samchain/econo-pairs-v1 huggingface dataset:
Whatever our national or regional approaches, we have to be part of that global agenda. Capital and liquidity We’ve got our first landmark: the new Basel Capital Accord. The UK, the Bank of England, would have liked it to be more rigorous in some respects, but we most certainly think that it is an Accord worth having. It is a significant stiffening of the regime which has prevailed up to now – perhaps more in some respects than commentators immediately appreciated. It remedies problems not spotted in Basel I. Finding remedies for some of the problems with Basel II remains work in progress. The BCBS’s “fundamental review” of capital requirements for trading book positions will be one of the most important endeavours of 2011. Its main objective must be to tackle two things. The venal regulatory arbitrage that existed between the “banking book” and the “trading book”. And requiring capital to be held against the risks of violent swings in liquidity premia for instruments that are not resiliently liquid. That was how the drying up of liquidity in ABS markets undermined the (accounting) solvency of many trading books. Speaking in the USA, I should stress that it is tremendously important that the US, as well as Europe and Asia, do implement the Basel Accord faithfully and promptly. It is also important that the EU Directive implementing Basel leaves flexibility for supervisors to apply supplementary requirements based on the condition of individual institutions and, separately, taking into account cyclical circumstances.

Too Big to Fail: resolution regimes This wasn’t a crisis that revolved in every single degree around institutions that were Too Big Too Fail but, my goodness, they were at the heart of it. And it is intolerable for our societies, it is intolerable for capitalism, that we should continue to have institutions that are too big to fail. The Financial Stability Board will, therefore, be recommending to the G20 a package on this. It will include greater loss absorbency for the largest and most complex firms whose distress would inevitably spillover into the global system – probably in a way that can, in degree, be implemented in different ways in different countries and contexts, subject to a meaningful process of peer review to avoid free riding. But absolutely central to this is resolution regimes. Too many countries do not even have the most elementary resolution regime for their national commercial banking institutions. Perhaps partly for that reason, many people, when they talk about resolution, slip after about 15 seconds into talking about enhanced supervision and early intervention. To be clear, resolution is about when everything else has failed. It is about when early intervention and higher capital requirements, better risk management and more resilient capital markets let us down, and we are in “the last chance saloon”. The distressed institution is no longer viable, and officials are presenting our political leaders with a ghastly choice between chaos from straight liquidation and, alternatively, taxpayer support to prevent the system imploding.
Overall, there are not sufficient grounds for changing the outlook for inflation and output or the risk assessment. The press release following the monetary policy meeting on 26 April states that in line with the forecast in the March Inflation Report, there are prospects of another interest rate increase in the second quarter – at the monetary policy meeting in May or June – and a further increase thereafter. Thank you for your attention. 6  BIS Review 41/2006

Many other countries have applied macroprudential measures. The institutional framework and the formulation of the measures vary. Macroprudential policy will by its nature vary across countries. The credit cycle and systemic risk vary over time and across countries. That being the case, neither banks nor other economic agents should be surprised that macroprudential policy in Norway differs from that of surrounding countries. In many countries, the central bank has a prominent role in macroprudential policy. Monetary policy objectives and macroprudential objectives are not the same. Monetary policy is aimed at securing low and stable inflation and is the first line of defence against cyclical fluctuations. Macroprudential policy is aimed at strengthening the resilience of the financial system and curbing financial vulnerabilities that build up in the economy over time. Macroprudential policy and monetary policy nevertheless share many features. In Norges Bank, we can build on the experience of monetary policy when providing advice on the size of the countercyclical capital buffer for banks. Both macroprudential policy and monetary policy must be based on an assessment of the state of the Norwegian economy and developments in credit, inflation, output and employment. The buffer works through banks, as does monetary policy. The analysis of the capital buffer therefore has much in common with the analysis we perform when setting the key policy rate.
The corresponding krone amount is NOK 14.2 billion. The Petroleum Fund had another good year in 2004. The return was 8.9 per cent measured in international currency. The Fund achieved an excess return of 0.53 percentage point, which is somewhat higher than the historical average. Conclusion Allow me to conclude with some brief comments on the Norwegian economy. The economy is showing solid growth without visible signs of accelerating wage and price inflation. Due to high oil prices, we are running substantial surpluses in public finances and in the current account. But there certainly are challenges ahead of us. Let me mention just one: Our cost level is very high. There is a significant risk that we are weakening the competitive sector of the mainland economy and becoming too dependent on the petroleum sector and on the return from our financial investments. 6  BIS Review 21/2005

