samchain/econo-pairs-v1 huggingface dataset:
Uncertain times Speech given by Ben Broadbent, Deputy Governor Monetary Policy, Bank of England  At the Wall Street Journal, The News Building, London 5 October 2016  I would like to thank my fellow MPC members and other Bank colleagues for their helpful comments. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Before August, the UK’s official interest rate had been held at ½% for over seven years, the longest period of unchanged rates since 1950. No-one on the current MPC was on the Committee when rates were previously changed, in early 2009; indeed there are children now at primary school who weren’t even alive at the time. So although the August Inflation Report gave a pretty full account of the reasons for the MPC’s decision it wouldn’t do any harm to expand on these things a little further. That’s what I plan to do today, focussing on two areas. The first involves one of the main reasons for the revised – and weaker – economic projections we made in the August Inflation Report and the policy easing that accompanied it. This was not a judgement about the ultimate economic effects of the UK’s exit from the EU, not least because we are unlikely to know, for quite some time, what that will entail.

But what is driving the growth of London in particular? One approach to this question is to ask executives in major financial companies, both in the UK and abroad, why they choose to locate business here. A number of these surveys have been conducted recently and they show several common factors. 11 London benefits from English as an international language of commerce, and from its time zone, which means the working day overlaps with Asia in the morning and America in the afternoon. London also has well established financial infrastructure and telecommunication networks. Many of those surveyed point to the regulatory and legal environment. This is partly a matter of the regulatory style – the “risk based and proportionate” approach that the Financial Services Authority has adopted based on general principles where possible. It is partly the simplicity of dealing with a single regulator. 10  Caballero, R. “On the macroeconomics of asset shortages” NBER WP 12753, December 2006. 11  For example, Cook, G. A. S., Pandit, N. R., Beaverstock, J. V., Taylor, P. J. and Pain, K. (forthcoming in 2007). “The role of location in knowledge creation and diffusion: Evidence of centripetal and centrifugal forces in the City of London financial services agglomeration”. Environment and Planning A. 4  BIS Review 29/2007  English law, which is also the basis for financial services law in the United States, prevails here, with the added advantage that practitioners are less likely actually to invoke the legal system.
Together these banks account for around 73% of the stock of lending to UK households and corporates. I should also note that a significant number of other institutions are close to signing up too and we will update this table in due course. In addition, we will publish the first set of drawdown data in December, although you will have seen that one bank has already announced that it has drawn £ and plans to draw more. That said, it will probably take some time for banks to review fully their lending plans, and it is likely that drawings from the FLS will be spread out over the full window to end-2013.

BIS central bankers’ speeches  7  The FLS has been implemented in large part because of the developments in financial markets I have described: an example of the important and powerful linkages between the real economy and the financial sector. The continued uncertainties about the future of the Eurozone and about the European banking system meant that during the past two years bank funding markets have had periodic bouts of closure. And when open, spreads of bank debt over risk-free rates have remained elevated. A number of large UK banks still rely on wholesale markets for funding at the margin and higher wholesale funding costs have spilled over into other funding markets – driving up retail deposit rates for example. Prior to the announcement of the FLS, banks were passing on their elevated funding costs to their lending rates. Over the 12 months to mid-2012, we saw lending rates to businesses and for mortgages rising (Chart 5). Furthermore, the Bank of England’s 2012 Q2 Credit Conditions Survey of UK banks suggested that household secured and corporate lending rates were expected to rise further. Chart 5  Chart 6  Change in bank funding and mortgage rates between 31 July 2011 and 31 May 2012  Annual lending growth to households and companies(a)  Per cent  16 14 12 10 8 6 4 2 0 -2  2004  2006  2008  2010  2012  (a) Based on scheme definition.
Sam Woods: Embarking on a new voyage? Solvency II in context Text of The Insurance Institute of London Lecture by Mr Sam Woods, Executive Director of Insurance Supervision of the Bank of England, at Lloyd’s of London, London, 27 January 2016. *  *  *  I am grateful to Kayleigh Guinan and Mark Cornelius for their assistance in preparing this speech. I am also grateful to Norma Cohen (Bank of England), Dr Adrian Leonard (Cambridge), Professor Philip Rawlings (Queen Mary) and Robert Thoyts (FCA) for their views and input. Good afternoon. The good ship Solvency II is now afloat. It has taken a long time to make it seaworthy. Some might question whether we need this newly improved vessel. Indeed, some might challenge whether we should have a ship at all. But that is largely academic, given we are now under way and in light of the gargantuan efforts insurance firms and regulators have put into getting us to this point. In my speech today, I would like to look at this development in the wider context of insurance history. First, I would like to offer a brief view on why, looked at through the lens of today, we regulate insurance companies at all. Second, we will take a very whirlwind tour of 5,000 years of insurance activity, for the single purpose of pointing out that for at least four-and-a-half of those five millennia there was very little regulation of insurance, if any.

