samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Opportunities and collaboration in Islamic finance Address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the MalaysiaUK Islamic Finance Forum, Kuala Lumpur, 8 July 2009. *  *  *  It is my pleasure to be here today to address the Malaysia-United Kingdom Islamic Finance Forum organised in collaboration with the Commonwealth Business Council. Allow me to take this opportunity to welcome The Right Honorouble Lord Mayor and distinguished guests from the United Kingdom today that are joining this dialogue with the Malaysian financial community to discuss the opportunities and areas of collaboration in Islamic finance – an important potential avenue for strengthening financial and economic linkages not only between our economies but with other parts of the world. A global shift is currently taking place in the international environment that is dramatically altering the configuration of the global economy. It is resulting in an increasingly multi-polar world. In this new phase of globalisation, the concentration of economic power will become more dispersed. Strengthening strategic economic and financial linkages across jurisdictions will become a key feature in this environment. It is very much Malaysia's intention to be part of this new future as we consciously build our capacity to enhance our international economic and financial linkages. Building effective partnership between UK and Malaysia The United Kingdom and Malaysia has one of the oldest relationships. This relationship has been dynamic, evolving in the rapidly changing international environment.

The strong and close bond has continued to evolve in the areas of trade, investment, education and finance. While the bilateral trade in goods between the United Kingdom and Malaysia only accounts for 1.4% of our total trade, Malaysia's bilateral trade in services with Britain accounts for 6.3% of our trade in services in 2008. While the balance of trade is in our favour, the balance in the services account is in the favour of the United Kingdom amounting to RM2.3 billion. In the area of mobility of people between our two countries, there continues to be a significant two-way flow relating to employment, education and tourism. Tourists from Britain represent the largest group of visitors from the European market. In the area of education, there are a great number of Malaysian students studying in the United Kingdom. This has been reinforced by the twinning programmes. In addition, British education for Malaysians has been strengthened by the branch campuses in Malaysia. More recently, the relationship building has extended into the area of Islamic finance. This relationship was cemented with the signing of a Memorandum of Understanding between the UK Trade and Investment and Bank Negara Malaysia. The early development of Islamic finance was very much domestic-centric. This recent decade has seen the internationalization of Islamic finance. This has increased the potential for strategic partnerships between international financial centres that will bring with it mutually reinforcing benefits.
All these measures for the support and restructuring of the financial system have proven technically correct, they are well adjusted to Spain’s situation, and they were rapidly designed and approved with broad consensus. Certainly, such characteristics should be applied to other areas so needy of reform, such as the rebalancing of public finances and certain labour market institutions. The need for restructuring has been understood by most of the banks that required this to ensure their viability and soundness in the future, and they have reacted by working on various integration processes. In previous talks I explained the criteria used by the legislator for these processes, and which are those that should prevail: the sufficient reduction of capacity, the soundness of the resulting banks and the minimal use of public funds. These should be the goals both of banks themselves and of all the public authorities intervening in the process. BIS Review 51/2010  1  Along with restructuring, my recent speeches on the financial system have focused on a matter I consider, unquestionably, to be the biggest risk hanging over Spanish credit institutions, especially the least diversified ones: mass unemployment. Unless a reform of our labour institutions that tackles this most serious and most Spanish problem with resolve is approved promptly and with the widest possible consensus, many of our credit institutions will suffer the consequences: more bad debts, less business, higher public indebtedness and, consequently, dearer wholesale funding, etc.

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.
As a share of GDP, private investment amounted to 16% on average between 2000 and 2009, among the lowest ratios in the euro area. Given Malta’s track record in attracting foreign direct investment, this shortfall is probably more a reflection of a relatively low level of domestic private investment. The latter is unlikely to be related to the cost and availability of finance. Interest rates are at historic lows and, contrary to the experience elsewhere, credit to the private sector continued to expand during the recession. As for possible structural factors, the diversification of the economy away from manufacturing towards services is also unlikely to have been a factor. Similar sectoral shifts elsewhere did not result in a declining investment share. Rather, the relatively low level of private investment could, in part, be a legacy of the past, when firms in protected sectors could survive without the need to invest to face up to competition. In addition, in key sectors such as tourism and the wholesale and retail trades, the operating surplus has fallen, on average, over the past decade. Weak profitability, which is partly due to labour costs rising faster than productivity, reduces both the incentive to invest and the internal funds available to do so. Hence the emergence of a perverse cycle of weak profitability, low investment, poor productivity growth and a loss of competitive strength. These weaknesses are reflected in persistent current account… These structural weaknesses show up in a persistent deficit on the current account of the balance of payments.

