samchain/econo-pairs-v1 huggingface dataset:
23.10.2019  The Banking Union: a key building block of the EU project Opening remarks at roundtable “Banking Union – Five years in the making” Banco de España Margarita Delgado Deputy Governor  Dear chairs of the Single Supervisory Mechanism and the European Banking Authority, president of the European Banking Federation, ladies and gentlemen, good morning. Let me start by welcoming you to Banco de España for this roundtable. Over the next couple of hours we intend to discuss both the achievements and pending elements of the Banking Union (BU) on its fifth anniversary. We are honoured to be accompanied by such distinguished panelists, so thank you for accepting our invitation and for being here today. But before getting down to the discussion, I would like to share with you a few general thoughts on the European Union project and the role the Banking Union (BU) plays as part of this collective endeavour. In my remarks today I will point out what the BU has meant in terms of greater integration for the euro area banking sector, and I will also refer briefly to those developments that, in my view, may still be missing if we are to achieve a truly integrated and cross-border banking sector. The EU project has certainly improved the life of millions of people in Europe since its creation, not only in economic terms, but also regarding rights and living standards across the whole Union.

Of course, the Banking Union is now an integral part of the Euro project. In fact, like pillars in a building, the BU provides resilience and stability to the whole Euro project. As such, the BU is in its own right one of those transformative developments that have contributed to deepening our level of integration. 2/5  However, unlike the single market or the adoption of the euro, the BU was not the result of a joint vision by EU leaders on the need to enhance banking supervision and resolution across the Eurozone. Instead, it was the outcome of bold and swift defensive reactions to preserve the single currency in the wake of the European financial and sovereign debt crisis. Indeed, it was the crisis that led to the conviction that a common and enhanced framework for banking supervision and resolution was needed to help break the link between banks and sovereigns. This conviction gave rise to the Single Supervisory and the Single Resolution Mechanisms, which, so far, are the key components of the BU. Another important development related to the Single Resolution Mechanism came to fruition last December, when the European Stability Mechanism was recognised as a common backstop to the Single Resolution Fund for both solvency and liquidity support. Today the rationale behind the creation of the SSM and the SRB seems obvious. But, to be fair, before the European sovereign crisis erupted, there had been only a few warnings against the risks that a fragmented banking supervision landscape within the Euro area involved.
Our contribution as the Central Bank is to keep inflation low and stable. Also to help, within the scope of our powers, to identify and deal with any risks that may jeopardize the normal functioning of our financial system. Thank you. BIS central bankers’ speeches  7  Figure 1 Inflation indicators (annual change, percentage) 10  10  8  8  6  6  4  4  2  2  0  0  -2  -2  -4  -4  -6  -6  -8  -8 06  07  08  CPI  CPIEFE  09  10  CPIEFE goods  11  12  CPIEFE services  Sources: Central Bank of Chile and National Statistics Institute (INE). Figure 2 Gross Domestic Product (annual change, percentage) 5.5  5.5  5.0  5.0  4.5  4.5  4.0  4.0  3.5  3.5 Dec. 11  Mar. 12  EES GDP 2012  Jun. 12 Range MP Report  Sep. 12  Dec. 12  Dec. MP Report forecast  Source: Central Bank of Chile.

