samchain/econo-pairs-v1 huggingface dataset:
Charles Bean: The UK economic outlook Speech by Mr Charles Bean, Deputy Governor for Monetary Policy of the Bank of England, at the Society of Business Economists Annual Conference 2013, London, 22 October 2013. *  *  *  Good morning! It is now more than five years since Lehman Brothers collapsed, ushering in the worst phase of the financial crisis, followed by a sharp and synchronised contraction in global economic activity. While growth was reasonable for the first year after output troughed in the middle of 2009, the pace of expansion since then has proved disappointingly weak. Just how disappointing is illustrated by Chart 1, which shows our August 2010 Inflation Report projection for GDP growth, together with the ONS’s present estimates of what actually happened. It is not a pretty sight. Whereas our central expectation was for a cumulative rise in output of 9% over the following three years, the actual rise is presently estimated to have been a miserable 2%. And we weren’t alone. The performance of other forecasting outfits was pretty similar. At a global level, a similar story can be told. The IMF has consistently revised down its projections for global growth. Back in October 2010, it was forecasting a cumulative expansion in output of 14% over the following three years, whereas the actual figure was just 10%. Indeed, the Fund has revised down its world growth forecast for 2013 in every subsequent World Economic Outlook: it now expects just 2.9%, against the 4.6% it projected three years ago.

That said, neither the MPC nor the FPC can afford to be complacent. The past five years or so have presented the policy makers here and elsewhere with many difficult challenges. We have discovered that we knew even less about the workings of the economy than we thought we did. And we have moved into policy territory that we could scarcely have imagined during the halcyon days of the Great Moderation. Happily, there are signs that a recovery is at last starting to gain traction here in the United Kingdom. But there is still a long way to go before we can say the economy is mended. Until that is the case, monetary policy will need to remain supportive and the guidance we issued in August was intended to make that clear. Thank you! The UK economic outlook Society of Business Economists Annual Conference Charlie Bean, Deputy Governor for Monetary Policy 22 October 2013  2  6  This point was originally made in a Credit Suisse note entitled “Market to Mark”, 4 September 2013.
Many securities depositories chose to participate because they saw great potential in T2S in terms of cutting settlement costs, fostering competition and generating new business opportunities. But overall, T2S had the potential to bring about a more integrated financial market and thus to benefit all. Second, the governance structure of the project is special as national central banks, securities depositories and market participants formed a partnership with one objective – to launch T2S successfully. It is this unique collaborative effort, mentioned by some of you tonight, that has ensured the success of the T2S project, a project of such size and scale that it has changed the industry completely. Finally, the project is unparalleled in that it has led the industry to impose new rules and procedures on itself. And let’s be honest: this does not happen often. That is why many believe that the post-trade harmonisation agenda is the greatest benefit of T2S. BIS central bankers’ speeches  1  The launch of T2S is a great achievement. With T2S we have a big story, and I am confident that the story of its development will continue to be a winning one. Of course, there are many types of stories – some rooted in fantasy, some in fiction, and some in reality. The T2S story is a reality, and to symbolise this, a 3D printer is installed in the corridor that you will pass through several times tonight. I invite you to keep an eye on it and see how the T2S logo will materialise.

I want to thank you all for your support, trust and commitment, which has enabled us to reach this first step towards an integrated, more efficient, and harmonised post-trade market in Europe. In particular, I would like to take this opportunity to thank the national communities, namely the national central banks, the securities depositories and their clients, for their involvement and cooperation. Moreover, I would like to thank the 4CB (composed of Banque de France, Deutsche Bundesbank, Banca d’Italia and Banco de España) for developing and now also running the T2S platform. Let me also acknowledge the hard work and dedication of the people at the ECB who coordinated the implementation of the project. In particular, I thank Jean-Michel Godeffroy, who steered the T2S ship through sometimes stormy waters for many years, and Marc Bayle, who brought the ship to a safe harbour on 22 June 2015. And a special thanks to Ms Tumpel-Gugerell, who was the ECB board member in charge during the project’s inception. A popular saying is that “Two heads are better than one”. From the very beginning T2S has managed to unite the efforts of both the private and the public sector. T2S was not initiated by the market, but owing to its post-trade harmonisation agenda it has evolved into a marketdriven initiative which is supported by the public sector. In many ways it has been a unique project. First of all, no one was forced to join the T2S Community.
The first lesson is to perform a thorough due diligence to clarify the extent of the problem in the troubled bank. But, in line with my previous principle, ideally you need to do this fast. Once you have a firm grasp of the bank’s difficulties, its time to carefully assess your support options. This assessment will, of course, include direct costs, but indirect consequences for the financial markets and the overall economy should also be taken into account. The second lesson is to opt for the least-cost solution. This may sound obvious, but many examples show that the lesson is not always heeded by decision-makers. In some cases, a least-cost solution means a state guarantee against losses on assets or a funding guarantee. But when that does not suffice, brokering a private solution – such as a takeover from another, sounder bank – is another option. This usually also includes some elements of guarantee in order to sweeten the deal for the acquiring bank. But guarantees may skew the incentive, so you need to tread carefully. Such skewed incentives are, in fact, good examples of the indirect costs you need to weigh in your assessment of alternative solutions. If neither of these solutions is possible, you are simply left with one single option – injecting capital into the bank. Textbooks in economics typically describe the functioning of central banks as lenders of last resort.

