samchain/econo-pairs-v1 huggingface dataset:
William J McDonough: The role of financial stability An address by Mr William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York and Chairman of the Basel Committee on Banking Supervision, at the XIII International Frankfurt Banking Evening, Frankfurt, Germany, 3 May 2001. *  *  *  Mayor Roth, President Duisenberg, and distinguished guests… It is an honor to address the thirteenth International Frankfurt Banking Evening in a setting so rich in history and tradition. I have been told that this stately building is more than just the busy town hall for a major European city, it is also an ever-present witness to culture and history, having hosted banquets and celebrations for almost six hundred years honoring coronations and the visits of Presidents and Prime Ministers. Indeed, it seems highly appropriate that our dinner this evening, which recognizes the importance of banking and finance to this distinguished city’s heritage, is being held here, so close to one of Europe’s most historic marketplaces. Since medieval times, merchants have traveled great distances to participate in Frankfurt’s many fairs and markets. The wealth that those markets produced no doubt assisted in the development of increasingly sophisticated financial institutions and a stock market as early as the 16th century, plus several of the most storied banking houses in history. Those institutions, in turn, contributed to Frankfurt’s ascent to prominence by financing additional trade and commerce here and abroad.

The philosophy of prevention: assist banks to govern themselves In developing regulations and practices that help to prevent financial crisis, supervisors must not lose sight of the inherent self-interest that banks have to retain the public’s confidence by maintaining safe and sound operations. No responsible firm seeks to fail, and no responsible bank would willingly engage in practices that would cause the market to doubt its long-term viability. Consequently, our role as regulators is not to limit banks’ opportunities for growth and profit. Instead, it is to help banks to improve continuously their abilities to manage their businesses and their risks, thereby ensuring that, across the financial system, banks can maintain their financial health. At the same time, if we are to encourage responsible behavior, we must not create the illusion that we will rescue every institution that does not succeed. In this regard, you will recall Goethe’s view: "What government is the best? That which teaches us to govern ourselves." Similarly, one of the best ways for supervisors to carry out the duty of prevention is by developing regulatory structures that encourage banks and their managers to govern themselves and control their risks. I believe that three important elements in a supervisory structure can help to create such incentives and thereby promote stability. The first consists of the relatively new "risk-focused" approach to bank supervision that is being adopted in financial centers around the world. It embodies a forward-looking perspective focusing most heavily on the risks that each individual bank faces.
Deposit insurance Let me move to an area that has received relatively scarce attention in relation to financial integration, which is the design of deposit insurance schemes. Although I look at it today primarily from an integration perspective, we should keep in mind that deposit insurance plays also an important role in crisis prevention and resolution. Deposit insurance serves two different but interrelated purposes. Its consumer protection purpose is to protect small and unsophisticated bank depositors against loosing a potentially important part of their wealth. Its financial stability purpose is to avoid bank depositor runs. While it is nowadays hardly challenged any more that deposit insurance is a necessary element of the regulatory set-up, there is also awareness that an ill-designed deposit insurance scheme can have important adverse effects. On the one hand, a too generous coverage – protecting also large sophisticated depositors – could reduce market discipline for banks and therefore create distortions in the allocation of risks, including potential incentives for excessive risk taking by banks. This, in turn, could contribute to instability and related costs. On the other hand, unclear arrangements or only partial coverage for retail depositors could open the way again for bank runs. In order to illustrate the relevance of deposit insurance schemes for financial integration, let me recall the definition of financial integration we are using for our work.

