samchain/econo-pairs-v1 huggingface dataset:
Christian Noyer: Financial Stability Review “OTC derivatives: new rules, new actors, new risks” Speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the launch of the latest issue of Bank of France’s Financial Stability Review on “OTC derivatives: new rules, new actors, new risks”, New York, 22 April 2013. *  *  *  I am very happy to be with you today to launch the latest issue of Banque de France's Financial Stability Review on “OTC derivatives, new rules, new actors, new risks”. As you know, every year since 2002, our Review has brought together contributions from prominent academics, practitioners and policy-makers from all over the world on a topical issue. I warmly thank all the contributors who have enabled us to produce a Review, of great interest, thanks to their papers of exceptional quality and density. I cannot mention all of them and only some authors are with me today; [but you can find all articles in the online and paper versions of the Review, copies of which are available on tables at the back]. Those contributions are very diverse, or even divergent, in their analysis and proposals. That’s how we want it. It is clear we don’t necessarily share the views expressed in the articles but we all believe in the exchange of ideas.

•  Second, pay a close attention to the implementation of PFMIs and different regulations to ensure that CCPs maintain state of the art risk management practices (margining, collateral, default funds) and adequate governance both for the sake of both their own soundness and the resiliency of the markets they serve. •  Third, define appropriate principles for resolution and recovery of Financial market infrastructures, and particularly CCPs which now concentrate a high level of risks. •  Last, bring transparency in the area of secured and unsecured interbank lending, which are the underlying reference for interest rate derivatives. Monetary policy considerations also call further transparency in that regard as it requires detailed knowledge of the organization of money market and the real conditions under which transactions take place. 2. Meanwhile due attention should be paid to an adequate calibration of the framework. The development of multiple concomitant regulations (capital, liquidity etc…) calls for a perfect coordination. We cannot pile up these different approaches without assessing their impact and the costs incurred for the market and the public. This is a particular concern when considering the collateral requirements that stem from the different regulations. 3. Last but not least, we need to promote a consistent framework.
Unusual though they may be, ladies and gentlemen, negative interest rates are nonetheless necessary in the current situation if we are to fulfil our mandate against the backdrop of low interest rates worldwide. At the same time, low interest rates do give rise to certain challenges. Negative interest therefore also attracts criticism. That said, we are convinced that the benefits clearly hold sway. Our assessment centres on the fact that we take an overall view, and seek to serve the interests of the country as a whole. From the perspective of savers and pension funds, the present situation with low interest income is, of course, difficult. You might think that the SNB could simply remedy this. But let us assume that we were to raise the SNB policy rate to zero in the current situation. The economy would cool down dramatically, inflation would fall well into negative territory, and unemployment would rise. In such an environment, there would be scarcely any increase in longer-term interest rates. Furthermore, we would probably soon have to lower our policy rate again given the economic slowdown and lower inflation. Hence any gains in income for savers and pension funds would not be sustainable. From the banks’ perspective, negative interest rate payments to the SNB are a cost factor. We are aware of the burden this represents. That is why in September we adjusted our calculation of the exemption thresholds in such a way that the payments made by the banking system have nearly halved.

We do not burden the banking system any more than is necessary for us to be able to steer short-term money market rates. Ladies and gentlemen, we monitor the impact of negative interest precisely, and we take the side-effects seriously. However, we remain convinced that the benefits it brings Switzerland as a whole clearly outweigh the costs. The negative interest rate and the willingness to intervene are currently the best instruments for ensuring appropriate monetary conditions and thus securing price stability and supporting the economy. Page 4/6  Berne, 12 December 2019 Thomas Jordan  News conference  Monetary policy outlook  Allow me to summarise the key messages with regard to our monetary policy. We anticipate that our economy has expanded by around 1% this year. We are expecting growth of between 1.5% and 2% next year. Inflation expectations are within the range consistent with price stability. The conditional inflation forecast for the coming quarters is slightly lower than in September, but it is essentially unchanged in the longer term. The Swiss franc remains highly valued, and the situation on the foreign exchange market is still fragile. Against this backdrop, our expansionary monetary policy remains appropriate. Monetary policy and climate change  This brings me now to the significance of climate change for the SNB. When it comes to this key issue, we are focused first and foremost on being able to properly assess the possible consequences for the functioning of economies and financial systems, both in Switzerland and worldwide.
In a recent Financial Times comment, Michael Woodford of Columbia University discussed how greater clarity in policy communications would help.9 As I see it, current financial conditions are more restrictive than I favor, because households, businesses, and markets place too much weight on the possibility that Fed policy will turn restrictive in the near to medium term. The FOMC’s announcement in August that it anticipates short-term rates remaining low through mid-2013 was certainly a step in the right direction, because it significantly raised the hurdle for early policy tightening. However, I think our dual mandate responsibilities and the strong impediments of the financial crisis argue for a more aggressive approach. One way to provide more accommodation would be to make a simple conditional statement of policy accommodation relative to our dual mandate responsibilities. The goal would be to enhance economic growth and employment while maintaining disciplined inflation performance. This conditionality could be conveyed by stating that we would hold the federal funds rate at extraordinarily low levels until the unemployment rate falls substantially, say from its current level of 9.1% to 7.5% or even 7%, as long as medium-term inflation stayed below 3%. With regard to the inflation marker, we have already experienced unduly low inflation of 1%; so against an objective of 2 percent, 3 percent inflation would be an equivalent policy loss to what we have already experienced. On the unemployment marker, a decline to 7.5% would be quite helpful.