BIS Review 156/2010  3  the Bank on price and wage setting in Malta shows that although just over half of respondents would cut prices if their competitors did so, 36% would not. Unsurprisingly, the most flexible firms were those in the manufacturing and tourism sectors, where foreign competition is strong. This suggests that there is still scope for increasing the degree of domestic market competition. Sometimes, the connection between market liberalisation and exports may be indirect. As the recent experience in the communications sector has shown, liberalisation drove down costs and prices. This opened up new export opportunities outside the communications sector itself, for example, in financial services and remote gaming. The importance of keeping costs under control cannot be overemphasized. Malta’s inflation performance over the last ten years illustrates this point. Whereas the euro area inflation rate averaged 2.1% between 2000 and 2009, domestic inflation averaged 2.5%. The record for inflation excluding energy prices shows a similar unfavourable trend. It is an established fact that in a currency union rates of inflation consistently above the average result in a loss of competitiveness. Apart from more competitive markets, containing domestic inflation implies a need for wage moderation. For many years employee compensation has grown faster than real labour productivity. Whereas the former increased by around 31% since 2000, productivity rose by only 2.5%. The resulting rapid growth in unit labour costs, more than 28%, compares with an average of 20% in the euro area.
However, the underlying point – that rapid growth is often a sign of loosening supply and rising default risk – remains. Conclusion Financial distress is often preceded by rapid debt growth. By contrast, comparative levels of debt – at very different points of time, across countries and even for individual households in the same country – are much less informative. That doesn’t mean the level of debt doesn’t matter. But it may matter only relative to some sustainable threshold, one that’s not directly observable and that can vary. The precise terms, and therefore the riskiness of a given quantity of debt, are not exactly the same in every country. Over long periods of time there may be other changes in fundamentals – what is defined as debt or, more profoundly, changes in the neutral long-term interest rate – that make the measured total more or less affordable. Another possible explanation for these findings is that the forces that drive riskier and less sustainable debt tend to develop relatively rapidly. Certainly economic theory is less good at explaining variations in corporate lending over short periods of time than across different sorts of companies. That may be because the time series is dominated by swings in the supply of credit that are often less justified by the economic fundamentals. Periods of rapid growth are often accompanied by independent signs of loosening supply. There may be some lessons in this. One is to exercise care with comparisons in levels terms.

If so, one wouldn’t expect to pick up any levels effects, even when they genuinely exist, in simple cross-country comparisons like that in Chart 3. Those might simply be telling you that, for various structural reasons, a  3  All speeches are available online at www.bankofengland.co.uk/speeches  3  pound of debt is not quite the same thing, or equally risky, from one country to the next.2 Besides, the distinction between levels and growth rates is in any case a bit fuzzy. If one country has a higher debt burden than another it’s probably gone through a period of faster growth as well. That’s got to be the case if one’s comparing levels of debt in the same country but at different points in time. Nevertheless, the comparatively poor predictive power of the level of debt is quite striking and I think there may be a few lessons one can draw from this. First, if there are structural differences in the nature or terms of debt, whether across countries or over time, it is important to try and take account of them. One example in the UK is within unsecured household debt. This is now a pretty broad category. It includes two things – PCP (“personal contract purchase”) contracts for car purchases and student loans – both of which are relatively new and neither of which, arguably, is really unsecured debt in the conventional sense or at least carries the same risks for borrowers. PCP contracts are more like rental agreements.
And any review mechanism must take careful account of the implementation costs incurred by banks when the rules change. But it is costly, too, to persist with regulatory standards where they are clearly out of line with market practice. Real effort has been made to tie the Accord to best market practice and thus to changes that banks will need to introduce anyway. Going forward, the guiding principle, difficult I know to achieve in practice, should be to keep to a minimum the difference between expenditure that banks would be incurring in any event and that required by regulators. Part of the trick is to ensure sufficient continuity of core aspects of the standards, so that changes to basic IT systems etc are minimised or at any rate can take place over time. Time is, after all, a major help in this respect. Implementing systems changed as part of the software obsolescence cycle may involve only modest marginal cost. More immediate and discrete changes are always going to be more costly. These issues will clearly need further discussion. In the EU context, however, it is particularly important that the arrangements for revising any Directive reflect, if not the letter, at least the spirit of Lamfalussy. It would be wholly inappropriate to try to hard code all the detail of the pillar one rules in an EU Directive, as if these can necessarily stand for a long period of time.

