samchain/econo-pairs-v1 huggingface dataset:
Conclusion  To conclude, as insurers deploy increasing numbers of models, drawing on massive amounts of data and with new analytical techniques, it is vital that they give sufficient attention to effective model risk management. Insurers need to be sufficiently confident to use their models but not so over-confident that they misuse them. 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  Chart 1: Typical method used by large life insurers to calculate their Solvency Capital Requirement (SCR) using an Internal Model (IM)  10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  10  Chart 2: PRA’s analysis of selected internal model drift metrics from 1 Jan 2016 to 31 Dec 2017  40%  Life insurance firms 30%  General insurance firms  20% 10% 0% -10% -20%  Internal Model (IM) SCR  Standard Formula (SF) SCR  Net Best IM SCR / SF SCR IM SCR / Net Estimate BEL Liabilities (BEL)  Source: Solvency II regulatory reporting and Bank calculations  11  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  11  Chart 3: Alternative perceptions of modelling and its uses  Source: Adapted from Model risk – illuminating the black box (https://www.actuaries.org.uk/practice-areas/risk-management/disbandedresearch-working-parties/model-risk)  12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12

It will not be long from the time when we can clearly see its negative impact to the economy and financial stability. On a positive note, technology has transformed virtually every aspect of our lives – the way we interact with each other, consume our needs, follow the news, and navigate our movements. By 2018, more than half of the global population have become internet users. Here in Malaysia, almost 90% of Malaysians are internet users, and more than half of these users conduct banking and financial activities online. Digitisation and technology adaptation is already making significant inroads in providing new solutions going forward and has become a key strategy for us to enhance financial inclusion and also protection. While this means financial institutions now have greater avenues to reach consumers, it also entails greater exposure to emerging vulnerabilities and risks such as cyber and technology risks. This needs to be properly managed, otherwise it can potentially trigger grave systemic consequences. In addition, there are also the gradual and structural changes that we cannot ignore. Over the last 20 years, the global population has more than doubled to reach 7.5 billion. This has posed significant challenges for policy makers and governments to appropriately allocate capital and finite resources. Every country including Malaysia is experiencing ageing population growth and will be affected by demographic changes either today or in future years. Declining share of working-age population and higher number of old-age dependents will strain the healthcare systems and place an upward pressure on costs of pension schemes.
Turning to prices, inflation, which has been in negative territory virtually since the recovery began, has undergone a progressive correction since the start of this year, standing at –0.2% in May further to a rise in the energy component and a gradual pick-up in core inflation. The decline in prices in Spain is proving more marked than in the Monetary Union as a whole, meaning that the inflation differential will continue to help in bringing about an ongoing improvement in our economy’s competitiveness. Inflation might be running at a moderately positive rate at the end of 2015 owing to a combination of several factors. Firstly, the progressive petering out of the effect induced by the heavy fall in oil prices in the closing stretch of 2014 is expected to bring about an automatic rise in the energy component of the CPI in the closing months of this year. BIS central bankers’ speeches  1  And further, the depreciation of the euro will impact non-energy goods and services prices. In any event, the persistence of considerable slack in the economy, i.e. of substantial unused capacity, means a mild recovery in the inflation rate over the next two years is to be expected. The factors underpinning growth The favourable growth outlook is underpinned, above all, by the restoring of macroeconomic equilibria. The progress made and the measures underpinning it have allowed the confidence of both external investors and of Spanish households and firms to be restored.

