samchain/econo-pairs-v1 huggingface dataset:
In particular, getting the financial system to play its proper role is critical. So let me turn to my second reflection on the role of financial services. Many causes have been cited for the current financial crisis – excessive leverage, complexity and risk-taking incentivised by inappropriate compensation systems; pro-cyclical regulatory requirements and inappropriate cost of capital; the flawed originate-to-distribute model in credit origination that worsened the principal-agent problem; the role of rating agencies; and the use of instruments such as CDS and CDOs that were supposed to distribute risks more broadly but ended up concealing and concentrating risks instead. The list goes on. Each of these plays a role but if we are to identify a common factor across these various causes it is this: that finance has become detached from economic realities. As we look to develop our financial system, we have to bear in mind that the basic role of finance is to allocate scarce capital to its most productive use. We earn a return only if the capital is deployed to eventually produce goods and services that are valued by the market. When the nexus between the mobilization of capital and the productive use of capital is broken, the returns cannot be sustained – the bubble must eventually burst, with painful consequences. In this crisis, both conventional and Islamic financial markets have been affected, but the restrictions on the use of leverage and speculation has put Islamic Finance in a better stead.

Ladies and Gentlemen, Given the strong progress to date and the positive economic environment, I am confident that the Malaysian takaful operators will continue to make significant strides in becoming world-class players. In the process, this will strengthen the positioning of Malaysia as an international Islamic financial centre. On this note, I wish to congratulate Prudential Corporation Holdings Limited and Bank Simpanan Nasional on the occasion of the official launch of Prudential BSN Takaful Berhad. I wish Prudential BSN Takaful Berhad every success in achieving its objectives. Akhir kata, dengan lafaz Bismillahir Rahmanir Rahim, saya dengan sukacitanya merasmikan pelancaran Prudential BSN Takaful Berhad. Terima kasih. 2  BIS Review 73/2006
Most prominently, global interconnectedness implies large and swift transmission of shocks across countries. A seemingly localized supply shock, such as the tsunami in Japan or the floods in Thailand two years ago, created ripple effects in various parts of the world by disrupting the global supply chain of production. From the perspective of most Asian economies, the abrupt economic contraction in the US and the euro area during the financial crisis were examples of external demand shocks. While such “real spillovers” generated by supply or demand shocks can be quite damaging, the avenues for dealing with them are apparent and relatively uncontroversial. Fiscal automatic stabilizers should be allowed to work fully and monetary policy could be eased to cushion the impact so long as medium-term inflation expectations are contained. Calibrating the policy response to these shocks may not be straightforward, but they do not, in of themselves, pose challenges to the underlying framework of policy. On the contrary, “financial spillovers” associated with extraordinary monetary policy easing in advanced economies have prompted many central banks and academics to do some soul searching about the appropriate framework, not just for monetary policy, but also for regulatory and capital account policies that can best deal with these shocks. It has been around five years that the US federal funds rate has been kept at the zero lower bound, and this has been supplemented with multiple rounds of large-scale asset purchases.

There was a spirited public debate whether such rate increases would invite more capital inflows. But we viewed that other factors, such as the strength of the domestic economy and high risk appetite of international investors, played a larger role in inducing capital inflows than a gradual increase in the policy rate. Our concern for medium-term financial stability was also a key element of policy deliberations at the time. Subsequently, things became more challenging as the Thai economy suffered domestic setbacks. As the boost from the government’s temporary stimulus measures dissipated at the start of this year, domestic demand slowed down markedly. At the same time, domestic credit growth was still quite high, stock prices continued to advance, and activity in the housing market remained brisk. Moreover, portfolio capital inflows continued and the baht was appreciating. This presented a dilemma and was an example of the difficulties posed by policy spillovers. Against the backdrop of weak global demand, we cut the policy interest rate. We contemplated the use of certain prudential measures, including those on capital flows, in order to complement domestic monetary policy as well as offset some of the impact of capital inflows on domestic financial conditions. But since the QE tapering talk began in earnest in May, the global financial environment changed dramatically, and with it the nature of the policy trade-offs. The communication by the Federal Reserve about possible tapering of its bond purchases was a key turning point for global financial markets. Financial conditions suddenly tightened in response.
Second, the perception that the central bank will always “pick up the pieces” might give incentives to excessive risk-taking and high leverage. Even in good times that perception could discourage sound fiscal policies and prudent financial behaviour. In the design of non-standard measures and in its communication, the ECB has taken great care not to give such adverse incentives to either banks or governments. The following elements, among others, serve as proof:   The non-standard measures are temporary in nature. Some of them will expire automatically, if not renewed. On top of that, we have all the necessary instruments to reverse the current situation of abundant liquidity provision.   The mandate of the ECB as stipulated by the Treaty has an unambiguous focus on price stability. In combination with the ECB’s monetary policy strategy it provides a clear guidepost and has proved effective in anchoring inflation expectations over time.   The monetary policy strategy gives a prominent role to the monetary analysis which captures money and credit developments and ensures a symmetric reaction to financial forces.   The design of the tool called Outright Monetary Transactions creates the right incentives for governments to improve their performance with respect to fiscal prudence and structural reforms. I will expand a bit further on this fourth point. OMTs will only be activated in cases where the benefiting country has signed up to strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme.

