samchain/econo-pairs-v1 huggingface dataset:
These strengths are found in the sector’s strong capital base, its limited exposure to subprime-related and other toxic assets, and its low reliance on external funding. As a result, the impact of the crisis on the Thai banking system so far has been limited. The Thai banking system is resilient with good fundamentals, and continues to function normally to support the economy. In the last two quarters, despite the consecutive negative GDP growths, the performance of the Thai banking sector remains satisfactory. The sector continues to see profits in the last two quarters, while the increase in the non-performing loans has not been large. This robust performance reflects a number of common responses that have been undertaken by the banks to manage the increase in credit and market risks. The responses include parring down of investment in foreign assets, lowering the loan growth target in line with the economy, strengthening risk management and credit standards, paying close attention to liquidity, and acting early to assist clients to adjust to the impact of the shock. These measures have helped banks to contain credit risk, and so far we have seen the gross NPL ratio rising slightly to 5.5 percent in March from 5.3 percent in December. As for the Bank of Thailand, our approach to bank supervision during this time of global stress is to ensure that the banking system is healthy, and the system continues to operate fully to support the economy with good risk management and adequate capital.

I will not have time today to dwell on the details of the plan, let me just say that the plan is now complete and is currently being considered by the finance ministry, and is scheduled to come into effect this year. It is our hope that this continuing momentum of reform will help expand the competitiveness and the growth of the Thai financial sector and the economy in the years to come. I probably have used up my allotted time. Again, I want to thank Euromoney for the invitation. It has been a pleasure and thank you for your attention. BIS Review 76/2009  3
Miguel Fernández Ordóñez: The restructuring of the financial system Opening speech by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the XVII Meeting on the Financial Sector/Deloitte-ABC, Madrid, 13 April 2010. *  *  *  Good morning. Let me first thank ABC and Deloitte for the opportunity to address such a select audience as that gathered here today. I have tried to explain from the outset of the crisis that, although it may have compounded the main problems besetting our economy, these are specifically Spanish problems. Accordingly, their solution unavoidably involves adopting domestic measures without counting on an improvement in the external environment to resolve them for us. Among these problems is the necessary restructuring of the Spanish banking system. This sector, which grew in parallel with the extraordinary real estate expansion of the past 15 years, now shows overcapacity and insufficient capitalisation in the case of certain institutions, meaning re-sizing and appropriate restructuring are needed. Last year, in this same forum, I referred to the need for banks to be aware of the situation facing them and to set about the task at hand. Today, with few exceptions, I believe they are doing their homework. Regarding the restructuring of the financial system, the government and Parliament too have done what they had to, and correctly so in my view. On one hand, formulas such as nationalisations, “bad banks” and capital injections without requiring that capacity be reduced have been rejected.

Such formulas were probably unavoidable in countries that have seen the bulk of their banking systems collapse, but are absolutely inappropriate for Spain’s circumstances, where most of the sector is essentially healthy. On the other, the capacity of the Banco de España has been reinforced to act effectively when it is necessary to take control of banks and, in turn, an appropriate framework has been set in place so that those banks that so require may access the funds needed to restructure. Even if still currently viable, they are encouraged in this way to go ahead with restructuring, which allows them to be prepared to lend without problems once the recovery arrives and the current declining pattern of the demand for credit turns around. These measures – implemented in the Royal Decree Law creating the FROB (Fund for the Orderly Restructuring of Banks) – have been adopted with a broad Parliamentary consensus, enjoying the support of the two main parties, in a similar fashion to the consensus behind the swift response of our authorities to the closure of the wholesale markets. The latter event saw the approval of Royal Decree Laws for the fund for the acquisition of financial assets and for State backing of bond issues by credit institutions, both of which initiatives smoothed the way for the wholesale funding of much of the Spanish banking system at a most delicate juncture in the crisis.
Furthermore, it is at the core of central banking to prioritise macroeconomic objectives over the central bank’s own finances. Moreover, this situation could make it possible to resolve most of the problem in the auction, in a more permanent way than was previously envisioned. Preparations for the auction are now well underway, and the date and format will be publicised soon, so that the auction can take place in the first half of the year. Other things being equal, it should then be  2  BIS central bankers’ speeches  possible to move relatively quickly towards lifting capital controls on residents, as the current account surplus, foreign exchange inflows, and robust foreign exchange reserves provide ideal conditions for it. On the other hand, it is important to reach successful conclusion regarding offshore krónur before general liberalisation of controls on residents can take place. Now I would like to turn to longer-term issues regarding monetary policy and its relationship to other aspects of economic policy and prudential policy. In its reports entitled Monetary policy after capital controls and Prudential rules following capital controls, published in 2010 and 2012, respectively, the Central Bank described the new monetary policy framework and prudential rules that will be necessary to preserve financial stability and support monetary policy after the capital controls are lifted.