Output, meanwhile, grew 5.7 percent y-o-y in the third quarter of 2012, flat from the previous quarter, but more than expected. The Economic Expectations Survey (EES) of August – available at the closing of the previous Monetary Policy Report – forecast 4.6 percent growth for said quarter. The greater increase was due to better performance in general. However, output’s velocity of expansion dropped from 8.3 to 5.7 percent annualized. In the baseline scenario, the Board estimates that GDP will grow 5.5 percent this year. This projection is higher than the ceiling we estimated in September, with a similar revision as has been made in private forecasts. Still, both our forecasts and private ones have experienced sustained upward revisions in the past year (figure 2). On the domestic spending side, third quarter growth (i.e. 8.0 percent y-o-y) largely surpassed second-quarter figures, however swollen by some specific factors. While every component of expenditure posted higher increases, the large increase in machinery and equipment investment is worth noting: 19.9 percent y-o-y. The acceleration of domestic spending amplified the negative current account balance, which in the third quarter went to 2.9 percent of the GDP accumulated in the last year. The baseline scenario assumes that the deficit will end the year 2012 at 3.8 percent of GDP, exceeding September’s forecast of 3.2 percent. Meanwhile, the national financial system has operated normally in a context of strong investment and favorable external credit conditions.
The Bank of England’s own November Discussion Paper was only one manifestation. Another is the IMF’s recent review of the macroeconomic policy framework. 11 The basic question is whether the authorities could lean against credit-fuelled booms by tightening capital or liquidity requirements for lenders or, as some economists have advocated, by raising the amount of collateral that borrowers have to put up. 12 In principle, this could be aimed at aggregate or sectoral credit conditions, and it could have a goal of making our banks more resilient. It would need to be pursued by executive agencies under clear mandates from legislators, and it would benefit greatly from transparency. A painful lesson for the Bank of England is that our warnings of “underpriced risk” and system-wide fragilities in our Financial Stability Reports were perhaps admired by some but made no difference. And, alongside our domestic and international peers, we are not in this for plaudits! People – the markets, firms, households – take notice of our Inflation Report, MPC minutes and speeches on monetary policy not, essentially, because they might sometimes be interesting or well done, but for the simple reason that the MPC is the body that sets sterling interest rates in the real world. If the authorities were able to deploy credible macroprudential tools, their stability warnings would probably be taken more seriously in future, because they would be able to follow up words with actions. Monetary policymakers would need to be attentive to the use of such instruments, as they would affect credit conditions.

BIS Review 21/2010  Chart 11a: Options-implied weight on falling consumer prices 5-7 years ahead per cent  US CPI <0%  Chart 11b: Options-implied weight on inflation rising by more than 5%, 5-7 years ahead per cent  40  40  35  35  30  30 25  25 US CPI >5%  UK CPI<0%* EA CPI <0%  20  20  15  15  10  10  EA CPI >5%  5  5 UK CPI>5%*  0  0 Nov 2007  Feb May Aug Nov 2008  Feb May Aug Nov 2009  Feb  Nov 2007  Feb May Aug Nov 2008  Feb May 2009  Aug  Nov  Feb  Sources: Bloomberg, RBS and Bank calculations  Sources: Bloomberg, RBS and Bank calculations  Chart 12: Central banks’ balance sheets as a percentage of GDP(a)  Chart 13: UK M4 money growth compared to wider measure of money growth(a) Perc entage c hanges on a y ear earlier 25 M4 Wider meas ure of broad money (a)  20 15 10  M4-IOFCs  5 0 -5  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009  Sources: Bank of England, Bank of Japan, Federal Reserve, Thomson Datastream, www.measuringworth.org and Bank calculations. (a) Bank of England balance sheet data: end-February 1914–66, end-year 1967–2008. UK GDP: annual data (nominal). Federal Reserve balance sheet data: endyear 1914–81, end-July 1982–95, end-year 1996–2008. US GDP: annual data (nominal).
Likewise, business and consumer confidence surveys show increased concerns about inflation. BIS central bankers’ speeches  3  As usual, there are various risks that could shape a different macroeconomic scenario. On this occasion, the Board believes the risk balance for both inflation and output is biased upward. The main risk to inflation has to do with the size, persistence and propagation of the shock to commodity prices, especially oil. Internationally, as I said, the baseline scenario assumes that the oil price will be high and fairly stable. However, it may happen that the political tensions in some oil-exporting countries continue or intensify, resulting in a steeper upward trend. The global effects of such a setting are clearly inflationary in the immediate future, while further down the line its combined effects on world demand and interest rates may moderate world economic activity (table 3). In the case of foodstuff prices, current aggregate indexes are above their peak of 2007–2008, although the composition of products showing the bigger increases differs. In any case, the velocity of these hikes has been greater than that of the last episode (figure 12). Both futures prices and analysts’ projections assume that the prices of these products will not increase further but will rather tend to normalize. Still, it cannot be ruled out that if supply-side problems in the agricultural sector persist within a context of strong growth in emerging economies, pressures on the prices of foodstuffs may be intensified.

