samchain/econo-pairs-v1 huggingface dataset:
Timothy F Geithner: A view from the Federal Reserve Bank of New York Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Business Council of Fairfield County’s Economic Luncheon, New York, 19 January 2005. *  *  *  Thanks for giving me the opportunity to speak to you today. I want to talk about the American economic agenda. And I want to start by looking back at the last decade or so, and the exceptional economic performance of the second half the 1990s in particular. What were the fundamental underpinnings of those achievements, and what are the principal challenges we face to sustaining those achievements? Let me begin by reviewing quickly what distinguished that period of U.S. prosperity, relative to the past in the United States and relative to the other major economies. There are four things in particular worth highlighting: •  First, over this period of the past decade the U.S. sustained very solid growth in the range of 3.5 percent. This was not particularly exceptional relative to the preceding decade, but impressive relative to the other major economies, most of which saw a sustained slowdown in growth. Japan, for example, saw GDP growth slow from above 3.5 to just over one percent. Europe slowed from just under 3.0 percent to about two percent. •  Second, we achieved very moderate inflation.

As regards our present diagnosis on the situation of the Eurozone we are very often asked three questions, namely : “ How do you assess the risks to price stability ? “ “What is your judgment on the present conjuncture in Europe? “ and finally “What about the euro on the exchange markets?”. Let me respond as concisely as possible to these three questions. To the first one I will refer to the analysis displayed, in the name of the Governing Council, by Wim Duisenberg :” after the recent slowdown in monetary growth the risks to price stability from the monetary side have become increasingly balanced. Caution still needs to be exercised ”. As far as the second question is concerned I can also refer to a joint analysis of the Governing Council : “ While downside risks to real GDP growth exist, growth is very likely to continue at a reasonably robust pace.” Finally, as regards exchange rates I will only mention that we are living in a universe of floating exchange system : in such a system exchange rates are not a target but are a pertinent indicator for monetary policy. And I see only one sentence to sum up our position : “ A solid , a strong euro is in the interest of Europe”. Thank you for your attention. *  BIS Review 11/2001  *  *  7
Indeed, the need to guard against this risk is one of the reasons for the faster monetary normalisation that our latest decisions entail. Another risk relates to possible second-round effects, i.e. when high inflation passes through to wage increases and these, in turn, push up consumer prices to the extent that firms seek to maintain (or widen) their margins. Again, this would make inflation far more persistent and increase the likelihood of the feared de-anchoring of inflation expectations. As I said, while there is no evidence of such effects occurring at present, at least on a widespread basis, the current high inflation does make this more likely. Naturally, the extent of the economic downturn – over which, as I indicated earlier, there is significant uncertainty –, and its effects on wages and profit margins, will be a key determinant of the medium-term inflation outlook and, therefore, of our monetary policy decisions. Ultimately, our next decisions will be based on the incoming data and their implications for achieving our medium-term inflation target, in line with the “meeting-to-meeting” approach that we have adopted. 9  In any event, interest rates will have to reach a level that allows us to ensure a gradual convergence of inflation to our medium-term target, and how quickly we reach that level will be conditioned by the same target. Whether this means reaching interest rates at levels close to neutral or higher will therefore depend on that target. The normalisation of monetary policy is prompting a tightening of financial conditions.

