samchain/econo-pairs-v1 huggingface dataset:
Future Work: Full Credit Risk Modelling The Committee will spend the next few months considering these and other themes carefully and finding ways to balance the complexity of the New Accord against the need for appropriate sensitivity to risk; to ensure that the assumptions supporting the rules are appropriately conservative, but not excessively so; and to apply the rules consistently to protect and promote competition in the global banking market. But when the ink dries on the New Accord, rest assured that the Basel Committee will not be adjourning. Just from the comment letters we received, we can already identify a wide range of issues ahead to continue to find new ways to advance risk management, to promote greater transparency, and to strengthen the stability of the financial sector. I’d like to conclude by mentioning just two of the potential items on our agenda for future work once the New Accord is implemented. The first would be to consider the benefits of full credit risk models in the calculation of minimal capital requirements. In theory, a bank’s capital requirements would then reflect to the greatest degree the economic benefits of diversification in its balance sheet. In fact, the Committee did at one point evaluate whether advanced banks should be permitted to estimate the degree to which their assets might behave similarly or default together in the New Basel Accord. As you know, we decided that we are not quite there yet.

There is still much to be done: I’ll discuss as examples our efforts to reduce the complexity of the rules; to ensure that they are sufficiently risk-sensitive without being overly conservative; and to maintain a level playing field. Finally, I’ll conclude with thoughts on some longer-term and future efforts that the Committee may undertake to continue to align the system of supervision with the best practices of leading institutions and practitioners worldwide. A Look Back As we resolve the final questions and complete the text of the New Accord, it’s important to remember why all of us put our best into its success. The existing Accord was already considered a milestone achievement in banking, as it offered the first internationally accepted “yardstick” for capital adequacy and a simple measure of risk. It had received praise for reversing a downward trend in bank capital levels and for serving as a benchmark measure of a bank’s financial health around the world. But the 1988 Accord was a blunt instrument that quickly fell behind the times. Innovations in technology, in banking products, and in risk management techniques changed the way that leading banks measure and manage their risks. By the mid-1990’s, bankers and supervisors agreed that the  BIS Review 46/2003  1  original Accord no longer provided a meaningful measure of risk for the largest and most sophisticated organisations.
A study of Swedish data shows that such changes have contributed approximately 0.2 percentage points a year during the second half of the 1990s(3). 3 The same picture, although applying to the situation in the United States, can be seen in US studies. 4 Another possibility to improve the accounting is to look more closely at the link between labour and capital. So far the analysis has been based on the two resources in production being dealt with separately. But there are good examples of when labour and capital are interdependent. Technical knowledge becomes particularly valuable with regard to the development of programs and systems, the production of computer games, etc. Artists, film stars, elite athletes/sportsmen and others active in the experience industry get more out of their special skills through the developments in IT and communications. The US central bank governor Ben Bernanke uses the company Walmart as another example. 5 For the purpose of using the IT investments the company had made, they reorganised their work, gave the staff further training and changed the relationship to their suppliers. This type of technique for general use, of which IT can be said to be an example, can in turn push up other investment, such as further education. There are also other ways of developing the analysis.

