samchain/econo-pairs-v1 huggingface dataset:
2  BIS Review 52/2006  Perhaps the foremost advantage of having a fixed exchange rate regime as a means of keeping inflation under control is that it makes the task of monetary policy simple and straightforward: it shall set the key rate in a way that enables the exchange rate relationship to be maintained. This task is also easy for the general public to understand. At the same time, it may be a disadvantage that monetary policy is tied to this single task. It cannot then be used to subdue domestic disruptions that have no equivalent in the country to which the currency is tied – the anchor country. At the same time, disruptions in the anchor country will immediately affect the targeting country as interest rate adjustments in the anchor country will lead to corresponding interest rate adjustments in the targeting country. If, for instance, the interest rate in the anchor country is raised because demand in that country is increasing, the interest rate in the targeting country must also be increased in order to maintain the exchange rate relationship, even if the country is in a recession. A fixed exchange rate regime thus means that it is not possible to conduct an independent monetary policy. The task of keeping the economy in balance and of steering inflation more directly cannot thus rest with the central bank. A fixed exchange rate relationship can also be exposed to speculative attacks if it is not entirely credible.

4 One strategy for maintaining financial stability can briefly be described as consisting of three different parts: a clear regulatory framework, an efficient day-to-day prudential supervision and oversight and a preparedness to act strongly and quickly in a crisis. Exactly what role is played by the central bank in this strategy is also something that varies from country to country. Many central banks contribute in different ways to the formulation of the regulatory framework for the financial system, for instance, by giving their views on proposed bills and by participating in committees where domestic and international legislation is formulated. With regard to the day-to-day prudential supervision and oversight, one solution that is applied in Sweden and other countries is that the supervision of the financial sector is delegated to a special, independent authority with the power to apply sanctions. In other countries the supervision work is done by the central bank itself. In the cases where supervision is delegated to an independent authority, the central bank usually has an oversight role that entails regularly monitoring and analysing developments in the financial sector and presenting its views of the risks in the financial system. Ever since the bank crisis at the beginning of the 1990s, this has been perceived as a very important task in Sweden; in fact, it could be argued that the bank crisis was allowed to arise partly because no authority previously had the specific task of monitoring the overall financial stability.
UK headline inflation over that period was of course affected by externally generated disinflation pressure from the sudden and very substantial drop in energy prices. But over that period, the average of a range of measures of domestically-generated inflation in the UK fell from around 2% to ½% at the end of 2014 – it has since recovered but only to nearly 1½% which is considerably below its pre-crisis average of 2½%. Over the same period, pay increases averaged around 2% – despite the fastest drop in unemployment in 40 years. Output growth picked up briefly to over 3% but has now fallen back to nearer 2%. And a small output gap probably persisted over the period. The MPC’s 2% inflation target is for UK CPI as a whole not for domestically generated inflation. But if we want to get a cross-check on where monetary policy was relative to where the natural rate might have been over this period, we can observe that monetary policy was not able to get domestically generated inflation to the inflation target over the policy horizon. In other words, far from being exceptionally loose, policy with hindsight may even have been a little tight. If this is right and the natural rate is currently slightly negative, how can that low level be explained? The great shocks that hit the economy after the crisis have surely dissipated. What are the headwinds now pushing the natural rate down? There are I think three interesting candidate explanations for this.