More concretely, business should understand that bank is an integral part of its activity, if it is willing to be successful for a long-term period. Finally, I would encourage more institutionalised links of the banking system with various business organisations. Maybe it is time that Association of banks establishes regular contacts with business representations, contacts that would certainly upgrade the relations between business and bank to a higher level. Also, I use the opportunity to renew the Bank of Albania commitment to participate in this initiative by offering its expertise in projects, round tables, forums, debates, etc., which will aim at improving the business climate as well as increasing and channelling more efficiently the bank credit. Thank you. 4/4
One problem with the first strategy is that central banks in practice have tended to rapidly ease up on monetary policy when there is a large fall in asset prices, in order to reduce the risk of a recession. When asset prices rise, there is a tendency to wait until one is more certain this will have an effect on inflation before raising interest rates. An asymmetrical monetary policy entails a risk of indebtedness and liquidity in the economy becoming too high, when regarded over a longer time period. Sooner or later there will be an adjustment and the risk is that the imbalances will have grown so large that the cost of adjustment will be high. One can thus conclude that the consequences for the real economy of an asset price bubble can be serious. In my opinion, there is thus good reason to analyse and assess to the best of our ability to what extent asset prices are fundamentally motivated, how households’ and companies’ real demand will be affected, and where the liquidity created by bank lending goes. If the analysis shows that there is a significant risk of very negative consequences for the real economy, there may be good reason in exceptional cases to take this into account when formulating monetary policy – even if the assessments for the immediate future show that inflation will be in line with the target level. One can say that there is sometimes reason to take account of what will happen beyond the normal forecast horizon.

However, first and foremost I would like to point out that monetary policy aimed at stabilising the inflation rate should basically reduce the risk of over-valued asset prices leading to an exaggerated real demand. Fluctuations in the level of resource utilisation and in the output gap are traditionally assumed to be reflected in the inflation rate. If inflated asset prices stimulate demand in the economy, without a corresponding increase in the potential growth rate, inflation will rise. If the central bank anticipates this, monetary policy will normally be tightened to ensure that demand is compatible with long-term sustainable growth. And as long as demand in the economy increases at a rate compatible with long-term growth, there is less risk of exaggerated indebtedness. Inflation targeting should thus, at least in theory, reduce the risk of extensive financial imbalances accumulating. However, even with an otherwise successful inflation target policy, real and financial imbalances created by exaggerated asset prices can build up. If there are exaggerated expectations regarding growth in productivity and profits in a particular country, this can lead to a strong inflow of capital and strengthening of the currency. The increase in real demand, which is caused by exaggerated increases in asset prices, can thus be partly met by increased imports, while the currency strengthens and domestic inflationary pressure is reduced.
16  BIS central bankers’ speeches  BIS central bankers’ speeches  17  18  BIS central bankers’ speeches  BIS central bankers’ speeches  19  20  BIS central bankers’ speeches  BIS central bankers’ speeches  21  22  BIS central bankers’ speeches  BIS central bankers’ speeches  23  24  BIS central bankers’ speeches  BIS central bankers’ speeches  25  References Acheson, G, Hickson, C and Turner, J (2010), “Does limited liability matter?” Evidence from nineteenth –century British banking, review of Law and Economics, Vol 6(2), pages 247–73. Admati, A and Hellwig, M (2014), “The Bankers” New Clothes: What’s Wrong with banking and What to Do about it’, Princeton University Press. Alessandri, P and Haldane A G (2009), “Banking on the State”, speech delivered at the Federal Reserve Bank of Chicago, available at: http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2009/speech409. pdf. Allen, F. and Gale, D (2000), “Comparing financial systems”, MIT Press. Asker, J, Collard-Wexler, A and De Loecker J (2014), “Dynamic Inputs and Resource (Mis)Allocation”, Journal of Political Economy, vol 122. Bagehot, W (1862), “Limited Liability in Banking” – I’ and “Limited Liability in Banking” – II’ in St John-Stevas, N (1978) “The Collected Works of Walter Bagehot Vol. 9”, The Economist, London. Bailey, A (2014), speech delivered at the City Banquet London, available at: http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech763.pdf. Becht, M, Bolton, P and Roell A (2011), “Why Bank Governance is Difference” Oxford Review of Economic Policy, vol 27.

