although it has required the establishment of new European agencies that have assumed the competencies transferred from national jurisdictions. Indeed, the organisation of the banking union adheres to a model involving a significantly stricter separation of functions than that prevailing in national jurisdictions. Thus, two independent authorities have been created: the Single Supervisory Mechanism, which turns on the ECB, and the Single Resolution Mechanism, which does so on the Board of the same name.
From today’s vantage point, it is easy to forget how revolutionary the introduction of RTGS was back in 1996. Before RTGS, all interbank payments were subject to some element of settlement risk – the risk that a bank would fail between the time it promised to make a payment, and the time it delivered on that promise. By allowing banks to settle high value transactions between each other, electronically, in real time, RTGS eliminated settlement risk on the largest payments flows – the ones most likely to threaten financial stability by bringing down the system if they failed. But that is not the only innovation that RTGS has delivered over the years. As the financial system has evolved, RTGS has been regularly updated, introducing a raft of new functions and risk mitigants to respond to changing demands. Today, we are announcing that the Bank has completed, or agreed steps that will complete, all the actions in response to the Deloitte report 4 published in March last year following the RTGS outage in October 2014. Looking forward, as we celebrate RTGS’ twentieth birthday during 2016, it is again time to ask fundamental questions about the shape of the Bank’s settlement operations. The way payments are made has changed dramatically in recent years, reflecting changes in the needs of households and companies, changes in technology, and an evolving regulatory landscape. The range of payment providers is growing rapidly.

At the same time, banks are required to build additional capital buffers, which further constrain their pay-out ratio. So dividend prospects are doubly affected and that explains why share prices are reacting to negative news on growth. This movement has been more pronounced for French banks which are suffering from two specific vulnerabilities, one real, one exaggerated. The real vulnerability is their dependence on dollar funding, due to the scale of their international activities, which they may have been initially too slow to address effectively. It is currently being dealt with through a combination of deleveraging and consolidation. In the meantime, in order to ease this transition, the Eurosystem, together with other central banks across the world, has decided to conduct US dollar liquidity-providing operations with a maturity of three months. A more exaggerated concern about French banks is their exposure to sovereign risk. Let me just point out some facts: total exposure of major French banks to the sovereign risk of socalled “peripheral countries” amounts to € To take an extreme – and from my view point – totally unrealistic scenario – a 50% haircut on Greece and 25% haircut on Italy and Spain would result in a 12% loss of core Tier One capital. In terms of liquidity, the Eurosystem refinancing policy provides for an unlimited provision on an extended period and the collateral held by French banks in eligible assets is much above their present needs.