samchain/econo-pairs-v1 huggingface dataset:
Changing risks and the search for yield on Solvency II capital Speech given by David Rule, Executive Director of Insurance Supervision  Association of British Insurers, London 6 July 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  Regulatory change has dominated our insurance supervision agenda for the past few years. Today I want to talk mainly about risks. Our supervisory work is similarly shifting gear. As Solvency II becomes business as usual, we will spend more of our time understanding the risks that insurers are taking and, where necessary, responding to them. I do though want to make a couple of initial points about Solvency II. First, we are making good progress, working with the ABI, in identifying improvements to our implementation of it. This follows up the commitment made by Sam Woods to the Treasury Select Committee in February. Amongst the areas we are working on are our processes around model changes and the matching adjustment; and regulatory reporting. We are working within the bounds of the EU legislation and I do not anticipate any headlinegrabbing initiatives. But I am confident that we will identify a number of practical changes that will make a difference to insurers and supervisors on the ground. Second, we will continue to update our approach in the light of new information. For example, it does appear 1  that the rate of improvement in life expectancy of older people has slowed in the United Kingdom .

At this Summit, MAS issued a consolidated set of guidelines to provide greater clarity and certainty on how our banking regulations apply to Islamic banking. Islamic finance was also featured when the Paris EUROPLACE International Financial Forum was held in Singapore in October. We will continue to work with fellow regulators and the private sector to fine-tune our regulatory approach and to develop the infrastructure and talent to facilitate the growth of Islamic Finance in Singapore. 17. As I mentioned earlier, bringing leaders in finance and business together to understand the developments in each region provides a valuable platform for collaboration. I am therefore pleased that MEGA Events has decided to bring the first Annual WIBC Asian Summit (Asia WIBC 2010) to Singapore. Islamic finance will provide an increasingly important bridge in the growing connectivity between the Middle East and Asia. Singapore is pleased to help catalyse deeper relations between these two high-growth regions. Asia WIBC will provide a unique platform for industry players from more established centres of Islamic finance to share their experiences. I look forward to welcoming all of you to the inaugural Asia WIBC in Singapore next June. Conclusion 18. In conclusion, the global economy is recovering gradually, though there remain many risks ahead. Emerging economies are expected to grow well, but we need to tackle the many structural challenges. Governments need to undertake structural reforms. The financial sector needs to facilitate the flow of funds into growth areas, and Islamic Finance will play an important role.
  Euro area countries have taken rapid and significant steps to bring their public finances back into balance and going forward to restore the competitiveness of their economies. This is clearly the case for countries whose debt markets have been the most affected over the past months.   Yet, in May, financial markets started to seize up again, admittedly in a slightly different way than that seen in 2008, but with the same potentially disastrous consequences, that is to say a drying up of financing for the economy. In 2008, the financial system was badly impacted by the subprime crisis and the failure of Lehman Brothers that brought transactions to a standstill as market participants realised that any bank, no matter how big, can fail especially since the exact amount of exposure to subprime risk of all institutions were not fully known. In the May 2010 episode, the same dynamics were at work: the different investors started to believe that euro area countries could default on their debt, and therefore stopped lending to these countries or their banks, or to any banks with possible exposure to these countries and, finally, as a precaution, ceased all lending activity. This situation called for rapid and decisive action by the ECB because:   We cannot implement monetary policy in dislocated markets that do not effectively allocate the liquidity that we inject or that radically modify the effects of our monetary policy by offering interest rates that are inconsistent with our key rates.