The ECB currently participates in the meetings of international organisations, such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the Bank for International Settlements (BIS), and different fora, such as the G7. Such  BIS Review 50/2001  1  exchanges are important, among other things, to better understand economic developments and to fully analyse the spillover effects in the economy arising from different policies. The ECB is not in a position to fine tune economic activity in the euro area, as it does not have the instruments to do so. Any attempt to do so would prove counterproductive, leading to an inefficient medium-term outcome characterised by higher inflation and lower growth. Two main factors support this view. First, economic developments are surrounded by a great deal of uncertainty. This uncertainty affects the analysis of both the current state of the economy and its future course. And second, monetary policy operates with relatively long lags, having very little effect on the economy in the short run. Past experience has shown that attempts to fine-tune the economy might place in jeopardy the commitment to maintain price stability in the medium term, as is essential for a wellfunctioning economy. Once inflation exists and inflation expectations prevail in the economy, the economic costs of the subsequent necessary stabilisation far exceed whichever temporary benefits might have been previously obtained. Therefore, the ECB needs to remain focused on the maintenance of price stability in the medium term.
Substantial progress has been made to strengthen this infrastructure over the past two and a half years, and the resilience of the broader financial infrastructure has been a source of strength for the financial system during this crisis. However, the systems and practices that support the over-the-counter (OTC) derivatives market significantly lags that of securities markets and other mature markets. We need to move quickly to put in place a more integrated operational infrastructure that supports all major OTC derivatives products, is highly automated, has robust operational resilience and risk management, and is capable of handling very substantial growth in volumes. Conclusion The U.S. economic and financial system is undergoing a very challenging period of adjustment, and we are likely to be living with a high degree of uncertainty for some period of  6  BIS Review 27/2008  time about the ultimate magnitude and duration of the slowdown underway. But it is important to recognize that we have already seen a lot of adjustment. Prices and risk premia in many markets already reflect a much more sober and cautious view of the world than they did a year ago. And the degree of stress on markets that we have seen over the past six months is due in part to the sheer magnitude and speed of that adjustment to a more cautious view of the future. The United States, the world economy, and the financial system as a whole, are more resilient, than they were on the eve of previous downturns.

The consequence is that investors in search of these securities increasingly need to pay a premium, a specialness premium, which, broadly speaking, reflects the costs of the difficulty in finding a lender of the security. The premium will then depend on the scarcity of the underlying 3 / 10  BIS central bankers' speeches  asset and their holding structure: many of the residual government bond holders are unwilling to sell them, or will sell them at a higher price due to regulation or their own asset-liability management rules. You can see this on my next slide. Our asset purchases have coincided with a notable increase in the share of German bonds that trade “special” in the repo market, meaning they trade at a premium over GC rates. Before we started our purchases, typically less than 5% of bonds in the German repo market were trading special. In the second half of last year, this share increased to more than 50%. Year-end events, which I will come back to later, pushed their share even higher. You can also see that specialness did not increase immediately with the start of our purchases under the public sector purchase programme (PSPP) in March 2015. The reason might be related to potential non-linearities in the way supply changes affect market outcomes. That is, price effects from the flow of purchases may only become visible the moment supply effectively starts to constrain demand. Reverse supply effects are also clearly visible on the same chart.
In my view there are two main areas today where this applies: first, ensuring that banks retain the incentives to lend in markets where to all intents and purposes they are irreplaceable, namely for SMEs; and second, ensuring that they have capacity to do so. Ensuring that banks’ retain incentives to lend Ensuring that banks retain the incentives to provide an elastic supply of credit to SMEs involves a variety of issues, but the priority in the current environment is addressing the factors that could drive unwanted adjustment in the sector: in particular, the cyclical, legacy and regulatory factors I described above. Cyclical factors matter for banks’ incentives because the longer weak demand conditions persist, the greater the risk that banks will shrink their balance sheets more than is necessary. Thus, a stronger recovery with stronger credit demand is a key part of repairing the bank lending channel. Achieving this means economic policies must do their utmost to bring the economy back to potential as quickly as possible, by strengthening both supply capacity and aggregate demand in the economy. As this is now high on the EU policy agenda, I will not dwell on it today. In terms of legacy factors, the main issue today is dealing with non-performing loans (NPLs).