Braunerhjelm, P., Ganslandt, M., Nyberg, S., Stennek, J. and Wahl, N. (2002), Gränslös konkurrens – Sverige i ett integrerat Europa (Unbounded competion – Sweden in an integrated Europe), SNS förlag. David, P. (1990), “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox”, American Economic Review 80, May, 355-361. Forsling, G. and Lindström, T. (2004), ”Labor Quality and Productivity: Does Talent Make Capital Dance?”, Background Facts on Economic Statistics, 7, Economic Statistics Department, Statistics Sweden. Greenwood, J. and Krusell, P. (2007), “Growth accounting with investment-specific technological progress: A discussion of two approaches”, Journal of Monetary Economics 54, 1300-1310. Jorgenson, D., Ho, M. och Stiroh, K. (2006), “Potential Growth of the U.S. Economy: Will the Productivity Resurgence Continue?” Business Economics, January, 7-16. Swedish Competition Authority (2002), Competition in Sweden 2002, Swedish Competition Authority’s report series 2002:4. Lundgren, S. (ed. ), Edquist, H. and Wallgren, A. (2007), Tillväxt i otakt (Growth out of time), SNS Förlag. Romer, D. (2005), Advanced Macroeconomics, McGraw-Hill/Irwin, 3rd edition. Solow, R. (1956), ”A Contribution to the Theory of Economic Growth”, Quarterly Journal of Economics 70, no. 1 (February), 56-94. Solow, R. (1957), “Technical Change and the Aggregate Production Function”, Review of Economics and Statistics 39, no. 3, 313-330. Stiroh, K. (2001), “What Drives Productivity Growth?” Federal Reserve Bank of New York Economic Policy Review, March. 6  BIS Review 61/2007
BIS Review 68/2010  3  Figure 3 Different measures of resource utilisation Per cent 6  6  4  4  2  2  0  0  -2  -2 -4  -4 The Riksbank, April -10 NIER, M arch -10 European Commission, M ay -09 OECD, November -09 IM F, April -10 M inistry of Finance, April -10  -6 -8 -10 00  02  04  06  -6 -8 -10 08  10  12  14  Monetary policy has contributed to increased macroeconomic stability The trend towards inflation targeting, or policies resembling inflation targeting, and increased openness and clarity has had positive results. In Sweden and other countries affected by high and fluctuating inflation during the 1970s and 1980s, inflation has become lower and more stable. Similarly, inflation expectations have been significantly better anchored than before (Figure 4). In these cases, I believe that countries with explicit, quantified inflation targets have had a particular advantage. These days, actual inflation can differ quite considerably from the inflation target, for example due to temporary increases in energy prices, without households and companies finding it particularly alarming. They rely on the Riksbank to return inflation to target within a couple of years.

We have done so more or less right from the very start, even if, when the inflation-targeting regime was new, there was particular reason to emphasise that low and stable inflation should be prioritised. However, in the present framework, the considerations that we actually make as regards both inflation and the real economy have become more apparent. However, a number of problems still remain. For example, it is not obvious which measure of the real economy monetary policy is to stabilise nor how best to calculate the trend to be stabilised around. Quite different estimates can be made, not only in terms of the present and the future, but also of past events (Figure 3). However, it remains clear that intellectual progress has been made and that developments have moved forwards. So far, relatively few central banks have gone so far as to publish forecasts of their policy rates, as the Riksbank does. But it is clear that the manner in which monetary policy is conducted has developed in most parts of the world and is presently more open and clear than was the case fifteen to twenty years ago.
4  A number of recent cross-country studies have documented the substantial and long-lasting effect on output of past recessions caused by banking crises. That is illustrated in Chart 6. The dark blue line shows the mean fall in output relative to a continuation of the pre-crisis trend (calculated omitting the three years preceding the crisis) across 88 previous systemic banking crises in advanced and emerging market economies. The average decline in output, relative to a continuation of the pre-crisis trend, is around 10% and remarkably persistent, suggesting that ultimately aggregate supply follows aggregate demand down, even if it does not fall immediately. The UK experience (red line) has so far been fairly similar to that average past experience, although the most recent quarterly outturns have been somewhat  4  See, for instance, the IMF’s October 2009 World Economic Outlook and Carmen Reinhart and Ken Rogoff, This Time Is Different. 4  BIS Review 142/2010  stronger than one might have expected. Chart 6 also reveals, however, a very marked heterogeneity across episodes, with the blue swathe covering the central 50% of the distribution of outcomes and the grey swathe 90% of the distribution; a substantial permanent loss in output is by no means pre-ordained. There are a variety of ways that a banking crisis might impair an economy’s supply capacity. Reduced availability of credit and lower activity are both likely to depress investment, which has indeed fallen sharply.