Deliver the right message at the right time. 18. Third, we will provide more avenues for people who are in difficulty or financial distress, to seek help. We must do everything we can to prevent people from getting into a worse situation, or getting into a debt spiral. CCS, with the help of ABS, runs a very useful debt management programme for those who cannot re-pay their borrowings from banks. We can do more, using our social workers and counsellors. 19. MoneySENSE, through the new institute that I talked about, the Institute of Financial Literacy, is now conducting a pilot training programme to help social workers and counsellors, to equip them with financial literacy knowledge so they can provide advice to low income households, or those who come and see them for help. It may have to do with cutting down on utility bills, or it may be about spending wisely in weekly marketing, without compromising on health and wellbeing. 20. MoneySENSE will continue working with the social service sector with the objective of training social workers and counsellors, so they can expand our outreach to Singaporeans. BIS central bankers’ speeches  3  Conclusion 21. This is what we plan to do for the future. I think we have done good work for the first ten years, but there is a lot more work ahead to help Singaporeans.
A further segment that will gain in importance is that of the small and medium-sized enterprises (SMEs) given its growing significance in the economy. The main concern with respect to banking for the SMEs is access to credit. Among the issues that have been raised is the quality of service delivered in terms of accessibility, the lack of responsiveness, lack of understanding of their business, poor branch level service, and poor turn around time. Other complaints have centered on the high collateral demands and the general perception of a lack of willingness to extend financing by the banking institutions. While the recent year showed an encouraging trend with loans to SMEs increasing by 3.1%, the issue of the overall services provided to SMEs need to be enhanced. Bank Negara Malaysia has undertaken a survey through the banking institutions on the SME profile and requirements. This will represent an important database for the development of a comprehensive framework for the development of SMEs initiated by Bank Negara. The survey findings will also be useful for the banking industry in formulating its own strategic plans with respect to this segment. With the advances in technology, banking institutions should be in a position to enhance access and quality of service for the SMEs. Ladies and Gentlemen, The performance of the banking institutions is also being gauged from the perspective of the shareholders. There are several significant issues affecting shareholders in the current environment.

Having said that, I would like to add that central banks have managed quite well to quickly adapt to the unprecedented circumstances in markets. Still, deeper thought has to be dedicated to these issues when time eventually allows. As a final remark on preparedness I would like to stress the importance of practice. No matter how sophisticated crisis management arrangements are, they have to be deployed properly by the authorities using them. However, since financial crises thankfully are pretty rare events, people working in these authorities probably are not going to be particularly used to doing that. But with appropriate practice, crisis management skills can be substantially improved. In my own organisation we regularly perform crisis exercises, both on our own and in cooperation with other relevant authorities and countries. These exercises have not only helped to improve the staffs’ skills significantly, they have also provided important lessons on how different crisis management practices could be improved. One such lesson has been that a higher degree of international coordination and harmonisation is needed, a lesson that has certainly been confirmed by the current crisis. International co-operation and harmonisation is needed The need for greater cross-border cooperation pretty much applies to all of the issues I have touched upon so far, both regarding the prevention and the management of financial crises. Taking Europe as an example, it has become quite obvious in the last year that the diverging national structures of frameworks for regulation, supervision and crisis management have complicated the management of the current crisis.
Although the specifics vary across central banks, the approaches outlined have several important common elements. We each have taken actions to provide more financing at terms longer than overnight. We each have chosen to auction funding against a broader range of collateral, collateral other than government securities, and in our case with a broader set of counterparties. And we have activated swap lines to help the relevant central banks provide liquidity in dollars in their markets. The initial spark to the pressures we observe in markets today was the sharp deterioration in the value of nonprime mortgage securities and the resulting increase in uncertainty about the value of a much larger amount of financial assets exposed to that risk. This was magnified by a substantial increase in uncertainty about the economic outlook and the consequences of that uncertainty for asset values and credit losses. Financial institutions faced a sharp drop in demand for a range of assets, impairing the securitization market as a source of funding. And a substantial amount of these illiquid assets were held in vehicles with implicit or explicit liquidity guarantees provided by banks. This produced a large unexpected increase in demand for funding from banks at the same time banks confronted a reduced capacity to raise financing. As market participants have adjusted to what has been a very acute change in expectations about economic and credit risk, they have become more cautious in how they use their liquidity and capital.