At the present point in time, however, we know neither if nor when such an accession scenario will become a reality. But even in the event that accession negotiations with the EU were started relatively soon, for example as early as 2008, and proceeded rather swiftly, transition periods would still apply. Even if such negotiations were concluded as early as 2011, for example, and if they entailed the adoption of the euro, Swiss banknotes would remain in circulation at least until 2015. The National Bank is thus compelled to tackle the development of new banknotes as a precautionary measure. This step has become necessary because of the development of new technologies and the typically high demands on the design quality of Swiss banknotes. Both aspects necessitate an adequate preparation period. Our current decision to intensify the preliminary work already under way was decisively influenced by the awareness that the work can be halted at any time, whereas it is impossible to initiate it or catch up on it within a short period. The National Bank's decision must, therefore, not be mistaken for a statement on its European policy; it is solely a precautionary measure. Banknote security With progress being made in counterfeiting technology, a note-issuing bank, which has to ensure the security of its banknotes, must always strive to maintain a technological advantage over counterfeiters, or copy machines and scanners.
The system-wide dependence on term Libor fixings is an unnecessary vulnerability. A situation in which robust transactions-based benchmarks were more widely used would improve the resilience of the financial system. This is why the FSB recommended the development and implementation of RFRs. And that is why the Bank – given its interest in effective markets and responsibility for financial stability – is committed to supporting the adoption of near risk-free rates as alternatives to Libor. Put simply, we want to see a transition to a less Libor-centric world. What is the Bank doing? We have taken two important steps to support the implementation of a sterling risk free rate. We have taken on the administration of SONIA, the sterling unsecured overnight interest benchmark, and instituted a reform process to strengthen it. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  And we have set up the Sterling Risk Free Rate Working Group to forge a market consensus on the appropriate near risk-free rate and to coordinate wider adoption. SONIA reform The Bank’s aim in reforming SONIA has been to strengthen a benchmark which is already critical for sterling financial markets, but which is currently based on a market for brokered deposits which has limited transaction volumes. A key change is to broaden the input data to include all overnight unsecured deposits, not just brokered deposits. The Bank was uniquely placed to undertake this reform because we have the necessary data, collected under statutory powers.

2  All speeches are available online at www.bankofengland.co.uk/speeches  2  In effect the benefits of deep and liquid markets – ease of price discovery, minimisation of basis risk, tight bid/offer spreads – have outweighed the fact that Libor may not be a perfect match to users’ underlying needs. Whilst users of Libor clearly benefit from this concentration of liquidity, the flipside is that it makes the adoption of alternatives to Libor a very challenging task. These network effects are reinforced by market convention, accounting practices, and the frictional costs of changing firms’ systems and risk models. And use of Libor is perpetuated by the need to hedge and manage legacy positions. Overall, there is substantial inertia in the use of Libor. The case for change The financial system’s Libor dependency matters for two reasons. First, as I have argued, in many applications users would be better served by a near risk-free rate: the bank credit component of Libor is in these cases neither necessary nor appropriate. Derivatives markets in particular could be more effective if there were liquidity in alternative reference rates. The prospect of improved market effectiveness might not, on its own, justify change. A second factor adds powerful impetus to the case for change. As the Governor emphasised, the truth is that the term deposit markets which underpin Libor fixings are no longer a liquid source of bank funding. Even a reformed Libor will need to rely on expert judgement to supplement transactional data. That is not a desirable state of affairs.
When one additionally considers our many exports to neighboring, non-EU countries, but who maintain a Euro-centric policy we can see an indirect detrimental effect; which in turn means roughly 90% of our exports were hit by the crisis. For example, we experienced a decline in GDP of 1% in 2009 with a recovery of 3% in the next two years before declining again by –0.4% in 2012; which is reasonably low when compared to other countries in the region. Although this does not mean the effects from the Euro Zone crisis were not harsh, they clearly were; however, there were compensating policies such as a fiscal stimulus from the government which substantially mitigated the negative impact which is most likely why Macedonia had the slowest decline in the region. What were some of those hedging fiscal policies? Traditionally, Macedonia has had low fiscal deficits, ranging from –1% to +1%, but during the crisis in 2009 this grew initially to 2.5% then to 2.8% with our highest in 2012 at 3.8%. This year, due to the financial stimulus we are forecasted at 3.5%. We were able to mitigate successfully because our public debt was low at around 20% of GDP which afforded us room for expansion which we used during this crisis period. Apart from the macro-economy concerns, the crisis with the Euro as a currency helped boost confidence in our domestic currency [MKD denar]. This is because people naturally began to wonder what would happen with Europe; therefore, its primary currency.