In the old days, when the economy was dominated by manufacturing, it might have been relatively easy to measure the volume of output and value added of different industries. But our economy today is dominated by services. Conceptually even defining the value added in, say, the financial sector, let alone measuring it, is not straightforward. Moreover, the meaning of a series often changes subtly over time as the economy evolves. Manufacturing today is a very different animal from manufacturing 30 years ago: for instance, the value added of Rolls-Royce aero engines today comes as much from the after-sales and maintenance as from the engine assembly itself. Finally, and most saliently for real-time policy analysis, the official data invariably appear with a delay of some months and can be substantially revised as more information accrues and the ONS improve their methodology. For that reason, the Monetary Policy Committee supplements the official data with two other sources of information that are more timely, even if they lack precision compared with the official data. The first are the regular business surveys from the likes of the Confederation of British Industry and the British Chambers of Commerce. As many of these have been going for quite a while, we have in many cases been able to establish their usefulness as predictors of the not-yet-available official data. Second, we also rely on the information provided by our network of regional Agents who have about 8000 business contacts across the country.
Importantly we – and you – can see how we are performing month by month in relation to our mandate. We also have a tested analytical framework. We model possible future outcomes and we look at the balance of risks around a central view. We can rely on experience and judgement to make regular policy decisions. And we can alter our policy decision on interest rates each month as the data and circumstances evolve. ii)  Financial Stability and why it is different  If financial instability occurs, costs to society may be high. Damage to our reputation could be potentially high too. Yet judging the optimal amount of resources to devote to prevent crises is problematic. What degree of resilience do we want? And what should we be prepared to pay for  BIS Review 36/2005  1  insurance? This is a familiar problem in public policy – what is the optimal size of the fire brigade or army? The challenges we face in seeking to maintain financial stability are very different to those in the monetary policy arena. •  Firstly there is neither a clear over-arching analytical framework nor a commonly agreed set of indicators of incipient financial instabilities. •  Secondly the task is made harder because we are dealing with tail events – low probability scenarios – rather than central projections. It is about aberrant rather than normal behaviour and situations: less predictable and harder to model.

As I have said before this is an area of potential vulnerability that has developed alongside the rapid globalisation of markets and of firms operating within them. I personally feel that it has been somewhat overshadowed in recent times by work in other areas such as capital adequacy. We feel that we can make a particular contribution here – both owing to our position in such a major global financial centre and because, in sterling at least, we are a potential provider of liquidity. So we justify devoting significant resources to the analysis of liquidity issues, and the development of potential risk reduction strategies for liquidity problems – nationally and in particular internationally. At the other extreme, whilst we feel strongly about the desirability of robust and widely applied accounting standards – and are prepared to express our views on the big picture aspects of this from time to time – we do not devote significant resource to analysis, or lobbying in this area. c)  Preparation for a Financial Crisis  And finally, tail event territory though it may be, we need to undertake preparation for financial crises. We need to think forward to being “in-event” where instability has actually been triggered, whether by a business failure of a firm or firms or by a terrorist or other disruptive event. We need to prepare now, in advance, to enhance predictability at what would be a time of great uncertainty.
Four, the impact of this process on prices and productivity will depend crucially on the type of economic policies that are adopted. 22  Kataryniuk, I., Pérez, J. J., and Viani, F. (2021) . (De-) Glo balisation o f trade and regio nalisation: a survey o f the facts and arguments. Occasio nal Paper - Banco de España , 2124. 23  See Mio n, G., and Zhu, L. (2013). Import co mpetition fro m and offshoring to China: A curse o r blessing fo r firms?. Jo urnal o f Internatio nal Eco nomics, 89(1), 202-215, or Carluccio , J., Cunat, A., Fadinger, H., and Fo ns-Rosen, C. (2019). Offsho ring and skill-upgrading in French manufacturing. Jo urnal o f International Eco nomics, 118, 138-159. 9  Protectionist measures can lead to no-win situations for all agents involved, in particular in less developed countries that rely on trade and financial openness to access new technology and external financing. Moreover, evidence suggests that the growing use of subsidies by major economies has important distorting effects on the allocation of resources, highlighting that their use sho uld be limited to securing the specific inputs and raw materials needed for the development of key technologies. The same can be said for policies that aim to shorten the supply chain, or “friend -shoring”. In general, the literature points out that participation in global value chains allows companies to better manage unexpected demand shocks compared to a world in which production is predominantly national or regional.

