samchain/econo-pairs-v1 huggingface dataset:
42  15  All speeches are available online at www.bankofengland.co.uk/news/speeches  15  Of course, there would be many execution challenges, not least the risk of fragmentation across Digital Currency Areas.44 But by leveraging the medium of exchange role of a reserve currency, an SHC might smooth the transition that the IMFS needs. Conclusion 20 years ago, the theme of this symposium was “New Challenges for Monetary Policy”, and my predecessor, Mervyn King, was one of the speakers. His reflections were on the merits of inflation targeting and flexible exchange rates. The applications of his insights have contributed greatly to improved economic outcomes around in the world in the intervening years. But during that same period, the deficiencies of the IMFS have become increasingly potent. Even a passing acquaintance with monetary history suggests that this centre won’t hold. We need to recognise the short, medium and long term challenges this system creates for the institutional frameworks and conduct of monetary policy across the world. Given the experience of the past five years, I will close by adding urgency to Ben Bernanke’s challenge. Let’s end the malign neglect of the IMFS and build a system worthy of the diverse, multipolar global economy that is emerging. 44  For more discussion of this, see Brunnermeier, MK, James, H and Landau, JP (2019), ‘Digital currency areas’, VoxEU. 16  All speeches are available online at www.bankofengland.co.uk/news/speeches  16  Annex I.

12103 6 For further details please refer to https://www.bankofengland.co.uk/speech/2017/changing-risk-and-the-search-for-yield-on-solvency-2capital 7 Financial Stability Report, December 2016, Bank of England. 5  5  All speeches are available online at www.bankofengland.co.uk/speeches  5  insurers have used internal securitisations backed by their equity release mortgage portfolios in order to create a senior tranche with the required fixed cashflows. Let us dig a little deeper into the Matching Adjustment. In principle, the higher discount rate on liabilities is intended to reflect the component of the spread over risk-free rates that compensates other investors for risks to which the insurers are not exposed. In the case of bonds, this is the liquidity premium for the risk that they might have to sell into secondary bond markets at a time when credit spreads are wide. Annuity writers are not exposed to this risk and can therefore earn the liquidity premium provided they can bear the credit risk and hold the assets until maturity. Mechanically, however, the Matching Adjustment is not calculated by estimating directly the market premium for any risks to which insurers are not exposed. Rather it is calculated indirectly as a residual by subtracting from the yield on an asset (1) risk-free rates and (2) an estimate of the required premium for risks to which insurers are exposed. In the case of bonds, insurers are exposed to the credit risk that the issuer is unable 8  to pay interest or principal at maturity.
BIS Review 43/2009  5  Nonetheless, the answer to restoring the flow of credit is neither publicly funded policies to purchase “troubled” (impaired or toxic) assets nor global and indiscriminate bank recapitalisation plans. While these measures have admittedly been adopted in many developed countries, they are not the most suitable measures for maintaining the flow of credit to the private sector, even if they have been of use in those countries that had to bail out systemic financial institutions. That does not mean they should be totally ruled out. But I am convinced they are of no use for resolving the problem of credit restrictions. The credit-boosting measures best suited to the current situation of the Spanish economy are those aimed at improving the risk profile of both consumer and corporate transactions. This effect may be achieved through different means: e.g. loans subsidised by the Official Credit Institute, credit insurance or the deferral of social contributions. These measures, though not immediately effective and needing complementary action, will help gradually restore lending to companies and consumers. A second challenge for the Spanish financial system is its orderly restructuring in the coming years. The soundness of our financial system, whose behaviour in terms of both solvency and profitability has been patently better since the onset of the crisis than in other developed countries, does not preclude the need for restructuring.