Therefore, our macroeconomic forecasting and monetary policy analysis models prescribe an important role to the exchange rate. Furthermore, in financially euroized economies, such as ours, exchange rate movements tend to have financial stability implications. Rapid depreciation increase NPLs, while prolonged periods of appreciation tend to impose financial risks and encourage further euroization. In designing the appropriate monetary policy response, we have to distinguish between trend movements driven by fundamentals, and short term volatility driven by sporadic factors or market imperfections. Inflation targeting central banks should strive to avoid leaning against trend movements in the exchange rate. As long as these movements are in line with fundamentals, these trends represent structural adjustments that do not move the economy away from equilibrium. On the other hand, short term exchange rate volatility is normal in a fully flexible exchange rate regime. The reaction of central banks should depend on their impact on inflation, which in itself depends on the intensity and duration of such volatility. The stronger the duration and the higher the intensity of the shocks, the bigger would be the expected impact on inflation, the greater the risk of rapid shifts in inflation expectations, and the higher the need for a systematic reaction of monetary policy. 3. Exchange rate movements and the Bank of Albania reaction to them  The above mentioned facts have guided our reaction to the recent appreciation of the exchange rate in Albania. The trend appreciation started around the second half of 2015, but it gathered considerable pace in 2018.
Our new approach is designed to counter the risk that policy is too accommodating in upswings and too harsh in downturns. Two important principles stand out for me: first, that we must carry out financial regulation with an eye on conditions in the real economy, which means promoting stable and sustainable credit creation and growth; and second, we should always be prepared to look to the risks ahead, and exercise sensible judgment. The financial crisis has taught us in the most painful way of the dangers of waiting too long to take action and then being unable to prevent the worst consequences of delay. The FPC has recommended that British banks make sure their capital level is high enough to withstand future threats. Some banks will need to increase their equity capital for a given level of risk in their balance sheets. Concerns have been expressed that this change will harm lending to the UK economy. I do not agree with these concerns. Equity capital is not money that has to be stashed away for a rainy day and thus put to no good use. It is the shareholders’ stake in the company. In nonfinancial companies, shareholder capital or equity is used to finance the acquisition of assets. The same is true for banks. Equity finances the provision of loans to households and companies, and those loans are the banks’ assets. In that sense, capital supports lending by banks and does not substitute for it.