But transmission through the exchange rate channel is uncertain and volatile, as the exchange rate is also an asset price that fluctuates with speculative capital flows and can deviate from equilibrium over time, only to correct quite suddenly. Unless the financial system is that much better protected, this process can interact negatively with financial stability, as was the case in Iceland during the financial crisis. This is at the heart of the problem faced by small countries that pursue independent monetary policy and permit unrestricted capital flows simultaneously. The problem can be solved by adapting monetary policy to that prevailing in large countries even though it is not suited to domestic conditions, or by placing restrictions on cross-border capital flows, particularly those related to carry trade. The need for such restrictions is likely to surface earlier and more strongly in countries with shallow financial markets. But capital flow management measures that aim to restrict both carry trade and destabilising capital movements cannot be used as the first line of defence in the fight against inflation and macroeconomic imbalances, except under extraordinary circumstances. Such instruments will have adverse side effects and could push international obligations to their limits. But some sort of tools must be available for use if the need arises. In general, the first line of defence must be conventional management of the monetary-fiscal policy mix, supported by structural reforms and sound economic incentives.
Miguel Fernández Ordóñez: Presentation of the 2009 Annual Report Testimony of Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, to the Parliamentary Committee on Economic and Financial Affairs, on the occasion of the presentation of the 2009 Annual Report, Madrid, 22 June 2010. *  *  *  Ladies and gentlemen, The presentation of the Banco de España Annual Report for 2009 – the reason behind my testimony today – has taken place at an exceptional time for both the Spanish economy and the Economic and Monetary Union. The economic and financial crisis spanning 2008 and 2009, from which most European countries had started to emerge in recent months, has given way to a crisis in the euro area which was triggered by a specific episode, namely the Greek fiscal crisis, but whose systemic implications are proving most severe. In particular, the Spanish economy, along with that of other countries, has been seriously affected by these tensions and it is still too early to know whether the measures adopted in Europe to safeguard EMU and those currently under discussion will be capable of fully dispelling the doubts that have emerged in recent months over the soundness of this institutional framework. The responsibility of national authorities in this respect is also crucial. In recent years the diagnosis by the Banco de España of the Spanish economy pointed to the presence of major imbalances, which had progressively built up in the long expansionary phase from the mid-1990s to 2007.

Fifth, the risk of default on the country’s sovereign debt must be viewed as negligible, to ensure both that the currency is a stable store of value and that continuous, deep liquid domestic markets will be available regardless of the economic circumstances. Sixth, the country must have a credible central bank that is insulated from political interference and committed to keeping inflation low and stable – a necessary condition for a reserve currency to be a reliable store of value. I think that the U.S. dollar satisfies these general criteria. That is why over 60 percent of foreign exchange reserve holdings are denominated in dollars – a share that has been quite stable in recent years. The dollar’s share has remained steady despite the presence of a number of currencies that broadly satisfy the attributes that I have just discussed. But should the U.S. be concerned if more countries satisfy the attributes needed to be successful reserve currencies? Would it be problematic for the United States if the U.S.  BIS central bankers’ speeches  1  dollar share of foreign exchange holdings slipped over time because of progress made elsewhere? I think the answer to both of these questions is “no.” It would seem positive to me if a decline in the U.S. market share reflected the following developments: a greater number of stable and effective central banks and fiscal authorities, more investors who are reassured about countries’ institutional arrangements and financial stability, and deeper and more liquid capital markets outside the United States.
In particular, the risks from continuing global price pressures and the effects of the prolonged period of above target inflation meant that the level of demand consistent with achieving the inflation target had probably fallen. Nasty reasons rather than nice ones.15 I should stress that I’m not at all certain that this will turn out to have been the right policy decision. A key lesson I learnt from the financial crisis is that economists know a lot less about the economy and how the economy works than many would like to believe. Policymakers need to approach their task with humility and pragmatism. If growth turns out to be materially weaker than I anticipate or other medium-term pressures on inflation ease unexpectedly, I will reverse my decision. But with growth expected to be around its average historical rate, inflation likely to remain above 4% for the rest of this year and Bank Rate at record low levels, some withdrawal of policy stimulus seems sensible. The juxtaposition of high inflation and loose monetary policy means that there is an onus on the MPC to explain its actions. The case for the defence needs to be made. And we have a good story to tell. We can explain why inflation has been above target for much of the past few years. We think we understand – albeit with the benefit of hindsight – why we have been surprised by the strength of inflation. And we have learnt from those episodes.

