samchain/econo-pairs-v1 huggingface dataset:
I am thinking instead of, for example, Mexico, Indonesia, Thailand, South Korea, Malaysia and Brazil. In these cases, inflated asset prices and both domestic and external debt had an important bearing on the subsequent course of events. One important lesson is that a floating exchange rate with an explicit inflation target makes it easier to avoid a situation with rapidly rising asset prices, an unduly strong expansion of credit and high short-term borrowing abroad. That does not mean that a fixed, but adjustable, exchange rate is bound to result in problems of this type. Experience from Denmark is a good example. A clear problem in Sweden’s case, however, was that in the 1980s monetary policy could not be used to counter the tendencies to strong credit growth and rapid asset price increases. Another problem, as I just mentioned, was that the fixed exchange rate policy lulled people into a false sense of security and provided an incentive for short-run borrowing in foreign currency. With a floating exchange rate, the krona’s fluctuations make the exchange risk more evident (Diagram 2). Such a regime may have other drawbacks but it does show potential borrowers that foreign-currency loans involve a risk. The stock of foreign-currency loans to households and firms is in fact smaller today than it was a decade ago. A point to bear in mind is that the problem in the late-1980s was not the strong asset price rise as such but the combination of this and heavy borrowing in Sweden and abroad.

It is to encourage banks to lend to corporations, SMEs and households alike; similarly, extending the asset purchase programme to corporate bonds will be of particular benefit to large French corporations. In other words, we are securing the provision of credit to businesses and households, and protecting it from tensions linked to market volatility. c) Now, what about the risks? I talked earlier about the risks of doing nothing: we need to take action in order to bring inflation back up towards 2%. That said, we also need to keep a close eye out for any possible negative side-effects of our monetary policy, notably for financial stability. We are actively monitoring the financial cycle, including in France where the task falls to the High Council for Financial Stability set up in 2013. I took part in its 8th meeting at the Finance Ministry last week. For the time being, there are no signs of bubbles forming in our main financing markets: on the whole, developments in the equity markets appear in line with corporate profit forecasts, while evolutions in bond yields also seem consistent with the outlook for inflation and growth. Nor are there any signs of excessive credit growth in the financial system. Nevertheless, we remain vigilant over all aspects of the current macroeconomic and financial environment.
Jaime Caruana: Basel II and corporate governance issues Speech by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the 2nd Islamic Financial Services Board (IFSB) Summit 2005: The Rise and Effectiveness of Corporate Governance in the Islamic Financial Services Industry, Doha, 24 May 2005. *  *  *  Introduction and overview I would like to thank His Excellency Governor Abdulla Khalid Al-Attiya and the Qatar Central Bank the hospitality and Professor Rifaat and the Islamic Financial Services Board for inviting me to speak this evening before such a distinguished gathering. It is a great honour for me to be here at what I am sure will be a most successful and rewarding Summit. I consider it a privilege to have the opportunity to share with you some thoughts on two timely and important topics: corporate governance and the Basel II capital framework. My contribution to this important conference comes with a degree of humility. Although I understand that some of the roots of Islamic finance can be traced back to my own country during the time it was known as al-Andalus, I cannot claim to be an expert in Islamic finance, and I certainly would not presume to talk about the specificities of Islamic banking before such a knowledgeable audience. Suffice it to say that we all know that there are differences between Islamic banking and what we normally refer to as “conventional” banking.

