samchain/econo-pairs-v1 huggingface dataset:
This is shown in the light blue bars, in which the probability of a crisis is 0.5pp higher than with reciprocity, despite policymakers choosing to increase the countercyclical buffer a little more. This feature of reciprocity – that it allows both countries to reduce the probability of a crisis by more than if they were acting alone – can be thought of as “enlightened self interest.”  12  And it is one of the reasons why it  was built into the international framework for the countercyclical capital buffer. As part of the Basel III framework, reciprocity is mandatory for all Basel Committee member jurisdictions, and the BIS maintains a website where information on countercyclical capital buffer decisions of all participating countries is captured and which banks can use to calculate their institution-specific requirements. And reciprocity of the countercyclical capital buffer is a legal requirement in the European Union under CRD IV. 13  Reciprocity also helps address the old problem of asymmetric adjustment of global imbalances. Suppose a deficit country wishes to contain the supply of credit and build resilience in its financial system by raising the buffer. If a surplus country whose banks are lending to the deficit country reciprocates, its banks should be incentivised to lend less to the deficit economy, and more to their domestic economy. That should increase domestic demand in the surplus country, and hence demand for deficit country exports, reducing the overall level of imbalances.

These initiatives would further strengthen the stability of financial institutions, laying the foundation for stronger financial system and economy in the longer term. To increase the efficiency of the payment system, the BOT has launched the Imaged Cheque Clearing and Archive System (ICAS), for Bangkok and its vicinity since February 2012. In addition, the Financial Consumer Protection Center (FCPC) was set up to provide information about the BOT, to receive consumers’ complaints regarding financial services, and to offer financial education to the public, all of which have been well received. Economic outlook in 2013 Looking ahead, risks to growth have declined on the back of firmer, if moderate, global recovery, and robust domestic demand which continues to be the main growth driver for the Thai economy. Private consumption would continue to benefit from the first-car tax rebate program as well as the reduction in personal income tax which would take effect this year. Furthermore, private investment continues to expand steadily on positive growth prospects, post-flood reconstruction in some parts of the manufacturing sector, and various government stimulus measures. Meanwhile, exports started to show signs of a broadbased recovery, and should pick up pace in the latter half of this year, lending an additional support to growth momentum as the effect of government’s stimulus wanes. Inflationary pressure meanwhile should remain contained.
Although the market realizes that a further rise in the asset price would virtually compress yield, the market appears to be less concern about a bubble in asset prices. Therefore, there is a risk of a sharp correction which we all witnessed in the recent episode in the Thai stock market last week. 6. The second dimension of the great rotation is the global fund flow, which is one of the greatest challenges emerging markets are experiencing. The continued monetary easing in advanced economies, economic growth differential and protracted low interest rate environment are key factors pushing investors to search for yield; fund flows have therefore switched from advanced to emerging economies. 7. This second dimension of the great rotation is a concern to policymakers in the region and has called for wider public discussions among academics, businesses and policymakers. Discussion typically centred on the potential recourse to macroprudential or  BIS central bankers’ speeches  1  unconventional measures on the part of recipient countries, given that such practice has been adopted by the source countries of the fund flows. As market participants, we all recognize the benefits of capital inflows that provide a two way view for the market, thus adding depth and breadth to emerging financial markets. Therefore any considerations on the use of capital flows policies need to be carefully thought out with consideration of potential unintended consequences and impacts.