Such examples are not representative of the modern day insurance companies established since the 19th century. But I include them to illustrate that the principles of insurance were very much alive as far back as our earliest civilisations – and mostly without any controls or regulation around them. So what changed? Enter the state This brings us to my main theme today: the interest of the British state in the affairs of insurance companies. My aim is not to do full justice to this field of history given the rich body of academic literature available, but – in order to see Solvency II in context – to give a flavour of the sorts of philosophies and motivations that seem to me to have guided the British state’s involvement through time. Most textbooks will reference marine risk as one of the earliest forms of insurance in the UK. But evidence of one of the first genuine insurance policies suggests that whilst the first marine contract may well have been written in nearby Lombard Street, the risk was not taken on by British underwriters – instead, it was underwritten by Italian counterparts temporarily resident in London 5. Indeed, throughout this period, there are several mentions of insurance interactions between London and the Italian regions of Lombardy and Tuscany 6 – hence the  3  Lewin (2003). 4  Ibid. 5  Ibid. 6  Ibid.
We cannot afford to have banking, so central to the allocation of capital in market economies, semi socialised. Moreover, we need to harness the energies of bond holders to monitoring and helping to contain the tendency to excess characteristic of bankers, over the generations, in the upswing of the credit cycle. That is not  1  See INSOL International (2000), Statement of Principles for a Global Approach to multi-creditor workouts. 2  That strategy was initially set out by the Financial Stability Board in 2010, Reducing the moral hazard posed by systemically important financial institutions, available at http://www.financialstabilityboard.org/publications/r_101111a.pdf  BIS central bankers’ speeches  1  in and of itself a guarantee of stability, but I would rather give asset managers incentives to help the objectives of prudential supervisors than incentives to rely on a fiscal backstop. Second, effective resolution regimes, capable of operating across national borders, are necessary for a healthy international monetary and financial system (IMFS). As Mervyn King has said, the large financial groups have been ‘international in life, but national in death’. Without effective cross-border resolution arrangements, domestic authorities are left with a clear incentive to take steps to cap the contingent exposure of local taxpayers, who are local voters. That is surely part of the backdrop to the series of measures taken by national and regional authorities to restrict the range of activities or structure of banking. Those measures need to be taken without the world slipping into a hard-to-reverse balkanisation of the international financial system.

8  The trigger for statutory resolution would be, broadly, that the conditions for the group being authorised as a bank or dealer were no longer met and there was no reasonable prospect of repair. It should be underlined that what is described here is nothing to do with so-called ‘contractual bailin’, which has been a source of confusing distraction over the past year or so. ‘Contractual bailin’ typically refers to bonds that convert into equity or write down under a trigger establishes purely in the contract documentation. But if the trigger is the firm’s capital ratio dipping below a high threshold, the bond is in fact for recovery not for handling abject distress. If, at the other end of the spectrum, the trigger is falling below a low capital ratio, there can be no assurance that the firm would survive in the markets long enough for the bond to be triggered before the firm had to go into statutory resolution. And if the suggestion were that the contractual trigger should give the regulators discretion, most Resolution Authorities would want to avoid writing down or converting bonds outside the statutory resolution process, since that provides protections for creditors, and gives the RA protections and powers for the achievement of a clear statutory objective established by the legislature. Bailin is not about a specific type of bond – a so-called ‘bailin bond’ – but about the application of a statutory resolution power to bonds of any kind within a statutory resolution.
The Riksbank’s assessment of inflation in the latest report is based on an assumption that the rate of wage increases will be lower than in recent years. Support for this assumption can be found, for example, in recent wage statistics. The report, however, does not envisage a downward shift to, or even below, the level that has prevailed in the European Union in recent years, a shift that would make it easier for Sweden to tackle unemployment. Wage formation is primarily a matter for the labour market organisations to arrange. The level of wage increases that different segments of the economy can cope with depends, for example, on the initial profit level, together with the development of that segment’s productivity, costs and prices. For the economy as a whole it is difficult to avoid the conclusion that, if an effective reduction of unemployment is to be feasible, a rate of wage increases which equals the inflation target plus expected long-term productivity growth represents a ceiling. Lower wage increases would make labour cheaper relative to capital investment and would thereby stimulate employment. It is important to understand today’s rules for economic policy. In keeping with the situation a quarter of a century ago, when Sweden was participating in the Bretton Woods system, which was a functional and efficient arrangement with fixed exchange rates, for some years now the rules of the game have been clear.

