samchain/econo-pairs-v1 huggingface dataset:
15.02.2017  Appearance by the Governor of the Banco de España Parliamentary Committee for the Monitoring and Assessment of the Toledo Pact Agreements Luis M. Linde Governor  Ladies and Gentlemen, I appear before this Committee for the Monitoring and Assessment of the Toledo Pact Agreements to present the Banco de España’s analysis of the current status of and outlook for our public pensions system and its reform. The analysis is in a paper recently published by the Banco de España and takes a technical approach. This means we have attempted not to enter into political considerations, though these prove difficult to avoid when it comes to choosing one or more of the different reform options available. I shall begin with some thoughts on the recent developments in our public pensions system, moving on to the medium- and long-term outlook, and concluding with some general comments on possible reforms. Drawing on the final annual figures for 2015, the Social Security System deficit stood at 1.5% of GDP, in contrast to the surplus of 1.4 % of GDP posted at the start of the crisis. The information on the budget outturn for last year, 2016, suggests that this deficit will have increased. Analysing the source of this deterioration, we can conclude that it came about essentially owing to the increase in expenditure, which rose as a proportion of GDP by 3.9 pp from 2007 to 2015 to 13%, while revenue expressed as a proportion of GDP increased by 0.9 pp.

In this regard, any measures that discourage early retirement and allow people to extend their working lives beyond the age of 67 would have a positive bearing on the financial sustainability of the system. Some countries have opted to build in an automatic link between life expectancy and the permitted retirement age in their sustainability mechanisms. Others have undertaken a broader change, adopting a notional definedcontribution accounts system, which has some advantages in terms of increasing the transparency of the system. Moreover, against the background of a significant rise in the dependency ratio and future reductions in pension replacement rates, it might make sense to extend the role of retirement saving to complement the resources of the public contributory system with the accumulation of financial assets supplementing future public pensions. In any event, implementing a funded system is complex and requires detailed prior analysis of issues such as the length of time needed to implement it, whether it is voluntary or compulsory, the returns it can offer in a scenario of demographic stagnation and sluggish productivity growth, and how the costs associated with implementing this change are to be shared out intergenerationally. 2) As regards new sources of funding, the alternative is to raise social contributions or other taxes, or permutations along these lines. Increasing social contributions may have adverse consequences for employment, since their weight in overall taxation is already higher in Spain than in other comparable countries.
Gerry Corrigan noted three decades ago that the “implicit codes of conduct” that govern banker behavior exist apart from “explicit regulations.” He posited that these implicit codes must align with the public good – an obligation that banks owe in exchange for the benefits “uniquely available to [that]particular class of institutions.” 4 This, in Corrigan’s view, was what made banks “special” – the reciprocal benefits and responsibilities that support and constrain an industry essential to public well-being. Corrigan’s premise is not an antique concept from a bygone era of banking. Then, as now, there are public purposes of banking – including financial intermediation, corporate valuation, facilitating investment opportunities, providing credit and creating market liquidity. These activities underpin the economy and financial stability. Reciprocity – in other words, the expectation of a quid pro quo in the relationship between society and the financial services industry – is the basis of public trust in financial institutions. There is, however, a widespread sense that this principle has been compromised. 1  What I have to say today represents my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. Stephanie Chaly, James Hennessy, Thomas Noone and Joseph Tracy assisted in preparing these remarks. 2  See Malcolm Gladwell, The Tipping Point (2002), 133–168 (collecting sources). For additional information on the famous Stanford Prison Experiment, see www.prisonexp.org. 3  Adam Smith, The Theory of Moral Sentiments (11th ed. 1812), 276.

