samchain/econo-pairs-v1 huggingface dataset:
Since 2003 major stock exchange indexes in CEE increased on average by almost 300 percent. While part of this asset price and credit growth may be explained by structural factors often referred to as “convergence”, the observed rates of growth are clearly unsustainable and they contribute to economic imbalances. With the benefit of the hindsight one could argue that monetary policy in the last few years did not properly take into account the possibility that prolonged period of historically low interest rates may contribute to asset bubbles and hence contribute to greater inflation  1 2  See IMF (2000) Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia, Slovakia. BIS Review 137/2007  1  volatility in the future. As argued by Rogoff (2006) when faced with a tail wind monetary authorities in both developed and developing world should have temporarily lowered the inflation target rather that reduce interest rates too much for too long. But there is another issue. It seems that globalisation tail wind is reversing these days and that in the coming few years central banks can face “globalisation headwind” amid rising food and energy prices. 1. Agflation is the rise of inflation due to increase of food prices. In recent months we have witnessed a significant increase of food prices, grain and oilseeds being the leaders. Prices of food products on international markets has risen by almost 40 per cent within last two years and prices of grain and oil seeds has almost doubled within this period.

In addition, as returns in Islamic banking are uncertain and can only be ascertained on an ex-post basis, well-developed IT systems can equip Islamic financial institutions with the ability to make projections on future returns to reduce the degree of uncertainty in the returns to be paid to the depositors. This would enhance credibility and strengthen the competitiveness of the Islamic financial industry. Conclusion The future prospects of the Islamic financial services industry will be the result of the combined efforts of all the relevant entities in the financial sector - the industry, the regulators, the market participants and the international community. These collective efforts need to be galvanized as a coordinated and concerted effort to maximize the potential for the industry. Evolving the shared vision and common goal to be achieved will be an important first step. Of greater importance will be the actions that need to be taken to make this happen. It will be our actions and initiatives taken today that will contribute towards determining the future that we aspire. 4  BIS Review 20/2004
All in all, as of today, Codes of Best Practice on Corporate Governance set out principles within which values and governance rules should be set by the management of the institution, and in the final analysis, good Corporate Governance is looked to as being a key tool to be used in the overall risk management of institutions, irrespective of the nature of the business carried out by the institution. Why is good governance in the banking and financial system more important than any other sector? The Banking and financial sector is easily distinguishable from the others. A few distinguishing features stand out: •  Unlike normal business entities which are funded mainly through shareholders’ funds, banks’ business involves funds raised mainly through deposits. The business of raising public deposits places greater fiduciary responsibilities on the institution and its managers, since depositors’ funds need to be safeguarded in a special way. 2  BIS Review 24/2007  •  Banks perform as financial intermediaries by lending and investing the funds mobilized and funding economic activities of others. •  Banks are the agents of the payments system where they facilitate payments domestically and internationally, through various instruments such as bank accounts, fund transfers, credit cards, etc. •  Banks are able to undertake all such business operations as a result of public trust and faith in the stability and soundness of the banks in particular and the system in general.

The history on bank failures in many countries indicates that loss of public confidence in banks could be contagious and could easily lead to systemic banking crisis situations. Overall, the banking business is the key for monetary conditions in a country. Bank deposit and lending business determines the supply, cost and availability of money. Money is created by the banking system through the legal tender issued by the Central Banks and/or Monetary Authorities. Since sight money created is payable by banks at any time through legal tender and technically, the banking system does not have funds adequate for meeting all such created money at any particular point of time. Banking business thus casts a huge responsibility on the monetary authorities to facilitate, regulate, and protect the banking and payments system. Weak Corporate Governance (CG) can contribute to financial instability and that would increase the risk profile of companies in the corporate sector and expose the banks and financial institutions to a greater risk. In a more direct sense, weaknesses in CG arrangements in banks and financial institutions reduce their capacity to identify, monitor and manage their business risk and that can result in poor quality lending and excessive risk-taking by the financial institutions. Depending on the resilience of the financial institutions and markets, these risks have the potential to spread across the wider financial system. Needless to say that inadequate CG can also lead to a poor credit culture, excessive exposure concentration, poor management of interest risk/exchange risk and inadequacies in the management of connected exposures.
This is a more complex arrangement than found in other countries, where, with rare exceptions, the two resolution functions are united under the banking supervisory authority (in Spain, the Banco de España). Combining the two functions under the banking supervisor can be justified on the grounds of economies of information and cost, and consistency in the assessment of the implications for financial stability. 16 See P. Hernández de Cos (2021), “The Role of Central Banks and Banking Supervisors in Climate Action”, opening remarks at the IESE conference Resilience of the financial system to natural disasters. 9  These new risks include notably those stemming from new technological developments, such as those associated with cyberattacks or the reliance on external service providers. Such technological changes may also ultimately have a significant impact on financial services’ value chain, insofar as growing competition from BigTech firms, which possess an enormous volume of customer data and use them extremely efficiently, may become a potential channel for disruption. The implications for the prudential authorities are particularly important. First, proactive supervision is required, as the traditional regulatory framework may not be sufficient. Second, we should give consideration to the regulatory perimeter to ensure that the oft-cited mantra of “same activities, same risks, same rules” actually applies. And third, cooperation among different authorities will be essential, given the diversity of sectors and issues potentially affected by these technological innovations. In this regard, customer data governance is a fundamental issue which we will need to reflect upon at great length.