Rates of inflation expected to prevail in 5 or 10 years may not increase, but inflation expectations 2, 3 and 4-years ahead may well do. This risk is almost impossible to monitor since information on the term structure of inflation expectations, especially for households and companies, is very sparse. But it could have profound implications for the inflation outlook and the performance of our economy. If companies and households expect inflation to return to target quickly they will set their prices and pay demands accordingly. And in so doing, monetary policy has less to do – in terms of varying the level of demand in the economy – to ensure that it does. Inflation credibility is self reinforcing. The credibility gains associated with the move to inflation targeting and an independent policymaking committee in our country led to a reduction in the persistence of inflation. Inflation came back to target more quickly and the cost of it doing so in terms of output volatility was reduced.14 If companies and households begin to expect that  11  Brazier, Harrison, King and Yates (2008). 12  Carroll (2003). 13  Mankiw and Reis (2002). 14  There was a reduction in the persistence of UK inflation without an increase in the volatility of output. Benati (2006) found that the inflation targeting period has been the most stable macroeconomic period in UK history.
The point is that, even while capital requirements are fulfilled, losses can reduce banks’ own funds at a time when capital issuance is difficult or costly; in such a juncture, some analysts argue that banks may be led to restrict credit lending during downswings although they are not bound to do so for prudential reasons. I consider that the future capital requirements of the New Accord will significantly improve the situation as regards the risk-sensitivity of capital requirements. Let us now turn to asset price moves. As previously mentioned, financial asset prices may fluctuate widely and sometimes deviate from economic fundamentals for long periods of time. Several factors may be in play when this happens. I shall give a few examples. •  Some market participants may have become more inclined to engage in "short-termism", that is, they are only preoccupied with their short-term results. This trend might result, in particular, from growing pressure to yield high immediate financial results that are not necessarily sustainable. Marking-to-market financial products may also have contributed to this widespread focus on immediate financial performances. This focus on short-term performance can translate into additional volatility in the price discovery process: the shorter the investment horizon of market participants, the bigger the impact of any new information on prices. •  Mimetic behaviour is of course by no means a new phenomenon on financial markets.

This has resulted in somewhat modified market dynamics and less efficient price determination mechanisms. In order to safeguard the smooth functioning of the markets, the diversity of participants’ behaviours must be protected or even reinforced. This necessary diversity should logically reflect natural differences in time horizons, strategies and reaction functions of market players. On this point, I would like to explore three possible avenues for future action for both authorities and the industry. First avenue: Strengthen the continuing efforts aiming at market transparency •  Experience shows that uncertainty and incomplete information are determining factors in mimetic behaviour. These shortfalls in market transparency make mimetic behaviour seem rational to agents, who prefer to follow bigger participants, who are thought to be better informed, rather than develop their own analysis. Strengthening transparency therefore continues to be a priority. •  One of the objectives of transparency is to enable better differentiation of borrower creditworthiness. A key feature of mimetic behaviour is that all borrowers are "tarred with the same brush". So when one emerging economy encounters difficulties, all neighbouring countries are treated in the same way – regardless of their actual economic and financial situation. The same applies to businesses operating in the same economic sector. Transparency as substantially improved since the Asian crisis thanks to a solid global consensus. Let us continue and reinforce these efforts. Second possible avenue: Taking into account the medium and long-term perspective of some market participants.
5  There are various measures of under-employment, including the proportion of the workforce working part-time involuntarily and the gap between actual and desired hours worked. In practice, these two measures exhibit a very similar pattern (Chart 9). They also track the unemployment rate closely. This suggests the incremental information contained in measures of under-employment, relative to measures of unemployment, might be relatively modest. Econometric estimates confirm that impression. Replacing the unemployment gap with a measure of the 6  under-employment gap produces a very similar wage equation (Table 1). And in a pairwise comparison, under-employment is statistically insignificant if the unemployment gap is included. Under-employment is important for pay, but does not appear to much improve the explanation of recent wage dynamics. A third factor determining pay pressures is productivity. It is through gains in productivity that individual firms, and the economy at large, can finance increases in workers’ pay. Econometric estimates confirm that intuition. The productivity of the labour force is a (statistically and economically) significant determinant of pay (Table 1). On average across firms, a 1 percentage point rise in productivity raises aggregate wage growth by around 0.8 percentage points. 4 5 6  Espinosa-Vega and Russell (1997) provide a history and review of the NAIRU concept. For example, Bell & Blanchflower (2018). Specifically, the involuntary part-time share of employment.