Such very powerful and perverse feedback loops have been at work during critical phases of the crisis, over the last two years. The purpose of the banking union, decided on in June, is to break that link and create, as a first stage, a single supervisory mechanism in the euro area under the auspices of the ECB. It is essential that the banking union be rapidly implemented, covering all credit institutions. It will restore confidence in the banking system. It will re-establish the normal functioning of monetary policy. It will de-segment financial markets and allow for normal private capital flows within the euro area. It will ultimately allow for a disengagement of the euro system from interbank and financial intermediation. Moving decisively towards a Banking Union is one major contributing factor in reducing uncertainty and boosting confidence. Conclusion: the ability of monetary policy to fight uncertainty Uncertainty is a major cause of the current weak recovery. One may point to the paradox in the present environment characterised by very low interest rates, very large cash reserves in the hands of corporates, but very little investment. The good news is that a small spark could have huge effects. The bad news is that this spark has not occurred. Monetary policy cannot by itself remove economic uncertainty. It can contribute to limiting and attenuating its effects. It is also essential that other sources of uncertainty be dealt with, especially when they stem from government policies.
There is not a consensus in the academic literature on what source of financing has a higher contribution to financial stability and economic growth.1 On the one hand, banks, through their interaction with firms, manage private information which benefits the allocation of credit and favors a better and cheaper access of firms to financing when the bank-firm relationship is well developed.2 On the other hand, liquid and efficient financial markets offer the possibility of allocating households’ savings to long-term projects without the need of monitoring these savings. Although financial intermediaries and markets have been generally considered as alternative and competing ways of overcoming frictions between savers and investors, they can be also considered as complementary sources to achieve an optimal allocation of capital. In fact, there is some evidence in the economic literature that a proper diversification of firms’ funding leads to more investment3 and to a lower vulnerability to financial shocks.4 These results suggest that financing structures based exclusively in one of the two sources of funding are probably suboptimal. Certainly, the experience of the recent global banking crisis clearly shows that firms relying only on bank financing had more difficulties in their access to external funding than companies with a richer diversification of their liabilities.

8 See Aiyar, S., Calomiris, C. W., and Wieladek, T. (2016) “How does credit supply respond to monetary policy and bank minimum capital requirements?”, European Economic Review, 82, 142-165, Fraisse, H., Lé, M., and Thesmar, D. (2015) “The real effects of bank capital requirements”, HEC Paris Research Paper No. FIN-2013-988, De Jonghe, O., Dewachter. H.. and Ongena, S. (2016) “Bank Capital (Requirements) and Credit Supply: Evidence from Pillar 2 decisions”, National Bank of Belgium No 303. 9 For detailed evidence on how P2P platforms compete with banks, see de Roure, C., Pelizzon, L., and Thakor, A. (2018) “P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?”, SAFE Working Paper No. 206. 5/6  benefits for the society, including a greater financial inclusion by reducing intermediation costs, which would improve the access to funding of households and SMEs. In any case, at this stage, the ultimate impact of new technologies on the structure of the financial system is highly uncertain as it will depend on different factors including the regulatory treatment of the new players.10 Today´s conference will cover all these issues related to the recent changes in the structure of financial markets and their implications for the banking system. We have the privilege to have as speakers experts in those areas from academia, policy makers, think tanks and the banking industry. I am sure that we will have a very productive debate and that we will improve our understanding of these issues.
In March 2003, we even pushed interest rates down to 0.25% in an attempt to stop the Swiss franc from appreciating and deflationary tendencies from developing. The ECB lowered its rate by only 25 basis points, down to 2.5%. Consequently, the interest rate differential between the euro and the franc rose from 1.25 percentage points to a maximum of 2.25 percentage points between December 2000 and spring 2003. These three episodes suggest that the SNB made use of its monetary independence when faced with country-specific shocks. Shadowing the ECB's policy would not have been appropriate given the circumstances. Monetary policy in the absence of asymmetric shocks Let me now turn to the question of whether the SNB's monetary policy differed in any important way from the ECB's during times when there were no major asymmetric shocks. Insofar as the euro area and Switzerland were exposed to the same shocks during such times, we would expect to see  6  BIS Review 46/2006  identical policy reactions. The comparison of the course of interest rates in the euro area and Switzerland yields three interesting results. First, interest rates in Switzerland lie below those in the euro area. This reflects the Swiss interest rate advantage. Since January 1999 – the date of the introduction of the single currency in Europe – the average 3-month interest rate on euro deposits has been 3%, and the average 3-month Swiss franc rate, 1.4%.