Miguel Fernández Ordóñez: Economic forecasts, measures to exit the crisis, and the Spanish financial system Opening address by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, of the Cinco Días Series of Conferences, Madrid, 31 March 2009. *  *  *  Thank you very much for calling on me to inaugurate this series of conferences at a time burdened with challenges for economic analysis and economic policy. Given the scope of this conference, I shall address three matters of interest to the media: economic forecasts, the measures needed to exit the crisis and the current situation of the Spanish financial system. Economic forecasting has seen better days. Over the past 20 years, all institutions have been projecting high growth rates for the world economy in view of the benefits arising from increasingly integrated economic systems anchored firmly on free-market principles. Nobody could have conceived systemic market failings on a global scale such as those we are currently witnessing, and which are prompting a spectacular collapse in output and world trade. And right now, in the thick of the crisis, it is still difficult to prepare macroeconomic projections. But it is precisely in these circumstances when we most need such projections which, while they may well contain a large margin of error, are of use to us for assessing the juncture at which economies stand.
But it is less clear what the changes on the other side will be: how banks will respond to the new regulatory and economic environment. There is much soul searching in the industry about what the future looks like. The reform programme and returns in banking The most marked change in this new landscape is the much greater amounts of capital in banks and as a consequence the much reduced level of leverage. Headline levels of required capital have increased. And the risk associated with many types of assets and business activities has been fundamentally re-appraised. For the largest firms, the equity levels required will be around 7 times higher than before the crisis on a risk weighted asset basis. 4  BIS central bankers’ speeches  Moreover, international standards will determine not just the leverage firms can carry on a risk weighted basis but also, when an international leverage ratio is agreed in 2019, the absolute amount of assets they can carry for any given level of capital. A number of major jurisdictions such as the US have implemented leverage ratio rules in advance of that; the FPC will shortly issue proposals to do so in the UK. Lower leverage will reduce the returns that banks’ shareholders make, relative to pre-crisis. But it also means that banks will be safer investments which should also reduce the returns that investors require.

2  BIS central bankers’ speeches  When leaning against the wind of the credit cycle, macro-prudential authorities do, like their monetary policy colleagues, still need to find the optimal path. To use the words of the UK Chancellor, their objective is not to ensure “the stability of the graveyard”. How they balance cost and risk, where they set the trade-offs, will depend in large part on how confident they are about the underlying resilience of the system – in other words how well they have done on the first impulse. International governance The second big change I want, therefore, to highlight is the development since the crisis of much stronger international governance. This stems from the creation, at the April 2009 G20 London summit, of the Financial Stability Board (FSB). And, equally important, from the decision at the Summit that the FSB should report directly to the G20 Leaders and Finance Ministers to give it the necessary “clout”. Working with the standard setting organisations like the Basel Committee, the FSB has provided the drive and coordination to reform and develop global standards for bank capital, liquidity, and resolution. If one remembers the best part of a decade that it took to develop and reach agreement on the Basel 2 capital standard, the progress made and international agreement reached over the past 5 years has been extraordinary.
The policy rate must always be decided on the basis of the best available information at any given time. Experience shows that paths change sharply from one forecast to the next and the central banks explain the assumptions behind such changes thoroughly. Above all, these central banks aim to exert a specific effect on expectations, which is the principle behind a successful monetary policy. This appears to have produced results in New Zealand and Norway. Another option is for the baseline forecast to assume a policy rate path calculated from a monetary policy rule that steers inflation to target within the forecast horizon. This was done in the alternative scenario published in the November 2006 Monetary Bulletin. Other inflation-targeting central banks take different approaches, including the assumption of an unchanged policy rate as the Central Bank of Iceland initially did after moving onto an inflation target. The choice of assumptions for the Central Bank’s next macroeconomic and inflation forecast has yet to be decided. It is still under consideration and discussion in-house. What is crucial for the Central Bank is the credibility of its forecasting and the ability to exert the impact on expectations that it deems necessary. 4  BIS Review 16/2007  Conclusion It is not the Central Bank of Iceland’s policy to maintain high interest rates. However, this is necessary for as long as the recent macroeconomic conditions prevail. High interest rates subdue private consumption and investment.