Jean-Claude Trichet: Financial integration in Europe and important financial sector issues Keynote speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the Second Symposium of the ECB-CFS research network on “Capital Markets and Financial Integration in Europe”, Frankfurt am Main, 13 February 2008. *  *  *  Ladies and Gentlemen, It is a great pleasure for me to address such a distinguished audience of researchers, market participants and policy makers here at the Second Symposium of the ECB-CFS research network on “Capital Markets and Financial Integration in Europe”. As you will probably all appreciate, we are living in challenging times right now. And many, although not all, of the main challenges relate to financial sectors. So, for my remarks today I have made a selection of important financial sector issues, some more structural and others more related to recent developments. My presentation is divided into two broad parts. In the first part, I would like to broadly address the importance of financial integration in Europe, review the current state of integration and tell you about our activities in this area. In the second part I would like to look at one specific part of the European regulatory set-up that has been less often discussed in the past in relation to financial integration, namely the structure of deposit insurance schemes. I will conclude by some remarks on the present very significant market corrections and financial turbulences that we experienced in the international financial system since the summer last year.
How would the Federal Reserve explain to the US public that, from the kindness of its heart, it was helping a little country in Europe whose banks have no noticeable influence whatsoever on the US financial system? I don’t think we should have any illusions about this matter, regardless of how strong our current cooperation is with the Federal Reserve. When there is a crisis, we must be prepared to deal with matters ourselves. This is my absolute conviction after almost thirteen years at the Riksbank. So what is the solution? If a bank in a crisis situation does not have any dollars of its own or is unable to obtain any on the market, and if the Riksbank does not have any to lend, naturally an uncomfortable situation will arise for that bank. It will be unable to fulfil its commitments (that is, pay what it  5  Banks are unwilling to take large currency risks, among other reasons because this requires large amounts of capital. So, to the extent that they purchase currency on the market, it is assumed that they will be able to mitigate currency risk by lending to customers. BIS central bankers’ speeches  9  has promised to pay others), which normally results in liquidation. This is hardly a risk that a well-managed bank wishes to take. Naturally, it could turn to the Ministry of Finance or the Swedish National Debt Office and apply for assistance under the Swedish Support to Credit Institutions Act.

Let us now examine the question of who is to pay for this “insurance”. So far, the Riksbank has done this, meaning that the taxpayers have had to foot the bill. The Riksbank pays its profit into the public treasury each year, and the smaller this profit is, the less the Riksbank contributes towards covering the state’s expenditure. But should the taxpayers really pay for the risk incurred by the banks when they borrow dollars? This is not the only thing that could be considered unfair. It also leads to risks becoming too high. As I mentioned earlier: when the costs for risk-taking are not carried by the party taking the risk, this usually leads to these risks becoming excessive from a macroeconomic perspective. The banks will borrow and lend more dollars that they would if they had to pay for the costs of managing the liquidity risk themselves. This cost is essentially an insurance premium, in which the banks are the  6  10  There are at least two other reasons for the Riksbank to maintain a currency reserve. One is to be able to fulfil Sweden’s commitments towards international bodies such as the International Monetary Fund (IMF), and the other is to be able to undertake interventions on the foreign exchange market when needed to influence the value of the Swedish krona. BIS central bankers’ speeches  insured party and in which the general public has so far paid the premium.
The UK went even further in April 2018, with the Bank of England allowing a non-bank to access both clearing and settlement facilities in the RTGS system. Enhanced transparency expectations can also play an important role in ensuring that infrastructure suppliers and payment service providers continue to maintain high service levels and deliver services that create value for endusers. Slowly but surely, initiatives like these are rewriting the rules of the game in the payments industry towards heightened competition through lower barriers to entry. This is further reinforced by a gradual move towards greater sharing of customer data, such as through the EU’s Payment Services Directive (PSD2), the UK and Australia’s respective open banking initiatives. Malaysia too welcomes greater openness in its payments ecosystem and the broader financial services sector. Conclusion To conclude, allow me to reiterate that regulators should uphold a commitment to support payments innovation. The focus would be to lay the foundations for market-led innovation, by focusing on the elements of trust, connectivity, efficiency and innovation of the payment system. This will ensure that the power of digital payments is harnessed towards value creation for the real economy, while navigating the emerging risks and challenges on the horizon. Looking ahead, the pace of change in payments is only set to intensify. Payment system regulators will have to be agile in considering new ideas, while remaining steadfast in 5/6  BIS central bankers' speeches  safeguarding the public interest.