“The EU’s Open Strategic Auto no my fro m a central banking perspective. Challenges to the mo netary po licy landscape fro m a changing geo political enviro nment”. Occas ional Document, IRC Wo rkstream o n EU’s Open Strategic Auto no my. 2  Baldwin, R., Freeman, R., and Theo do rakopoulos, A. (2022). Ho rses fo r co urses: Measuring fo reign supply chain expo sure. NBER No . w30525. 3  M. Khalil and M.-D. Weber (2021). “Chinese supply chain sho cks”. MPRA Paper No 110356. 4  Ciani, A. and M. Nardo (2022). “The position of the EU in the semiconductor value chain : Evidence o n trade, fo reign acquisitio ns, and o wnership”. Wo rking Paper in Eco nomics and Finance 2022/3, April, Jo int Research Centre. 2  Trade in energy goods is a prime example of concentration. In 2020, the EU imported 60% of its energy, with four countries providing 70% of gas imports, of which 40% came from Russia. The consequences of a highly concentrated supply of a key raw material are readily visible today. Last year’s surge in gas prices (which was much sharper in the EU than in the United States), the drastic reduction in supply from Russia and the difficulties in replacing gas with other energy sources have all exerted strong inflationary pressures and have created one of the main risks for the European economy in the short and medium term.
This represents 6.3% of the entire takaful and insurance industry funds assets and an increase of 11% as compared to the end of 2006. In terms of net contributions, RM1.2 billion was recorded in the first half of the year, an increase of 36% from the same period of last year. BIS Review 95/2007  1  Second, there is growing international consensus on the need to have a strategic direction for an orderly development of the global Islamic finance industry. The ten-year blueprint on the development of Islamic finance, a joint initiative by the Islamic Financial Services Board and Islamic Development Bank, has laid down guidelines on the strategic steps to be taken by several specific jurisdictions for this purpose. It is envisaged that with more orderly development of Islamic financial services, including takaful, a more comprehensive Islamic financial system will evolve in more jurisdictions. The number of takaful operators, which currently stands at more than 100, is set to increase. Third, dramatic growth of the global sukuk market can potentially become a key supporting factor for the strong growth of takaful and retakaful industry. Sukuk is increasingly becoming an important investment avenue for the takaful industry. Today, the global sukuk market, denominated in international currencies, is estimated to have exceeded USD50 billion [including domestic sukuk issuance]. Although the size of the market is modest by global standards, the sukuk market is experiencing remarkable growth, increasing at an average rate of growth of 40% per annum.

On that note, I wish you a successful and productive Convention. Wabillahi taufik walhidayah. Assalamualaikum warah matullah hi wabarakatuh. BIS Review 95/2007  5
In tandem with greater financial market integration and improved information access in the advent of information technology, these obstacles have significantly diminished over the decades. The recent financial turmoil however, has ignited a debate on whether the benefit of portfolio diversification is overstated considering the relatively low idiosyncratic risk vis-a-vis systemic risk in times of high volatility, and prevalent correlation breakdowns that occurred among asset classes, especially at the height of the financial crisis. In my view, the emergence of such findings does not question the desirability of diversification, but rather, heightens the need for new and expanded methods to fine-tune the traditional portfolio optimisation approach. A growing class of investors are steering away from the traditional portfolio theory’s emphasis on a normal bell-curve distribution and choosing instead to embrace the “Black Swan” idea expounded by author Nassim Taleb or the “New Normal” proposition by PIMCO, in which the distribution of outcomes are flatter with fatter tails. The idea basically characterises higher likelihood of outlier events following the observed major structural breaks from historical trends. To my mind, such non-normal distribution even further underscores the importance of diversification strategies to attain a reasonably stable return and the necessity for investors to be nimble in the face of uncertainty. ii)  Diversification by regional central banks and institutional investors  Central banks reserves continue to serve as an important safety buffer for the country and reflect the strength of the economy.

While regional capital markets have generally experienced strong growth since the financial crisis, our potential is limited because by international standards the regional equity and bond markets are small and fragmented. We made some headway four years ago with the Chiang Mai Initiative (CMI), which saw the expansion of existing multilateral currency swap arrangements to include all 10 ASEAN members, as well as the conclusion of 16 bilateral swap arrangements, totalling $ in combined facility. When the CMI was launched in May 2001, it was agreed that Finance Ministers should review the Initiative 3 years  2  BIS Review 20/2004  after implementation. So it would be timely this year, for ASEAN Finance Ministers together with our “Plus-3” counterparts to consider what and how the review of the CMI could be done. We should also explore further avenues of cooperation. For example, we may develop greater linkages between stock exchanges in the region, or harmonise standards and conventions so as to make it easier for investors to operate across the capital markets in the region. In such initiatives, we do not have to wait for all ASEAN members to be ready. Once two or more ASEAN members are ready to make the move, they can work together as pathfinders for the whole region. Conclusion Globalisation has presented many challenges to ASEAN, but it has also created many opportunities. Integrating our economies requires hard work, political will and often, tough decisions.