We would like the guidance to be relevant not only to Basel Committee member countries, but to non-member countries as well. We would therefore value your feedback. As we take our work forward in the Basel Committee, and as the IFSB conducts its own work in preparing its exposure draft, I believe we would all benefit from keeping a sense of proportion. Clearly,  4  BIS Review 38/2005  we cannot have the same expectations for the governance of a large, complex bank that we have for a much smaller bank. When the Basel Committee issues supervisory guidance, we typically say that supervisors’ expectations should be commensurate with the size, complexity and risk profile of the institution. That applies equally here. My hope is that we can raise the bar for the governance of the banking industry as a whole, while concentrating our supervisory resources on the governance of the most complex and sophisticated institutions. Conclusion I realise that I am all that stands between you and a marvellous gala dinner, so I will keep my closing remarks very brief. I would just like to emphasise that sound corporate governance should be considered a key element of a bank’s ability to understand and manage its risks. As supervisors, we should direct our resources to helping banks improve their controls, culture and clarity in respect to risk management. In so doing, I believe that we will help achieve our objective of a stable and healthy banking system that contributes to the proper functioning of the economy.
Risks of changing the regulator’s role If you accept the case for detailed rules being made by regulators, the next debate then is over what checks and balances are needed to give stakeholders confidence in the operation of the new framework. Might we pursue the stability of the graveyard by imposing ever more stringent rules? Or might we go the other way, becoming captured by industry and not protecting policyholders enough? Put bluntly, can we be trusted with more power? To address the point about the graveyard head on: I do not for one moment accept the caricature of a rampant regulator intent on crushing the industry under a slow-motion avalanche of new capital requirements, heedless of the wider consequences. History gives the lie to this caricature. Take the topical example of the matching adjustment (MA), which I read in the trade press last month is to be a ‘key battleground’ in the review of Solvency II. The primary effect of the MA is to reinforce the incentives that life insurers have to make longterm investments. It is something that the PRA had to fight hard for in EIOPA, often with little support from other countries. This matching is prudentially beneficial and may make annuities cheaper than they would otherwise be, but of course it also involves taking more risk because it boosts capital levels and lowers capital requirements.

3  But we won’t get there through compliance and risk management alone. We also need businesses – your businesses – to grab the opportunities presented by a post-LIBOR world to meet customer needs in better, safer ways. In the rest of my remarks I want to cover three main topics. First, I want to summarise the business problem LIBOR was originally designed to solve – and how the world has changed since then. Second, I want to sketch some of the opportunities that a post-LIBOR world may bring – and thus why there is a business, as well as a risk, imperative to shift. And, third, I want to explain some steps we at the Bank of England are taking to de-risk our own LIBOR-related business. Why LIBOR once made business sense – and what’s changed LIBOR’s origins date back to the syndicated loan market of the late 1960s. Risky borrowers from developing or emerging markets were looking to raise large sums, in dollars, at term. But the most plausible lenders – US banks – faced two problems. First, rapidly-rising inflation and short term interest rates made it risky to fix the interest rate on such loans for the full term. And, second, caps on deposit rates under ‘Regulation Q’ made it hard for US-domiciled banks to raise the necessary funding. In their place, banks in London – often US-owned, but unencumbered by onshore borrowing limits – formed themselves into ‘syndicates’ to take slices of floating rate, dollar-denominated loans, funded by short-term, offshore dollar deposits.
Combined with high productivity growth, this has resulted in high corporate earnings and solid growth in employment. Utilisation of production resources in the economy, labour and fixed assets, has increased markedly since summer 2003. Enterprises in Norges Bank’s regional network report high capacity utilisation and limited capacity in most industries and regions and, as mentioned, a shortage of labour in almost all industries. Some municipalities have reported that the number of vacancies is higher than the number of job-seekers. There are also reports of shortages of other factor inputs. Not since the 1970s have there been such frequent reports of purely physical production constraints. Reports from enterprises in Region Central Norway are not very different from the rest of the country. All industries report solid growth. Growth appears to be strongest in retail trade and services, while the building and construction sector reports only moderate growth. Continued growth is expected, but capacity problems are a constraint on growth in a number of industries. An increasing number of enterprises report that they have limited available capacity. For most enterprises, the labour supply is the most important constraint. Investment is expected to continue growing in all industries and in the local government sector. Employment is also growing, except in the building and construction industry, where employment growth now appears to have levelled off. Enterprises expect appreciably higher wage growth than at the same time last year. Enterprises state that higher pay is an important edge in the competition for labour.