Starting positions, in terms of equity and credit quality, were already divergent. Moreover, in a crisis such as the current one, in which the pandemic is affecting different regions and sectors of activity in different ways, the worsening of banks’ solvency will foreseeably hinge on their degree of exposure to such regions and sectors. The current situation: the importance of maintaining stimulus measures and targeting them more specifically The current macroeconomic setting is characterised by an incomplete, gradual and uncertain recovery. Indeed, as a result of the restrictions on mobility that had to be applied in the first quarter, a further decline in GDP in this period cannot be ruled out. This would mean that, at end-March, GDP would still be slightly over 9 pp below its pre-crisis level. In any event, we should acknowledge that the development of effective vaccines against the virus has contained some of the risks to the economy. And, in turn, this has equipped the authorities with what is, in fact, also the best economic policy tool available to usher in the recovery: the roll-out of vaccination programmes that allow for the progressive lifting of the restrictions on economic activity. In this situation, retaining the exceptional support measures for the economy is warranted until the recovery firms. This support is also crucial for preventing the crisis from being compounded by a financial component that would deepen and lengthen it.
For example, in the case of Iceland, the three largest banks that were nationalised in early October 2008 had seen their total assets expand from 100 percent of GDP in 2004, to more than 900 percent of GDP as at end-2007. Similarly in Ireland, assets in their financial institutions with substantial domestic businesses were more than 400 percent of GDP by 2008, while in the United Kingdom, bank assets were more than 500 percent of GDP prior to the global financial crisis. The sheer size, complexity and leverage in the banking system increased the fragility of financial institutions and limited their ability to absorb even small losses, thereby resulting in widespread and deep economic dislocations. This expansion of financial activities was also in part due to the activities in the shadow banking system, which in the United States, grew to be even larger than the traditional banking sector in gross terms. At the height of the crisis, the size of gross amounts outstanding of over-the-counter (OTC) derivatives globally was estimated at over 614 trillion US dollars1, more than ten times global GDP. Despite its size, the over-the-counter market was opaque and inadequately regulated, making it more difficult to quantify the risk that had been assumed by the financial institutions. A further issue relates to financial innovation and for policy interventions not to stifle those innovations that are beneficial to society, while reining in those that are harmful. The current debate on the international financial reforms continues to reveal that this is a challenging task.

European Central Bank: Press conference - introductory statement Introductory statement by Mr Willem F Duisenberg, President of the European Central Bank and Mr Christian Noyer, Vice-President of the European Central Bank, at the press conference, held in Frankfurt, 4 April 2002. *  *  *  Ladies and gentlemen, the Vice-President and I will now report on the outcome of today's meeting of the Governing Council of the ECB. As usual, we examined recent monetary, financial and economic developments. The Governing Council concluded that the current level of key ECB interest rates remains appropriate for the maintenance of price stability over the medium term and, accordingly, decided to leave them unchanged. Starting with the analysis under the first pillar of our monetary policy strategy, the three-month average of the annual growth rates of M3 stood at 7.8% in the period from December 2001 to February 2002, compared with 8.0% in the period from November 2001 to January 2002. The high level of the annual growth rates of M3 continues to reflect the past portfolio shifts to liquid positions. These shifts primarily occurred during autumn 2001, when the economic and financial environment was characterised by high uncertainty. However, in the meantime, some normalisation in the development of M3 has taken place. This is indicated by a significant slowdown in the short-term dynamics of M3 in early 2002, a period in which the annual rate of growth of loans to the private sector has also continued to decline.
2/5  BIS central bankers' speeches  However, the evolution of finance must also be managed appropriately to avoid displacement and exclusion. This would include underserved groups and segments that are currently deemed too ‘risky’ by traditional risk metrics. Advancements of any sort always come with trade-offs. For one, with the rapid progress of genetic sciences, it is only a matter of time before chronic diseases such as cancer and diabetes can be predicted even before birth, thereby potentially denying affected individuals of insurance coverage. Automation and artificial intelligence may also result in the displacement of certain segments of the workforce or some segments of society being denied medical protection. Finance, when used properly is an enabling tool. But if abused, it can be a destructive tool with devastating consequences. Finance without ethical considerations will magnify the negative aspects and lead to lasting consequences as the global financial crisis demonstrated. Technological progress would mean excesses can be magnified even further, spreading the risks to a wider segment of the society. Regulators, therefore, stand at the nexus between magnifying the benefits of access to finance and managing the excesses of finance. There are moral and ethical considerations that regulators and policymakers will have to confront as we go forward. Four possible future scenarios Let us conceptualise these themes into four scenarios, an approach that could provide a peek into what is in store, as we visualise the future. The first scenario is “Tech-Savvy Incumbents” a.

