samchain/econo-pairs-v1 huggingface dataset:
As a consequence, the Basel Committee has come up with a new proposal known as Basel II. This proposal is intended to be more risk sensitive than the 1988 Accord, in order to provide a better alignment and calibration of regulatory capital and capital adequacy with the underlying economic risks that banks face. Categorizing debtors into a fewer risk ‘buckets’ was certainly a progress in 1988, but it open the gap between the regulatory risk measurement of any given transaction and its actual economic risk. This favours high risk loans over the low risk ones, given the 100% risk weight charged, irrespective of the risk profile of firms receiving the loan. Consequently, it adversely affects the accuracy of assessing capital requirements and allocation. The most concerning side-effect has been the distortion of financial decision-making which is, loans and investments made on basis of regulatory constraints rather than genuine economic opportunities. The new Basle II accord tries to improve on these issues by encouraging banks to become more sophisticated in their risk assessment and aligning more rigorously regulatory requirements with internal risk measurement methodologies. It is important to recognize that the application of the New Accord is principally intended for large international banks, which are complex institutions usually operating in developed countries. Therefore, Basel II has often been questioned about its implications and appropriateness for banking in emerging market economies, and it is on this point that I would like to focus my remarks.

The recent competitive environment has actually fostered the gradual transformation of banking activities, with a greater emphasis on the "originate and distribute" business model. With this model, credit institutions arrange financings but quickly offload a substantial portion of their risks, for example through securitisation, and take payment – much more so than in the past – in the form of fees and commissions. But although activity in new products such as LBOs is helping to boost French banks' revenues and earnings, it is also a source of vulnerability. First, in terms of remuneration, fierce competition among credit institutions is not only exerting downward pressure on margins; it is encouraging "covenant-lite" deals – a worrying trend. These complex transactions are also beginning to generate new risks. On this point, there is a tendency towards longer underwriting periods, during which banks bear the bulk of the risk. Banks should also pay attention to the fact that counterparties such as hedge funds are becoming increasingly involved in this type of deals. Allow me two brief asides, if you will. First, with regard to LBOs, let me refer you to the study appended to the Annual Report. On the topic of hedge funds, I would remind you that the Banque de France devoted a special issue of its financial stability review to this subject and that the Commission Bancaire pays close attention to banks' involvement with this type of counterparty.
Eva Srejber: Vulnerabilities in the modern payment system Speech by Ms Eva Srejber, First Deputy Governor of the Sveriges Riksbank, at the Swedish Risk Management Conference, Eskilstuna, 18 October 2006. *  *  *  Introduction An extremely large amount of payments are made in any modern economy. In Sweden, the turnover in our payment system amounts to around SEK 1,290 billion a day (broken down into securities trading SEK 500 billion, card and credit transfers SEK 30 billion, foreign exchange trading SEK 390 billion, interbank payments SEK 350 billion and cash payments SEK 10 billion). Thus, in around two days the turnover corresponds to the value of the entire Swedish GDP in one year. It is therefore no surprise that we consider it important to examine possible vulnerabilities in the system and how we can reduce them. One of the more obvious examples of the vulnerability of the system is the many cash transport robberies in recent years, where large amounts of cash have been stolen. However, cash is only one of many ways that payments can be made and cash transports comprise a small part of the infrastructure required to ensure the payment flows in Sweden run smoothly. While a tiny fraction of the payments is made by cash, the remainder is made electronically. However, as we know, computers also have their weaknesses. This became apparent in 2000, when both the Riksbank’s system for large-value payments, RIX, and Nordbanken’s internal computer system suffered shortterm problems at different points in time.