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This can be compared with the 1970s and 1980s, when inflation was at an average rate of around 8 per cent and growth amounted to an average level of 2 per cent. This positive development is due to a large number of factors. One factor is that there were a large number of vacant resources to begin with, but it appears likely that a more credible economic policy also has contributed. Fiscal policy has also played an important role in giving credibility to the economic policy pursued. The value of the budget consolidation can scarcely be exaggerated. Concerning the functioning of the labour market, the changeover from fixed exchange rates and a relatively high rate of inflation to flexible exchange rates and an inflation target implies that high inflation and devaluation, like those Sweden experienced during the 70s and 80s, will no longer take care of the effects of excessively high wage increases. In that sense one could say that the responsibility for employment to a greater extent has moved over to the social partners. Recent developments in the Swedish labour market During the course of 2001, growth in the Swedish economy was subdued, while inflation, excluding so-called transitory prices, rose slightly. This raises questions regarding the development of the supply  BIS Review 40/2002  1  side in the economy. A possible explanation as to why inflation has increased at the same time as demand has weakened is that the growth rate in potential output has been weaker than was anticipated earlier.

Barbro Wickman-Parak: The financial crisis from a central bank perspective Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at the Swedish Bankers' Association annual meeting, Stockholm, 12 November 2008. *  *  *  Introduction In normal times, reporting about the Riksbank is dominated by what we do, or do not do, with interest rates. The focus is usually on one of the Riksbank's two main tasks: maintaining price stability. Less attention is paid to the other main task, safeguarding financial stability; health is silent, as the Swedes say. For obvious reasons, financial stability has been given more prominence recently. We have now lived with turmoil in the international financial markets for rather more than a year and over the past two months have seen it lead to a large-scale global crisis of confidence. The origin of the current crisis, as well as of our Swedish banking crisis in the early 1990s, can be found in reckless lending practices related to property. As we now know, it began when American financial institutions lent money to borrowers with weak credit histories. Whereas the Swedish banking crisis remained altogether Swedish, the American crisis has spread like wildfire and reminded us of just how globally connected the financial markets are. The high-risk sub-prime loans were sold on to a large extent by bundling them together with low-risk loans in what are known as structured credit products. The use of these complex products grew rapidly and had a wide geographical distribution.
The traditional form of regulation was to set very strict rules or to forbid banks from conducting certain activities. The modern form is to be more flexible. Regulations set the boundaries while allowing the banks to operate within these boundaries if they can prove that they have the skills and resources to do it in a sound manner. Modern regulation puts much more responsibility on the banks themselves and their owners and management. In Sweden, the former Banking Act actually prohibited the banks to engage in any activity that was not explicitly permitted in the law. The new Banking Act starts at the other end, permitting the banks to do whatever they find suitable except for certain activities that are explicitly forbidden. Today’s financial institutions, instruments and markets are, of course, much more sophisticated than earlier. There is also much broader diversity in the sector. For example, the needs of customers are satisfied in many different ways and by many different actors, certainly not only by banks. As a consequence, modern regulation needs to be more flexible than in earlier days, when the market was more homogeneous. The regulation should encourage competition and innovation, but at the same time discourage unsound risk taking and generally unbecoming or even illegal behaviour. Only when there are strong arguments should the regulator outright restrict or prohibit certain activities. Instead, regulations should provide incentives for banks and others to behave in a sound manner.

The requirement is primarily prudential in nature. It was among other things aimed at reducing the reliance of domestic credit institutions on foreign short-term capital to finance their domestic lending activities which had risen sharply, but has subsequently diminished markedly. Low inflation and macro-economic stability was only achieved in the early part of this decade. Consequently, it is not at all surprising that we have to maintain interest rates that are significantly higher than among our main trading partners. The required difference is variable over time, depending among other things on the credibility of economic policy, relative cyclical positions and so on. The current differential is the widest since capital movements were liberalised and is of course explained to an important extent by the very different cyclical position of the Icelandic economy from that of most of our trading partners, not the least in Europe. It also entails the cost of maintaining an own currency, i.e. a premium for the availability of the exchange rate as an instrument. 1  BIS Review 117/1999  In this connection, I should also note that since the opening up of the capital account of the balance of payments, long-term interest rates, which used to be very high by any comparison, have been on a downward trend despite repeated increases in short term rates. This is not surprising and reflects a narrowing of long term interest rate differentials between Iceland and other countries towards a much lower level than prevailed before capital movements were liberalised.
The Riksbank would thus have an account in the ECB’s system so that settlement can be made in Riksbank money without having to keep the Swedish large-value payment system open 24 hours a day. The vision is simply that payments can be made immediately, regardless of what time of day they are made, and that settlement shall be in Riksbank money. In this vision, the e-krona  7 [9]  would be a national back-up to the private payment system and it would enable both instant payments and settlement in central bank money. Conclusion Let me conclude by summarising what I have said. I believe that it is important to update the money the Riksbank issues to a format that suits the modern economy. We will therefore develop a pilot version of a central bank digital currency – an e-krona. Once we have tested the pilot version we can choose to issue, or not to issue, a digital krona to the general public. I have also talked about the rapid changes in the payment market, where rapid real time alternatives will be important in the future. In my opinion, payments ought to be made as quickly as we exchange information in the current digital society. It should be possible to make payments instantly 24 hours a day and to settle them in Riksbank money. A connection to the ECB's technical platform, TIPS, would be one way of doing this.