After a long period of high housing investment and rising prices, activity in the housing market now appears to be slowing. Seasonally adjusted, house prices have fallen for four consecutive months. In recent years, house price inflation has been accompanied by strong growth in household debt. Credit growth remains high. Higher interest rates and falling house prices may lead to slower consumption growth and a higher saving ratio ahead. There are large regional differences in house price developments, but the trend has been the same since year-end 2006. House price inflation is decelerating in all regions, with a 12month decline in house prices in Hedmark and Oppland and a rate close to zero in Trøndelag. The strong rise in house prices has been accompanied by an increase in turnover up to the summer of this year. The stock of homes for sale has varied somewhat in recent years, but since summer 2006 there has been a sharp increase. This may explain some of the decline in house prices in recent months. The present economic expansion differs from previous upturns in that inflation has remained low so far despite strong growth and increasing capacity utilisation. There are several reasons for this. First, low import prices and high prices for our commodity exports have improved Norway’s terms of trade appreciably. Prices for oil and gas, freight, fish, industrial commodities and engineering products have increased considerably.
The focus of my remarks today will be on the implications of these global trends for the emerging market economies in general, and the East Asian region in particular and the potential for achieving enhanced growth in this more challenging environment. Ladies and gentlemen The recent decade has also witnessed a dramatic change in the form and nature of the globalisation process. The initial waves of globalisation in the form of trade have been followed by globalisation of corporations and in the recent years by globalisation of financial flows. While it has been acknowledged that these developments have brought more complex and new risks, their impact is significantly more pronounced and far reaching for emerging economies. In this environment, emerging economies have been presented with a global landscape in which their very ability to participate effectively in the globalisation process has been rendered increasingly more difficult. Globalisation is not a new phenomenon for the East Asian economies. Indeed, the globalisation process has been an important element in the remarkable growth and prosperity that has been achieved by the East Asian economies. East Asia was able to ride the successive waves of globalisation in the 1960s, 1970s and 1980s. Many of the economies experienced a quantum leap into the industrialisation process as trade flows expanded at double-digit rates during most of this period. While the East Asian economies benefited from this global trend, the economies have not however, been immune to external shocks arising from shifts in international demand.

We eventually learned from that experience that there really is no trade-off between growth and employment and inflation, except possibly in the short term, and that stability, defined as consistently low inflation - and achieved by keeping overall demand continuously broadly in line with the underlying structural, supply-side, capacity of the economy to meet that demand - is a necessary condition for sustainable growth. We learned that governments cannot sensibly seek to achieve their social objectives - however worthy they may be - by simply borrowing, or “printing”, the money to finance their expenditures, but need to balance their current receipts and expenditures over the economic cycle, borrowing only to finance productive investments. And we learned that the task of shorter term economic stabilisation was most appropriately left to the operation of monetary policy. That, very broadly speaking, is today’s macro-economic orthodoxy not just across a broad part of the political spectrum in this country but in most of the rest of the world. Now many people were initially sceptical about this change of emphasis - no doubt some still are. Fiscal responsibility, including tight control over all forms of expenditure, for example, on social security and pension provision, and on health and education - and monetary policy directed specifically at consistent stable, low, inflation - all sounds somewhat austere. What in particular does it mean in terms of its impact on the poorer sectors of our society? Well I don’t for a moment suggest it is the solution to all our problems.
In particular, I will focus on what has already been done in this area and on what remains to be done. I will start by underlining the importance, for the European financial integration, of the development of efficient and safe payment infrastructures. Then, I will assess progress made in this field since the launch of the euro. I should mention immediately that my assessment is mixed. On the one hand, I consider that the situation is favourable for large-value payment systems. On the other hand, I can’t yet make the same positive assessment concerning retail payment systems. As a consequence, I will end my presentation by elaborating on the further developments needed to strengthen the integration of retail payments. 1. Payment infrastructures are a necessary driver for financial integration  Payment infrastructures cover all procedures and systems used by financial intermediaries to exchange payment orders issued by economic agents. Accordingly, they play a fundamental role for the smooth functioning of the economy as a whole. Indeed, provided that they allow financial transfers to take place between economic agents in an efficient and safe way, payment infrastructures are a key support to one of the core functions of money, namely money as a means of exchange. In the EU, infrastructures processing payments in euro consist in a number of arrangements, which are of different nature. For example, the exchange of payment orders in euro between financial intermediaries can be handled within multilateral systems or within the framework of correspondent banking bilateral arrangements.