13  Ryan, R., O’Toole, C. and McCann, F. (2014), “Does bank market power affect SME financing constraints?”, Journal of Banking and Finance. 6  BIS central bankers’ speeches  other words, it creates the conditions for diversity and competition within the sector so that an optimal market structure can evolve. Conclusion Let me conclude. Repairing bank lending channel after a major financial crisis is inevitably a long and difficult process. Monetary policy has an important role to play, but the agenda is also broader: it involves supply and demand factors, and multiple aspects of national and European policy. The steps we have taken so far to strengthen the banking sector are necessary conditions for a stronger recovery in credit, and I am confident that we will see increasingly positive effects. But as banks transition to a new business environment, ensuring that they continue to have microeconomic incentives that coincide with our desired macroeconomic objectives is essential, as is developing a banking landscape that is sufficiently efficient and diversified to sustain credit supply. BIS central bankers’ speeches  7
It is envisaged that more than 90% of the Spanish banking system, measured by volume of assets, will be supervised by the SSM. 6  BIS central bankers’ speeches  Prior to the ECB effectively taking over supervisory responsibilities, a bank asset review and valuation is planned which will give rise to the requirement of a level of capital to be met by all banks subject to the review and, where necessary, to the setting up of additional coverage. It is worth noting that our banks are starting from a very reasonable level, both from the perspective of the accounting classification of their assets, and from that of asset coverage and provisioning, the result of the review conducted last year under the stress tests and of the above-mentioned recapitalisation processes. Recently, banks’ review of refinanced loans has also concluded, a process which contributes to shoring up their position ahead of the forthcoming evaluation of the quality of their assets. Likewise, and once more with a view to reinforcing the solvency of our banking system, the Banco de España has recommended that banks moderate the distribution of dividends during 2013 and that, in any event, the cash dividends paid out should not exceed 25% of attributable consolidated profit. Naturally, all banks are following this recommendation. The solvency position of Spanish banks has clearly improved in 2013. Average core capital in our banking system will stand at around 10.5% as at December 2013, more than 1 pp up on the same figure a year earlier.

Indeed, while in the initial consolidated State budget for 2013 these three items accounted for around 18.2% of GDP, in 2014 they are expected to represent around 18.5% of GDP and close to 55% of total consolidated public spending. The budgetary adjustment will therefore continue to focus on government consumption, for which a real-terms reduction of 2.9% is projected in 2014 for overall general government, based partly on the civil servant wage freeze and on the extension of austerity policies in relation to public-sector employment; and, moreover, on the reduction in public investment. A further expenditure-containing factor will stem from the envisaged revision of pensions, set at 0.25%, in line with the floor established in the draft law defining the sustainability factor. BIS central bankers’ speeches  5  How do these figures compare with those for the euro area as a whole? In terms of GDP, the weight of unemployment benefits continues to stand far above the euro area average, as a result of our high unemployment. Interest payments on debt in Spain are also expected to exceed the euro area average, while spending on pensions would continue to be below the average, given that demographic developments in our country remain more favourable. On the revenue side, a 2.4% increase in total tax receipts (including the share of regional and local government) is forecast, with very few tax changes. These are concentrated in the broadening of corporate income tax bases approved last June.
The exit strategy that is ultimately implemented will have to take into account the size and structure of the balance sheet at that time. However, in all potential circumstances the Federal Reserve should be able to tighten financial conditions to a sufficient degree when appropriate. The ability to pay interest on reserves, in combination with the ability to drain reserves as needed, will give us sufficient control of short-term interest rates. On that front, it is worth noting that both of the Fed’s reserve draining tools  8  For example, the Desk began to sell dollar rolls to allow for smoother settlement of the Federal Reserve’s purchases. BIS Review 128/2010  5  – the reverse repurchase program and the term deposit facility – are already operational, and their capacity to drain reserves will continue to expand. In addition, the Federal Reserve could always sell assets to reduce the size of its balance sheet if it desired. Designing a purchase program If the FOMC were to move forward with an expansion of the balance sheet, it would presumably want to take into consideration the perspective gained from the asset purchases conducted from late 2008 to early 2010. The FOMC would have to decide the extent to which a new purchase program would follow the approach from the earlier round of purchases. An alternative approach would be to design a purchase program that shares more of the features of the FOMC’s adjustment of the federal funds rate in normal times.