The Central Bank incorporated these expectations into its baseline forecast, even though it considered them unrealistic. They assumed rapid cuts in the policy rate commencing early this year. The Central Bank considered neither assumption to be compatible with the inflation outlook. Thus the forecast lacked credibility, in the Bank’s own opinion. This prompts the question of what assumptions it is natural for the Central Bank to make about the policy rate in its baseline macroeconomic and inflation forecasts. Iceland is not the only country whose central bank has faced such a challenge. Several years ago, the Reserve Bank of New Zealand responded by using its own policy rate forecast as an assumption. The Bank of Norway followed suit two years ago and now uses a future interest rate path forecast by its Executive Board for its baseline forecast. Sweden’s Riksbank recently announced that it will use its own forecast for the repo rate path as an assumption in its inflation forecast. These banks have followed a similar course to the Central Bank of Iceland in developing the interest rate assumptions behind their forecasts. They have now opted to use the path that is forecast by those who actually determine the policy rate, partly because they did not consider market agents’ forecasts and expectations sufficiently credible. At the same time, these central banks have firmly stated that their policy rate forecasts entail no commitment to hold their rates to that path.
We need a fiscal instrument of the sort proposed by President Macron a few years ago. An instrument that has the capacity to act countercyclically and that complements monetary policy. But it’s something you were already asking for when you were a minister, and it’s not happening now, and even in the best of cases it won’t happen for another four or five years. And without that level of firepower… We have to call for it because it is sensible. It is not a question of whether it is possible, but rather one of reality. It would be very important for the entire euro area and I am convinced that it will come about sooner rather than later. What are your thoughts on the Spanish economy? The Spanish economy is doing well. It is competitive and enjoying above-average growth, and that is the result of the reforms in 2012 and 2013 and society’s efforts. It is doing well, that’s the truth. It has been affected by the economic slowdown, like the rest of the euro area, but growth is still at 2%. Why? The financial sector was cleaned up, and the economy is now competitive. Those are the two reasons why it is doing better. Spain didn’t have any issues during the growth phase of the cycle. But now we are maybe seeing the effects of not having made any reforms in recent years, deferred budgets, or adjusted deficits during growth periods. My recommendation is for the euro area as a whole, not just for Spain.

It takes very significant decisions, which made it an extremely attractive proposition. How do you explain the arrival of people like you or Christine Lagarde, who have a different profile to the one that ECB Executive Board members have traditionally had? I don’t think anything was predetermined or premeditated. Members of the Governing Council have different profiles and each of them contributes according to their experience. I contribute my knowledge of the European economy and the financial system, and my experience taking decisions when the Spanish economy was at its most delicate moment. What role does politics play in the ECB? The 25 members of the Governing Council don’t always agree, although many of the decisions we take are unanimous. There are those who think that the situation requires further measures, and others who think we have already gone too far. We look for a consensus. The decisions are very democratic – one Governor, one vote – but actually taking a vote is an exception, not the rule. In recent months there has been very strong, unprecedented public criticism. I’m not at all concerned by the fact that there are differing views, that’s healthy and it’s normal because there are 25 of us. But what has been happening in recent months has not been very helpful. It hasn’t undermined the effectiveness of the September package of measures, because it went ahead as planned, but it’s much better to be united. We are a collegial institution and once we have reached an agreement, everyone should defend it.
Shortages have even risen rapidly in the manufacturing sector, where employment fell the most during the crisis. Only one-fifth of the jobs lost in the manufacturing industry have again been filled. This may have effects on wage formation and inflation. In our forecast, wages will increase by 3–3.5 per cent over the coming three years. Labour shortages in combination with a strong economic climate may lead to a situation in which  5  6  Examples of such factors include natural disasters or political unease in countries of production. BIS central bankers’ speeches  wages increase at a faster rate. In that case, inflation will be higher and it may be necessary to raise the repo rate more rapidly. Having discussed these risks, it may be worthwhile to point out that they are only risks. Our main scenario for future developments suggests the stable recovery of the Swedish economy and gradual increases of the repo rate. Conclusion Let me now summarise the basis for the future direction of monetary policy. Following the financial crisis, Sweden’s economy has shown a strong recovery. Growth is currently high, but is expected to decline successively. The labour market is on the road to recovery, and unemployment is falling. Prices are increasing on the world’s commodity markets, contributing to rising inflation. Resource utilisation is on the way up, also contributing to the increase of inflationary pressures in Sweden in the period ahead.