  If the shape of the yield curve is evolving regardless of monetary policy decisions, if risk premia are uncorrelated with fundamentals, if market liquidity dries up, then the interest rate channel ceases to function.   When this affects banks’ funding, in particular via a freezing of the interbank market, the bank lending channel seizes up. In such circumstances, central banks must turn to non-standard measures such as direct aggressive interventions to ensure that their monetary policy decisions are effectively transmitted and that markets keep ticking over. Needless to say, the recent period has seen many such incidents as well as the implementation of many non-standard measures. Among the measures currently in place, some are based on “quantitative easing”, which involves the purchasing of securities primarily with a view to generating excess liquidity that in turn moves into all market segments and fosters a better refinancing of the economy; others are based on “credit easing” and aim to restore the functioning of certain particularly disrupted market segments. Seen from another angle, certain policies aim to restore the smooth functioning of the interest rate channel by directly impacting the yield curve, others aim to restore the bank lending channel by ensuring that banks can obtain funding beyond the very short-term maturities to which central banks usually confine themselves. In all events, central banks stand in for failing market participants or markets.
The successful management of the so-called IT bubble at the beginning of the 2000s was regarded as an example of financial crises not needing to be particularly troublesome. What is clear today, but was not clear as recently as six years ago, is that this picture was far too optimistic. But then the crisis came along and turned most things upside down. Reassessment of the financial markets One obvious lesson from the crisis was that the financial markets were not functioning as well and as efficiently as we had believed. Instead of contributing to growth and stability in the economy through efficient risk spreading and credit allocation, they became a cause of  1  2  See for example Taylor (1998) and Bernanke (2004). BIS central bankers’ speeches  macroeconomic fluctuations. It became clear that the models on which policy decisions were based needed to be adjusted so that the financial markets no longer played the obscure role they had played prior to this. In recent years, there has been a dramatic increase in research on what are usually referred to as “financial frictions”, that is, mechanisms through which the financial system affects fluctuations in the economy (see Figure 1).2 One might wonder why this interest in the role of the financial markets did not arise earlier. The crisis that we in Sweden and some other countries suffered in the early 1990s also revolved to a great extent around credit booms and property market crashes.

The central banks became independent during a period that one might be able to call the “golden age” of inflation targeting, when everything looked relatively straightforward – when the policy rate was in principle set to attain price stability and when one took financial stability more or less for granted. The world that now appears to be emerging is more complicated. It is necessary to reconsider where the boundary lines should be drawn between what should be delegated to independent central banks and what should be managed by the political system. Finding the best way of doing this is one of the major challenges ahead of us. 17  See Gerlach (2013). Results from a study by Bech, Gambacorta and Kharroubi (2012) indicate that monetary policy is less efficient when it comes to counteracting a recession and contributing to a recovery after a financial crisis. Posen (2013) says that more powerful quantitative easing would have facilitated the recovery in the United Kingdom, but that the fact that this was not implemented has nothing to do with inflation targeting and it would not have been easier with a different type of monetary policy. 18  See, for example, Banerjee, Cecchetti and Hofmann (2013). Whelan (2013) says that inflation targeting should actually be abandoned in favour of a solution where the central banks are given a broader mandate and more instruments at their disposal.
Provided there is stable confidence in the policy for price stability, price effects from a weakening of the exchange rate are generally BIS Review 32/1997  -3-  transitory. A depreciation is a problem for monetary policy only when it has a lasting expansionary effect or if inflation expectations rise. The economy’s inflation propensity, which seems to have decreased in recent years, is an important factor to consider when assessing the threat from future inflation. The term inflation propensity stands here for the structure of the inflation process, which is liable to be changed by various factors. If stronger competition, for example, in certain segments of trade results in lower price increases than before when consumption is rising, then the economy has a lower inflation propensity. Examples of factors that may have helped to reduce the inflation propensity are the fall in market expectations of inflation and the higher acceptance of the Riksbank’s inflation target. Another cause of a decreased inflation propensity can be lower inflation as such. Price comparisons are easier for households and firms when inflation is low. Price increases are more visible and producers have more difficulty in raising prices without a relative price shift. The situation in this respect is one of the main issues that the Riksbank will have to evaluate. We shall be returning to this later in the year. All in all, the picture that emerges of the Swedish economy suggests that the monetary stance is well balanced.

