samchain/econo-pairs-v1 huggingface dataset:
Paul Tucker: Regimes for handling bank failures – redrawing the banking Social Contract Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at the British Bankers’ Association Annual International Banking Conference “Restoring confidence – moving forward”, London, 30 June 2009. *  *  *  Thank you very much to the BBA for inviting me today. It is a real pleasure to be here when so much is being debated about the future of the financial system. I’d like to use the occasion to develop some of the emerging thoughts of the international official sector on the environment – the “rules of the game” or Social Contract – within which banks will need to operate in future. Banks’ liquidity risks and the banking Social Contract The defining characteristic of banks lies in the liquidity services you provide to the economy, and in the consequent liquidity risks that you run. History shows that banks are inherently fragile. Banks are vulnerable to deposit runs. The current crisis has revealed, if it needed to be, that the same goes for money market funds. And it turned out that big securities dealers had effectively been turned into quasi banks by funding themselves partly from balances held by prime-brokerage hedge-fund clients; balances that could be withdrawn on demand, and in some cases were. So what I have to say is about the economic substance of banking liquidity risk, not its legal form.

The most well-known e-payment company is PayPal, which is registered in Luxembourg, but which is active around the world. Almost exactly ten years ago Stefan Ingves, the current Governor of the Riksbank, held a speech on the theme “Electronic money from a central bank perspective”. He then said that “the situation today on the e-money front can, put briefly, be described as there being a lot  5  In 2006, 85 per cent of all giro transfers and other credit transfers were made electronically, the remainder were paper-based. In terms of value, 96 per cent of these transactions were made electronically. Sveriges Riksbank. 4  BIS Review 16/2008  happening at different places in the world, although a breakthrough on a broad front is still in the future”. This summary can probably said to still hold today. 6 But not all development is tied to e-money. Mobile phones are now also used to make payments. For example, we can pay our bus and underground journeys by sending a text message. A few seconds later we receive a text message back from the operator, confirming that a ticket has been purchased and that it can be shown to the driver or conductor. If one has a prepaid card the cost is drawn directly, otherwise it will be put on the telephone bill. There are shops that have begun to use smart cards.
The same is also true for market making activities that play a vital role in ensuring financial market liquidity and thus in convincing investors to finance the real economy. BIS central bankers’ speeches  1  This will therefore mean a new organisation for banks and greater powers for the ACP, including notably banking crisis resolution powers. The ACP will then become the ACPR. In exceptional circumstances, the ACP could call on support from the failing entity’s shareholders and subordinated bondholders. It could then, if necessary, request intervention by the Deposit Insurance and Resolution Fund, which is currently only required to intervene in the framework of its depositor compensation arrangements, even though it has already voluntarily participated in restructuring operations. In this respect, in line with the Paris financial centre’s wishes, the draft law provides that the possibility of calling on support from the Fund will be capped at a ceiling set by decree in order to ensure that the Fund’s intervention does not result in contagion. 1.2  A few words on the banking union  Distinct progress was made in 2012 in the area of European banking supervision. The euro area crisis required particularly ambitious measures to be adopted and these steps have now been taken. Thanks to the determination of European leaders, at the end of 2012, an agreement was reached on two draft regulations establishing the Single Supervisory Mechanism under the auspices of the ECB.

Yet, we could make greater progress more quickly if this effort were coordinated across the industry. I think bank leaders could benefit from sharing best practices and participating in surveys that would allow them to benchmark their strengths and weaknesses versus others on an ongoing basis. Building a financial system that is more resilient and robust, having a bank resolution regime that credibly ends “too big to fail,” and building strong cultures that restore the trustworthiness of the financial industry are all goals we must continue to pursue. Without success on all three fronts, I don’t think we can say that we have fully addressed the problems made evident by the financial crisis. Thank you for your kind attention. 3/3  BIS central bankers' speeches
operational inefficiency, poorly designed accounting practices, legal uncertainty and inadequate supervision, can degrade the performance of national as well as regional financial markets, frustrate exporters, importers and businesses. Further, these conditions can lead to dramatic manifestations of inefficiency and abuse, and challenge the credibility of the central banks in our countries. When the SAARC region trade and investment flows increase, we will not be able to reform the clearing mechanism urgently to accommodate cross border flows. The ACU has reached crossroads, requiring urgent reforms, if member countries are still interested in maintaining the long-established goodwill and regional cooperation through it. 4  BIS Review 79/2007  6. Outline of a policy framework  It is hard to come up with a blue print or reference framework for establishing a regional payments group without deliberating the topic with the SAARC member central banks. Nevertheless, I wish to outline the key elements of such a framework and a road map which can be developed further by task forces or a working group appointed for the purpose. First and foremost, it is necessary to get the commitment and consent of central banks in forming the regional payment initiative. Second, it is necessary to engage in a stocktaking exercise to gauge the effectiveness and appropriateness of the existing payment instruments, payment systems, clearing mechanisms, settlement systems and infrastructure in the region to identify their weaknesses, inefficiencies, safety levels and risks.