Credibility The first is the need for a highly credible central bank. If the public believes that the central bank will not deliver on its promise to keep inflation low and stable, price stability is difficult to preserve. In this case, joining a monetary union whose policymakers are seen as more credible may be the easiest way to anchor inflation expectations. Luckily, the SNB enjoys high credibility at home and abroad. Average inflation over the last 20 years amounted to 1.8%, and the Bank proved on many occasions that it was ready to act in order to defend price stability even in difficult situations. Moreover, the SNB was granted formal independence in 2000 through a constitutional amendment. Such independence is commonly seen as a means of enhancing the credibility of a central bank, since it limits the influence of the government, which may have an interest in keeping interest rates low, and thus stoking inflation. In my view, however, the formal independence we got in 2000 is unlikely to have changed the public's perception of the SNB much, as the Bank enjoyed de facto independence already before that date. Of course, our credibility rests on a commitment to price stability that is not just our own, but one that is also shared by the government and the population at large. An important determinant of a central bank's credibility is its operational independence. Successful monetary policy is based on thorough economic analysis and professional implementation.
While inflation is expected to edge up slightly, it is forecast to remain below the 2% level. On the domestic front, resilient domestic demand and the recovery in external demand is expected to result in a more broad-based and diversified growth. All sectors of the economy are forecast to show positive growth in 2002. More encouraging is that private investment is expected to recover in 2002 to register a positive growth of 1.2%. Specifically, capital investment in the manufacturing sector is expected to increase following a more strengthened global recovery in the second half of 2002. Foreign direct investment (FDI) is expected to show stronger growth in the year. In 2002, the current account surplus is forecast to remain large at 7.9% of GNP. The financial account is expected to be supported by sustained inflows of long-term capital, including higher inflows of FDI. In view of the improved global economic conditions, FDI inflows are expected to be higher due to the projected inflows of equity from strategic alliances as well as inflows for expansion and new investment, in the manufacturing, services and oil and gas sectors. In recent years, FDI has become more broad-based with higher investment in the services sector. In addition, foreign investments are not only through equity, but also at the management level, especially in sectors such as information and communication technology, telecommunications, ports and financial services sectors.

For an open trade-dependent economy, stability in the exchange rates accords significant advantage in enhancing trade and investment opportunities. By eliminating wide swings in the exchange rates, the pegged exchange rate regime has provided a stable environment for businesses to plan their investments and to undertake their operations. At the same time, stability of the exchange rate also provides an environment that facilitates continuous structural reform to improve Malaysia's competitive position. It is through long-term structural adjustments rather than frequent adjustments in the exchange rate that a country can build a strong business foundation, improve efficiency and create the enabling environment that encourage competition and innovation. As a small open economy, Malaysia does not have influence over the external factors that affect the economy. However, by working on strengthening domestic economic fundamentals, Malaysia will be in a stronger position to manage and mitigate the impact of the volatility in the external sector. Three elements are important in ensuring that an exchange rate regime continues to operate effectively. First, it needs to be well supported by the domestic fundamentals. Second, there must be flexibility in domestic markets to enable the economy to adjust and absorb the impact from external volatility. Third, increased competitiveness is achieved through efficiency and productivity gains rather than relying on currency depreciation.
by rules of the game that would be coded once and for all and for which respect would be entrusted to algorithms, even if they are encapsulated in “smart contracts"... Will the forces pushing towards decentralised finance make unbalanced relationships disappear? As well as failing governance mechanisms, the concentration of operational risks, and cyber attacks? In my opinion, the answer is no: trusted third parties, central banks and supervisors are not about to disappear... Secondly, and this is a corollary of my first point, confidence requires maintaining central bank money as the anchor of the financial system. Finally, confidence requires a regulatory framework that is clear, fair (“same business, same risk, same rule”) and balanced, i.e. capable of both encouraging innovation and maintaining the stability of our financial system. The search for this balance implies that regulators and supervisors be involved in innovation issues alongside the innovative players. I will come back to this. Once the principle of confidence has been established, central bankers and supervisors must also be able to distinguish between what changes quickly and what changes more slowly in the sector they supervise. First of all, the health of French fintechs should not mask the importance of another piece of good news: the “traditional” banking world is resilient and useful. It showed its robustness during the two major crises that have occurred since the beginning of the century.