However, it was possible to limit the damage since the system functioned from time to time and the contingency communications system was working. The problems were partly due to faulty software in the system. The problems began between Christmas and New Year 2000 and were not entirely resolved until 3 days into the new year. Afterwards, we can note that the consequences of these two problems were slight and that the existing contingency routines were sufficient to limit them. However, both examples show how important it is to have preparations that enable operations to continue, despite various types of disruption. The cost of creating an entirely resilient system must at the same time be balanced against the cost of having a slightly less resilient system and instead having good contingency routines that can be implemented when problems arise. I will return to the work on creating resilience in the system. Firstly, I shall describe how the financial infrastructure functions in practice and the importance of crisis recovery planning. The functions of the payment system To provide an idea of the extent and complexity of the payment system, I will give you a concrete example. The Swedish Social Insurance Administration pays out billions of kronor every month in  BIS Review 98/2006  1  pensions. In theory, it would seem like a fairly simple process for them to send money to Ingrid, aged 93.
Financial market institutions were created partly in reaction to these imperfections and continuously adapt themselves when faced with fresh challenges. Additional support comes from the public regulatory and oversight regimes, especially in the field of securities clearing and settlement systems. 3. The definition of oversight  At this stage I switch perspectives and I would like to briefly explain what central bankers, including myself, have in mind when referring to an effective oversight regime. Broadly speaking oversight can be defined as a central bank’s contribution to the smooth functioning of payment, clearing and settlement systems. Oversight differs from supervision, which aims at monitoring the soundness of financial institutions at the micro level. It also differs from surveillance, which focuses on a smooth functioning of financial markets. Furthermore there is a wide consensus, at least among central banks, on what the objectives of oversight should be: maintaining the safety of payment, clearing and settlement systems and promoting their efficiency. It is worth stressing that such a consensus has resulted from a sometimes lengthy but never discouraging learning process within the central bank community. Keeping in mind the positive achievements regulatory and oversight authorities have reached so far I now would like to address some challenges that we still face in this field. BIS Review 28/2003  3  4. Regulatory and oversight challenges in securities clearing and settlement systems  First of all let me clarify a fundamental point.

Third, if borrowers and investors did not embrace an orderly collateral liquidation mechanism, supervisory oversight could be brought to bear to limit the use of tri-party repo funding on the grounds that it is still an unstable source of funds. For example, the use of tri-party repo could be restricted unless borrowers demonstrated that there was an adequate means of orderly collateral liquidation upon the failure of a major dealer. Turning next to the issue of money market mutual funds, further reform to directly address the incentive for investors to run is essential for financial stability. In November, the Financial Stability Oversight Council (FSOC) put out for comment three alternative paths forward:13 1. Moving to a floating net asset value (NAV). 2. Retaining a stable NAV, but adding a new NAV buffer and a minimum balance requirement. The minimum balance would be at risk for 30 days following withdrawals. If the fund subsequently “broke the buck” during this period by suffering losses greater than the size of its NAV buffer, the minimum balance would be first in line to absorb these losses. 3. A larger NAV buffer than in the second alternative, but without a minimum balance at risk buffer. I have stated my views on money fund reform before.14 Although any of these proposals – depending on the fine print of course – would likely be an improvement over the status quo, the first and third proposals don’t fully eliminate the incentives to run.
6  BIS Review 81/2010  announcement had to direct thousands of institutions in the appropriate direction on equal terms, including a majority that had not been misbehaving in the run-up to the crisis. In particular, stronger institutions might view their agreement to use the guarantees and issue equity to the U.S. Treasury as stigmatizing and make them more vulnerable to runs. The solution was to obtain agreement from nine systemically important institutions to participate at the start of the time-out on the same terms available to thousands of other eligible financial institutions. The time-out announced on October 14 was a critical success in terms of stopping the run on the global financial system, but it could not and did not address all the aspects of the crisis. The global propagation of the financial shock had already triggered an economic slowdown at least as abrupt as any during the Great Depression period. The underlying question was now how strong the adverse feedback loop would be between the rapidly deteriorating real economy and the condition of the banking sector. One clear lesson from this phase was the need for formal coordination among the diverse authorities in the U.S. in establishing and maintaining financial stability. Another lesson that emerged was that some forms of regulatory and accounting capital were very weak defenses against the fear of insolvency. Both lessons are informing the ongoing work of regulatory reform and of enhancing the resiliency of the financial system through stronger capital and liquidity requirements.