In this scenario, either much of the past decade of prosperity was an illusion or, alternatively within the space of only a few years, the productive potential of the U.S. collapsed for some unexplained reason. I suppose it is natural to believe that some elements of the story are true. But for me, the evidence for this is minimal, and the implications for productive capacity are exceedingly pessimistic. And even if it is true, the market mechanism should cause wages and prices to adjust in order to reemploy unused resources. For example, there should be some lower real wage that would make it profitable for firms to fund the necessary on-the-job training for workers who need some modest acquisition of skills. According to this pessimistic hypothesis, something is preventing the market’s pricing mechanism from achieving such results within a satisfactory time frame. My own view is more optimistic and, I believe, more consistent with the idea that our best days are ahead. Without a compelling explanation for the hypothesis that the productive capability of the U.S. has been diminished, I think the evidence favors the belief that aggregate demand is simply much too low today. After all, today there are roughly 14 million unemployed Americans. Only a few years ago, there were only about half that many. It is hard to believe that an additional 7 million Americans have suddenly lost the necessary skills to work in today’s economy, and I have not seen any evidence supporting such a dramatic and rapid loss of skills.
Macroeconomic studies argued that this was due to monetary policy’s focus on price stability which caused prices to adjust more slowly (Devereux and Engel (2001), Taylor (2000, 2007), Devereux, Engel and Storgaard (2004)). Empirical studies such as Ihrig et al (2006), found that the exchange rate pass-through to consumer prices in the U.K. had fallen from 0.20 before the 1990s to almost zero thereafter; similar effects were found in other G7 countries with the exception of Germany. 5  The February 2011 Inflation Report (Section 4 and the box on pages 34–35) describe estimates which suggest that import price increases since 2007 have added 4% to 6% to the overall price level. This equates to pass-through of between 66% and 100%. I discussed some reasons for why the degree of pass-through may have been larger or at least faster than predicted by earlier studies in a speech last year (Dale 2010). 6  The analysis presented here is based on the forecast made in February 2009. The extent of the surprise stemming from the degree of exchange rate pass-through in subsequent forecasts reduced more quickly than suggested by this analysis since the MPC learnt from this high pass-through and adjusted subsequent projections accordingly. 7  There are of course many other elements of the MPC’s forecasts which have differed from what was projected. For example, previous Bank analysis (see the box on pages 48–49 of the August 2010 Inflation Report) has highlighted the smaller than expected impact from the weakness of demand.

Many may use simple rules of thumb to form views about future inflation, such as “inflation will be equal to the target”.11 Or they may base their expectations on the views they hear expressed by others or they read about in newspapers.12 Importantly, expectations formed in this way may be relatively sticky.13 Rules of thumb are only changed when they perform poorly over a period of time. Expectations based on the views of others may be updated only occasionally. As such, it may be some time before we see the full effects of the extended period of above target inflation fully reflected in inflation expectations. Second, and more fundamentally, I worry that this binary approach to monetary policy credibility – credible or not credible, anchored or de-anchored – misses the key risk to inflation expectations. Despite some of the more lurid newspaper headlines, I don’t believe that many people think that the Monetary Policy Committee has adopted a secret aim to keep inflation above the 2% target indefinitely. Given that, I don’t find it surprising that when asked, many survey respondents have not significantly raised their expectations of inflation in the medium term. More likely, however, is that some companies and some households may look back at the prolonged period of above target inflation and infer that the Committee has perhaps become more tolerant of deviations of inflation from target. As such, inflation may be expected to return to target more gradually.
As more instruments that transfer risk are added to the balance sheets of financial institutions, so leverage and connectivity  2  BIS Review 70/2006  grow. While some of these connections might constitute a "perfect hedge", they can leave the system more vulnerable to both counterparty risk and the liquidity of these markets. The precise extent to which market participants are now connected through interlocking obligations is difficult to gauge, but the UK interbank market provides some clues. Over 70% of the total lending in the market is accounted for by 15 institutions. And the major UK banks’ large exposures to the main foreign-owned LCFIs are almost two-thirds of Tier 1 capital. The rising correlation between the share prices of major UK banks and foreign-owned LCFIs also provides a hint of the growing interconnections (Chart 4). At the same time, rapid innovation in new financial instruments poses challenges within the financial system. As I have already discussed, these developments are likely to be positive in the long run, allowing market participants greater scope to diversify and manage risk. But in the short run, newer products, such as structured credit derivatives, do pose challenges. We simply do not have experience of how they behave in the full range of market conditions. The models that have been built by banks and other players in the market to value and hedge positions in these instruments are more sophisticated than ever before, but they are not proven in adversity.