Higher capital requirements ensure that enough of the finance raised by banks is in a form that can absorb losses without the banks failing. Higher levels of capital enable banks to attract other non-capital funding, in turn making it easier for them to lend to households and businesses. At present it is the better capitalised banks that are expanding lending. How well are the banks doing in building resilience? There is good news here, as the banks have strengthened their capital positions since the darkest days of the crisis. But there is further to go. These capital positions are most often measured by the ratio of capital to riskweighted assets. Risk is difficult to measure, but I think that we must continue to do this, albeit accepting the uncertainty in the process by using a healthy dose of scepticism, and aiming to keep the  BIS central bankers’ speeches  1  method of measurement as simple as we reasonably can. But it is helpful to back up the riskbased measure with a leverage ratio that simply measures capital as a proportion of assets. In the lead-up to the crisis, banks around the world chronically underestimated the risks to which they were exposed. The consequences were dramatic and highly damaging, and we are still living with them today. The crisis has been fundamentally a product of banks that grew rapidly and failed to back that growth with sufficient capital to bear the losses.
I was dismayed to hear recently a commentator saying that, “supervisors will never be more than box-tickers”. Wrong. If you don’t agree, meet my colleagues. I was also interested to read recently a claim that today supervisors are unable to stand up to the banking lobby. Wrong. We accept that in a judgement-based approach to supervision, there will be disagreement. We don’t seek disagreement for the love of it, but it is part of what we do. In terms of how supervision is done, my preference is to start with a risk-based approach to assessing capital needs and then back that up with other risk-based approaches and a simple non-risk based approach, like a leverage ratio. The general approach is also the one that we are developing for insurers by designing early warning indicators to act as a check on the modelled risk-based approach. Why do I start with a risk-based approach? Because there is a logic to the approach of the supervisor mirroring how the firm manages risk for itself. I would be horrified if a firm said to us, “you know, we don’t bother to assess the risk we are taking”. Some history is relevant here. Modern risk-based capital requirements began with the Basel I Accord in the late 1980s. I was in Banking Supervision at the Bank of England then as we implemented Basel I. It had simple, crude, risk weights, but it was better than anything that had come before.

This is a reflection of the unusual and difficult economic conjuncture that we have been going through, combined with the challenge of determining the scale and nature of, for instance, loan forbearance. This is particularly evident in areas like commercial property lending where there is a hump of loan refinancing to come and a quite sharp tiering of performance among assets. Second, the euro area, and the possible impact of disorderly break-up, should that happen (and in saying this, I offer no view on whether it will happen), could have a sizeable impact on many banks. But here the FPC faces another very difficult judgement, namely what scale of so-called tail risk – the losses from low probability but high impact events – do we wish to see covered in the capital held now by banks? In other words, how much insurance should come from capital providers? The broad answer is a lot, but that does not tell us how much,  BIS central bankers’ speeches  3  and in the limit there are utterly catastrophic risks for which it is not sensible to hold capital as the answer. Third, when we look at the low market value of some banks relative to their book value, how much of this should we attribute to lending margins being considerably lower than they were expected to be? Net interest margins are squeezed in the current environment.
Within six decades, our economy moved from being a commodity-dependent nation to one that is successfully transformed. We subsequently elevated ourselves to where we are today, an economy that is open, diversified and competitive. This is only possible because of continuous investments in infrastructure over many decades. Rationalising tax incentives to be in line with international practices On the global regulatory front, as we had witnessed, the unfolding of the global financial crisis revealed the significant vulnerability of international financial markets to market dislocations. Calls for greater regulatory harmonisation and the adoption of international best practices have gathered speed, blurring the distinction between onshore and offshore regulatory requirements. Offshore financial centres which remain mired in the old model and thinking are set to become part of a sunset industry. There have also been significant advancements with respect to international taxation practices. Authorities are now more proactive in seeking to mitigate the distortionary effects of harmful tax competition on the allocation of resources and its negative implications on national tax bases. Malaysia, until early this year, has been an observer of the OECD’s Inclusive Framework on Base Erosion Profit Shifting (BEPS). Since January 2017, we have agreed to become a participating member in the Inclusive Framework. This will allow Malaysia to participate in the BEPS related work on equal footing with other OECD and G20 countries. We will also be able to provide direct inputs to shape the content of the BEPS related standards.

I would like to emphasise that undertaking such projects emphasises the mutual engagement of the EU and Albania with regard to deepening integration processes of our country, and reiterates Albania’s European perspective. Dear ladies and gentlemen, In the last decade, Bank of Albania has implemented a number of EU-funded projects. The first twinning project was implemented during 2012 – 2013. At that time, like now, Banca d’Italia – in partnership with Banque de France – contributed successfully to achieving concrete results in six areas of Bank of Albania’s activity. The second project – needs analysis for Bank of Albania’s approximation, funded by the EU – was led by the European Central Bank and was implemented during 2014. The aim of the sixmonth project was to assess the legal, regulatory and operational frameworks of the Bank of Albania vis-à-vis standards and best practices applied in European central banks. From this perspective, it should be underlined that the recommendations left upon the completion of this project are incorporated in the list of main priorities for Bank of Albania’s institutional approximation to the model applied in the European System of Central Banks. In addition, in light of addressing these priorities, the European Commission decided to allocate EUR 800 000 as under IPA 2015. After a long process of consultations and sharing information, for the first time, Bank of Albania’s experts put together a Twinning Project, which was submitted to the European Union Delegation to Albania.