samchain/econo-pairs-v1 huggingface dataset:
Chart 10: Global current account imbalances and gross capital flows Total current account surpluses (a) BIS bank outflows (c) Gross capital outflows Per cent of world GDP (inverted) 20  Total current account deficits (lhs) (b) BIS bank inflows (lhs) (d) Gross capital inflows (lhs) Per cent of world GDP 20  15  15  10  10  5 0 + 5  5 + 0 5  10  10  15  15  20 1980  20 1984  1988  1992  1996  2000  2004  2008  2012  Sources: Bank for International Settlements, International Monetary Fund World Economic Outlook and Bank calculations. (a) Sum of global current account surpluses. (b) Sum of global current account deficits. (c) Sum of global net purchases of foreign assets by residents. (d) Sum of global net purchases of domestic assets by foreigners. BIS central bankers’ speeches  11  Chart 11: Global imbalances Other current account deficit countries  China and emerging market Asian economies  Germany and Japan  Oil exporters  United States  Rest of the world  Cyclically adjusted, assuming substantial supply impact  Cyclically adjusted, assuming little supply impact  Per cent of world GDP  4 3 2 1 0 -1 -2 -3  Forecast  -4 1998  2000  2002  2004  2006  2008  2010  2012  2014  2016  Source: International Monetary Fund World Economic Outlook, April 2013.

Broadbent, B (2012) “Productivity and the allocation of resources”, Speech at the Durham Business School. Cecchetti, S G (2011) “Global imbalances: current accounts and financial flows”, Remarks prepared for the Myron Scholes Global Markets Forum, University of Chicago. Dale, S (2013) “Inflation and growth: what role for monetary policy?”, Speech given to the Asian Business Association and Chinese Business Association of London Chamber of Commerce and Industry. King, M A (2000) “Balancing the economic see-saw”, Speech. King, M A (2006), Speech given at a dinner for Kent Business Contacts in conjunction with the Kent Messenger Group/Kent Business. Miles, D (2012) “Monetary policy and the damaged economy”, Speech given at the Society of Business Economists Annual Conference, London. Shin, H S (2012) “Global banking glut and loan risk premium” Mundell-Fleming Lecture, presented at the 2011 IMF Annual Research Conference. Tucker, P M W (2012) “National balance sheets and macro policy: lessons from the past”, Speech at the Society of Business Economists” Annual Dinner. 6  BIS central bankers’ speeches  Chart 1: Saving ratios of different groups of households(a) Per cent 30 25  Low-debt mortgagors (28%) (b)  20 15  Outright owners (29%)  10  Total LCF survey  5  Renters (19%)  0 High-debt mortgagors (25%) (b)  2002  2003  2004  2005  2006  2007  2008  2009  2010  -5 -10 2011  Sources: Living Costs and Food (LCF) survey and Bank calculations.
1/5  BIS central bankers' speeches  Indeed, the various measures that were implemented have been instrumental in accelerating the e-payment agenda forward, only because of the cooperation of the industry, sometimes with a bit of nudging. But truth be told, we have been able to achieve so much. Today, the payments industry is no longer the exclusive domain of banks. The advent of FinTech driven by the increasingly inexpensive and pervasive internet and mobile technology has encouraged the entry of more agile non-bank players as potential disruptors or collaborators of the incumbent players. This has set the stage for an exciting new era in payments, an era in which the industry is expected to take on a larger role in delivering a more robust and efficient payments system for Malaysia. The Bank will facilitate this in three key ways: i. First, through policy initiatives to encourage collaborative competition or ‘co-opetition’; ii. Second, by further strengthening industry alignment; and iii. Third, by supporting more inclusive governance arrangements for the development of the payment system. Policies to promote co-opetition as a key enabler for greater efficiency, competition and innovation Network effects are critical to an efficient payment system. The larger the network of a payment system, the more valuable it is to users of the payment system.