Regulators around the globe are very mindful of this trend and are willing to take calculated risks on innovative ventures, going beyond the banking system for solutions. There is thus, a more level-playing field and more business opportunities for non- traditional companies that are responsive and effective in meeting the financial services needs of consumers. For example, new robo-advisory businesses are now providing high quality investment advice at low cost, while payment technology companies are making cross-border payments cheaper, 1/5  BIS central bankers' speeches  quicker and more efficient. TransferWise, a cross-border payment company is now moving to offer ‘borderless’ bank accounts for businesses that operate across border. This is a challenge for many incumbents. The second observation is that data could be the ‘king-maker’ of finance. Companies that are able to control and leverage on data to deliver superior customer experience will possess the greatest advantage. Successful startups over the past decade such as AirBnb, Grab, Snapchat and Uber have all utilised technology and data to improve business models and customer interactions. For the financial sector, this could potentially mark a highly interesting shift of mantra in the future from “cash is king” to “data is king”. The arms race of the 21st century is really big data. Firms on Wall Street and the City of London are now employing data scientists en masse. They are the new breed of ‘bankers’. The bankers of the future.
Caballero view: bubbles are inevitable and possibly long-lasting in economy facing asset shortages •  there has been significant increase in global savings relative to investments (you can merge Bernanke global savings glut with IMF global investment drought hypotheses here)  •  this excess saving is chasing too few available financial assets, which leads to very high valuations (rising equity indices, low long-term rates, low corporate and EM spreads etc.) •  problem lies in the underdevelopment of financial markets in emerging economies, which due to poor governance and property rights do not have enough good quality collateral to back debt obligations. These economies have also many other macroeconomic and microeconomic deficiencies leading to asset shortages and reduction of value of existing assets such as: weak bankruptcy procedures, chronic macroeconomic volatility and sheer appropriation risk. 15  http://www.rybinski.eu/wp-content/uploads/gi_en_rybinski_panel_discussion_1_09_2006.pdf  16  Calvo G. and Talvi E. (2006) “The Resolution of Global Imbalances: Soft Landing in the North, Sudden Stop in Emerging Markets?”, CERES, Documentos de Trabajo. 17  Caballero R. (2006) “On the Macroeconomics of Asset Shortages”, NBER Working Paper No. 12753, December 2006. 18  Faruqee H., Laxton D., Muir D., Pesenti P.(2006) “Would Protectionism Defuse Global Imbalances and Spur Economic Activity? A Scenario Analysis”, NBEW Working Paper 12704, November 2006.

