samchain/econo-pairs-v1 huggingface dataset:
This is perhaps the toughest challenge for emerging markets in this regard. In particular, a heavy focus on maintaining immediate financial and economic stability can often hinder efforts to deliver these very same goals in the long run. Thus, ensuring that the outcome of such trade-offs turn out favorable to the attainment of monetary and financial stability in the long term is perhaps the toughest challenge for emerging markets in the present context. Ladies and Gentlemen, To conclude, despite the challenges presented above, the overall direction of change in emerging market countries in the past decade is fundamentally reassuring. Much has been achieved in terms of strengthening the monetary framework and financial system development, reducing vulnerability to external shocks through the establishment of sizable foreign reserves cushion as well as significant restructuring of external debt currency denomination and maturity profile. These changes make it more likely that the process towards further global financial integration will bring substantial benefits in terms of growth and fewer risks, in terms of financial distress, and ultimately contribute towards a more stable macroeconomic outcome. And with that note, let me now end my lecture this evening. Thank you. References Aguiar, M. and G. Gopinath (2007), “Emerging Market Business Cycles: The Cycle Is the Trend”, Journal of Political Economy, Vol. 115, No. 1, pp. 69-102. Arbache, J. (2004), “Do Structural Reforms Always Succeed?” United Nations University Research Paper No. 2004/58. Bank for International Settlements.

The key hypothesis of the research is that the context in which monetary and financial stability is pursued in emerging market economies is different to that of developed economies, and so the challenge and the implications for policy are different. My lecture this evening is organized into two parts. In the first part, I will talk about the unique context of emerging market economies compared to developed economies in the attainment of monetary and financial stability, and discuss the underlying cause of the difference. In the second part, I will highlight the key implications of these differences for the pursuance of monetary and financial stability in emerging market economies, both in the context of shortterm stabilization challenge and the longer-term structural challenge in implementing structural reforms. The lecture will be brief, so that we will have time for a Q and A session afterward. 1. First, the unique context of emerging market economies. As a general statement, one can begin with the notion that the attainment of monetary and financial stability is something that policymakers everywhere place at the forefront of their agendas. And, monetary and financial stability are desirable because they are prerequisites for welfare-enhancing macroeconomic outcomes. Along this line, the context in which monetary and financial stability is pursued in emerging market economies is quite distinct from that in developed economies. For emerging markets, there are two stylized facts that are unique to its policy setting.
But you know full well – as  does the private sector – that, when the time comes, you’ll want to do something else in that case. It’s one thing to promise in abstract to be “irresponsible”, in advance of some hypothetical inflationary shock. It’s quite another, in the teeth of a real one, actually to be irresponsible. By that time the promise is in the past, the inflation is happening now and it obviously feels more important to deal with what’s in front of you than to abide by a pledge you might have given some time – even some years – earlier. Knowing this, people will naturally be sceptical about the promise in the first place and the policy would lose its force[14]. You’d be back in the world of the red line in Chart 4 (subject to the effects of QE). In a paper in 2019[15] economists at the Bank formalised this idea by introducing a probability that the central bank reneges on earlier commitments. The probability was assumed to rise in line with the scale of the subsequent inflation (and therefore the temptation to abandon the promise). But it’s precisely from the possibility of these high-inflation states of the world that the prior commitment really gains its force. (This is the Catch-22 of time-inconsistent policies: the only promise worth making is one you’ll subsequently be tempted to break).