Needless to say, there is greater acceptance for these measures to be part of the toolkit of the authorities and central banks are continually monitoring the markets and ready to take actions in cooperation with regulators and market participants. 8. To respond to the surge in inflows, the BOT has chosen the route of capital account liberalization as the most natural counter to encourage the outward flows of capital. We believe that this measure will help lessen the pressure from the rotating fund flows as well as provide the opportunity for Thai enterprises to secure new markets in preparation for the ASEAN Economic Community (AEC). The roadmap includes relaxation in outward direct investment and portfolio investment. In addition, the BOT has allowed Thai corporates to issue foreign exchange denominated bonds domestically. There is no reason why a reputable Thai corporate should have to go oversea to secure funding if they are well known domestic household names that can mobilize funds at a more attractive rate domestically. Hence, the rotation in fund flow will be taken place at both ends; thereby balancing Out-In with In–Out flows. 9. Against the backdrop of a rotating world, the financial industry is confronted with tighter regulation. Since the collapse of Lehman Brothers in 2008 the world has been thrown in a global recession for half a decade.
Persistent weakness in housing is particularly problematic because it acts as a drag on spending and job creation in an environment in which such weakness can not be easily offset  8  A number of these issues were documented by an interagency task force that included the Federal Reserve and are being addressed through consent orders requiring supervised institutions to remedy deficiencies. 9  When the amount of debt secured by a property exceeds its likely net sales price, a “short sale” can be a less costly alternative to foreclosure. The short sale agreement between the homeowner and lender often grants the lender final approval of the sales price and may release the homeowner from any deficiency. 4  BIS central bankers’ speeches  by other policy adjustments. Housing policy should seek to break adverse feedback loops, promote more economically efficient outcomes in housing and support growth. In recent speeches,10 I have called for a “comprehensive approach” to stabilize the national real estate market and lay the foundations for recovery. I believe this should include measures to improve access to mortgage credit, reduce obstacles to refinancing, lessen the flow of homes into foreclosure through bridge financing and accelerated principal reduction, and to facilitate the absorption of REO back into use as owner- or renter- housing.

Because the home is the primary source of collateral for most households, financial institutions are less willing to lend when house prices have declined substantially and could fall further. In addition, problems in the foreclosure process and obstacles to efficient modification of loans in securitizations, which I’ll describe in a moment, make a house of a given value less attractive as collateral to secure a loan. As a result, as home prices have fallen, financial institutions have tightened  3  FRBNY Quarterly Report on Household Debt and Credit 2011 Q3. 4  Because housing is such an important asset for many households, household expectations of future income may also be influenced by what they observe happening to house prices. 5  These households have particularly strong incentives to increase saving to recreate a buffer against adverse events and to enable them to move house. Source of data is CoreLogic. 2  BIS central bankers’ speeches  lending standards. This has reduced the amount of credit available for households, including for small business formation. Fourth, the big drop in house prices has made it more difficult for borrowers to refinance. This has undercut to a degree the ability of monetary policy to support demand. Traditionally, refinancing activity has been an important channel through which lower interest rates support spending and employment. Refinancing frees up borrower income. Because those who refinance tend to have a higher marginal propensity to consume from income than the investors receiving the mortgage payments, such refinancing activity increases overall demand.
Thus Hong Kong will adopt Basel II at the same time as other major international financial centres, such as London, Frankfurt and Tokyo. From a regional perspective, the implementation timetable in Hong Kong is broadly similar to that being adopted by Australia and Singapore. For several years now the HKMA has been developing its supervisory approach along Basel II lines, and this is leading to some significant changes in how supervision is conducted. Central to this is the issue of "process versus rules". Process versus rules The original Basel Capital Accord was developed when risk management was still very much in its infancy. It reflects what might be called a "rules-based" approach to regulation in the sense that it sets prescriptive standards that banks are required to follow. It relies largely on the application of simple, mechanical formulas for assessing how much capital a bank should hold. The essence of the old Capital Accord was that it represented an attempt to monitor the prudential soundness of banks by using a standardised risk measurement framework, which was applied to all institutions and which employed data based on a snap-shot of their balance sheets at certain specified reporting dates. The approach was standardised since regulators specify the precise form in which the calculation of capital adequacy is to be performed - for example, the specific risk categories into which assets are to be assigned.