The change in the ECB's monetary policy stance is not only useful for sustaining the recovery in the euro area in a manner which is compatible with price stability, but is also beneficial for the Spanish economy, since the least easing of monetary conditions is conducive to containing domestic demand and helps re-balance the expansion. Spanish public finances, for their part, remain very healthy. On the latest official forecasts, the general government budget balance will run a surplus of 1.1% in 2006, 0.2 pp up on the figure set in the last Stability Programme update. A balance on this scale obviously complies comfortably with the European fiscal discipline rules in the Stability and Growth Pact. Moreover, it will allow for a further reduction in the public debt/GDP ratio, possibly to below 40% of GDP at the end of the current year. In view of the figures available for the budget outturn during the first three quarters of 2006, it seems very likely that the final balance will be above the latest official forecast. The sound fiscal position reflects the fact that revenue from the main taxes has amply exceeded the estimates made in the budgetary programming exercise, which can be explained only in part by the higher-than-forecast economic growth recorded. The draft State budget for 2007 sets a surplus target for the overall general government sector of 0.7% of GDP, under a macroeconomic scenario marked by a slight slowdown in GDP.
The Spanish economy Spain, as I said earlier, has been one of the euro area economies that has continued to post high growth rates, compared with the relative slackness of the area as a whole. The new base-year 2000 National Accounts estimates for Spain, released a few weeks ago, indicate that its GDP grew in 2004 at a significantly higher rate than the previous estimate (3.1% against 2.7%), albeit with a more unbalanced composition. Moreover, the growth rate has remained on a mildly accelerating path, which has continued into 2005 Q1, when output stood at 3.3% compared with the same period in 2004. As indicated in the Annual Report, it has not yet been possible to analyse in depth the new National Accounts series, although the first comparisons with previous estimates indicate that both datasets offer a fundamentally similar diagnosis of the economy’s performance. In particular, the higher growth the new figures - available so far from 2000 - show has confirmed the continuity of the long expansionary phase in train since the mid-nineties. The expansion has been the result of the notable momentum of domestic demand combined with high employment-generating capacity and the extension of the supply side of the economy, two mutually reinforcing phenomena over these years which have provided a sound base for growth. Spanish euro area membership lay at the root of the significant expansionary impulses experienced by household and corporate expenditure.

However, experiences show that it may take time before exchange rate changes have an impact on foreign trade. In the short term, the value of imports adapts in that import prices in kronor rise as a result of the weaker exchange rates. The initial effect of a weaker exchange rate on net exports can thus be negative. However, in the slightly longer term producers and consumers adapt and export and import volumes are affected. When the exchange rate weakens, exports increase while imports decline, as domestically-produced goods and services become relatively cheaper. The effect of a weakening in the exchange rate can thus be that net exports follow what is known as a J curve; first they weaken and then they improve. 12 In the long term one can thus expect a weaker exchange rate to lead to increased net exports, which in turn has a positive effect on total production (GDP). Overall view is important Although it may be informative to reflect on the isolated effects of exchange rate changes on the economy, it is difficult to know what causes what. At the same times as the krona weakened in connection with the financial crisis, production fell substantially, partly as a result of a large fall in the demand for exports. It is difficult in this type of scenario to isolate the effects of the weaker krona from the effects of other changes.
We can, and have, and I hope will, take account of the exchange rate in our tactical approach to monetary policy. But with the best will in the world, what we cannot sensibly do, is to ignore the strength of domestic demand in order to shelter the exposed sectors. That would put the whole of the economy at risk to accelerating inflation - including those sectors we were seeking to protect. And it would not be of much help to them in anything other than the short term. The monetary policy option is - as I say - not whether or not, it is sooner or later, and ultimately less or more. The elements of hope that I can hold out to you - and central bankers can never give guarantees on this kind of thing - are first, that as we move into the euro process the markets will become increasingly persuaded that the ECB will, in fact, be committed to the stability of the new currency, as I am sure it will: and, secondly, that relative monetary conditions will change as activity picks up on the Continent and domestic demand moderates in this country. Our present exchange rate dilemma, Mr. Chairman, illustrates rather well the conflicting arguments about the euro project itself. The strengthening of sterling and its effect on the exposed sectors of the economy point up very vividly the very real advantages of the exchange rate certainty across the European Union area which only the euro can provide.

The growth of domestic demand is likely to be held back by the relatively tight fiscal policy as well as by the monetary policy tightening since May; and the effect this year of “windfalls” as a result of building societies’ demutualisations will be very much smaller. And we expect a deterioration in our net external trade position as a result of the strength of sterling’s exchange rate and now, too, as a result of the recent developments in Asia. The difficult questions for policy relate to the timing and the extent of the slowdown that is necessary on the one hand and likely on the other. These are difficult judgements at any time. They are particularly difficult when the economy is already close to full capacity. It is not surprising BIS Review 3/1998  -3-  that commentators differ in degree in their assessments. Economics is not - as I say - a precise science. Neither we at the Bank nor anyone else know with any great precision exactly where we are in relation to full capacity or exactly how fast capacity is growing; and we don’t know precisely either how demand will in fact respond to the policy tightening that is already in place. Our own best - and very carefully informed - guess is embodied in the forecasts that we publish each quarter, and we monitor immensely carefully the new information that becomes available day by day in the light of that forecast for early warning signs of emerging imbalance.
A relevant issue in this regard is the extent to which these macropudential measures are complementary or substitutive with respect to monetary policy instruments. For instance, the activation/deactivation of a countercyclical capital buffer may weaken/increase the impact of expansionary monetary policy measures, as it may have a negative/positive impact on credit supply. 1  Countercyclical capital buffer  11  Implications for the financial system  Let me now briefly discuss the potential implications of ageing for the financial system. Demographic changes will affect the demand for financial products in various dimensions. First, the demand for credit will diminish due to the reduction in the number of middle-aged individuals since, over the life-cycle, the amount of debt usually peaks at around those ages (in the range of 25 to 34 years), falling to very low levels when the reference person of the household is older than 55. 12  Additionally, the demand for long-term financial assets will probably increase since working age individuals will need to build up more savings for retirement, against a background in which public pension income might not be sufficient to smooth consumption in the transition to retirement. The flow of funds data actually show that since the beginning of the 21st century the share of financial assets related to retirement in the financial portfolio of euro area households has increased significantly. In particular, the share of pension entitlements plus life insurance and annuity entitlements has risen by more than ten percentage points.