Economic activity and inflation expectations Now for the assessment in our latest inflation report. First let me say something about the Riksbank’s appraisal of the economic situation. Demand and supply The statistics from recent months clearly point to an upswing in the greater part of the economy. This largely confirms the Riksbank’s assessments last spring. Developments to date in 1997 have been more balanced than before. Demand growth is now coming not only from exports and investment, but to an increasing extent from private consumption as well. The growth of household income has been held back for some years by the programme for fiscal consolidation. Activity has been further depressed by the need to cut spending on public activities. The fiscal withdrawal of household purchasing power is continuing both this year and next, so disposable income is largely unchanged in 1997, but will rise in 1998. After that, when the consolidation programme has been completed, fiscal policy is not expected to be as restrictive on households. Some increase in public activities can also be expected in the coming two years. After rising for some years at a rather modest rate, private consumption has picked up in the past year. Households’ expectations concerning their own as well as the national economy improved in September after a minor setback in August. Households are also more optimistic about the outlook in the labour market.
Mr. Sheng looks at asset prices, capital flows and risk management Address given by the Deputy Chief Executive of the Hong Kong Monetary Authority, Mr. Andrew Sheng, at the Asian Securities Analysts Federation Conference in Bangkok, on 17/11/97 (slightly abridged). 1. I am very honoured to be invited today to address this distinguished Conference. The title of my paper is “Asset Prices, Capital Flows and Risk Management”. All these factors have been the main players in the recent market turbulence in the region. I will therefore focus my discussion today on the lessons from the recent Asian market turmoil and also the impact on Hong Kong. The Surge in Capital Flows 2. In the past decade, capital flows surged within the Asian region and globally. According to IMF statistics, average annual net capital inflows to developing countries exceeded $ billion in 1990-96, and more than 40% of which actually came to Asia. In the last two years we saw even more capital inflows to the region, recording a net total of $ billion in 1996 and a similar growth rate in the first half of 1997. In some Asian economies, net inflows have averaged 5-8% of GDP over long periods, with over half of such capital flows in the form of foreign direct investment. 3.

Thus, markets adjust irrespective of the exchange rate regime and the unit of account. 28. Is there any easy way of avoiding the pain of adjustment in Asia due to rising global competition? The answer is clearly no. As a general rule, the faster we adjust, the less the pain. BIS Review 109/1997  -6-  There have been different approaches to this issue. There are some who think that a floating exchange rate regime would cushion the pain, but many forget that Hong Kong has tried the floating exchange rate regime before, in 1974-83. During that period, growth was more volatile and inflation much higher than what we are experiencing now. As an open economy with trade accounting for 285% of GDP, any inflation would be immediately imported under exchange rate volatility. The recent experience in Asia actually shows that contrary to the theory, floating exchange rates requires even higher interest rates, because of the higher risks associated with exchange rate volatility. 29. Here I would like to correct the common image that the Hong Kong’s exchange rate regime is a peg. The Hong Kong dollar is a fixed exchange rate, not a peg which can be adjusted from time to time. The linked exchange rate system in Hong Kong operates as a currency board system whereby the issue of Hong Kong dollar notes is fully backed by the US dollar at the fixed rate of $ to $ Such a note-issuing mechanism ensures that currency issued is fully backed by foreign exchange.
Why didn’t the markets and clearing institutions react to the large build-up of risk? And why didn’t the lenders adjust their margin calls to correspond to the risk concentration? Better disclosure of Amaranth’s risk profile, from the authorities, the markets, the clearing institutions and individual lenders would probably have increased the chance of detecting the risk positions being built up. Conclusion New financial crises will occur and hedge funds, which have become an integral part of the modern financial markets, will probably be involved. The large capital flow to the sector has meant, not unexpectedly, that profitability has declined and it is not unreasonable to expect that a number of funds will consequently be forced to close down after more or less substantial losses. However, the advantages of the hedge funds’ operations exceed the risks from a welfare perspective. The Riksbank’s view as regards further regulation is that the focus should be on the hedge funds' counterparties - particularly the systemically-important banks - being able to manage their risks. Improving the banks’ risk management with regard to hedge funds has been the objective of a number of initiatives by the Basel Committee on Banking Supervision and other organisations ever since the LTCM crisis in 1998. From a stability point of view, the central issue is that the systemically-important banks should manage their counterparty exposures correctly – take sufficient collateral, have appropriate limits and be capable of managing potential liquidity problems. The arguments for further regulation of hedge funds are in this context weak.