In this environment, some have questioned the ability of our supervisory and regulatory tools to adequately address potential financial instability risks. They argue that a broad tightening of interest rate policy might be more effective in catching incipient risks that might fall through the cracks. It is certainly true that higher interest rates would permeate the entire financial system. But this is just another way of saying that raising interest rates is a blunt tool. Higher interest rates would reduce risk-taking where it is excessive; but they also would result in a pullback in economic activity in sectors where risk-taking might already be overly restrained. That’s how a blunt tool works. If you believe that financial stability can only be achieved through higher interest rates – interest rates that would do immediate damage to meeting our dual mandate goals at a time when unemployment is still unacceptably high – then we ought to at least ask ourselves if the financial system has become too big and too complex. BIS central bankers’ speeches  5  Think about how problematic the cost-benefit calculus becomes if the only way we can achieve financial stability is to raise interest rates above the level where the forces of demand and supply in the real economy put them. The possible benefit of such a restrictive rate move would be to reduce risks that might be forming in the nooks and crannies of a highly complex financial system.
Use of instruments that diminish the risk associated with floating exchange rates is also gaining ground in Norway. The operational target of monetary policy in Norway is low and stable inflation. Developments in the krone exchange rate are nonetheless important when Norges Bank sets the interest rate. There are several reasons for this. First, changes in the krone exchange rate affect prices in krone terms for imported consumer goods and services. Second, exchange rate changes have an impact on competitiveness in Norwegian business and industry and on market opportunities at home and abroad. This affects the level of activity in the economy and, in turn, price and cost developments. In the period between Inflation Report 3/06, presented in November 2006, and Monetary Policy Report 1/07, presented in March this year, the krone appreciated more markedly than we had assumed. As a result, Monetary Policy Report 1/07 was based on the assumption that the krone would be somewhat stronger throughout the projection period. The exchange rate assumption in Inflation Report 3/06 is shown by the broken blue line in the chart on the left, while the broken red line denotes the exchange rate assumption in Monetary Policy Report 1/07. The isolated effect on the interest rate path of a stronger krone is illustrated in a box in Monetary Policy Report 1/07. As shown in the chart on the right, the stronger krone pointed to a somewhat lower path for the interest rate.

“Papa Bear” - Inflation Let me start with “papa bear” inflation. On conventional wisdom, he should be making an appearance by now. Historically, inflation comes from high wage growth in a tight labour market during the late stages of the business cycle – a relationship economists describe as the Phillips Curve. Cyclical conditions are now tight in major economies, especially in the US. US unemployment rate has fallen to 4.1%, well below the Fed’s estimated Non2/7  BIS central bankers' speeches  Accelerating Inflation Rate of Unemployment (NAIRU) of 4.6%. Yet, wage growth has remained at around 2.5%, below the pre-crisis average of 3.5%. Whenever central bankers gather these days, this phenomenon of “missing inflation” is often the main topic of discussion. Many wonder whether the Philips Curve has permanently flattened – meaning whether the negative relationship between the unemployment rate and wage growth has fundamentally weakened. Some even ask if the Philips Curve is dead – if the relationship no longer exists. Why has “papa bear” inflation been missing to-date? The first and simplest explanation is that the headline measure of unemployment may be understating the level of slack in the economy. In the US, the IMF estimates that the output gap between actual and potential GDP has only just closed. The output gaps in the EU and Japan are still some way off from closing. There may also be quite some slack in the labour market that may not be fully apparent.
Coordinating the “interest rate lever” and the “regulation lever” I mentioned initially that monetary policy may receive support from, but can sometimes be counteracted by, measures primarily aimed at maintaining financial stability. Regulation and supervision can support monetary policy in two ways. For one thing, one can try to design a regulatory framework that remains the same over time, but nevertheless prevents creditdriven bubbles from arising. But one can also use regulation more actively so that there is not just an “interest rate lever” but also a “regulation lever” to pull on. Normally, one may imagine pulling on the two levers for different reasons – the interest rate lever for monetary policy reasons and the regulation lever to maintain financial stability. But the levers are nevertheless connected in different ways. When one pulls on one lever, the resulting effects are often similar to those one gets if one pulls on the other. For instance, a regulation change, such as a higher amortisation requirement on mortgages, will lead to higher payments for households in the same way as an interest rate increase does. Regardless of which lever you pull, it is difficult to ensure the effects are only of a monetary policy nature, or only aimed at financial stability. One of the lessons of the financial crisis is that there are close links between these two policy areas, and that one therefore needs to coordinate how one pulls on the levers.

There is as yet rather limited empirical research on the risk-taking channel, but some papers on the subject have now begun to appear. The studies are based on data from the eurozone and the United States, as well as other countries. They appear on the whole to support the theory that low policy rates lead to the banks taking greater risks. 5 Well worth more research… My personal view is that the risk-taking channel is definitely an interesting line, well worth further research. Our knowledge of the monetary policy transmission mechanisms is far from complete and the way that monetary policy affects the banks’ risk taking is something we need to learn more about. I also believe it would be useful to broaden the question and try to find out if low interest rates for a long period of time can lead to an increase in risk propensity in society as a whole – among households, companies and other participants in the economy – and not just among banks. So far, research in this field has been even scarcer. 6 As I see it, an increased risk propensity among households could be an equally strong driving force behind a rise in property prices as greater risk taking by the banks. …but not so easy to do in practice It is of course difficult to predict today what the conclusions eventually will be and what implications they may have for monetary policy.