As a result, in less than ten years since the launch of the euro, the number of large value payment systems in euro operating in the EU will have been dramatically reduced: this number is to drop from 21 ( i.e the 16 components of TARGET1 plus 5 privately-owned systems) down to 2 (TARGET2 and EURO 1). To sum up, we should shortly be on the same footing as the United States in terms of the integration of large-value payment infrastructures. On the retail side, the situation is quite different. Indeed, there are today in the EU, 15 multilateral clearing and settlement systems in euro, almost the same number than 10 years ago, and there is no clear sign for the time being that this number is going to fall significantly in the short to medium run. The market is therefore characterized by this multiplicity of national multilateral retail payment systems, coexisting with various other payment arrangements such as bilateral schemes, international card schemes or banking “clubs”. It is fair to say that significant steps towards integration have nevertheless been made since the introduction of the euro banknotes and coins. In 2002, the European banking community launched the SEPA project, with the final objective that by 2010 “all payments are treated as domestic as far as speed, security, convenience and cost are concerned”.
The damage caused by a period of non-growth, with two recessions, is considerable. There is, of course, structural unemployment, but business investment also declined considerably during this period and has still not regained its 2008 level. Countries have also cut back sharply on infrastructure investment. And has the financial sector stabilised now? The financial sector is on a firmer footing. It has largely been recapitalised. Banking supervision is now carried out at European Central Bank level, and that is a very positive development. But pockets of fragility still exist, for example the level of non-performing loans in some countries. Provisions have been made for these debts, but they are an element of fragility nonetheless. The low profitability of some banks and the level of public sector debt, which is still significant, should also be underscored. Before the crisis, public debt in the euro area represented 60% of GDP, but today it stands at nearly 100%. To conclude, the economic situation in the euro area is improving but remains difficult. The main challenge for the euro area will be to demonstrate its ability to bring prosperity and security. An enormous amount of work remains to be done. To this must be added the political risks of what I call “seeping pessimism”. There is still considerable support for the euro but at the political level greater European integration is still rejected to some extent. That is one of the risks for the coming years.

France has already said that it will take a few liberties with the European deficit limits. Shouldn’t the fiscal straightjacket on Member States be loosened? This has been a little bit overstated, because the security figures are quite low in the budgets, and it is not prohibitively expensive to strengthen security. Of course, it is relevant from a fiscal  2  BIS central bankers’ speeches  point of view, but the amounts are not very high. By contrast, if we include the cost of national defence under security, then the figures are potentially higher. However, it should be emphasised that this is not the source of France’s fiscal woes: it also has a well-known structural problem. How can we counter the surge in nationalist and populist currents in Europe from an economic perspective? By delivering the prosperity and economic security that was promised when we created the euro area. Today, we have the same level of economic output as we had eight years ago. The crisis caused significant economic and social pain, notably in the countries that experienced a drop in their living standards. Inequality has risen as a result of unemployment. This is unacceptable socially and has political consequences. There is no obvious willingness to integrate the euro area further. We are at a turning point. Integration at the financial level is progressing, but the European project as a whole needs to be further deepened.
Foreign exchange purchase auctions would be resumed in line with our strategy to increase reserves moderately when favorable conditions occurred in the foreign exchange market. The second transaction that is conducted by the Central Bank in foreign exchange markets comprises foreign exchange interventions. They are made in order to prevent any excessive volatility that might occur in exchange rates and depending on the reasons for this volatility and potential developments. In this framework, the Central Bank may intervene directly to curb excessive volatility in either direction and use announcements and warnings. Let me elaborate on a point related to the excessive volatility interventions. As opposed to the auctions held in the framework of our strategy to build up reserves, these interventions do not have a mechanical nature. Each situation is analyzed according to its conditions and the decision for an intervention is made accordingly. Therefore, such interventions do not have a symmetrical nature. In this framework, in order to prevent excessive volatility, the Central Bank intervened directly in the foreign exchange markets 21 times (15 purchase auctions and 6 sale auctions) under the floating exchange rate regime. In the framework of both strategies, the Central Bank has made a net purchase of foreign exchange amounting to USD 43.7 billion from the foreign exchange market since 2002.

A 5-year period is very short for the structural achievements made in a country with a 30-year inflationary past to repair the fragility in expectations in a permanent way. Therefore, in a period where financial fluctuations were observed in all developing countries, the shortterm market fluctuations originating from foreigners’ exits were perceived to be much more negative in Turkey, although there was not a permanent deterioration in macroeconomic fundamentals. As seen in the table in the slide, there have been eight fluctuations since the year 2001 when the floating exchange rate regime was put into practice, and exchange rates have even surpassed the top value that was recorded in the recent fluctuation. However, to the extent that the program was implemented decisively and policies were conducted without any interruption, there had always been a return to the main trend where the Turkish lira appreciated. It should be kept in mind that this process is also the process for the Turkish lira to gain credibility. As long as macroeconomic fundamentals are strengthened and structural reforms are achieved, this process is likely to continue. Table.