Averagesize farms continue to be relatively small, thus restricting the development and growth of average productivity, or differently known as “the economies of scale”. There are many reasons behind this. We can mention the inheritance of the communist system and the separation of land after its collapse. As it was stated above, the lack of a normal land market also due to ownership problems, naturally plays an important role in establishing larger farms and, consequently, more competitive ones. These problems also affect the agricultural sector-bank relationship and the lending activity at home. The recent data show that lending to the agricultural sector accounts for 1.25% of total lending to businesses, on average. It is a considerably low figure, which should raise our concern, considering that this sector contributes by one/fifth to the gross domestic product. I believe that there are two reasons driving the banking system to be reluctant to finance different projects in this sector. First, risk classification and categorisation for credit to agricultural sector is a commitment different from the other activities. The lack of formalisation, even for matters such as regular maintenance of information and statistics  BIS central bankers’ speeches  3  about ownership, and financial statistics, damage the farmers’ credibility from the early steps of lending. I find that there is room for prudential intervention by public institutions, not to condemn farmers, but to better prepare them and assist them in formalising their business.
And for another, we need to factor in various considerations to keep up with the latest international standards, including measures to uphold and protect data privacy. Therefore, enhancing our financial data infrastructure must be a concerted effort by the banking and tech industry as a whole. A team effort will ultimately lead to public goods that deliver value, benefit all the parties, and at the same time are commercially viable. 30. By improving our data infrastructure, we are empowering the industry and encouraging creativity for developing innovative financial products and solutions, in turn building up the overall appetite for fintech solutions. Expanding the fintech-savvy workforce 31. The three strategies I just mentioned will, hopefully, generate demand in the industry for fintech solutions. However, from what we learnt from the industry, the supply of fintech talent remains a pressing issue. Therefore, our fourth strategy is that we want to foster a fintechsavvy workforce and nurture all-round fintech talent, including students and practitioners. 32. We don’t need reminding of how Hong Kong boasts an extremely strong talent pool – be it in law, finance, accountancy, or other professions. We are a city that thrives on our people’s high agility and efficiency. We pride ourselves on keeping up with international standards as well as customer and market requirements. 33. With fintech being a relatively new area, it is understandable that we currently face an acute fintech talent shortage. Hong Kong is in need of grooming all-round fintech talent and expertise.

The Riksbank conducted a study in 2007 with the aim of investigating how large a proportion of the cash in circulation could be explained on the basis of what we know about cash usage.2 The study was based on available statistics on retail sales, secondary markets, liquidity buffers, lost or destroyed banknotes and coins and a number of other factors. Despite this we were unable to explain more than around 40 per cent of the value of the banknotes and coins in circulation. Although the study did not reach beyond 2004, I dare to claim that we still cannot explain what a large proportion of the cash is used for. Part of the explanation may be that the public has more  1  This comparison is based on cash usage measured as the value of the banknotes and coins in circulation (MO) in relation to GDP and on the number of card payments per person and year. 2  Guibourg, Gabriela and Björn Segendorff (2007). The Use of Cash and the Size of the Shadow Economy in Sweden. Sveriges Riksbank Working Paper Series, No. 204. 2  BIS central bankers’ speeches  cash at home, as a buffer, than we believe. Unfortunately, it is difficult to get good statistics on things like this as people may feel it is risky and sensitive to say how much cash they have at home. Another explanation is that cash is used in the shadow economy, for example for various household services such as repairs and cleaning.
Monetary policy only affects employment indirectly in the long run When setting a policy target, it is important that whoever is to meet the target can do so on a lasting basis. A natural target for a central bank is to keep inflation at a particular level over time. The central bank’s ability to govern inflation ultimately depends, somewhat simplified, on its ability to affect the amount of money in the economy. It cannot steer inflation with a high amount of precision, but still well enough to ensure that it is on average close to the target over time.10 But when it comes to targets for employment, monetary policy does not have the same power. The best way for monetary policy to promote a good long-run development of employment is to “keep the house in order”. By this I mean keeping inflation low and stable – supplying a nominal anchor – and in addition holding the economy in balance by dampening fluctuations in economic activity. This creates a good macroeconomic environment where companies dare to invest and hire. The possibility of monetary policy to influence the long-run employment rate, the equilibrium level, is thus in all essentials indirect. Employment target not meaningful and potentially counter-productive The long-run employment rate is essentially determined by factors beyond the control of monetary policy, such as demography and, above all, the functioning of the labour market.