The recent issuances of the world’s first green sukuk by two energy companies in Malaysia have kicked start the growth of green sukuk market and will significantly boost the “cleantech” movement. Fundamentally, Islamic finance is well positioned to advance the green agenda, as environmental protection and sustainable growth objectives are already embedded within its principles. The structures of sukuk make it well-suited to channel global Shariah-compliant capital to fund renewable energy and climate change projects. Socially responsible investment (SRI) sukuk has also made its debut with the unique vaccine sukuk programme launched in 2014 that raised funds worth USD500 million for children’s immunisation in a number of poor countries. These are proofs of new ways of mobilising resources to increase sustainable humanitarian financing to reach nontraditional donors and responsible investors. Innovation within the Islamic social finance space can also assist to address a number of issues facing the ummah and society at large. Waqf, sadaqah and zakat have large potential to become important additional sources of financing for people in need of aid. Each year, Muslims worldwide generously donate through these channels. The global volume of zakat itself, collected each year through formal mechanisms is estimated to be in the tens of billions of dollars. A conservative estimate by Islamic Development Bank indicated that there is at least USD600 billion of zakat collected are available to meet humanitarian needs.
Start ups are well aware of this, but our scale-ups, midcaps and SMEs also need greater access to equity leverage. In this field, our economy, like that of our neighbours in the euro area, is seriously lagging behind: in France, equity only accounted for 64% of GDP at end-2016, which is half as much as in the United States (128%). It is true that French and European savers are very attached to safe investments. The bulk (69%) of the EUR 4,765 billion in financial wealth held by French households is invested in interest rate products, compared to only 31% in equity products, i.e. invested in corporate capital in the form of listed or unlisted shares.1 However, it is important to distinguish, with respect to savers’ expectations concerning security, two components: they are attached to the protection of capital, even more so than to liquidity. With the increase in life expectancy, and with a greater need to prepare their retirement, savers are increasingly being steered towards long-term products; the liquidity component is becoming less decisive. Here, insurers have an essential role to play, by taking the lead on new forms of life insurance that aim for a three-fold compatibility: with low interest rates, our economy’s need for equity financing and the expectations of the French people. This requires new long-term savings products that are less liquid but feature a form of capital protection and offer over time the higher equity-type returns. Let me make myself absolutely clear: the development of unit-linked policies is not a sufficient response.

However, even though Norges Bank closely tracks the GPFG’s benchmark index, many big and small choices have to be made every day. The Executive Board is satisfied that the return over time has been higher than the return on the benchmark index against which the GPFG’s performance is measured. For 2021, the GPFG’s investments earned an overall return of 14.5 percent before management costs. The return was 0.74 percentage point higher than the return on the benchmark index defined by the Ministry of Finance. Since the turn of the year, the markets have been affected by Russia’s invasion of Ukraine and higher inflation in many countries. The GPFG’s equity and bond investments both fell in value in the first quarter of the year, and the overall return on investments was a negative 4.9 percent. Norges Bank’s investment management helped to dampen that fall somewhat. The return was 0.66 percentage point higher than the benchmark index for the quarter. The white paper The Government Pension Fund 2022 contains a broad review of the Bank’s active management of the GPFG. The Ministry proposes to maintain the size of the Bank’s permitted deviations from the benchmark index, measured as expected tracking error. This is consistent with Norges Bank’s assessment that the tracking error limit is adequate. On several occasions in 2021, the Executive Board provided the Ministry of Finance with advice and assessments regarding the GPFG’s approach to climate risk. This is also a key topic in this year’s white paper.
Bluntly I think we wouldn’t be doing our job if we didn’t do this – but at the same time the competition objective requires us to ride both horses at once. This is doable but it is tricky. It also raises an interesting question about the relative costs of supervising smaller firms versus higher FSCS levies to cover failures, which would merit further study. Fourth, how is technology going to affect all this? This is obviously a huge topic in its own right, and others here will touch on it so I will make only two brief comments. One, in my view the jury is still out on whether Open Banking and/or PSD2 are the gateway to a bigger change. Two, it is notable that some digital banks are making material inroads into the current account market – is this the leading edge of a bigger change, or not? Fifth, might Brexit create opportunities to move further on proportionality for smaller firms? I’ve already talked about the way in which we make the regime tougher for larger firms. This is entirely appropriate, but is not the same as saying we should have a weak prudential regime for smaller firms – indeed, I think that is the last thing we need both from a safety and soundness and a competition perspective. However, there may be a reasonable case that a simpler (simpler, not weaker) regime for small firms would advance both our safety and soundness and competition objectives.