Of course, whether the FOMC decides to take such a step will be determined by its assessment of whether the benefits of additional policy stimulus outweigh the perceived costs of expanding the balance sheet. 9  Some flexibility was incorporated into the program because the directives from the FOMC specified the amount of purchases “up to” the stated thresholds. That flexibility was used to stop the agency debt purchases at around $ billion instead of the originally stated maximum of $ billion. However, this flexibility was not used more broadly. BIS Review 128/2010  7
At the outset of the global crisis, the average private debt level reached around 96% of GDP (2009), doubling compared to 2000. The post-crisis adjustment was mostly visible in the Baltic countries, where half of the pre-crisis rise was reversed. In the CEE and SEE countries, the adjustment was lesser. According to the latest available data (2017), given the decoupling in the speed of the post-crisis adjustment, private debt level in the different sub-regions started to converge. The average private debt level in 2017 stood at around 82% of GDP, with Baltics hovering at around 90%, SEE at 84%, and in the CEE region, standing at 75% of GDP. 4  Chart 3. Total private debt  Chart 4. Change in private debt to GDP ratios  (in % of GDP)  (in percentage points)  140.0 120.0 100.0 80.0 60.0  CEE  SEE  Baltics  Region  2016  2014  2012  2010  2008  2006  2004  2002  40.0  *Region refers to all the countries in the sample from CEE, SEE and the Baltics. Source: IMF Global debt database. The crisis accentuated the risks of high private sector indebtedness as important source of macro-financial vulnerability. In the CESEE region, some of these risks came to the fore in their banking systems, in the form of significantly rising NPLs during the crisis, following the years of high credit growth.

Hong Kong is now a relatively clean city with not a lot of garbage on the streets, which is in sharp contrast to the widespread littering of 30–40 years ago. Many people believe that the reason for this welcomed change is the improvement by the Government in its streetcleaning procedures as well as enhanced efforts to catch and fine people who are found littering. But this can only explain a small part of the change. The key driving force, in my view, that makes Hong Kong streets much cleaner today is the change in people’s values. These days, most Hong Kong citizens do not litter the streets not because they are afraid of being caught by the health inspectors but because they don’t think it is right or proper to do so. This change of culture or values is the result of education of the young generation and the “Clean Hong Kong Campaign” that was launched by the Hong Kong Government back in the 1970s. If this had not been the case, our streets would still be filthy even if we had ten times more health inspectors and street cleaners. In the context of building the financial services sector that befits a world-class IFC, I have explained earlier why it is very important to have professional competence and good control. However, it is equally, if not more, important that our financial institutions and their practitioners uphold the right values that protect and serve the interests of the customers who make use of Hong Kong’s financial services.
The Investment Account Platform (IAP) is another avenue for Islamic banks to support growth of SMEs and new businesses. It provides a new source and enhanced access to funding for ventures, with more competitive financing terms and variations in financing structures. It is encouraging to see increasing interest from Islamic banks to take part in the IAP, and I hope more will participate, as to create an extensive network of sponsoring banks that can cater to the more diversified needs of both investors and ventures. Moving on to the second trend – the growing interest in halal economy given the increasing demand for halal products – as the halal market is non-exclusive to Muslims alone; and has gained increasing acceptance among non-Muslim consumers. The global halal market is highly lucrative, with an estimated annual growth rate of 20% that makes it one of the fastest growing consumer segments in the world. Islamic finance can contribute more towards the growth of the global halal economy by playing a greater role in international trade facilitation. I believe our Islamic financial institutions have an advantage position to tap into this new growth area and be part of the global halal industry ecosystem – given that Malaysia is a key exporter of halal goods and services. 2/4  BIS central bankers' speeches  What are the opportunities that arise for our Islamic banking players? This is largely seen in the provision of financial support to boost the trade flow of halal products.

This approach necessitates greater empathy, which can pave the way for Islamic banks to develop more tailor made financial solutions. Assessment of financial applications would also be based on potential value creation and not on credit scores alone – thus opening up exposure to larger segment of potentially viable businesses. This is central in uncovering new markets, such as within the presently unserved and underserved segment of society. A VBI-driven financial institution – would actively seek out opportunities to assist aspiring entrepreneurs that may be struggling to obtain funds, but have business models that, despite being untested, are more socially responsible or green in nature. VBI therefore considers a broader spectrum of criteria as opposed to the traditional method that places emphasis on credit history and availability of collaterals. VBI also promotes more holistic offerings for entrepreneurs and I would like to suggest several examples to illustrate – how Islamic banks can extend its scope of business to benefit SMEs. In providing infrastructure support, an example is through provision of physical premises that can be rented by SMEs to conduct their businesses at lower rentals. There is an example of a product in the market today, where factory spaces are provided for SMEs to rent at affordable rates, equipped with amenities to cater to the needs of the entrepreneurs. In addition, entrepreneurship training and consulting services are also offered to them. This can particularly assist in increasing entrepreneurial involvement in the manufacturing industry.