To be even more explicit; when we formulate our policy we have on several occasions deliberately chosen to allow deviations from the inflation target for short or long periods of time. When the consequences of the deviations have been lower interest rates than would have been the case with a stricter interpretation, there has been practically no criticism. However, it has been rather different with regard to deviations in the other direction. Neither the Riksbank nor any other central bank using inflation targeting can be described as an “inflation nutter”, to borrow a famous phrase from Mervyn King, now Governor of the Bank of England. That is, we do not focus solely on stabilising inflation; we also take into consideration the real economy – conducting what is usually termed flexible rather than strict inflation targeting policy. This is also entirely in line with our task as laid down in law. There are also other types of consideration that need to be made in monetary policy. One that is immediately apparent is how financial stability will be affected by the interest rate decisions. Over the past year, and also on a few earlier occasions, there has been extensive discussion of developments in the credit market at our monetary policy meetings. We have relatively short experience of how credit cycles affect the economy; up until the 1980s the financial markets were strictly regulated. Our knowledge of the risks entailed in a rapid increase in indebtedness and asset prices is thus limited.
However, the bout of rising inflation last year fed through in part to wages, highlighting the importance of reinforcing wage moderation. In fact, the inflation differential with the euro area, despite narrowing recently, has remained persistent. And that may pose a risk for future competitiveness. In the area of price formation, a cause for concern is the differences that continue to be seen in business margins, depending on whether industries exposed or not to competition are involved. In the former, mainly export-geared companies, the rate of change of prices has been virtually zero for over a year, reflecting the efforts exporting companies have to make to compete in markets experiencing a particularly delicate situation. In parallel, other industries less exposed to competition continue to increase their operating margins considerably. The Spanish economy’s resilience in the face of the adverse external environment in 2002 offers bright prospects for short- and medium-term developments, having placed it in a sound starting position for more dynamic growth as the international climate improves. However, the expansionary impulses stemming from EMU membership will tend increasingly to have a lesser effect, while the economy will have to address new challenges arising from the stiffer competition that EU enlargement will entail. Consequently, the growth pattern may not reside so much on consumption and construction but will have to be underpinned to a greater extent by investment and exports, meaning that dynamism will depend particularly on their profitability and competitiveness.