Seven awkward questions Speech given at a roundtable to mark the fifth anniversary of the PRA's Secondary Competition Objective Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority Bank of England Thursday 17 January 2019  1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Thank you all very much for coming to our event today, and in particular to our panellists for agreeing to take part. Indeed, I speak on competition with a degree of humility in front of this panel – and particularly in front of Sir John because my first real engagement with these issues took place under his chairmanship when I was working for the Independent Commission on Banking back in 2010. For that reason, and in view of the expertise of this audience, you will be relieved to hear that I am going to avoid giving you a fifteen-minute-long list of all the things we’ve done over the last 5 years to advance our secondary competition objective. Of course I have to do a bit of that or I’m not doing my job! But I’ll just pick out a few items and keep it brief. Nor will I focus too much on some of the hardy perennials of this debate such as low switching rates, because I’m sure others on the panel can do better on those if we want to get into them.
We estimate that if we had not cut the MPR by a combined 350 basis points (bp) between January and February, this rate would be some 250 bp above where it is today. A similar situation can be seen in the case of consumer loans. The cost of mortgage financing, meanwhile, has been less sensitive to the changes in the MPR precisely because those are long-term borrowing decisions. However, without the drop in long-term rates – which has partly originated in the monetary easing – mortgage rates would have stayed largely above their current levels (figure 3). We estimate, then, that the monetary policy decisions recently adopted have begun to pass through to the credit conditions faced by households and firms. This pass-through should continue in the near future, especially after the reduction in the MPR that the Board determined last week. We will keep monitoring these effects permanently, because for us it is essential that the MPR propagates to market rates smoothly. We certainly expect the latest MPR reduction last Thursday to result in additional decreases in the banking system’s lending rates. This type of exercises also permits to evaluate the impact of the higher degrees of uncertainty, volatility and risk we have been observing since last September.

In fact, while obviously important, the decisions that we adopt as the Central Bank Board at the monetary policy meetings are not the only element shaping the credit conditions within the economy. Also of first order is the market’s perception of how the monetary policy will be managed in future months and years. This leads us to be extremely cautious in our communication, in order for the decisions we make to be perceived with the adequate persistence. The monetary policy that the Board has been implementing in the past few months clearly illustrates this phenomenon. Despite the fact that the MPR was held constant at 8.25% in the last months of the past year, thanks to the way we communicate our decisions and to the  BIS Review 35/2009  1  incorporation of an explicit bias the MPR level expected by the market six months ahead dropped significantly, pulling down the deposit rate at longer terms. Subsequent reductions to the MPR that have been applied this year have gone beyond market expectations, reducing financing costs (figure 1). To succeed in communicating properly, transparently and credibly is then key for monetary policy decisions to cause the impact that is needed. This is what makes monetary policy effective, and it is why the Central Bank has maintained a systematic policy of communication and transparency, through the presentations we make as Board members, with our Monetary Policy Reports, and with the transparency mechanisms we have for our policy decisions.
Along that path lies excess – excess trading, excess credit and excess volatility. What evidence exists on these phenomena? Patience and puzzles One source is the enormous literature on financial market efficiency. If markets were efficient, asset prices would mirror fundamentals. This would be indirect evidence against impatience, which tends to cause prices to deviate persistently from equilibrium. In fact, empirical finance is full of puzzles – economist code for deviations from market efficiency. And, interestingly, many of these observed puzzles are consistent with impatient dynamics. They include:   Excess volatility puzzle: There is strong evidence that asset prices, both real and financial, are both considerably more volatile than fundamentals and can deviate for persistent periods. 25    Serial correlation puzzle: There is strong evidence that asset prices do not follow a random walk, but instead exhibit short-term positive correlation (for example, due to momentum traders) and medium-term negative correlation. 26    Equity premium puzzle: The required yield on equity over safe assets is greater than can be explained by conventional asset pricing theory – a puzzle which some have explained using hyperbolic discounting. 27    Excess sensitivity puzzle: Contrary to standard theory, consumption is “excessively” sensitive to movements in income, violating the predictions of the permanent income model – a puzzle which impatience and under-saving can also help explain.

We have already seen a significant number of positive effects from these monetary policy decisions. Financial market conditions and the cost of external finance for the private economy have eased further, also following our previous monetary policy measures. In particular, borrowing conditions for firms and households have improved considerably. Moreover, money and credit dynamics have been firming. The substantial additional easing of our monetary policy stance supports and reinforces the emergence of more favourable developments for the euro area economy. In an environment of improving business and consumer sentiment, the transmission of our measures to the real economy will strengthen, contributing to a further improvement in the outlook for economic growth and a reduction in economic slack. Thereby, our measures will contribute to a sustained return of inflation towards a level below, but close to, 2% over the medium term and underpin the firm anchoring of medium to long-term inflation expectations. Let me now explain our assessment in greater detail, starting with the economic analysis. According to Eurostat’s flash estimate, real GDP in the euro area rose by 0.3%, quarter on quarter, in the last quarter of 2014, which was somewhat higher than previously expected. The latest economic data and, particularly, survey evidence available up to February point to some further improvements in economic activity at the beginning of this year. Looking ahead, we expect the economic recovery to broaden and strengthen gradually. The low level of the price of oil should continue to support households’ real disposable income and corporate profitability.