The problem in many cases of the less developed economies is that firms and households tend to regard foreign assets as the habitat of first choice for any savings, reluctantly accepting domestic instruments as an - often enforced - alternative. The aim of the authorities must be to make domestic instruments the first choice, leaving foreign assets as the route towards subsequent more sophisticated or mature portfolio diversification. In this way, dependence on foreign inflows can be reduced, although there will always be an important and necessary role for them, especially in view of the technology and know-how transfer which may accompany them. The 1997 Asian crisis, along with various subsequent problems with liabilities to foreign investors and lenders, have once again highlighted the vulnerabilities and volatilities which may be associated with overdependence on foreign capital, particularly that which is structured as debt. Yet in many countries there appears to be, as I have tried to demonstrate, a high rate of domestic saving which, if kept more at home and if, ideally, permitted to find a haven under the pull of market forces, could satisfy part of the funding needs for which foreign finance has in recent years been used. Of course, not all countries enjoy a high savings rate in the first place and there may often be a need to encourage more domestic saving. But that question goes beyond the scope of my focus today, which is on what happens to those savings rather than on their scale itself.
If capital requirements are increased significantly, but only on some activities, banks may re-classify assets to switch their business into forms where the capital requirements are no higher than today. To me that is an argument for thinking about very substantial rises in required bank capital pretty much across the full range of their activities. Of course if this is very costly it will create two problems: it would create big incentives to avoid them and potentially big costs to the wider economy, because of the impact on the price and availability of bank loans. Two issues are important. First, the scale of the impact on bank funding costs from higher capital requirements. Higher funding costs would push up on the cost of bank loans to households and non-financial companies and affect lending and investment, which in turn could require a monetary policy response; those costs will also affect the incentives to avoid (or evade) capital requirements. The second issue is how much more robust the financial sector, and banks in particular, become with different amounts of extra capital. Several estimates of the cost of higher bank capital exist. The Institute for International Finance (IIF) suggest that proposed regulatory reform which could be part of the Basle III system could reduce the path of average annual GDP growth in the US, euro area and Japan by 0.3pp for the next ten years 2. This implies that the level of GDP would ultimately be around 3% lower.

If we assume that financial crises would otherwise occur once in every 25 years (an annual frequency of 4%) then a rise in banks capital by 10 of riskweighted assets would be justified if it reduced the probability of financial crises so that they occurred with an annual probability of 3.2%, or once every 31 years. Alternatively, taking the most favourable assumptions on cost (full tax offsets, partial Modigliani Miller offsets, a lower use of bank debt and lower sensitivity of investment spending) the blue line indicates a 10% rise in capital relative to assets would be justified if it reduced the probability of financial crises from 4% a year to 3.9%, or from once every 25 years to once every 25.4 years. (The final column in the table shows that calculation for each case). Such a small decline in the likelihood of a financial crisis would not appear to be overly ambitious for such a sharp rise in the capital ratio. For typical banks the capital ratio starts out from a level under 10%, so that a rise in capital of 10% of risk assets is more than a doubling in the amount of bank capital.
BIS Review 143/2009  5  Figure 13: Policy Rates in Emerging Figure 14: Change in Policy Rates Markets * between September 2008 and October 2009 in Emerging Markets* September 2008-October 2009 (Basis Points) 20  0  Emerging Markets Turkey  -200  17  -400  14  -600  11  -800  8  -1000  * As of 19 October 2009. Source: Bloomberg, CBRT calculations. Source: Bloomberg, CBRT. Rus sia  Hung ary  Romania  Indon esi a  Mexico Thailand Poland  India  * As of 19 October 2009. Brazil  Turkey Chi le Columbia  Peru South Africa  -1200  0709  0109  0708  0108  0707  0107  0706  0106  5  Data releases on inflation and economic activity since the inception of the rate cutting cycle have vindicated these preemptive monetary policy decisions, and thereby strengthened the impact of policy decisions on expectations, gradually bringing government bond yields to historically low levels on the back of improvement in risk premiums (Figure 15). CBRT’s effective communication policy and management of expectations, along with market perceptions indicating that the Medium Term Program (MTP) released in September is consistent and realistic, played a key role in bringing down government bond yields. This downward trend particularly accelerated after providing a medium-term policy perspective in the July Inflation Report.