In this connection, the European Convention plans in the coming weeks to announce its proposed draft of the future European Constitutional Treaty, which shall be agreed at the Inter-Governmental Conference to be convened in 2004. As regards monetary policy, the ECB Governing Council has, with a view to adapting the operating arrangements of the euro area to the possible entry of new members, recently recommended changes in its voting procedures, in accordance with the provisions of the Treaty of Nice. The proposed Recommendation was approved by the European Council of 21 March 2003 and introduces a rotation system whereunder the number of governors entitled to vote at any one time is restricted to 15, divided into three groups on the basis of their voting frequency. Without delving into the details of the approved formula, I should like to stress that the criteria of representativeness used in determining the voting rights of each member of the Council will place the Governor of the Banco de España within the first group of Governors, who are authorised to vote in the ECB governing council most frequently, on an equal footing with Germany, France and Italy. The Spanish economy In an adverse external setting, the key characteristic of the period analysed in the Annual Report was the capacity shown by the Spanish economy to sustain a comparatively high growth rate of 2%, and to continue generating employment, which increased by 1.3%.
With floating exchange rates, the exchange rate may adapt to changes in growth prospects and changes in the terms of trade. Since the end of the 1990s the Swedish krona has depreciated against the Norwegian krone. During this period, Norway has experienced a considerable rise in prices for  2  Source: The Technical Reporting Committee on Income Settlements, Report no. 1, 2005, preliminary version. The estimates take account of both actual hourly wages and indirect costs. 3  Aftenposten, October 1982  2  BIS Review 15/2005  export products such as oil and aluminium, partly owing to high demand in China. Sweden, on the other hand, has been influenced by a slower rise in prices for goods such as ICT products. The close trade relations between Norway and Sweden are of benefit to both countries. Even if petroleum exports to Sweden rose sharply in the 1970s, Norway still ran a trade deficit with Sweden. We have needed goods from Sweden to build up our petroleum sector, and increased wealth has enabled us to increase goods imports from Sweden. Norway has thus maintained its import share of traditional goods from Sweden while our export share to Sweden has declined. Weaker business sector competitiveness in Norway in relation to that of Sweden is probably one important factor. Looking ahead, some of the features we have observed over the past 30 years may change. There is an imbalance between the cost level in Norway and in Sweden. The cost differential cannot be sustained in the longer term.

In addition to the experts we physically have with us, we are also delighted to have through a digital connection, the pioneer academic and distinguished researcher in the field of financial literacy, Professor Annamaria Lusardi, a Professor of Economics and Accountancy at the George Washington University, in Washington DC. I have had the pleasure of meeting bilaterally with Professor Lusardi in Washington DC on different occasions while I'm there for the annual IMF meetings. Needless to say that her academic credentials, but also her passion and perseverance in promoting financial literacy across the globe, have left a great impression on me. I am thankful that she has accepted my invitation to be our key-note speaker in this event. 4/5  BIS - Central bankers' speeches  Without further ado, I wish you all very productive and fruitful discussions during the Conference. Thank you. 5/5  BIS - Central bankers' speeches
For that part of the economy producing internationally tradable, not just traded, goods and services, output is falling while consumer spending is buoyant. As a result, there is a "tale of two cities" in which some industries are experiencing the worst of times, with declining manufacturing output, and others the best of times, with the latest retail sales figures showing an increase in the volume of sales over the past twelve months of 6.4%. Such imbalances are not uncommon. Indeed, I first used the phrase "tale of two cities" in early 1995 to describe the contrast between strong demand for manufacturing output and weak retail sales, the opposite of the position today. Since then the economic see-saw has lurched from external to domestic demand, partly as a result of the continuing weakness of the euro which has led to a large and persistent rise in the sterling effective exchange rate. The scale of the imbalances at home can be seen in figures for domestic and external demand. Whereas aggregate demand and output have risen at a fairly steady rate of around 2¾% over the past five years, domestic demand, supported by rapid money and credit growth, has risen much more rapidly than net external demand. Indeed, private final domestic demand grew at an average rate of nearly 5% over this period, and its growth was in excess of 4% a year in four of the last five years. This imbalance between domestic demand and output has resulted in a rising trade deficit.

Tourism Apart from mining and related companies that are affected by the effects of the global recession, tourism has also been negatively impacted. The number of foreign tourists is anticipated to decline owing to financial problems and credit crunch their countries of origin are facing. Availability of credit Perhaps the most challenging effect of the global financial crisis, especially for developing countries like Zambia, is its impact on private sector investment. Between 2006 and 2008 credit to the private sector grew strongly (at an average of 45.6% per annum), largely driven by the expansion of consumer credit and the strong growth in the domestic economy. An immediate consequence of the financial and economic crisis has been a curtailment of credit lines and a slow-down in FDI flows. In 2009, domestic credit is expected to slow down as financial institutions adopt more conservative lending practices and tighten their lending standards. In addition, the deterioration in corporate and household balance sheets is now being translated into higher non-performing loans (NPLs) as a percentage of total assets in the banking sector (from 6% in mid-2008 to 10% in May, 2009 – an increase of 67%.). The deterioration in NPLs is now across all the past due loan categories. BIS Review 86/2009  3  Policy response In responding to the crisis, the Government is taking steps to maintain macroeconomic stability and continue encouraging investments that will lead to diversification of the economy and safeguard vital social services.