As an example, I would like to mention the work carried out by the ACPR with representatives of digital asset service providers (DASPs) on theapplication of  anti-money laundering and counter-terrorism financing (AML/CFT) rules to the cryptoasset sector. As you have understood from these examples, at the Banque de France and the ACPRwe cannot envisage taking action without interacting with the innovative financial ecosystem that you largely represent. 3. This brings me to my last point: what are the challenges that we must not miss collectively? I would particularly like to emphasize here the issues related to the regulatory framework for the transformation of the financial system. The digital finance strategy published by the European Commission is already a year old and the roadmap includes many useful and structuring projects for the future. Already, the discussions on the MICA (crypto-assets) and DORA (operational resilience) projects illustrate the need to reconcile professionals’ knowledge and operational realities  with the general risk control objectives in order to achieve the balance between innovation and financial stability that I mentioned earlier. From my point of view as a supervisor, progress still needs to be made on these texts to reconcile the necessary pragmatism and the necessary flexibility that the search for this balance implies with the requirement for risk control and the prevention of regulatory arbitrage. However, the projects that will be launched in the future are no less crucial.
Such unintended consequences have been further compounded by a lack of clarity around acceptable standards for applying simplified customer due diligence processes, and the fear of steep fines imposed by some regulators for non-compliance with anti-money laundering requirements. These problems will only increase unless the gap between principle and practice is bridged, or else the millions that remain unbanked would bear the brunt of this unintended consequence. These developments also highlight the need for us to rethink the suitability of overdependence on foreign-owned institutions in expanding financial inclusion initiatives in domestic markets or the strategy, to develop ‘domestic champions’ for such initiatives. Focus areas to advance proportionality in practice Allow me to now share three ideas that could further enhance proportionality in practice. First, further coordinated efforts are needed to develop and propagate more widely frameworks for measuring the impact of regulation on financial inclusion. Such frameworks should be able to objectively assess, based on a well-defined and consistently applied measures, how regulation either increases or reduces barriers to financial inclusion. Such barriers could be in the form of reduced geographical access, exclusive criteria to qualify for 2  BIS central bankers’ speeches  financial services, prohibitive costs of financial services or a concentration of products designed only for affluent customer segments. It is important for policymakers to collect data to facilitate cross country comparisons. In particular, the data should measure the impact of proportionate regulation on financial inclusion, financial stability and integrity.

Of importance, this Symposium will culminate in an Outcome Statement that captures the actionable recommendations from deliberations among subject matter experts and key stakeholders over the next two days. It is my hope that the Outcome Statement will at least identify 5 practical and easily implementable suggestions and the statement will be adopted by all participants, and provide us with a clear way forward to execute and deliver the recommendations on “Proportionality in Practice” that make it a reality and make a difference for the 2 billion individuals that remain unbanked. BIS central bankers’ speeches  3  Finally, I would like to also convey my sincere appreciation to our co-host, the Alliance for Financial Inclusion and Toronto Center, for all their contributions to this Symposium. 4  BIS central bankers’ speeches
Global growth is reasonably strong and broad-based. Underlying inflation is low. Estimates of structural productivity growth in the United States remain high. The global economy has weathered the oil price shock and other recent shocks quite well. Most of the major emerging market economies look stronger than they have in some time. Overall volatility in output and inflation has moderated significantly in the United States and, to a lesser extent, in other economies as well. These favorable fundamentals are reflected in low risk premia of many forms - low credit spreads, low and quite stable inflation expectations, and low actual and implied volatility. Market participants appear to believe that future macroeconomic shocks will be more moderate, less frequent, and less damaging than past shocks have been. To say this another way, the price of insurance against a less benign world is now quite low. We face a number of significant challenges that threaten this positive outlook. I want to touch on the two that appear to me most important. The first is the growing imbalances at the center of the global economy. Fiscal policy in most of the major economies is on a path towards rising debt-to-GDP ratios; this trajectory gets dramatically worse as demographic changes reduce the ratio of workers to retirees. At the same time, external imbalances have reached unprecedented levels, most dramatically in the case of the U.S. current account deficit, which is on a path to exceed six percent of GDP. These imbalances – fiscal and external – cannot be sustained indefinitely.

I will not take the risk and predict the development of the gold price, but one thing is certain: it will remain volatile. Our possibilities to actively hedge the gold risk are restricted by the agreement of September 1999. In particular, we may conduct hedging transactions only in the amount of the sales quota allocated to us for the current year. We are therefore all the more convinced that our strategy of regular sales remains appropriate. The principles that have guided our operations for the past two years – namely fulfilment of our commitments under the central bank agreement, transparency in communication and situationadapted handling of day-to-day business – remain relevant. Management of the free assets The market value of the free asset portfolio – consisting of the as yet unsold portion of the 1,300 tonnes of gold and the proceeds from the already effected gold sales – amounted to Sfr 21 billion at the end of May. The free asset portfolio is managed separately from our other reserves, which will facilitate its transfer to the future beneficiaries once the legal framework has been put in place. As I mentioned earlier on, our possibilities of actively hedging the gold risk against an unfavourable development of the gold price are restricted by the agreement on gold sales of September 1999. However, we limited the risks of a weak US dollar that might reduce the value of our future sales by hedging 35% of the future proceeds in US dollars against the Swiss franc.