For those of us who manage government funds, we also owe a duty of care and responsibility to future generations – to sustain decent returns at an acceptable level of risk in an era of subpar growth. BIS central bankers’ speeches  5  A wise man once said, “In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.” I wish you fruitful discussions over the next two days as you explore how to do both. Thank you. 6  BIS central bankers’ speeches
Some observers - including, perhaps, a few in this room - have noted that the effort to incorporate greater risk-sensitivity into the framework inevitably introduces procyclicality into our standards. That is, the capital requirements for loans to troubled borrowers will tend to increase at just the point when such trouble is becoming apparent. This is an important point, and one that we at the Committee are working to address. It is my view that the global financial system needs to move toward addressing potential credit problems preemptively - before these problems have time to grow from minor disturbances into major disruptions. To best accomplish this objective, any supplements to regulatory capital should be incremental or graduated, rather than a sudden ratcheting that could potentially reinforce a cyclical downturn. The second pillar in the proposed new capital adequacy framework has to do with the supervisory review of capital - a critical complement to minimum capital requirements. The Consultative Paper BIS Review 27/2000  8  proposes that supervisors should ensure that each bank has sound internal processes in place to assess the adequacy of its capital based on a thorough evaluation of its risks. In evaluating the strengths and weaknesses of a bank’s internal allocation process, supervisors would draw on, among other things, their knowledge of best practices across institutions. I want to stress that this proposed approach in no way intends to replace the judgment and expertise of bank management, or to shift responsibility for capital adequacy to supervisors.

This is a dynamic process as the requirements and expectations of consumers are also changing rapidly in tandem with the increased education levels and growing affluence. In recent years, consumers have become more discerning and demanding better product choices, more efficient delivery channels and more customer friendly practices from takaful operators. Bancatakaful, for example, has made noticeable headway to account for 20.4% of takaful contributions in 2005, compared with only 6.5% in 2004, reflecting the consumers' preference for selected products to be made available through this channel. While product offering among takaful operators will eventually converge, the consumers ultimately expect speed in service delivery, simplicity in dealings, stretching or going the extra mile in satisfying customer's needs and unquestionable integrity. Thirdly, Malaysia still has competitive advantage in terms of takaful and is well-positioned to be a takaful and retakaful hub in this region . During the past two decades, we have seen the gradual opening up of takaful operation in many jurisdictions throughout the world, primarily in Islamic countries and countries with large Muslim communities. In this period, Malaysian takaful industry has gained significant attention with the remarkable growth rate recorded domestically and in other countries as far afield as Saudi Arabia. Malaysian takaful industry alone successfully garnered approximately 26% of global takaful contributions and our takaful operator has been recognized as among the leaders at the global front.
These are just two of many potential scenarios that are worth exploring. However, I would add that the recent financial crisis highlighted that unlikely events can happen, and when they do, the outcomes can be quite costly for everyone. So the need for better risk management is clear. Fortunately, the opportunity is there as well. Thank you. 6  BIS central bankers’ speeches  BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches

For this, we have put in place a comprehensive Islamic financial system that includes Islamic banking, takaful and Islamic money and capital markets. These activities are adequately supported by the legal, human capital, Shariah and regulatory infrastructure, a diversity of players and a wide range of products and services. To further promote the international dimension of Islamic finance in Malaysia, the Malaysian Government has also launched an initiative known as the Malaysia International Islamic Financial Centre or MIFC. The MIFC initiative is specifically undertaken by the collective efforts of the country's financial and market regulators, including Bank Negara Malaysia, the Securities Commission, the Labuan Offshore Financial Services Authority (LOFSA) and Bursa Malaysia, together with the participation of the industry representing the banking, takaful and capital markets. It is aimed towards building greater intermediation linkages between the East Asian and Middle East regions which will in turn, further expand interregional trade and cross border investment flows. As part of the MIFC initiatives, local and foreign financial institutions are allowed to establish International Islamic Banks (IIBs), International Takaful Operator (ITOs), as well as International Currency Business Unit (ICBUs) to undertake international currency business in Islamic finance with non-residents through either a locally incorporated entity or a branch. This entity is granted attractive tax packages in terms of a 10-year tax holiday. The Foreign Investment Committee rules have been further relaxed to allow 100 percent foreign equity ownership in these financial institutions.
During two latest years, commercial banks have better met the increasing demand for ALL loans, which at end of 2006 constituted 29 percent of the loans portfolio, thus evidencing a moderate extension of its share. 6  BIS Review 80/2007  Corporate credit constitutes the main share of banks’ portfolio, amounting to 66.5 percent of the total at end 2006. In annual terms, corporate credit increased by 52 percent. The credit distribution structure by use has tended to be more uniform in comparison with the previous year. Most of corporate loans (34.5 percent) have been used for purchasing machinery and equipment, while 23.2 percent of corporate loans portfolio has been used for financing investments in activity area expansion. In 2006 the household credit was 7 percent of GDP, or 33.5 percent of the total loans portfolio. More than half of loans to households (59.3 percent) have been extended for financing real estate purchases, while the financing of consumer goods purchases has also increased. The ratio of consumer loans to total household portfolio is 27.3 percent, from 20 percent in the previous year. In particular, consumer loans increased obviously during the summer holidays and during the end-year celebrations. Concerning lending to specific sectors, it should be underlined that trade remains the sector mostly credited by the banking system, by 22.4 percent of the loans portfolio. The growth rate of credit to construction has been inhibited during 2006. This sector presented temporary improvement signs during the summer, then turned back to the downward trend.