For 2011, the world growth forecast assumed in this Report’s baseline scenario is three decimal points higher than in December. Financial tensions relating to the situation in some European  2  BIS central bankers’ speeches  economies are still in place. The catastrophe in Japan has sounded an alarm, but so far its effects are believed to be limited primarily to the Japanese economy (table 1). In Chile, output gaps have behaved as predicted, leading to a normalization of the inflation trend. As I said before, in 2010 GDP grew 5.2 percent, so we believe output gaps are closed (figure 6). The strength of domestic demand, particularly for consumption, has been at the center of this phenomenon. Labor gaps have narrowed, with a fast increase in employment and higher wages. This performance of the economy reflects to a great extent the impulse of monetary policy to domestic expenditure and the world’s economic recovery. For 2011, the Board foresees that GDP growth will be in the range of 5.5 to 6.5 percent, the same it forecast in December (table 2). This scenario is coherent with output gaps remaining closed over the entire projection horizon. The recent dynamism of the economy will moderate in line with the reduced impulse from macroeconomic policies. As for monetary policy, our projections use as a working assumption that the MPR will follow a path that is comparable with the one that can be inferred from the various expectations surveys (figure 7).
Developments following the initiation of policy rate cuts have confirmed our projections on the magnitude of the crisis and its impact on economic activity and on inflation outlook, and have justified our policy decisions. This, in return, enhanced  14  BIS Review 68/2010  the effectiveness of the monetary policy decisions on financial variables and expectations. Consequently, in 2009, determining role of Central Bank in shaping market interest rates has improved and hence, market interest rates came down to historic lows by following the monetary policy stance even during periods marked by high global risk perceptions. Furthermore, we observe that our policy rate cuts have also been effective on credit rates as of the second half of 2009. The downtrend in credit interest rates especially accelerated further following the issue of July Inflation Report which presented a solid perspective on medium-term policy, and on the back of the improvement in global risk perceptions, credit markets have witnessed favorable developments as of the last quarter of 2009. Interest Rate Developments Loan Rates  ISE Bills and Bonds Market and CBRT O/N Interest Rates  (Annual, Percent) 30  26  ISE Bills and Bo nds Market Interest Rate (Benchmark , Compounded)  21  CBRT O/N Interest Rate (Co mpo unded)  25 20 15  16 10  11  Housing Aut omo bile Consumer Bus iness  5  6  Source: ISE, CBRT. Source: CBRT. Esteemed Guests, 40.

We effectively used all policy instruments to maintain financial stability during the height of the crisis. As the crisis began to deepen in October 2008, we, by establishing a strong line of communication with the public about the details and the robust structure of the liquidity management strategy, have announced liquidity facilities to be provided to the markets step-by-step, in a clear and transparent way. Subsequently, by gradually introducing the announced measures for both Turkish lira and foreign exchange markets, we considerably removed the disturbances and volatilities in the markets. In this regard, we continued to implement measures that were taken as of October 2008 – when the crisis started to deepen – for ensuring smooth operation of Turkish lira and foreign exchange markets and supporting the corporate sector, in 2009 as well. In this part of my speech, I would like to outline the measures that we have taken. 41. The monetary measures implemented for Turkish lira during the crisis can be classified into two main groups: The first pillar of monetary measures was the implementations to ease the uncertainties in money markets caused by the crisis. In this regard, as of October 2008, we started to inject liquidity excessively in order to reduce potential tension in money markets and to completely eliminate volatility in overnight interest rates. However, at this point, I would like to remind you that the excess liquidity generated as a result of the implementation which was continued throughout 2009, was sterilized by overnight operations at the end of the day.
Thus, is there an increased concentration of risk among other agents, such as pension fund companies and hedge funds, where this could create a problem? In general, the risks come to those who can manage them and therefore bear the risks. The question if whether we who oversee the system and those who operate in the markets know when risks arise? How do these developments affect our stability work? The reason I have chosen to talk to you about these issues today is partly that developments in the financial markets affect one of the Riksbank’s main objectives – to promote a safe and efficient payment system. The work on achieving this objective entails identifying potential risks in the financial system and assessing resilience to possible shocks. Our analysis is concentrated on the major banks, as they play a central role in the system. We are now – even in Sweden – more dependent on the financial markets. Although many of the tendencies I have mentioned are not as tangible here, we can still be affected by events in other countries, as in the case of autumn 1998. There is scarcely any doubt that the changes that have occurred have contributed to making the markets more efficient. This is good for the economy as a whole, very good even. The markets have probably also become more robust, with the risks better spread over the economy. Events in recent years would indicate this is so. However, financial crises can never be entirely avoided. They will recur.