CPIF inflation has shown significantly more stable development than CPI, which includes the effects on mortgage interest expenditure of the drastic interest rate cuts implemented during the crisis, as well as the recent interest rate increases. Inflationary pressures are starting to increase in tandem with the economic recovery. This means that the repo rate has also been increased from the very low level of 0.25 per cent that prevailed one year ago to 1.5 per cent today. This allows us to safeguard the balance of Sweden’s economy and simultaneously attain the inflation target of 2 per cent. Where are we going? Having come this far, it may be appropriate to stop and spend a moment reflecting over the financial crisis and long-term economic development. As I mentioned in my introduction, the period from the mid-1990s until the financial crisis was characterised by good growth, low inflation and decreasing variation in output and prices. In addition, the financial crisis was preceded by a period of about 60 years of unbroken growth in the world economy. So we could ask ourselves: are crises of the type we have just experienced “improbable events” that take place perhaps once in fifty years and something we just have to accept? My answer is both yes and no. We have learned that financial crises are extremely costly. Governments and central banks are now busy discussing different measures both to reduce the likelihood of crises arising and to mitigate the consequences of any such crises.
The additional risk to keep in mind here is the growing number of unregulated firms operating in and competing in this arena. As the industry moves to overcome the risks associated with cybersecurity, you have to consider the additional vulnerabilities you are exposed to through non-regulated entities that will not be subject to the same guidance and standards. The big question lies in how you, as an industry, ensure that the ‘industry as a whole’ is safe, not just regulated entities. 4. One size does not fit all  Just as firms are diverse in size, complexity and product offerings, so too are technologies, processes and systems. While some firms house all technology work internally, others outsource the entire function or a significant part of it to third-party vendors. In addition to the variety of systems used and approaches to information security within firms, as I said earlier, we have an entire subsystem that supports the financial sector and ultimately connects every firm to some extent. In response to this, we are working under the  4  BIS central bankers’ speeches  assumption that there will not be a one-size-fits-all solution and the approach taken will need to be comprehensive and flexible enough to be adopted by all types of firms. 5. We are in this together  Cybersecurity is an area where I believe our interests are aligned and our shared goal is twofold.

Need to address communications  Finally, to successfully address this risk with a unified front, we must develop an approach to enhanced communications around cyber threats and events, and revisit supervisory guidance in this area. Silence and fear of sharing intelligence in this area could be detrimental to efforts to address the vulnerabilities systematically. We know that breaches have occurred and will continue to occur until the industry is better equipped to be ahead of the attackers, not playing catch up. Right now we are interested in learning from these breaches and using intelligence garnered to get ahead of game. There is a lot to think about here. With all this in mind, I will end this part of my remarks with a reminder of what we see as the key components of any solution designed to address cybersecurity. It must: •  Be comprehensive, risk-based and threat-informed;  •  Be a joint effort between public and private sectors;  •  Be flexible enough to evolve as technology advances; –  Automated  –  Scalable  •  Support information sharing;  •  Leverage best practices;  6  BIS central bankers’ speeches  •  Include all in the industry – regardless of size or processes (internal systems or external providers); and  •  Delve deeper than one step below the surface. Conclusion We live in an ever-changing environment where speed and agility are of the essence.
This can, unfortunately, lead a bank to conclude that it has reduced one set of risks and can therefore afford to take on an additional set of risks. But what if the technology was imperfect, and the sophisticated models were flawed? Overconfidence in risk models can itself become a significant risk. Risk and responsibility There is a popular phrase in the United States among risk management professionals who want to be clear about accountability for risk. We often say that a person, or division, or firm “owns the risk.” Let me explain what I think that phrase means, at least in some contexts. When a business line manager understands that she “owns the risk”—and not, say, the lawyers, compliance professionals, or anyone else—it means that she is accountable to a more senior manager and to the firm for the risk. Presumably, that means she will bring an appropriate focus and attention to issues of risk management. She will not assume that risk management is somebody else’s problem. Sometimes I worry, however, that this phrase—“own the risk”—has become overused and can itself give rise to risk. To be clear, clarity of roles and responsibilities with respect to risk management is critical. Business managers should not be able to outsource accountability for risk management to others. Still, I wonder if it is time to retire the phrase “own the risk” or at least be more thoughtful about its use.

Unicredit Group can probably be qualified as the quintessential European cross-border banking group, with operations in 22 European countries and, amongst these 22, in 19 Central and Eastern European countries. Alessandro is also the President of the European Banking Association. The last 2 to 3 years have been especially eventful for financial integration and stability, with once in a life-time developments. After Lehman Brothers filed for bankruptcy in September 2008, the global financial system experienced unprecedented stress and policy makers had to tread unknown territory in dealing with it. BIS Review 47/2010  1  The financial crisis has raised a host of policy issues that will provide food for reflection for generations to come. I will mention a few of them to set the scene and to kick-start the discussion. The first set of issues relate to the developments in the late nineties and early 2000s. The combination of high economic growth, ample liquidity, increasing financial integration and development, and “light handed” regulation sewed the seeds of the crisis to come. I believe that a number of people and organisations, including mine, identified vulnerabilities in the financial system before the crisis erupted. Nevertheless, we did not anticipate the timing and the intensity. We should ask ourselves what we missed in the run-up to the crisis and what the lessons are for the future. Once the crisis erupted in full force, a first casualty were the money markets, which provide the oil to make the banking system run smoothly. Money markets came to an unprecedented stand-still.