Page 1/3  • In addition, the development of crypto-asset and DeFi comes with significant policy challenges for public authorities, that were highlighted in our discussions today: o First, they raise the question of how to regulate market players, which are not easily captured by existing regulation as they either lack central authority or may require close coordination between several regulatory and supervisory agencies due to the variety of their activities. o Second, the rise of these new assets has led central banks to reflect on the appropriate balance between public money and private assets and the way in which access to public money could be ensured in the digital era through the issuance of Central Bank Digital Currency. The second takeaway is that private players identify substantial benefits associated with distributed ledger technologies and consider that an appropriate regulatory framework would help make the most of these technologies. •  But we know from experience that public authorities need to act quickly, while this ecosystem is still nascent, to guide its development in a way that suits our public policy objectives. We are now at a tipping point. If we do fail to act, there is a risk that inefficient, fragmented, monopolistic solutions could develop in a silo mode, harming financial stability. But if we act early, we can foster the development of an innovative ecosystem, which will improve the efficiency of post-trading processes and infrastructures.
But there are also opposing forces in the foreign exchange market. The basic balance deficit suggests a weaker krone. If developments in the world economy translate into lower prices for oil and other export goods, the value of the krone may also fall. If the krone depreciates, the key rate must be raised to a higher level than otherwise in order to keep inflation in check, unless slackened activity in the Norwegian economy results in lower inflation. Over time, however, the nominal exchange rate is not the main force. The main determinant of competitiveness in Norwegian business and industry and the purchasing power of the Norwegian krone is the real exchange rate. 12  BIS Review 37/2008  The real exchange rate can be measured in a number of ways, for example by consumer prices or labour costs in Norway relative to our trading partners measured in a common currency. This provides an indication of the relationship between the level of external and domestic prices, which in turn reflects developments in cost levels. In real terms, the krone has appreciated by about 10 per cent since the mid-1990s, while labour costs in a common currency have risen by close to 30 per cent more than among our trading partners. This may be partly ascribable to the cyclical expansion and the low level of household saving. But most likely the strong real krone reflects the substantial improvement in the terms of trade and productivity.

On the other hand, a flexible exchange rate regime can also work, provided that the policy package is correct and there is a well functioning foreign exchange and financial market. But it would be a mistake to think devaluation can substitute for fundamental policy adjustments to correct a structural external imbalance. Competitive devaluations are “beggar-thy-neighbour” policies that are self defeating. 31. Indeed, the adoption of more flexible exchange rate systems by some Asian economies has not meant they can avoid the adjustments that are currently being undertaken. With a fixed exchange rate under a very strong and disciplined regime in the form of a currency board system, Hong Kong focused precisely on our underlying productivity, maintaining strict financial and fiscal discipline, and also prudent banking supervision, in order to enhance the resilience of the linked exchange rate system, and minimize and manage the downside risks of overheating in the economy. 32. Let me also put the currency adjustments in their proper perspective. In the last few years, the currencies with the greatest adjustments and volatility have been the G-3 currencies, rather than the Asian currencies. The yen has depreciated by 50% against the US dollar from its peak in 1995. The deutschemark has likewise fallen by over 30%. In comparison, the Asian currencies have until recently remained relatively stable. The Hong Kong dollar has been the most stable of BIS Review 91/1997  -7-  Asian currencies, moving less than 1% against the US dollar.
But given that some of the beneficiaries of house price falls do not yet have independent incomes, and others have a longer period ahead to consume their additional wealth, on balance I would expect the net effect on consumption to be negative. More widely I would expect some impact from the end of a wide perception that in housing you can have your cake and eat it – that the return on your house as an investment will in time substantially offset the cost of housing as a service. All these feedback channels are at work and economics is better at identifying their nature than in forecasting their scale. There is no alternative there to reviewing all the indicators I have mentioned month by month and then making an informed judgment. Some policy lessons for the medium term We identified the mispricing of risk, particularly in credit markets in our Financial Stability Reports over the last two years. But the reckoning has been more severe and destabilising than anyone anticipated. Risk premia had become compressed and leverage throughout the financial markets had risen too high. The pendulum has now swung back with a vengeance. As the FSR noted earlier this year, risk premia now appear to have overshot in some markets and that is contributing to the slowdown in the real economy. Could policymakers have taken earlier action to correct those imbalances? Of course we took the decisions we did on the basis of the available data at the time.