But others might argue that the structural changes of the eighties and nineties which were consistent with an appreciating real rate because of much more rapid productivity gains in the tradable than in the non-tradable sectors, cannot be repeated, so that the assumption of a continuing secular uptrend is invalid. On that view, the net appreciation over the past couple of years may be deemed to have dragged us away from our preferred path. It is hard to judge where the proper balance of these views lies. I recall how, 15-20 years ago, the doom merchants were prophesying the end of Hong Kong’s long run of growth because we were rapidly losing competitiveness in much of manufacturing. Presumably they did not 1  Slides are not included in this text document. 1  BIS Review 54/1999  foresee the remarkable extent to which the service sector would develop as an alternative wealth-generating lynchpin of the economy. Now, the next generation of doom merchants is prophesying imminent disaster as competitiveness in certain parts of the service sector appears to have been eroded. Will they be wrong again? Have they failed to appreciate the true workings of the market economy and comparative advantage? Do they not realise how difficult it is to foretell exactly how an economy will evolve, even though the evolution is taking place right under our noses?
In 2013, Sabana also launched a corporate sukuk programme in Singapore to help finance its purchase of industrial properties; and  •  Islamic capital market activities have also taken off, with 31 sukuk issuances over the last five years. We have more sukuk issuances than other conventional jurisdictions, with total outstanding issuance reaching a high of $ billion in 2014, compared to $ million in 2009. 2  BIS central bankers’ speeches  11. To support the development of Islamic finance in Singapore, MAS established a Sukuk Facility in 2009 to provide SGD Islamic regulatory assets for banks undertaking Islamic finance activities here. We remain the only conventional central bank to have done so. There have been 8 issuances to-date totalling $ million, supported by robust demand, with the latest issuance in November 2014 being our largest yet. Our sukuk programme has facilitated the growth of banks’ Islamic finance assets in Singapore, and also encouraged corporates to issue sukuk to meet demand from financial institutions and investors. 12. Going forward, we will continue to strengthen our Islamic finance regime and capabilities to enable us to support opportunities from deepening trade and investment linkages between Asia and the Middle East, as well as infrastructure projects within the Asian region. In infrastructure for example, an estimated $ billion will be needed annually until 2022 to meet the basic infrastructure needs in ASEAN alone 3.