In order to allow banks to mobilise a larger share of assets for refinancing purposes, the Eurosystem expanded the set of assets that could serve as collateral for central bank credit. Belonging to the same family of tools are the two 3-year Longer Term Refinancing Operations that were announced a little more than a year ago, also to address a funding crunch in solvent banks. As a further step to address the banks’ funding problems and the deep financial fragmentation within the euro area, the instrument of intervening in securities markets was launched. This tool has been available to the ECB since the inception of the third stage of Economic and Monetary Union in 1999, but it was not until 2009 that it was actually used. The first action of this type was the purchase programme for bank-issued covered bonds. In May 2010 the Securities Markets Programme (SMP) took effect, in conditions in which the collapse in the markets for securities issued by distressed governments threatened a renewed wave of chain defaults. The SMP programme was finally superseded by the so-called Outright Monetary Transactions (OMT), announced in September 2012 but so far not activated. I will talk more about the OMT later. The standard measures have definitely served their purpose, to maintain price stability. And it is undisputable that the non-standard measures have helped repair the monetary policy transmission mechanism by alleviating funding pressures in banks and thus complementing standard measures.
The minimum standards were developed to help ensure that global competition in banking markets will be driven by each bank’s strengths, rather than by differences in each country’s rules. Moreover, Pillars Two and Three were largely created to promote a more level playing field for banks. For example, incorporating supervisory review – or Pillar Two – into the international guidelines represents a seminal achievement for all of us. By developing guidelines for supervisors’ evaluation of a bank’s internal capital allocation process, the Committee believes that supervisors and banks will engage in more focused, more consistent, and less burdensome discussions of the risks that banks face and the responses they adopt. National laws and regulations provide different avenues through which supervisors may conduct such reviews, and consequently Pillar 2 affords each jurisdiction the flexibility to accommodate those differences. 4  BIS Review 46/2003  To advocate more consistent standards, the Committee created the Accord Implementation Group, or “AIG,” precisely to share experiences and encourage shared approaches. This group, which is chaired by Nick Le Pan, the Canadian Superintendent of Financial Institutions, has already been long at work comparing notes on practical matters. We expect these discussions to help supervisors apply the New Accord more consistently at home, thereby providing a more level playing field across countries as well.