In Sweden, economic policy has charged the economy with a good deal of stimuli that can help to generate a broader increase in demand now that the stocks cycle is beginning to have a favourable effect and the prospects for the international economy are brightening. As a result of lower taxes and increased transfers, for example, most things suggest that household purchasing power is rising comparatively strongly this year. Seen over a complete economic cycle, the Riksbank’s instrumental rate is comparatively low. Considering the rate of inflation and the signs that activity is picking up, the real repo rate (the repo rate less the rate of inflation) can be said to be low. Then there is the weak exchange rate, which has subdued effects of the international slowdown and is now helping to stimulate the export-oriented sector. All this amounts to not inconsiderable stimuli to general demand in the Swedish economy, stimuli that look like materialising successively. How heavily should we tread on the accelerator? If inflation, even disregarding the temporary effects, is above the target initially, activity is entering an upward phase and economic policy’s impact on the economy is expansionary, then monetary policy ought to contribute to a somewhat lighter foot on the accelerator. But if most of the unduly high inflation stems from transient increases in the price level and if an economic upturn is not yet assured, it may then indeed be advisable to somewhat defer an upward adjustment of the instrumental rate.
All of this is discussed at a macro forecasting meeting in the Monetary Policy Department. When the overall macroeconomic picture has been established, the economists chisel out the different points of the forecast in more detail. For instance, they make a complete forecast of the components in the balance of resources and in the labour market. Finally they check the overall picture to ensure that the different parts of the forecast hold together and have been added up correctly. In total, the economists forecast around fifty variables. All of these are then compiled into an internal document that summarises the Department’s view of how inflation and economic activity will develop in the future. Another document is also created, explaining how the forecasts are affected by model results and assessments. None of the Executive Board members takes part in this stage. The idea is that the product then reported to us will as far as possible be a civil servants’ product. It should not be influenced by the ideas of the different Executive Board members. The civil servants thus hold a relatively strong position in the process. The Executive Board’s main contribution is not to get involved in all of the details of the forecasts – instead we shall highlight different perspectives and broaden the analysis. The fact that the civil servants produce their own draft forecasts also contributes to strengthening and maintaining the internal competence.

To give the general public insight into the decision-making process and to make it easier to assess our activities, we take minutes at the meeting which the bank then publishes. As of summer 2007, we also write the member’s names in the minutes. The minutes are published around two weeks after the monetary policy meeting. Interest rate decision announced on the day after the monetary policy meeting A press release is published the day after each monetary policy meeting. This contains the most important reasons for and considerations behind the majority decision. The press release also contains the Riksbank’s forecasts for economic activity and inflation and a description of what monetary policy is currently considered to be well balanced. In connection with the publication of the interest rate decision we also hold a press conference where journalists are given the opportunity to ask questions. In connection with three of the monetary policy meetings a Monetary Policy Report is published. On the other occasions a shorter Monetary Policy Update is published instead. This contains a more limited number of forecasts for the central macro variables. That is to say, it is the majority view that is reflected in the press releases and the reports. Any differences of opinion can be seen in the minutes of the monetary policy meetings. There it is stated in detail how each of the members has argued and voted.
In addition, over the past few months supply chain bottlenecks have eased and freight costs have declined sharply. 2 Slower growth, the recent correction in energy commodity prices and the improvements in global supply chains will help ease inflation. However, according to our forecast, inflation will stay above the target for an extended period. And, more generally, the longer inflation stays at high levels, the greater the risk of a de-anchoring of inflation expectations or the materialisation of second round effects through wages or mark-ups. On the basis of the inflation outlook I have just outlined, after ending the net purchases under the PEPP in March and those of APP in July and the 50 basis points (bp) and 75 bp rate increases in July and September, respectively, we decided in October to implement another major policy rate increase of 75 bp. We also decided to adjust the interest rates applicable to our Targeted Longer-term Refinancing Operations (TLTRO III) from 23 November 2022 and to offer banks additional voluntary early repayment dates, with a view to reinforcing the transmission of our policy rate increases to bank lending conditions. Both measures are aimed at containing aggregate demand and guarding against the risk of a persistent upward shift in inflation expectations. These decisions were clearly in line with analysts’ expectations. In particular, the latest ECB Survey of Monetary Analysts (SMA) foresaw a 75 bp increase in the deposit facility rate (DFR) at the October meeting.