Can households pay for consumer goods with debit cards, cheques or credit cards, or do they have to carry significant amounts of cash with them? Can workers in urban areas transfer money to their rural families by simply sending an SMS, or do they have to carry it with them on a dangerous bus ride? Particularly in Africa, where distances are vast and security is often a concern, the availability of non-cash payment instruments can increase the returns to economic activity for businesses and households. Figure 3 shows that today, most economies in Africa are still strongly cash based. Both in sub-Saharan and northern Africa, more than one-third of funds available for immediate payments are in cash form. The notable exception is South Africa where the level of non-cash money is above 80%, and thus similar to that of Switzerland. Developments over the past 15 years show a promising picture for other countries on the continent as well. Since 1995, the share of non-cash money has increased from 50 to 60 percent in sub-Saharan Africa, and 55 to 65 percent in North Africa. This mirrors the increased availability of electronic payment instruments available to businesses, but also to households.
4  Note that this only requires consumers to wish to smooth their spending over time, not that they internalise the implications for future taxes of more government borrowing (so-called “Ricardian equivalence”).

The CRR/CRD started out after a global framework had been agreed in Basel, and this EU level framework was in turn implemented at national level in the Member States. In my day-to-day work I deal with financial stability issues on different levels if one will; As Chair of the Basel Committee for Banking Supervision the scope is global, while as Governor of the Swedish Central Bank I have a national perspective on financial stability although, admittedly, the international agenda and developments play a key role there, too. Being Chair of the Advisory Technical Committee of the ESRB and a member of its decision making body, the General Board, of course provides an EU-level perspective on macroprudential policy and systemic risk. These levels or perspectives are in my view becoming increasingly intertwined, especially after the financial crisis and the lessons learned there. Much of the agenda is indeed set at the global level first. And the way financial markets function today, this is also quite natural. We need at least minimum requirements at the global level. But we also need to strike a balance between common rules of the game in terms of minimum requirements and the need for national flexibility, not least in the EU, which to put it mildly is far from a homogenous group of countries. In fact, the economic and financial conditions differ substantially between the Member States.
Let me be elaborate on these key risks and vulnerabilities: The main risks identified outside the euro area financial system include the possibility of: •  vulnerabilities being revealed in non-financial corporations’ balance sheets, because of high leverage, low profitability and tight financing conditions;  •  greater-than-expected household sector credit losses if unemployment rises by more than expected;  •  the surge of government indebtedness raising concerns about the sustainability of the public finances, as well as the crowding out of private investment; and  •  an adverse feed-back between the financial sector and public finances as a result of government financial system support measures, fiscal stimuli and weak economic activity. Within the euro area financial system, important risks include the possibility of: •  renewed financial strains and that the recent recovery of bank profitability will not prove durable;  •  vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property markets and to central and eastern European countries being unearthed; and  •  a setback for the recent recovery of financial markets, if macroeconomic outcomes fail to live up to optimistic expectations. All in all, the challenges facing the euro area banking sector in the period ahead call for caution in avoiding timing errors in disengaging from public support. In particular, exit decisions by governments will need to carefully balance the risks of exiting too early against those of exiting too late.

Yves Mersch: Opening of the New Face of the Euro Exhibition Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Opening of the New Face of the Euro Exhibition, Deutsche Bundesbank, Saarbrücken, 15 January 2014. *  *  *  Ladies and Gentlemen, Thank you all for coming here today to the opening of the ECB’s “New Face of the Euro” exhibition. And a special “thank you” to the Deutsche Bundesbank for hosting this event with the participation of the Banque de France. It feels very appropriate to be in a border city like Saarbrücken, at the heart of Europe, to open an exhibition like this, dedicated to our single currency. The people of this city, with its long and eventful history, must be among those who best understand the ambitious vision to bring the nations of Europe closer together. Indeed, it was through the creation of a common market for coal and steel between six European countries that the first real step was taken towards the establishment of the European Union as we know it today and that led to the creation of the euro 15 years ago. Today, the euro helps to unite 334 million people in 18 different countries. Allow me to say a brief word about the exhibition you have come to see. “The New Face of the Euro” is a travelling exhibition which has already been to a number of cities in the euro area.
One of the first accomplishments of the Basle Committee was a study of banks’ capital adequacy. Issued in 1988, under the title ”International Convergence of Capital Measurement and Capital Standards,” this report was soon endorsed by many countries. Also known as the ”Basle Capital Accord,” the study took BIS Review 41/1999  2  account of credit risk. Although the variety of risks in the international markets is increasing, credit risk is still the most significant risk category for banks. Credit risk means the probability of defaulting on one’s obligation to the other party in any transaction. As I already mentioned, the growth of competitiveness in the international credit markets in recent years, the active participation of non-bank financial institutions in these markets, and borrowers’ resort to the capital markets for loans at lower cost, have all brought about a considerable narrowing of profit margins in credit transactions. This has forced the banks to make more loans in order to have a competitive edge. But they have encountered credit problems due to adverse developments in the economic and financial conditions. All these developments have resulted in the design of new methods for more effectively evaluating the risks and yields of credit transactions. Besides creating credit rating models for use within banks, these efforts have produced analytical methods calling for intensive data analysis such as retrospective analysis of credit losses, models of bankruptcy probabilities, and stress tests.