This is the main reason why MAS introduced the Total Debt Servicing Ratio (TDSR) framework. During our inspections, we picked up some worrying practices. •  4  Most of them are in property loans –  A couple with combined household income of $ was able to obtain a new housing loan of $ Their monthly installments on this new loan and their existing loan obligations came to more than 90% of their combined monthly income. –  The bank’s decision to approve the loan was based solely on fact that couple had savings deposit of $ This is not prudent. BIS central bankers’ speeches  •  •  We picked up similar instances for car loans –  Some applicants of car loans borrowed close to 100% of the value of car, with little or no down payment, for what is essentially a depreciating asset. –  This is also not prudent. We also found cases of excessive borrowing through credit cards –  A concerned mother called MAS for assistance: her 24-year old son had been paying only the minimum sum on his credit card bills and steadily chalking up debts. –  She requested MAS to stop financial institutions from issuing credit cards to those who have not been making full payment on their credit card bills. Over last three years, MAS has introduced variety of measures to contain excessive borrowing against the backdrop of highly loose monetary conditions globally.
Using this fiscal room mostly to reduce the government debt, as implied by the fiscal rule, would enhance demand management and ease the need for indirect tax hikes, therefore providing more flexibility regarding the conduct of a stabilizing monetary policy. In this respect, we believe that should the goals set out in the Medium Term Program be implemented through institutional and structural improvements, such as enacting and establishing the fiscal rule, it would be possible to keep policy rates at single-digit levels over the medium term. Since the last quarter of 2008, the CBT, without conflicting with its primary objective of price stability, has focused on containing the adverse effects of the global crisis on the domestic economy, which has, to a large extent, been achieved. Monetary policy will continue to focus on price stability in the period ahead. Adhering to the commitment for fiscal discipline and strengthening the structural reform agenda would support the improvement of Turkey’s sovereign risk, and thus facilitate macroeconomic and price stability in the medium term. In this respect, while reiterating once more that timely implementation of the structural reforms envisaged by the Medium Term Program and the European Union accession process remains to be of the utmost importance, I would like to thank you for your participation.

It is this macro-prudential perspective that I want to discuss today – specifically, to consider how macro-prudential policy will need to adapt, just as our health-care plans adapt, to be fit for the challenges of the future. Since the global financial crisis, the financial system has not been a cause of sustained economic instability. But this is no reason for complacency. The financial system is ever changing. And experience suggests our job may not yet be complete. So today, I will begin by setting out why financial stability is important and the role of macroprudential policy in delivering it. In so doing I hope to set out why it’s as important for the financial system to observe macro-prudential policies as it is for patients to stick to their health-care plans. I will then briefly set out some principles on which good macro-prudential policymaking is based. The rules of thumb that underlie our prescriptions if you like. And I will conclude by raising some challenges that macro-prudential policy is facing now, including my thoughts on the road ahead. Through that, I hope to set out how we need constantly to adapt macro-prudential policies, as we do with our health-care plans as lifestyles evolve. Interactions between financial stability and sustainable growth and the role for macroprudential policy Why is financial stability important? To understand why we place so much emphasis on a well-grounded macro-prudential framework, it’s important to understand why we care about financial stability in the first place.
As we saw with the onset of the global financial crisis, in the face of deflationary pressures, monetary policy makers can resort to asset purchases in the form of quantitative easing to ease the stance of monetary policy and financial conditions more broadly. Central bank asset purchases can be seen as working in two ways. Asset purchases as a substitute for changing Bank Rate First, they are a potential substitute for monetary easing via the conventional lowering of interest rates should the effective lower bound on Bank Rate bind. In this context, QE can influence the economic outlook through a number of channels. On the basis of quantity-theoretic considerations, an expansion of the central bank’s monetary liabilities may raise inflation expectations directly. QE can also offer guidance to the market about the Bank’s plans for interest rates. In short, QE may work through a signalling channel. The increase in central bank reserves associated with QE may lead to portfolio rebalancing, as banks attempt to restructure their balance sheets by buying financial assets or making loans. More generally, the absorption of duration from markets associated with Bank of England purchases of government debt financed by the creation of central bank reserves can trigger efforts by a broader set of market participants to rebalance portfolios, leading to a bidding up of asset prices. Higher asset prices ease the wider set of financial conditions faced by households and firms, supporting economic activity alleviating deflationary pressures. In sum, QE may also work through a portfolio balance channel.