This may mean, for instance, the willingness to take progressively tougher measures where the situation warrants. This in essence is what the MAS and other agencies in Singapore have done recently on the property cooling measures. Let me add that these measures are not a substitute for banks’ own risk assessment processes. Banks should continue to maintain prudent lending practices. This includes taking into account potentially higher interest rates in their credit assessments, and not assuming that current low interest rates will last indefinitely. MAS will continue to monitor banks’ activities and practices closely. Understanding Asia 12. Asia’s growth prospects have attracted global interest and a surge of capital inflows. Asia is now the second highest contributor to global trade, and is expected to overtake Europe in a few years. China, India and Indonesia are growing rapidly, registering GDP growths more than four times that of US and Europe. The prospect of greater Asian currency appreciation has drawn greater fund flows into the region. In 2010, inflows into Asian local bond markets reached record levels. 13. However, investing in Asia is not without risks. The huge capital inflows, if left unchecked, have the potential to increase inflationary pressures and fuel asset-price bubbles. In an informal survey by MAS of 30 major fund managers, almost half cited the possibility of a hard landing of major emerging economies in Asia as a key risk. While inflows have been swift, we must be prepared for a rapid outflow as well.
The general bankruptcy procedure is not considered credible, because it is not designed to handle systemic risk.1 The proposal envisages that a bank is to be put under public administration if it is unable, or is expected to become unable, to meet its commitments over a longer period. A bank under public administration is also to be able to obtain a government guarantee that covers all its commitments. All this is intended to enable the bank to continue operations during a transitional period without a capital contribution from the government. A guiding principle behind the proposed public administration is that, in the event of a crisis, there is no universal protection of creditors. Better risk management and decreased risk exposure are likely to result ex ante if shareholders are liable to be hit by a crisis and creditors may suffer losses. The government guarantee is accordingly proposed to apply only to commitments that are made after the guarantee has been issued. In this way, a bank’s losses are to be carried in the first place by its shareholders and after them by the creditors whose claims pre-date the decision to impose public administration. A basic principle in the management of the Swedish banking crisis was just that no compensation would be provided for shareholders if government funds were needed to cope with a bank’s problems. This was important, of course, with a view to future moral hazard problems but it was also crucial politically.

If we can succeed in implementing the reforms that are still outstanding, there is a chance that economic growth can be propelled to a level beyond the current economic upswing. BIS Review 100/2006  1
Pressures increase from regulated entities, which complain about regulatory uncertainty, and from policy-makers, who are keen to foster economic recovery and growth after 8 years of low economic performances almost a lost decade! Keeping the momentum relates to three objectives: –  complete the regulatory agenda, in particular regarding what is named now as “market-based finance”, so as to effectively and comprehensively strengthen the financial system and remove regulatory uncertainty;  –  make sure that the regulatory spectrum expands well beyond the sole banking sector so as to avoid unfair level playing field, regulatory arbitrage and a paradoxical outcome that is favoring and encouraging those who are still “in the shadows.” On top of that, keeping pace with the creativity of all players is no small challenge. BIS central bankers’ speeches  1  –  devoting adequate resources and designing the proper organization of supervision which needs to be intrusive. 2  Preserving diversity  While the objective of expanding the scope of regulation beyond the banking sector may require applying similar – though not identical- regulation to similar asset classes or risks, irrespective of the legal status of the intermediary bearing them, it must also be acknowledged that business models, accounting frameworks, liability structures, time horizons of decisions may differ across sectors and entities. In that respect, it can be argued that that “one size does not necessarily fit all” and that one should preserve and ensure diversity.

It is therefore of vital importance that we agree as a society to maintain economic stability through thick and thin. Honoured guests: Influenza epidemics are nothing new. In the past 500 years or so, there have been about two to three influenza pandemics per century. It is likely that no one remembers the Asian flu of 1957 or the Hong Kong flu of 1968 any longer. But these were deadly pandemics that took place in the twentieth century, even though they paled in comparison with the Spanish flu, which killed between 21 million and 50 million people worldwide. What is unique about COVID-19 is not the illness itself but the response to it. The disease control measures adopted around the world are unparalleled. They come at an enormous economic cost and could easily bring with them a deep, but hopefully short-lived, economic recession. Lost output and income are a price we are prepared to pay to save lives. I consider it extremely important that we Icelanders remember this first, before we yield to the temptation to whine, turn pessimistic, and pity ourselves. We must all make sacrifices that will hopefully save lives, but no rescue package from the Government can mitigate the inconvenience except to a very limited degree. As I mentioned before, the Financial Supervisory Authority and the Central Bank merged at the beginning of this year. Although a great deal of work on merging and integrating our operations lies ahead, our unified institution has begun the year well.