But, we have still not been able to truly cooperate in this field of reserve management, and it is perhaps time for us to take the preliminary steps to move towards such practices in the foreseeable future. It may be controversial. It may pose some new challenges. But, explore, we must. So, I hope you would also start thinking about this new philosophy as well. 2. My dear friends, achieving higher returns, given the current financial turmoil and other factors associated with it, is a challenge faced by many central banks today. The manner in which central banks respond to this challenging task of reserve management has also, had to change rapidly to meet with these new conditions. In fact, it is seen now that central banks have started to gently move away from traditional asset classes like the government Treasury Bills to more sophisticated asset classes. With this development, we now witness changes in the asset portfolios of central banks in the current context, since Central Banks have moved into more dynamic instruments to achieve its return objective within certain acceptable risk parameters. Consequently, gold and Treasury bill holdings traditionally held by central banks are now being challenged by investments like derivative products, securities lending and securitised products, and this trend opens out a new canvas for the reserve managers of central banks. 3. The experience of the financial market turmoil has led to fresh new challenges as well, which are quite formidable.
Additionally, in that period there was a strong contraction in the bank credit portfolios, which resulted from the sharp correction of the excessive debt built up by Spanish households and firms in the pre-crisis years and from banks’ loss of market share in the total financing of the economy. During those years, banks cushioned the balance sheet effect of this fall in their credit portfolios by increasing their exposure to other assets, especially through government debt purchases. As these debt securities provide lower returns than lending to households and firms, in the long run this portfolio rebalancing resulted in a fall in the average return on assets. However, when the sovereign debt crisis came to an end, the increase in value of these debt securities provided a positive, albeit short-lived, boost to profitability. This effect fades gradually once interest rates stop falling and, furthermore, in recent years banks have substantially reduced their holdings of these securities in the available-for-sale portfolio, which, since it is measured at market prices, is where these gains are recorded. On our estimates, the overall effect of these changes in asset composition – associated with the increase in non-performing loans and the decrease in the relative share of credit on balance sheets – would explain some 70% of the decline in net interest margin in the Spanish banking system between 2007 and 2018.

But under the current shareholder-centric model, these wider stakeholders are not given any control rights over management. This constrains their ability to rein in managerial excesses, even though their incentives to do so may be sharpest. In other words, the standard corporate governance model may be predicated on a misclassification of risk and, as a result, a misalignment between these risks and control rights, with potentially adverse implications for corporate risk-taking. Companies and society (a)  Externalities and systemic risk  At least for some types of firms, their actions can have an impact beyond internal stakeholders – shareholders, creditors, employees, customers and clients. They impose social externalities on the economy and wider society. If companies’ objectives are shareholder-centric, these externalities are unlikely to be internalised fully within firms’ decision-making. In other words, there is a potential disconnect between company and societal incentives. These externalities can be both good and bad. For example, many companies are in the business of creating public or quasi-public goods – for example, health, education, transport and utilities. And that is why, historically, their corporate governance structures have typically tended to weigh broader stakeholder and societal interests. In other cases, these social externalities may be negative – the creation of public “bads”. The classic example is environmental pollution. But these social externalities can also arise in more subtle ways – the mistreatment of customers and clients through delayed payment or mis-selling, exploitation of employees through inadequate working practices, or attempts to avoid paying sufficient tax to government.
I’m sure that at this time, and perhaps even at this conference, his voice would have been heard and he’d have been offering us imaginative insights into the coronavirus crisis. Michal, we miss you. Ladies and gentlemen, thank you for listening. I hope you find the conference interesting and inspiring. 7/7  BIS central bankers' speeches

Although the notional total value of these contracts, now approaching $ trillion, is not a particularly useful measure of the underlying economic exposure at stake, the size of gross exposures and the extraordinarily large number of contracts suggest the scale of the unwinding challenge the market would confront in the event of the exit of a major counterparty. The process of closing out those positions and replacing them could add stress to markets and possibly intensify the direct damage caused by exposure to the exiting institution. Credit derivatives, where the gaps in the infrastructure and risk management systems are most conspicuous, are less than 10 percent, and perhaps less than 5 percent, of the total OTC derivatives universe, but are growing much more rapidly. Large notional values are written on a much smaller base of underlying debt issuance. The same names show up in multiple types of positions-singles-name, index and structured products such as CDOs. These create the potential for squeezes in cash markets and greater volatility across instruments in the event of a default, magnifying the risk of adverse market dynamics. 2  •  The net credit exposures in OTC derivatives, after accounting for collateral, are a small fraction of the gross notional values. The ten largest U.S. bank holding companies, for example, report about $ billion of potential credit exposure from their entire derivatives positions, the total gross notional values of which are about $ trillion.
Second, it can also provide perverse incentives for financial firms to grow bigger, more complex and more interconnected simply to secure public support and finally take on more risks. To answer these concerns, the policy response has focused on the issue of ‘too- big- to- fail’ institutions. The Financial Stability Board (FSB) has proposed that global systemic financial institutions should be better capitalized and be submitted to higher capital surcharges, proportional to their contribution to systemic risk. It has also recommended a tighter supervision of these institutions, notably by setting up Crisis management groups in charge of monitoring that these institutions develop appropriate resolution and recovery plans. BIS central bankers’ speeches  1  It may be useful at this point to step back a little. The TBTF problem was not born with the crisis. The official recognition of a TBTF policy and the coinage of the term itself date back to 1984 during the testimony before Congress of the then US comptroller of the Currency on the government rescue of the bank Continental Illinois. Afterwards, a further 11 banks were identified as TBTF in an article in the Wall Street Journal. The fact that continental Illinois rescue led to a subsequent decrease in market discipline for these banks has been confirmed by several academic studies. The last crisis however gave rise to two important developments in the TBTF problem.