You have probably seen pictures of bank runs – when queues form outside banks in crisis as people want to withdraw their money in the form of (safe) cash. This is why central bank money is still the linchpin of the system, even if it is rarely used in normal circumstances. The fact that it is available as an alternative acts as a kind of guarantee for the private bank money. 4 It is also the case that some key systems for payments are increasingly concentrated to a few agents. See, for instance, the card payment market where two American companies are entirely dominant in Sweden. Unlike our neighbouring countries, we do not have any domestic card payment network. This means that we are dependent on foreign infrastructures to make the majority of households’ payments. Without cash, therefore, an important part of the Swedish infrastructure would be completely in private ownership and dependent on foreign infrastructures and foreign companies. So if the use of cash continues to decline, it is not enough to say that this works fine at present, because the future will look rather different, regardless of whether we produce an e-krona. Other functions that cash has performed include functioning as a back-up when there have been disruptions to other forms of payment. It has also helped ensure  3  See, for instance, Fung et.al. (2018) and Söderberg (2018). 4 See, for instance, Tobin (1985).
The deliberate work on liberalising trade and capital flows, as well as payments for these transactions, within a strong multilateral framework began almost sixty years ago and is an important explanatory factor behind the increased economic growth we have experienced since then. The strategy was mainly based, within the framework of the GATT, on a gradual removal of trade barriers and the building up of a multilateral trade system via regular negotiating rounds and, within the framework of the IMF, to jointly promote financial stability and free payments, initially for current account transactions and later for an increasing number of capital account transactions. Moreover, the World Bank was established, whose primary purpose is now to reduce poverty in the world. The endeavours towards liberalisation have been, and still are, very successful. With regard to trade, this can be illustrated by the fact that average tariffs on manufactured goods have fallen from over 40 per cent at the end of the Second World War to under 5 per cent today. Trade liberalisation has led, through increasing specialisation and competition, to a more efficient distribution of labour between countries, which has contributed to higher growth, and also to greater options and lower prices for consumers. However, the adjustments have not been easy, as we know from our experiences of the  1 Branchföreningen för Kontorsartiklar, Emballage, Papper och Angränsande produktområden  BIS Review 60/2004  1  changes in the Swedish shipyard and textile industries.

There is no option for financial institutions but to be able to deliver and ensure the integrity of their services – banking, payments, insurance or takaful, in dealing with customers – digitally or online during these times. The road is thus wide open for fintech. In a not so distant future, we can expect that fintech will be part of the mainstream, perhaps even becoming the primary mode of delivery for financial services, no longer requiring strategising and planning on how we could fully embrace it in conferences and dialogues like we will be doing today. Before I conclude I would like to congratulate ISRA for their development of the I-FIKR App, which 2/3  BIS central bankers' speeches  will be launched during the event. The App certainly fits well with the digitalisation of the Islamic finance knowledge of the Islamic finance industry. We hope to see it as another home-grown product that will contribute further toward the advancement of the Islamic finance Industry. Finally, once again I would like to thank and commend ISRA for organising the Islamic Fintech Dialogue 2020. Events such as this provide us an opportunity to take a step away, allowing us the space to focus on key issues and challenges which I hope will inspire us to improve on our vision and strategies for innovative transformation in Islamic finance. Over the course of this 2day event, with the array of speakers and moderators, I am confident this will be achieved.