Outside the UK, the model of independent regulators with mandates making rules is common practice in most other jurisdictions. The need for operational independence is reflected in the Basel Core Principles for banking supervision.8 All jurisdictions represented in the Basel Committee implemented the Basel 3 reforms through regulators’ rules or guidelines rather than primary legislation, with the exceptions of the EU, with its very specific supranational structure, and Switzerland, with its unique federal structure. Details of the FPC’s objectives and primary responsibilities are set out in section 9C of the Bank of England Act 1998. In particular, the FPC is charged with ‘the identification of, monitoring of, and taking of action to remove or reduce, systemic risks with a view to protecting and enhancing the resilience of the UK financial system’, but this does not ‘require or authorise the Committee to exercise its functions in a way that would in its opinion be likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term’. For a more detailed discussion of the FPC’s mandate, see my colleague Alex Brazier’s May 2019 speech, ‘Citizens in service, not people in power’, available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2019/citizens-in-service-not-people-in-power-speech-byalex-brazier.pdf.
MAS has stepped up its monitoring of the cyber threat landscape and issued a number of advisories to financial institutions on: 9 / 15  BIS central bankers' speeches  ensuring their IT infrastructure is secure and resilient; adopting additional risk mitigating measures and precautions; staying vigilant against new types of cyber attacks; reminding staff working from home to observe cyber security; and advising customers of safeguards that they should take to protect themselves against phishing attacks and online scams. POSITIONING THE FINANCIAL SECTOR TO EMERGE STRONGER Let me now provide an update on the financial sector, which continues to do remarkably well. Last year, the financial services sector outperformed the overall economy, achieving value-added growth of 4.1%, compared to GDP growth of 0.7%. For the first half of this year, MAS estimates that financial services grew by about 5%, even faster than last year. This was mainly due to exceptionally strong growth in the first quarter, driven by offshore bank lending, re-insurance and life insurance activities. MAS expects growth in the sector to moderate during the second half due to weaker credit demand and lower interest rate margins. But the sector is not likely to contract. Last year, there was a net increase of about 4,900 [5] jobs in financial services and FinTech. So far this year, employment in financial services and FinTech has remained firm. Net jobs grew by 2,200 in the first quarter as banks continued to employ for roles such as business development, financial analysis, and software development.

The third imperative is to professionalise and modernise waqf management. For waqf to progress strongly, it requires a new character and a more modern image. In this regard, I would identify two priorities, namely professionalising those who are entrusted to manage waqf and putting in place proper governance framework. Let me elaborate. The management of waqf must be entrusted to experienced and knowledgeable experts with the highest integrity – that is, people with the right calibre, right competency and right character. The USD 37.1 billion Harvard Endowment is run by some of the best minds in finance, who determine the most optimal asset allocation strategies that deliver the best sustainable returns for the university. In 2017, the endowment contributed more than a third of Harvard’s operating revenue. Returns from the fund help to provide scholarships and to fund ground-breaking research. Surely we would like to see the same in our Malaysian universities. Acquiring such expertise and capability may take time. To expedite this, I would like to suggest that waqf authorities explore partnering or collaborating with experts from the private sector to commercialise or monetise waqf assets. In particular, partnerships with Islamic financial institutions can help waqf authorities develop waqf assets productively with the required financial expertise on board. A good example is the partnership between Majlis Agama Islam Wilayah Persekutuan and Lembaga Tabung Haji in developing Menara Bank Islam on a 1.2 acre waqf land in Kuala 3/4  BIS central bankers' speeches  Lumpur.