This topic might be less familiar to some—the terms are newer and the assessment frameworks are less developed—but I believe it is critically important. Both the official sector and many of your firms have put considerable emphasis on improving corporate cultures and reducing misconduct risk, but we continue to see striking cases of misconduct both in the U.S. and abroad. Clearly, more needs to be done. Many of the insights I will share today are drawn from interactions with industry participants and members of the official sector through outreach and industry conferences and workshops on the topic, including events hosted by the Federal Reserve Bank of New York. 2 I am confident that continued commitment and collaboration will contribute to better outcomes in this vital area. Before proceeding, I’ll emphasize that I am speaking for myself and not the Federal Reserve Bank of New York or the Federal Reserve System. Influencing Culture from Multiple Perspectives Prudent risk management is a fundamental aspect of the business of banking, which means it is a critical factor in the effective oversight of banks. Supervisors focus on financial resilience by requiring firms to maintain sufficient capital and liquidity and emphasize operational resilience by promoting effective corporate governance, risk management, and recovery planning.3 In my view, misconduct risk—defined as the potential for behaviors or business practices that are illegal, unethical, or contrary to a firm’s stated beliefs, values, policies, and procedures—is an integral part of an effective risk management framework.
Monetary policy The euro should be at least as solid and stable as the best currencies of the European Union and therefore at least as solid and stable as the French franc in the past. This is what inspires the policy of the European System of Central Banks, the European Central Bank and its Governing Council. This is what is required by the Treaty and also by our fellow citizens, who want a new currency that is at least as solid as the French franc. And it is indispensable in order to preserve the competitiveness of the European economy, ensure low medium- and long-term market interest rates on a lasting basis and therefore favour growth, job creation and the fight against unemployment. BIS Review 62/1999  2  The stability-oriented monetary policy of the European Central Bank and of the European System of Central Banks is guaranteed by their independence, which is enshrined in the Treaty. It is buttressed by the support of European public opinion which, like French public opinion, is deeply attached to the stability of the currency. In the final analysis, an independent institution is always accountable to the public. In a world monetary and financial system characterized by totally free capital flows, confidence is the most precious asset: the confidence that we inspire in economic agents and French, European and international investors; and the confidence with which we are credited today, tomorrow and in the future.

The reason why we emphasize the importance of competitiveness indicators is therefore not only that cost containment is a necessary condition for low inflation. It also, and primarily, lies in the fact that in the European economy of today, which is governed by complete freedom of choice for consumers and complete freedom for businesses to choose where to invest, jobs will be created preferentially in economies that manage to contain their unit production costs and offer an environment that is as favourable as possible to business competitiveness. BIS Review 62/1999  4
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.

After the drop in the midstream of the crisis, unit labour costs in the region started to rise moderately until 2017-2018 when sharp rise was noticed, supported by the cyclical upturn, as well as the rise of wages in public sector and minimum wages in some of the countries. During 2011-2016, the overall growth of ULCs in the region averaged around 2%, while in 2017 and 2018 the y/y growth picked up to 5% - very close to the pre-crisis average growth. The sharp rise of the productivity adjusted wages should translate into higher core inflation. Yet, it only supported the disposable income and the rise in private consumption, while price pressures remained subdued. This disconnect between unit labour cost and inflation might indicate probable time lag between the two. Or “there might have been structural changes to the way firms incorporate costs into their pricing decisions that has affected the relationship between wage growth and inflation. If firms and workers expect low inflation going forward, for example due to the improved credibility of the central bank, firms may be reluctant to raise their prices even when faced with higher wage costs as they expect increases in costs to be only temporary. In such a situation, the pass-through of higher wages to prices would be muted due to lower expected persistence of cost and price changes.