Singapore has already concluded a comprehensive FTA with the GCC, which recognises Islamic finance in the definition of financial services. Cross-border Islamic finance set to grow 6. The global Islamic finance industry has been on an upward trajectory in the past decade, with total assets exceeding $ trillion in 2014, from $ billion in 2005. Most of this demand stemmed from Middle East and Asia, and stronger trade and investment linkages between these regions will reinforce the growth momentum in Islamic finance. Looking ahead, the following key trends will also augur well for the outlook for cross border Islamic finance: 7. First, increasing wealth accumulation in the Middle East region. This will expand the pool of Islamic funds seeking diversification into foreign investments. Asia will be a key investment destination, as stronger growth prospects compared to developed economies present opportunities for higher investment returns, which would in turn, increase the demand for Shariah-compliant assets in Asian markets, including Singapore, Malaysia and Indonesia. Reflecting this trend, GCC banks have already been expanding their operations in Singapore in recent years to support the deployment of Islamic funds to corporates in the region, through Islamic bank financing, and sukuk issuances. 8. Second, more countries are boosting their Islamic finance services and capabilities, in response to the growing demand for Islamic finance solutions. Singapore, for instance, has seen a steady increase in Islamic finance activities, while Hong Kong has recently issued its second sukuk and Japan is amending its financial regulations to facilitate Islamic financing. 9.
But data through mid-September generally indicate that the rise in rates has cut into the upward momentum of the housing sector. Currently, improving economic fundamentals versus fiscal drag and somewhat tighter financial conditions are pulling the economy in opposite directions, roughly cancelling each other. The economy continues to grow and payrolls are rising, but there is little evidence of a pickup in the economy’s forward momentum. For example, real GDP growth is still stuck close to the 2.2 percent average annualized growth rate that has prevailed since the beginning of the expansion. But, as the degree of fiscal drag and other headwinds lessen, the tug-of-war should begin to shift in favor of higher growth. Absent additional fiscal restraint, a further tightening of financial conditions, or some adverse external shock, I expect the economy to grow a bit faster in 2014. So, how compelling is this narrative? In big picture terms, it certainly seems quite reasonable to me. However, no forecast is inevitable and there are some reasons to remain wary. In particular, although the fiscal drag will likely lessen in 2014, I expect it will still be significant, and the outcome of the current federal budget and debt ceiling debates may affect this assessment. Moreover, when one drills down and looks at the recent performance and outlook for the economy’s major sectors, additional caution seems warranted. Turning first to the outlook for fiscal policy, there are two points worth making. First, the CBO projects that significant fiscal drag will persist into 2014.

The point I wish to emphasize is that any decisions on the pace of asset purchases (the rate at which we are adding accommodation) versus liftoff in terms of the federal funds rate (a tightening of monetary policy) should be viewed as largely independent of one another. One does not foreshadow the other – certainly not in any mechanical way or with a definitive timeframe. As Chairman Bernanke noted in last week’s press conference, our actions are data dependent and how the data will evolve is uncertain. In addition, it is worth explaining why we anticipate the federal funds rate is still likely to be quite low relative to what Committee participants consider normal over the longer run, even as the Committee gets close to its employment and inflation objectives. For example, in the September Summary of Economic Projections, the median projection for the federal funds rate in the fourth quarter of 2016 is 2 percent, far below the median long-run federal funds rate projection of 4 percent, at the same time that the unemployment rate and inflation are close to the Committee’s long-run objectives. How does one explain this? As noted by Chairman Bernanke in last week’s press conference, the still low federal funds rate projections for 2016 reflect the fact that economic headwinds – such as tight credit standards and ongoing fiscal consolidation – are likely to take a long time to fully abate.
To support this, we need to see a strong focus on public metrics that set out the climate impacts 5  Climate BES was first announced in the July 2019 Financial Stability Report and further detailed provided in the December 2019 Discussion Paper 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  of both investment and corporate activities. In turn, this will help to facilitate the development of capital market instruments that package risk and return and asset allocation strategies that align portfolios with the transition. The Bank will support the work to make this happen, consistent with the objective of our Financial Policy Committee to support productive finance and thus the economy. Returning to Bretton Woods for a moment. The UK economy and financial system is very open, and like Covid, climate is a common global risk and we cannot hope to insulate ourselves through domestic action alone. We are committed to working closely with willing international partners through initiatives such as the Network for Greening the Financial System (NGFS), of which we are a co-founder and very active member, and where much progress has been made in raising our collective ambition as central banks and regulators as well as identifying best practice in identifying and mitigating climate risks in the financial system.

Our assessment of international economic developments over the next few quarters has remained largely unchanged since September. The SNB expects the moderate pace of global growth to continue in 2017. It is thus likely that the economic situation will continue to improve, particularly in the euro area, and that inflation will also pick up somewhat. Page 2/5  Berne, 15 December 2016 Thomas Jordan  News conference  Our baseline scenario for the global economy is still subject to considerable risks, however. Structural problems in a number of advanced economies – such as a fragile financial system, high public debt and low growth potential – could negatively affect the outlook. Added to this are a multitude of political uncertainties. First, it is unclear what direction economic policy in the US will take following the presidential election. Second, several countries in the euro area have important elections coming up in 2017. And third, exit negotiations between the UK and the EU are likely to be complex and arduous. Swiss economic outlook  I shall now turn to the economic outlook for Switzerland. According to an initial quarterly estimate, GDP in Switzerland grew at an annualised rate of 0.2% in the third quarter. This small increase must also be seen in the context of high growth in the second quarter. Year-on-year, GDP rose by 1.3% in the third quarter. Initial quarterly estimates of the national accounts are uncertain by definition. The SNB therefore takes a wide range of additional information into account when assessing the economic situation.