It is important to deal with them in time. 5/5
In fact, many of those with economics Ph.D.s elsewhere in the Bank started their careers at the Bank in the Research Group. They moved to other areas of the Bank as their interests evolved and they became less focused on research and more focused on policy development. This movement of economists throughout the organization has helped build a deep reservoir of human capital within the Bank and has fostered close collaboration between Research and other areas of the Bank. Our model with respect to attracting economists into our Research Group is to hire people with strong research skills, with the highest academic credentials and who already have or are likely to develop a policy orientation related to the Bank’s work. We give our economists plenty of time and opportunity to conduct independent research, and expect them to publish their research in the major academic journals and to engage with the economics profession outside the Bank. As they progress in research capability, we require economists to apply the skills and techniques they use in research to policy issues. We expect that, as their academic careers develop, there will be a natural convergence between their research interests and the Bank’s policy agenda. This usually happens as a matter of course because the Bank has a rich agenda of policy issues to work on and the economists at the Bank often have unique access to data and information that would not be available elsewhere.

At the risk of over-simplifying, we could say that we had a system designed to tackle the elimination of tariffs, but not one optimised to address the complex tangle of non-tariff barriers and agricultural and industrial policies that influence trade flows to differing degrees. It is thus necessary to make changes to the multilateral system that prevent trade-distorting practices and, at the same time, to adapt this institution both to the new circumstances and 3  to the new challenges posed by e-commerce and the protection of intellectual property, among others. One of the biggest future challenges, then, for the WTO and, generally, for the system of international institutions is how to change so as to be able to integrate the major global players: one (the United States) is tempted by bilateralism and the other (China) by retaining a model of State capitalism that is hardly compatible in the medium term with an open world subject to multilateral rules. The EU, long-accustomed to preventing the heterogeneity of their economies from hampering the progress brought by economic integration, must take an essential lead on this matter. The WTO’s conflict-resolution system has been pivotal to the sound functioning and predictability of the system. And this is why a solution must be found to the current blocking of appointments to the Appellate Body. Significantly, a system of trade relations based exclusively on bilateral agreements is not the best solution. These usually give rise to a degree of “trade deviation” that detracts overall from the positive effects of “trade creation”.
In this case it is quite possible that it will need to be raised by more than  15  8  Monetary Policy Report 1, 2011, pages 17–19, Norges Bank. BIS central bankers’ speeches  0.25 percentage points at one or more meetings and that it will need to be increased to 4 per cent already next year. Resource utilisation In my overall assessment, resource utilisation is more or less normal at present and with the present forecasts it will be higher than normal and rising towards the end of the forecast period. This also indicates the need for a higher repo-rate path than the presented path. The Riksbank uses several different measures of resource utilisation. According to these measures, the GDP gap, for example, will be approximately –1 per cent in the first quarter of 2011. My own assessment is that it will be a little higher than this, more or less zero. The level indicated by the so-called RU indicator also supports the claim that resource utilisation is largely normal. The RU indicator, which has been developed by the Riksbank and weighs together a large number of indicators to form a summary measure of resource utilisation, reached a normal level already in the fourth quarter of 2010. Several other measures also indicate that resource utilisation is normal (see Figure 19). Unemployment, on the other hand, is still higher than normal.

They were also implemented during a limited period of time and thus did not become part of a more permanent support system. The Riksbank thus reacted quickly to the problems that arose. Of course, the Swedish banks were not exposed to the US housing market to any great extent. But they were dependent on the markets functioning in order to get funding. In order to cover the loss of normal funding channels, the Riksbank provided loans of approximately SEK 500 billion during the autumn of 2008.12 This increased the Riksbank’s balance sheet total from approximately 7 per cent to approximately 22 per cent of GDP, that is more than the balance sheets of the Federal Reserve (FED) and the European Central Bank (ECB) in relation to GDP. Around half of this lending was in kronor and half in dollars. In order to be able to lend so much in dollars, the Riksbank borrowed dollars from the FED through a rapidly-concluded swap agreement. The Riksbank’s own dollar assets were far too small. In the autumn of 2008, the foreign currency reserve corresponded to SEK 200 billion and was invested in a number of different currencies. In 2009, the reserve was strengthened by borrowing approximately SEK 100 billion via the Swedish National Debt Office (see Figure 14). Monetary policy also reacted quickly and forcefully. The repo rate was cut rapidly from 4.75 per cent in September 2008 to 0.25 per cent in July 2009. The largest cut came already in December 2008.