Strengthening financial market infrastructures is another important initiative underway to make the financial system more resilient and robust. In this regard, there are two important strands of work underway. First, there is strong momentum both in the United States and abroad to require that standardized OTC derivative products be cleared through central counterparties (CCPs) and that the information associated with all OTC derivatives trades be reported to trade repositories, with this information then being available to regulators around the world. Second, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commission (IOSCO) are undertaking a review of international standards for financial market infrastructures. This review will lead to a comprehensive set of  BIS Review 131/2010  7  recommendations as to what constitutes best practice with respect to the operations of financial market infrastructures. These recommendations will apply to a broad array of financial market infrastructures, including CCPs and trade repositories. The final report will be completed during the first half of 2011. The goal will be to have these standards endorsed by the Financial Stability Board and the G-20 leaders. With those endorsements, it should be possible to harden the recommendations into more substantial standards. In all of the reforms that we are implementing it is important that we pay close attention to the shadow banking system.
The Ministry of Finance has been tasked with setting the level of the countercyclical capital buffer. Norges Bank has been tasked with preparing a basis for the buffer decision and providing advice to the Ministry of Finance regarding the level of the buffer. In preparing the basis for the buffer decision, Norges Bank will exchange information and assessments with Finanstilsynet. Since March of this year, Norges Bank has published an assessment of the need for a countercyclical capital buffer in the Monetary Policy Report in addition to its monetary policy assessment. Norges Bank will give its first advice on the level of the buffer to the Ministry of Finance in connection with the next Monetary Policy Report, to be published at the beginning of December. Text slide: Criteria for an appropriate countercyclical capital buffer In line with the purpose of the countercyclical capital buffer, Norges Bank has formulated three criteria for setting an appropriate buffer rate. The buffer should ensure that the resilience of banks is strengthened during an upturn. The buffer requirement should be viewed in the light of other requirements applying to banks, particularly when new requirements are introduced. One of the most important purposes of the capital buffer is to alleviate stress in the financial system. History shows that the foundation for banking crises is laid during upturns. When financial imbalances build up, this increases the likelihood of substantial losses in the entire banking system.

Banks determine who should be given credit and closely monitor borrowers and their projects. This is a task that would be difficult for small savers to undertake. By offering customers various kinds of financial products, banks also help to diversify and redistribute risk. This function is essential in a modern market economy. At the same time, experience shows that complex financial structures are a source of increased vulnerability. Chart: Securitisation resulted in complex and vulnerable structures Ahead of the financial crisis, there was a proliferation of complex financial products, including residential mortgage-backed securities in the US. In theory, these new products were intended to improve the distribution of risk. Banks’ exposure to risk that had been shifted off their balance sheets would be limited. In reality, it turned out differently. Risk was not very well distributed, merely hidden. With so many links in the chain between borrower and saver, the responsibility for monitoring borrowers became highly fragmented. Good banking is important for a sound and stable economy. Despite thorough credit assessments and close monitoring of borrowers, banks will face unexpected losses. If banks end up with insufficient equity capital following substantial losses in bad times, they will have to tighten lending. This may amplify a downturn, as is currently the case in a number of European countries. Compared with other enterprises, many banks have limited equity capital. It is often more costly for banks to fund lending with equity capital than with deposits and borrowing from the market.
And perhaps, most worryingly, the momentum for reform appears to have slowed, partly because markets have stabilised, partly because the public is losing interest and partly because, as Jerry Corrigan recently said, “the subject matter of reform is so very complex and often controversial.” 6 In view of the complexity of the issue, allow me to lay out the regulatory reform priorities which the Swiss National Bank (SNB) believes we must focus on in our efforts to build a more robust financial system for the future. Fully in line with proposals by the FSB and the decisions already taken by the G20 leaders, we must pursue a dual-track approach to reform, combining preventive measures and resolution measures: The preventive measures aim at reducing the probability of bank failures and systemic crises. Note that I deliberately use the word “reduce”. Eliminating all instability would be neither feasible nor desirable. The resolution measures aim at reducing the negative consequences in the event that failures or systemic crises occur – despite hopefully greater resilience in the future. In what follows, it is useful to bear in mind the extraordinary situation we face here in Switzerland. In international comparison, our banking sector is very large relative to our economy. Currently, total assets of the Swiss banking sector exceed seven times GDP. Furthermore, the Swiss banking sector is highly concentrated. Based on total assets, the two big banks, UBS and Credit Suisse, have a market share of more than two-thirds.

For how can we justify the costs of these efforts, which will have to be borne for at least a generation, without fundamentally addressing the flaws that got us into this terrible crisis in the first place? Ladies and Gentlemen, there are many areas in financial regulation that can and should be improved. Given what is at stake, there is a need to prioritise. I have attempted to lay out to you today where the SNB puts those priorities and where it will focus its greatest efforts in the months and years to come. Together with FINMA, it is our duty to provide robust analysis and to issue sound recommendations that will help put our financial system on a more sustainable foundation. In certain areas, like capital requirements, regulators can issue – and have issued – decrees intended to strengthen the resilience of the financial system. With respect to the “too big to fail” problem, political decisions are required. The topic is crucial. The consequences of not addressing it adequately could be severe in the event of a future crisis. Politicians need to become acquainted with and get involved in this matter. The sooner, the better! 17  17  The Swiss government has recently mandated a group of experts to make proposals to limit the risk associated with large firms. 8  BIS Review 145/2009