10 By 1889, all bar two British banks had limited their shareholders’ liability and nearly two-thirds had opted for reserve liability. 11 But even reserve liability was felt to be precarious, stoking rather than abating banking crises. As Bank of England Deputy Governor Catterns stated in a secret memo of 1937 “today a bank could not in a crisis make a call on shareholders without aggravating the crisis”. 12 In the 1950s, the major British banks eliminated their remaining uncalled capital (Turner (2009)). Entrenching shareholder rights Yet, even once firmly rooted, limited liability quickly gave rise to a new set of questions. If managers were no longer personally liable for failure, what incentivised them to protect investors’ money? And what provided the incentives for shareholders, increasingly dispersed and with their claims protected from downside risk, to remain engaged? In the 19th century, maximising shareholder return was not the centrepiece of companies’ objectives or directors’ duties. To be sure, paying a regular dividend was important and shareholders could – and often did – challenge directors regarding its size. But wider considerations played as important a role. Introducing his reflections in 1885 on “the rights and duties of shareholders”, George Rae observed that “when a man becomes a shareholder in a bank he becomes to all intents and  7  Rae (1885). 8  Acheson, Hickson & Turner (2010). 9  Button et al (2015). 10  Esty (1998). 11  Acheson et al (2010). 12  Turner (2014).
So let me start by giving you a banking supervisor’s view of internal controls. But first, what exactly do we mean by “internal controls”? The definition I would suggest, which is borrowed from the Basle Committee on Banking Supervision, is that internal controls refers to the ongoing process by which the Board of Directors and management of an institution ensure that the institution meets three key sets of objectives. First, operational objectives - the efficiency and effectiveness of the institution in using its assets and other resources and in protecting the institution from loss. Second, information objectives - the reliability and completeness of financial and management information needed for decision-making within the institution and for regulatory and other external uses. Third, compliance objectives - compliance with applicable laws and regulations, supervisory requirements, and internal policies and procedures, in order to protect the institution’s franchise and reputation. What, then, are the main elements of the sort of control systems needed to achieve these objectives? Basically, there are five inter-related elements: management oversight and the control culture; risk assessment; control activities; information and communication; and monitoring activities. The Basle Committee on Banking Supervision has recently put all this together into a set of fourteen principles for regulators to use in evaluating institution’s internal control systems. I do not propose to run through these one by one, but I would like to pick out one or two points so as to give you an idea of what I, as a regulator, see as the key ideas.

Mr. Carse gives a banking supervisor’s perspective on control issues in financial institutions Speech by the Deputy Chief Executive of the Hong Kong Monetary Authority, Mr. David Carse, at the BanComp ’98 conference in Hong Kong on 25/5/98. I am pleased to be here this morning to speak to you at the start of this conference on internal controls and anti-money laundering. The advertised title of my speech is “Understanding the role and needs of the regulator in all authorised financial institutions”. This is a very broad subject and I have therefore narrowed it down to focus on the banking supervisor’s perspective on control issues in financial institutions. I am sure there are many compliance and audit professionals in the audience today, so I trust I should not have too hard a hard job persuading you that good internal controls are not only important, but crucial to the success of financial institutions. Just consider, for example, what poor internal controls did for BCCI, Daiwa Bank and Barings. So what advice can I offer you today to help you ensure that your institution will not meet the same fate? Well, what I will do is to share with you my thoughts on the key elements of a financial institution’s control systems, and highlight some of the areas where other institutions have gone horribly wrong. I will also talk about one of the key areas of a financial institution’s controls its controls against being used for money laundering.
I am confident it can be a “success story”. Nonetheless, substantial challenges remain. Ambitious structural and financial reforms are still needed: to put unemployment on a downward trajectory; to ensure that government finances are put on a sustainable path; and to secure a banking sector that can stand on its own feet again and support the Irish economy. BIS central bankers’ speeches  1  And that last item – financial sector repair – is absolutely crucial. The support from the Eurosystem in the form of monetary policy and emergency liquidity loans to Irish banks has been extraordinary by any measure. With these considerations in mind, I would like today to start by considering, first, the origins of the crisis. I will then discuss some macro-fiscal aspects of the adjustment process. However, I want to spend the majority of my remarks discussing, thirdly, financial sector issues and the role of the ECB. I would like to present a clear view on how the ECB has supported Ireland through the adjustment process, working as a true partner to help this country resolve its problems. 1. The origins of the crisis  A somewhat colloquial, description is that when the bubble burst, the economy was lacking competitiveness, that it was unfit and overweight. Is that really a fair description of the Irish economy around 2007?