The share of banks reporting a further slight tightening of conditions for corporate lending has fallen considerably, from 40% at the time of the previous quarterly survey to 3% for this quarter. Households appear to be benefiting from a similar trend, as no banks have announced a tightening of their lending conditions for households,  2  BIS Review 167/2009  whereas in the previous quarter 50% of banks reported a further slight tightening of lending conditions for non-mortgage loans and 20% for mortgage loans to households. The survey also suggests that demand for loans has stabilised. The share of banks experiencing increased household demand for mortgages has fallen from 40% at the beginning of this year to 10%. The situation in Switzerland is thus very different to that observed in other economies. Not only is there no credit crunch, but we have also witnessed a substantial increase in the volume of mortgages. There are also signs of a relaxation in lending conditions for mortgage loans. We would like to sound a note of caution, both to banks and to firms and households, as regards the risks inherent in a relaxation of discipline in real estate financing. Inflation outlook Monetary policy influences the medium and long-term inflation outlook. By contrast, it has very little effect on short-term developments. The past two years have been a perfect illustration of this. Inflation peaked at 3.1% in July 2008, before plummeting to –1.2% in July this year.
Beyond their likely contribution to, e.g., making payments more efficient or to driving innovation in financial markets, crypto-assets pose a number of important risks for the financial stability which could, eventually, become a material source of concern for relevant authorities if not accompanied by effective mitigation measures, as emphasised in the G20 communiqué of 18 February.2 I will begin my speech by describing the defining characteristics of the phenomenon and recent developments, before turning to the specific risks to financial stability that they may pose. I will end by highlighting some of the main elements shaping the current response of regulators and supervisors and the challenges that lie ahead. The complex universe of crypto-assets The term crypto-asset is oftentimes used to refer to a wide range of highly heterogeneous assets whose common trait is that they are a digital representation of value or a set of contractual rights. In contrast with other digital assets already in circulation, they rely on distributed ledger technology (DLT) to be transferred, traded and stored. In addition, unlike central bank digital currencies (CBDCs), they are not backed by a central bank or any other public authority. To simplify somewhat, they can be said to share certain standard technical features, such as (i) a decentralised ledger, (ii) the use of encryption techniques to secure communications over open networks, and (iii) the deployment of protocols that allow to automatically execute different types of transactions.

However, if we look at the spread between the cost of borrowing and the lending rate for mortgage institutions, there is no indication that the interest margin for mortgage institutions has fallen as a result of increased competition (Figure 5). Mortgage institutions´ long term interest margin. 12 10  %  8 6 4 2 0 Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 1995 1996 1996 1997 1997 1998 1998 1999 1999 2000 2000 Interest rate on mortgage institutions´ borrowing, 5 years Mortgage institutions´ insterast rate on lending, 5 years. 3  BIS Review 99/2000  The new Internet-based players on the mortgage market are made up of those who mediate loans via the Internet and those who issue credit over the Internet. Players such as Blockbid, Bolånebörsen, Comboloan and E-loan search for and mediate the cheapest mortgages for borrowers. Europeloan, on the other hand, is an Internet-based credit issuer that has operated in Sweden since February 1999. The company, which also operates in Belgium and Germany, finances mortgages through securitisation. As more than 70% of the households have chosen floating interest rates on their new loans raised in the mortgage institutions during the last year, it could be suitable to look at the interest margin between short borrowing interest rates for mortgage institutions and floating interest rates on housing loans (Figure 6). This diagram suggests that the interest margin for mortgage institutions is now about 1.2% compared to about 1.5-1.7% during 1996. %  Mortgage institutions´ short term interest margin.
However, new regulation may affect the magnitude of these affects, and the size of the market-based financial sector may end up being smaller after the crisis. In Europe, the commercial banks dominate the financial sector. 18  Kohn (2006, 2008) specifies three conditions that should be fulfilled for central banks to take “extra action” to deal with a possible asset-price bubble: “First, policymakers must be able to identify bubbles in a timely fashion with reasonable confidence. Second, a somewhat tighter monetary policy must have a high probability that it will help to check at least some of the speculative activity. And third, the expected improvement in future economic performance that would result from the curtailment of the bubble must be sufficiently great.” He concludes, also in 2008 and after thorough considerations, that those conditions would rarely be met. See also Kohn (2009). BIS Review 16/2010  9  In particular, if there is evidence of rapidly-rising house prices and mortgage loans, and these developments are deemed to be unsustainable and a possible bubble, there are much more effective instruments than policy rates. Restrictions on loan-to-value ratios and minimum mortgages and requirements of realistic cash-flow calculations for house buyers with realistic interest rates are much more effective in putting a break on possible unsustainable developments than a rise in the policy rates. In particular, more transparency about future policy rates, in the form a policy-rate path published by the central bank, may help in providing realistic information about future interest rates.