The BIS has been particularly active in providing technical assistance to the Bank of Albania, through workshops and training courses organised by the Institute of Financial Stability, which promotes the international financial stability through information sharing and cooperation in financial system supervision area. During 2006 the Bank of Albania enhanced the mutual relations with the central banks of the region and beyond it. Personally, I have paid official visits to many central banks of the region and Europe, discussing about latest developments in the Albanian economy and further extension of mutual cooperation and technical assistance that these banks can provide to the Bank of Albania. In June the Governor of the Bank of Greece, Mr. Nicholas C. Garganas paid a two-day official visit to Albania. It took place in the light of mutual relations between both institutions, laying special emphasis on sharing of information and experience in banking supervision area. Enhancing relations with central banks of the region reached the peak in the round table of October 2006 held in Tirana, where the governors of the central bans of Rumania, Serbia, Montenegro, Bosnia and Herzegovina and Kosovo discussed about financial stability of the region. In the framework of the Bank of Albania’s objective to benefit from the experience of the central banks of the CEE, recently acceded in the European System of Central Banks (ESCB), during 2006 the cooperation relations with the Central Bank of Poland, National Bank of the Czech Republic and the National Bank of Bulgaria have been intensified.
These advantages and disadvantages, however, represent an opportunity for the financial sector to further focus on financial support through financing these enterprises, commensurate with risk level that must be taken into consideration when financing SMEs, and to set appropriate finance prices commensurate with risk levels. 2  BIS central bankers’ speeches  Ladies and Gentlemen, Business Enterprises have witnessed significant growth in recent years. The number of enterprises subscribing to the Social Insurance System went up from about 121.5 thousand in 1426H to approximately 218.4 thousand in 1430H, recording an annual average growth of 16 percent. Individual proprietorship firms represented 93.1 percent of the total of annual average growth, limited liability Enterprises 4.7 percent and holding Enterprises 0.6 percent. Economic activity of these enterprises was focused in three areas: commercial activity 34.3 percent, construction and building 32.3 percent and manufacturing industries 14.6 percent. Small Enterprises with less than 5 employees accounted for the largest share of 55.5 percent of the total number of enterprises at the end of 1430H, while the rest, enterprises with more than 60 employees represented 3.8 percent. These data show that most of the enterprises in the Kingdom are small, in terms of the number of workers. SMEs’ contribution to the Kingdom’s GDP is very low, accounting for 33 percent, while SMEs constituted 64.3 percent of Japan’s GDP, 43.3 percent of Spain’s GDP, 56 percent of France’s GDP, 44 percent of Austria’s GDP, 43 percent of Canada’s GDP and 33 percent of Australia’s GDP.

Resolution is the toughest nut to crack in the financial reform package, but it is also the one that I think does more to unlock other issues, including the appropriate steady-state endpoint for the bank capital regime. Put simply, the answer in my view is different in a world of effective resolution that ends too big to fail. But in the alternative outcome, where too big to fail remains with us and there are doubts around the effectiveness of resolution, it is hard to avoid the conclusion that higher capital requirements will follow, and cross-border establishment will be through subsidiaries. Let me also say that we have made more progress on resolution in the last few years than many people expected. To say that we are not there yet should not conceal the real progress made. And, an important credit on this goes to Paul Tucker who has led much of the international policy thinking on resolution. Paul leaves us at the end of the week for the calmer environment of Harvard – we shall miss him in many ways, and I hope that when we get to an outcome on bank resolution that meets our wish to reject the permanence of fragmentation, we will remember how much Paul did to get us there.