Now let me touch briefly on risk management in Turkey’s banking sector. From the risk management standpoint, we are well supplied with well-developed methods for managing risk and supervising the risks that we do accept. As to the financial standing of Turkey’s banking sector, Turkish banks have achieved a level of financial and institutional development not to be underestimated. But besides these strengths, there are various threats to the well-being of the Turkish banking sector which should be mentioned. Turkish banks, are mostly exposed to credit risk, liquidity risk, interest rate risk, and foreign exchange risk. This is true even when there is no global crisis or macroeconomic risks stemming from political uncertainty. I should mention that all these different kinds of risk have been thoroughly monitored by the supervisory authorities, who put preventive measures in place before the effects of any problems that were found could threaten financial stability. Under this regulatory system, the banks must submit annual, quarterly, BIS Review 41/1999  4  and even daily financial data to the Central Bank and the Treasury. And besides frequent financial evaluations of banks by off-site examiners, on-site examinations are conducted to verify the accuracy and reliability of the data reported and clarify any special issues found during off-site examinations. Let me conclude my remarks by underlining once again how important it is to assess, manage, and reduce financial risks to ensure a sound financial system.
However, it suffered from weak national implementation and a lack of enforcement at the European level. Enforcement of the SGP was built on a peer pressure mechanism among Member States. In the past, however, Member States proved to be reluctant to enforce adequate fiscal discipline on their peers. Moreover, decision-making bodies at the EU level were left with a  10  See A. van Riet (ed., 2010), “Euro area fiscal policies and the crisis”, ECB Occasional Paper, no. 109, April (http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp109.pdf). 6  BIS central bankers’ speeches  significant degree of discretion regarding the implementation of the fiscal rules, notably following the 2005 reform.11 Incentives for ensuring sound national fiscal positions have as a consequence been insufficient. Member States failed to adhere to their medium-term budgetary objectives and only slowly corrected excessive deficits. As a result, a number of euro area countries accumulated large fiscal imbalances already in “good times”, instead of using opportunities for reducing public deficits and debt levels. Therefore, they were left with hardly any room for manoeuvre when the financial and economic crisis hit. In the wake of the crisis, the substantial underlying fiscal and structural weaknesses in a number of euro area countries, as well as the inability of the current governance framework to prevent the emergence of such imbalances, became very apparent.

With further reduction in NPLs and higher interest rates, there are better prospects for banks’ profitability. We see demons of the past in our region today and we wish to avoid any doubting of our European and Transatlantic engagements. In order to go further we must prevent the demons of the past from questioning the virtues of opening our economy to foreign investment. The only way to preserve this fine moment for Romania is to steer and balance the economic growth, to advance on our European path and grasp the benefits of this historical process. I will now give the floor to Mr. Jeffrey Franks who will deliver an in-depth presentation on the first chapter of the report – “Europe Hitting Its Stride”, accompanied by his discussant, Deputy Governor Liviu Voinea. I wish you all a fruitful debate today! 2/2  BIS central bankers' speeches