Thus, there is a long intellectual tradition linking rule of law and sound money to functioning of free markets. But this connection found perhaps its clearest expression in the ordoliberal school that developed in Germany in the 1930s. Conceived at the University of Freiburg by Walter Eucken and Franz Boehm, the central understanding of ordoliberalism was that a stable and well-functioning market economy required a strong legal and institutional  1  “Moneta debt esse quasi quaedam lex et quaedam ordinacio firma”. Nicolas Oresme, Traité de la première invention des monnaies (ca. 1355). BIS central bankers’ speeches  1  framework. Pure laissez-faire capitalism was unstable and liable to capture by monopolies. Collectivist central planning, on the other hand, led towards waste and totalitarianism. Thus, as the ordoliberals saw it, the role of government was to frame markets in such a way that actual outcomes would approximate the theoretical outcome in a perfectly competitive market. Achieving such outcomes could imply de-regulation, if government was interfering too much in market processes, or re-regulation, if market failures were apparent – a feature that distinguished it from a laissez-faire approach. In other words, the role of government was both to untie the “invisible hand”, and to keep it firmly cuffed to the rule of law. At the same time, ordoliberalism recognised the crucial importance of monetary and economic stability to a well-functioning market.
At this stage, the relevant question for the new EU member states (NMS) is thus not whether but when to join the euro area. Entry is subordinated to the so called Maastricht criteria whose economic rationale is very strong. These criteria encompass: limited inflation differential vis-à-vis the best performing EU member; stability of the nominal exchange rate with the euro; sound fiscal accounts; and low long term interest rate spread vis-à-vis the best performing EU member states in terms of price stability. They must be satisfied simultaneously for the country to be able to join the EMU. The economic rationale is clear: membership of a monetary union entails the absence of monetary policy as a domestic adjustment tool. Diverging inflation rates become quickly unsustainable both because they create strong real exchange rates movements and within the area and different real interest rates at the national level. In this context more inflation-prone countries would have too low real interest rates leading eventually to credit booms, domestic demand overheating, and loss in competitiveness and current account deficits. Furthermore, in the absence of an independent monetary policy at the national level, fiscal policy becomes the main adjustment tool. In this context, fiscal criteria were designed in order to assess the ability of the government to conduct sound fiscal policies. Is the euro a model of monetary cooperation for other regions in the world? What is happening in Europe is triggering a lot of interest in other parts of the world.

In such circumstances, it would be extremely penalizing to give up the possibility of real exchange rate adjustments. This shows that there is no single model of monetary cooperation which could be duplicated around the world. It is up to each group of countries to find their own sustainable path to economic integration. Will monetary union evolve towards closer political union? As you well know, these are difficult times for European political integration. The Treaty creating a Constitution for Europe was not ratified by two founding members of the European Community. As a consequence, the future of political integration is fraught with uncertainties. These raise several important questions for the future. Has the process of political integration stalled or just paused? What is the appropriate institutional framework for an enlarged Europe? These are questions best left for the historians and political scientists to answer. But one question is essential: can monetary union progress and survive without a full fledged political union? Can we – to quote, Otmar Issing, my former colleague in the ECB's Executive Board – have "a currency without a state"? For me, like for Otmar Issing, the answer is clear: yes, we can. From the start, the European project has ventured into unchartered territory. We have created an institutional framework without any historical precedent and model. This is especially true for monetary policy,  BIS Review 43/2007  3  where we have transferred the decision making powers to a supra national entity.
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.