The Riksbank has defined this in terms of a target for inflation: to keep inflation at 2 per cent, with a tolerance for deviations of ± 1 percentage point. In practice the Riksbank’s conduct of monetary policy normally involves adjusting the repo rate with a view to influencing demand in the economy. By influencing borrowing costs, the incentives to save, exchange rate developments and thus exports and imports, etc. the repo rate has an effect on aggregate demand in the economy and gradually also on inflation. It is generally held that a rate adjustment normally takes roughly 1-2 years before it has its greatest impact on inflation through these different "channels". That means that our interest rate decisions must be based on a forecast of economic and inflation developments in the years ahead. Even though the current inflation rate is not the decisive factor for our interest rate decisions it is, of course, important nonetheless since it constitutes the starting point for our inflation forecast, which is the key element underpinning our decisions. To make the Riksbank’s monetary policy strategy clear it has been described in terms of a simple policy rule: if the forecast points to an inflation rate above 2 per cent 1-2 years ahead the repo rate should normally be raised, whereas it should normally be lowered if inflation is forecast to be below 2 per cent. BIS Review 25/2005  1  But this policy rule cannot be applied mechanically. That is why “normally” is included in the wording.
As a result, the 1-year interbank market has converged to the level of the US 1-year market rate. What type of financial regulation framework are we moving towards? The current crisis has highlighted certain failures in financial regulation and this is why, beyond the immediate measures I have just described, an ambitious agenda to reform financial regulation has been launched. This overhaul is crucial for laying the foundations of a more stable financial system. It should not be implemented in a hasty manner if we want to avoid hurting the recovery from the crisis. The G20 has laid down clear principles to guide the overhaul of financial regulation. They mainly cover three areas: the strengthening of prudential standards, the redefinition of the scope of regulation and the revision of accounting standards. Before bringing up these three dimensions, I would like to point out that the G20 Action Plan imposes a requirement for all stakeholders concerned with financial stability: how to better assess the risks facing the financial system as a whole? On this point, you will agree with me that systemic risk is THE risk that we need to take better account of. We have not been able to identify it, control it, or capture it in prudential terms. In many respects, systemic risk is the result of liquidity risk, leverage, compounded by financial innovation and high transformation risks. These factors are not easy to measure at the level of individual banks.

These include: supply chain finance, which enables businesses particularly SMEs, to leverage on the creditworthiness of their anchor suppliers or buyers who are mainly MNCs, to obtain financing at a more affordable rate which may not be possible through direct approach with banks; coverage in takaful products at competitive prices, which for example include coverage for loss or damage to goods shipped on all types of conveyances from manufacturing to trading; the Investment Account Platform or IAP, established by six Islamic banks in 2016 as the world’s first Islamic bank-intermediated fintech platform that offers more competitive financing terms and variations in financing structures for ventures. To date, the IAP has supported eight ventures worth RM161.3 million; and sukuk as an alternative form of financing for businesses, such as green sukuk for green 1/3  BIS central bankers' speeches  businesses. To date, five green sukuk have been issued by Malaysian solar companies to finance solar power projects, amounting to RM866.8 million since July 2017. These are but a flavour of what Islamic finance can offer and I am sure you will hear about many more today. National policy for nurturing SMEs At the national level, the government is indeed supportive of the role of Islamic finance as an important tool to assist businesses and SMEs to flourish. Developing Islamic finance and the growth of SMEs are key national strategies, as reflected in the recent 2019 Budget. The SME Shariah-Compliant Financing Scheme of RM1 billion was established to strengthen SMEs.