The median SMA respondent also anticipated euro area inflation returning to 2% at the end of 2024. Therefore, our October decision was consistent with market analysts’ expectations of a policy rate path whereby inflation is expected to return to target by the end of our medium-term projection horizon. 3  2  See Burriel, Kataryniuk, Mo reno and Viani (2022), “A new supply bo ttlenecks index based o n newspaper data”, Working Paper, Banco de España (fo rthco ming). 3  Surveys by Blo o mberg and Reuters befo re o ur Octo ber meeting po inted to similar co nclusions. However, the latest Survey o f Pro fessional Fo recasters (SPF) pro jected an inflatio n rate o f 2.4% in 2024, mo re in li ne with the ECB’s September fo recast. 2  With the recent interest rate hikes, we have made substantial progress in withdrawing monetary policy accommodation. Since July, we have raised interest rates by 200 bp – the fastest increase in the history of the euro. But we are not done yet. We will need to move rates to levels that allow inflation to converge to our 2% medium-term objective. And for this, we still have some way to go. 4 However, given the high degree of uncertainty of the inflation and economic outlook, the specific level that interest rates may have to reach to be consistent with this objective is uncertain, as it is entirely data-dependent and may change over time.
The key policy rate is set with a view to keeping inflation close to 2.5 percent over time without triggering excessive fluctuations in output and employment. Monetary policy also seeks to be robust and take into account the risk that financial imbalances in the economy build up. Even though the objectives differ, both of these instruments work through banks’ responses. The level of the countercyclical buffer may therefore affect the conduct of monetary policy. Increased buffer requirements may induce banks to increase their lending margins or restrict access to credit in other ways. Tighter lending growth curbs economic activity and inflation. This suggests, in isolation, a lower key policy rate. Other developments in the economy may amplify or dampen this effect. Although increasing lending margins in isolation point towards a lower key policy rate, a period of strong economic expansion, with prospects for high inflation and a risk of a build-up of financial imbalances, might indicate that the key policy rate should be raised while at the same time tightening capital requirements for banks. Conversely, in a sharp downturn with higher bank losses, it may be appropriate to reduce both the key policy rate and the countercyclical buffer. Chart: Credit cycles and business cycles in Norway Having more economic policy instruments available can make it easier to achieve several objectives at the same time. But the countercyclical capital buffer is not a new stabilisation policy instrument on par with monetary policy.

The level of the buffer must therefore be considered in the light of other capital requirements. Norway could be among the first countries to apply the countercyclical buffer. Growth in credit and in house prices in Norway has been high for a long period, and credit has reached a historical level relative to GDP. In view of this situation, banks must make extra allowance for the risk of an economic setback. Banks have taken due note of the requirements and are in the process of adjusting to them. Discussions with market participants suggest that an expected countercyclical buffer has been included in banks’ long-term adjustments. 3  Basel Committee on Banking Supervision, “An assessment of the long-term economic impact of stronger capital and liquidity requirements”, August 2010. http://www.bis.org/publ/bcbs173.pdf. For an updated collection of references to studies of the costs and benefits of macroprudential regulation, see Annex 1 in IMF Working Paper WP/13/167, by Arregui et al. “Evaluating the Net Benefits of Macroprudential Policy: A cookbook”, July 2013. http://www.imf.org/external/pubs/cat/longres.aspx?sk=40790.0. 4  For further detail and references, see Norges Bank Papers 1/2013. 4  BIS central bankers’ speeches  Capital requirements and monetary policy The countercyclical capital buffer and the key policy rate are two instruments serving different objectives. The objective of the countercyclical capital buffer is to increase banks’ resilience to losses in a downturn. The primary objective of monetary policy is low and stable inflation.