Timothy F Geithner: The current financial challenges – policy and regulatory implications Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Council on Foreign Relations Corporate Conference 2008, New York, 6 March 2008. *  *  *  I am going to talk today about some of the challenges facing the U.S. and financial system. These problems took a long time to build up, and, even with a forceful mix of public policy and action by the private sector, they will take time to resolve. The central questions are: what caused the crisis and what explains its severity? What mix of policy measures will best contain the damage? And what changes to the financial system are likely to produce greater stability and resilience in the future? Origins The origins of this crisis lie in complex interaction of number of forces. Some were the product of market forces. Some were the product of market failures. Some were the result of incentives created by policy and regulation. Some of these were evident at the time, others are apparent only with the benefit of hindsight. Together they produced a substantial financial boom on a global scale. In the five years leading up to the present stress, the world experienced an unusual mix of financial conditions.
“Intervention,” as the late - Charles Kindleberger4 said, “is an art form not a science.” My contention is that, whilst an aspect of such ambiguity may be inevitable, or even necessary, the demands of today’s complex world for enhanced predictability of behaviour and transparency should not be ignored. Ultimately public policy may require emergency liquidity injection through lender of last resort facilities. This may be justified to defend the public good of financial stability which the market itself cannot provide. I stress the word ultimately for this is a last resort after all other efforts have failed. The granting of any such support does, however, contain a basic dilemma. On the one hand there is a strong case for market discipline to avoid the dangers of moral hazard. This is the case for ambiguity as to whether and when the lender of last resort facility would be deployed. On the other hand people want predictability of process: who can be expected to do what if problems do arise? In the UK we are quite advanced in addressing these dilemmas. Our former Governor Sir Edward George, in a speech here at the London School of Economics in 1993, outlined the five key principles of lender of last resort assistance. They are equally valid today. To précis: explore every commercial option; ensure the key benefits come to the financial system not the shareholders; aim towards a clear exit; treat with care any details of the support given; and distinguish between problems of liquidity and solvency.

17 SR 18–8: Interagency Statement on Sharing Bank Secrecy Act Resources, Oct. 2, 2018. 6/6  BIS central bankers' speeches
EU Bank Recovery and Resolution Directive Just as the banking crisis led to Norway’s Bank Guarantee Schemes Act, the financial crisis gave rise to a new EU framework for crisis resolution. In January 2015, the Bank Recovery and Resolution Directive entered into force. 10 The aim of the directive is to enable insolvent banks to be resolved in a manner that ensures continuity of their critical functions, but without banks necessarily receiving public funds. The authorities are empowered to take control of a bank that is insolvent, or is at risk of becoming insolvent, and ensure that critical functions continue without bailing out shareholders and creditors. A new tool will make this possible. Beginning in 2016, national authorities in Europe will be able to write down and convert liabilities to equity while a troubled bank is kept open. The value of the bank’s assets is to be calculated and losses apportioned in accordance with the order of priority of claims. If the bank does not have sufficient equity, liabilities will be converted to share capital. This tool is called bail-in. 11 [Bail-in requires that creditors, and not the authorities, initially cover losses in excess of equity. Creditor claims are converted into equity to ensure continued operation. Short-term liabilities and secured deposits are exempted. It is primarily long-term liabilities not backed by certain assets or guarantee arrangements that will be eligible for bail-in. 12 Long-term creditors will then have to take account in advance of the real risk inherent in the bank they fund.

BIS central bankers’ speeches  3  When the government assumes a substantial portion of bank risk in this way, a problem arises that we economists refer to as moral hazard: If there is a widespread perception that the authorities in reality stand behind banks, banks may take insufficient account of the risk of losses when making decisions. In particular, the risk that things can go horribly wrong may be underestimated, because banks do not have to bear the consequences of a crisis. By bailing out banks, we in turn reduce the motivation of banks’ owners and creditors to take full account of the risk associated with their activities. The pricing of risk is easily set too low. Banks may therefore end up taking excessive risk. Now, the authorities that bail out banks will often require that the former owners forfeit their equity. This means that bank owners should, at the outset, have incentives to hedge against the risk of large losses. But owners’ risk is limited. It does not cover losses beyond paid-in capital. Owners’ motivation to avoid risk may therefore be weakened at a bank with little equity. The lower the equity capital is, the more serious the problem of moral hazard becomes. An interesting feature of the financial crisis was precisely banks’ low pre-crisis equity ratios. Many large international banks operated with equity of around three percent of their total portfolios. 8 This means that for every dollar or euro the banks owned they invested thirty.