This is consistent with superstar firms gaining a greater degree of 25  monopolistic power over customers. There is also evidence linking superstar firms to rising degrees of  concentration in the labour market, consistent with a greater degree of monopsonistic power over workers. 26  These shifts in industry concentration appear to have influenced pay growth. Rising concentration across different sectors of the US economy has been found to have had a significantly negative effect on their labour share. 27  Monopsony power among US industries has been found to have had a negative effect on  wage growth in that sector, the more so when unionisation rates are low. 28  And larger firms have also been 29  found to differentiate to a greater degree in the wages they pay their workers. Colleagues at the Bank, Will Abel, Silvana Tenreyro and Greg Thwaites, have recently found similar effects in the UK. 30  Higher industry concentration is associated with lower pay, the more so the less of a sector is  covered by collective bargaining. One important difference from the US is, however, that labour market concentration has not increased anything like as much in the UK as in the US. This, too, might help explain the relative flatness of the UK’s labour share. 23  For example, Autor et al (2017a). Concentration in the labour market is only one means by which an employer might enjoy greater bargaining power over workers.
Despite the fact that anyone travelling between the euro countries and wishing to use banknotes and coins has had to exchange them, the national currencies have merely served as different expressions of the same thing, namely the euro, after 1 January 1999. Since that date there have been major changes in the economies of the euro countries, not least in the foreign exchange markets and the markets for securities, which, among other things, I will discuss today. In the following I shall begin by discussing the development trends we have seen on the markets for securities over the past few years and then take up various impediments to continued integration in the securities field. After this I intend to speak about the significance of the single market and the single currency for Sweden. Capital adequacy rules steer the euro money market Let us begin by examining the money market, where short-term securities are traded, normally loans to be repaid within a year. The interbank market for unsecured transactions became almost fully integrated right from the start of the monetary union in 1999. The joint monetary policy and harmonisation of market practices were the main reasons for this rapid process. However, the relatively immediate success of the joint reference interest rate EONIA and the well-functioning settlement of cross-border payments via TARGET also played a large role. Since then we have seen a particularly strong increase in activity among various derivatives.

Forth, for emerging markets, the most threatening externally-induced crises going forward will be those that relate to the concentration of global liquidity, either too much or too little, in the form of large, persistent, and volatile capital flows that overwhelm the capacities of individual countries to manage and adjust to. And the most worrying aspect of this is that the trigger would lie outside the controls of emerging market’s policymakers since the flows would be the results of market conditions and policy prescription elsewhere. Let me now turn to my second observation on the implications that the changing nature of future crises can have for the conduct of EWE going forward. On this, I have four points to make. First, in view of the changing nature of future crises, it is therefore important that the thrust of the EWE is mindful of this possibility. In my view, the focus of EWE should expand beyond macro-misalignments based on historical relationships to include assessing the robustness and the resiliency of the systemically-important markets, system, and institutions. This means the key objective of EWE will not be to forecast future crises per se, but to identify vulnerabilities in the most important areas in advance, especially those risks that are not covered by market data or by the surveillance process elsewhere. Second, for EWE to be effective and comprehensive, it should be done at two levels to cover both the global dimension and the country-specific dimension of risk.