Regulators must be prepared to take early and decisive corrective actions to forestall a build-up of risks in individual banks and the banking system as a whole. BIS central bankers’ speeches  1  Further, contagion amongst banks is a fact of life. Financial systems can be severely stressed by their weakest points, even if it involves a single bank or a group of small banks. The Northern Rock episode in the UK was an example in the earlier phase of this crisis. The Spanish cajas or regional savings banks are now another. The largest Spanish banks are widely acknowledged to be well capitalised, to have lower exposure to the property sector and to have well diversified earnings internationally. But until the troubles in the cajas are resolved, even sound Spanish banks are being penalised by higher funding costs, and citizens and tax payers too are exposed. Confidence is therefore about banking systems, not just about individual banks. This is all the more why regulators have to be vigilant in spotting weaknesses and requiring corrective actions, both across a system and in individual banks. The weakest point matters. International regulatory reforms The global financial crisis has prompted a major review of international regulatory standards. We have achieved much, with the new rules developed through the Basel Committee on Banking Supervision and the Financial Stability Board – new rules on the quantity and quality of capital and liquidity and the ongoing work to strengthen cross-border supervision and resolution frameworks for global banks.
This reflects the fact that the Bank of England is among the lowest cost central banks in the world - with a fraction of the staff of the Bundesbank, the Banque de France or the Federal Reserve System even when adjustment is made for differences in function. The charge will certainly now be significantly lower to reflect inter-alia the transfer of banking supervision to the FSA. But I recognise that whatever our costs we need to be accountable for the resources that we use and the burden we place on the banking system. We will now be more accountable to Court, to the Government that will set the charge, to the banks themselves and the wider public through our Annual Report. The Bank’s functions Below the Court the new Bank will be organised administratively into three main subdivisions, reflecting our responsibilities for monetary stability and financial stability, each under a Deputy Governor, with the third subdivision responsible for all forms of financial market operations, under a senior Executive Director. The central services of the Bank, including personnel and finance, will report to the Deputy Governor, Financial Stability, who will remain responsible for the day-to-day management of the Bank. The main changes in the Bill affect our monetary stability and financial stability functions, which I will discuss in turn. Monetary Stability Let me start with monetary stability - although the new arrangements may be familiar to you not least because they are in place already!

This process of regular and systematic assessment, based on the economic and financial data, is unimaginably different from the erratic reaction to financial market disturbances which characterised the conduct of monetary policy too often in the more distant past. And the reflective, interactive, debate within the Monetary Policy Committee is very different too from the sometimes exaggerated advocacy of a particular viewpoint which inevitably crept in to the Ken and Eddie show during which the Bank usually had at most an hour in which to persuade a sometimes reluctant Chancellor! The present arrangements allow us to explore, without initially taking hard positions, alternative possible interpretations of the data and their implications; and those discussions capture far better than before the uncertainties inherent in the conduct of monetary policy. It is, I think, how monetary policy really should be made. Transparency and accountability With operational independence comes - quite rightly in my view - even greater transparency and public accountability. The minutes of the two-day meeting at which that decision is taken, together with a summary of the information presented by the staff, are published in the week after the following meeting. Those minutes also record the individual votes of each member of the Committee. Beyond this, we publish a regular assessment of monetary policy - including a forecast of inflation over the two-year period that we believe is relevant, given the lags between policy actions and inflation outturns - in the Bank’s Quarterly Inflation Report.
Alexey Zabotkin: Plan of analytical work and events for the Bank of Russia’s Monetary Policy Review Speech by Mr Alexey Zabotkin, Deputy Governor of the Bank of Russia, on releasing a plan of analytical work and events for the Bank of Russia’s Monetary Policy Review, Moscow, 6 October 2021. * * * Good afternoon, As Bank of Russia Governor Elvira Nabiullina announced making a speech at the International Financial Congress at the end of June, the Bank of Russia plans to carry out a comprehensive analysis of the Bank of Russia’s monetary policy, its objectives and instruments — the Monetary Policy Review — over the period of inflation targeting in Russia. Today, we have launched a special web page covering the plan of analytical work and key events within this Review. I will provide a brief summary of this announcement and then answer additional questions. Why is this important and why are we doing this right now? First. The Bank of Russia switched to the inflation targeting regime in 2015. Annual inflation decreased to 4% in 2017. It has been seven years since we started to implement this policy and nearly five years since inflation reached the target. This is a sufficient period for us to be able to make conclusions about our achievements. The Review is intended to assess the effectiveness of the monetary policy implemented and take a look at past events.

If policy is given the narrower goal of protecting the banks from the cycle and it proves possible to set clear rules in place (for example a simple leverage ratio) there would be no need for a further policy maker to be involved. However if policy is given the broader macroeconomic goals of stabilising credit – protecting the cycle from banks if you will – and judgement is required on the state of the cycle and whether and when to vary the rules, then it would be essential for the Central Bank to play a leading role, albeit in close consultation with the regulator. In my view that is the more likely outcome. Conclusion One theme you may have noticed in these reflections is the need for policy makers to be willing to back their judgements – whether in identifying asset bubbles or identifying firms or markets which threaten financial stability – and to take pre-emptive action. For example, if most macro-models were not giving us warning signals in recent years, our analysis of the financial sector certainly was. As I mentioned earlier, successive Financial Stability Reports did set these dangers out in 2006 and 2007 and indeed earlier. One of the lessons we have acted on already is to make more of such warnings.
The one thing that one can say about the Thailand of old is that we really did underestimate the problems we were in and the structural changes needed to put us back to the forefront of international competition. Let me recall that two years ago, we were going through a negative growth of 10.7%, and inflation of 8.1%. The short-term three months fixed deposit rate at that time was 8.25%, and the minimum lending rate was 15.8%, having peaked at over 20% earlier in the year. The only good news at that time seems to have been the large current account surplus of around 10 billion dollars, which would help stabilize the baht dollar exchange rate as well as repay our huge debts, which had reached an unbearable level now known to be $ 105 billion or over 100% of GDP at the particular point of time that I was making the statement to this august body in 1998. At that time, I indicated that in my mind, our problem was structural, and that to solve and put Thailand back on the growth path, we must make structural changes, rather than just pumping money back in. Now, I am even more convinced that I was right and we have indeed pursued that path of restructuring and rediscovering ourselves. Let me elaborate a little. Prominent but unnoticed by many Thailand-watchers was our being invited and joining as shareholders of the BIS, properly known as the Bank for International Settlements.

Although this was not a major decision for us, it was a very prominent confirmation of our status in the world economy. BIS has less than 50 shareholders and is really an elite clique of the leading central banks. That it has decided to invite us to become shareholders was in recognition of the status that Thailand now has in the financial and economic market place of the world. That the BIS last week decided to buy back all its privately held shares, becoming purely a central bank for central banks is of course a reinforcement of this development. Another achievement of our own doing, this time towards transparency is that we are now qualified in the Special Data Dissemination Standard of the IMF, the 21st country to do so in May this year. This set of data is a guarantee whereby a country delivers enough information in a timely manner, such that international investors have a reasonable chance of evaluating its performance and prospects. Many leading countries are still unable to qualify, because they have things that they wish not to be shown to the public, whereas we have taken the road that what cannot be shown in public perhaps  1  BIS Review 86/2000  should not be done. We therefore participated also in the international reserves template both voting for it, and qualifying in the first group of countries to do so that have subscribed to the SDDS.
As has been the trend of the last few quarters, its evolution has been closely related to the exchange rate (figure 1). The surprise in headline inflation came mainly from foodstuffs (particularly fresh fruits and vegetables), whose prices showed atypical behavior for the season, very different from historical patterns. As a reference, between August and October these prices —which represent 2.9% of the CPI basket— averaged an annual variation of around -9%, which compares with roughly +7% in the last ten years. The baseline scenario assumes that headline inflation will remain around 2% during the first half of 2018, and will return to 3% during the first half of 2019, somewhat later than we expected in September. Core inflation will also remain low in the coming quarters, to converge to 3% in the second part of 2019, somewhat later than headline inflation (figure 2). The projected behavior of prices in the medium term is mainly based on a gradual closing of the activity gap, a process that is expected to begin during the second half of 2018. On this point, neither the recent data nor the projections of the baseline scenario have changed much from September. In the third quarter, non-mining activity—used to estimate the gap—continued to show limited annual growth (which reached 1.7%), below the potential of the economy (which we continue to estimate around 2.5%) and aggregate GDP (2.2%).

Going forward, it is assumed that fiscal spending will follow a path of consolidation. On the expenditure side, as I just said, some salient characteristics of recent quarters have been improved consumption and weaker investment, which have led to revisions to our baseline forecasts. In private consumption, the better numbers so far, especially the dynamism of durable consumption, translate into higher figures for this year and next. On the investment side, there is a clear difference between the behavior of the machinery and equipment and the construction and works components. The former, with a more favorable evolution, has responded to the necessary inventory replenishment after several years stagnant, and has benefited from the exchange rate appreciation and low credit costs. The latter has continued to contract beyond expectations, primarily because of reduced spending on building and engineering works, amplifying the drop in gross fixed capital formation (GFCF) estimated in September for this year. In addition, we estimate that this expenditure component will take somewhat longer to recover. Towards 2018, it is still assumed that the adjustment cycle of mining investment will come to an end and that it will very gradually begin to reflect the effects of the copper price rise. Meanwhile, non-mining investment is slightly revised down, mainly reflecting that the downsloping trend of housing investment has been longer than we thought before. With this, as a percentage of GDP, in 2018 the GFCF will reach 21.1% and 21.4% in real and nominal terms, respectively, compared with averages of 23% to 24% in 2013-2017.