samchain/econo-pairs-v1 huggingface dataset:
Second, a more aggressive approach would risk an immediate and substantial rise in longer-term yields that, at this time, would be counterproductive for achieving the FOMC’s objectives. Third, the effects of swings in the balance sheet on the economy are difficult to calibrate and subject to considerable uncertainty, given our limited history with this policy tool. And fourth, policymakers do not need to use this tool to tighten financial conditions. They can tighten financial conditions as  3  An alternative explanation is that the large-scale asset purchases have had no effect and that the low levels of rates and spreads simply reflect other factors. However, I believe the evidence indicates that the asset purchases have contributed to the low level of longer-term rates. BIS Review 39/2010  3  much as needed by raising short-term interest rates, offsetting any lingering portfolio balance effects arising from the still-elevated portfolio. Even under this cautious strategy of relying only on redemptions, the Federal Reserve could achieve a considerable decline in the size of its balance sheet over time. From now to the end of 2011, we project that more than $ billion of the agency debt and MBS held by the Federal Reserve will mature or be prepaid, though the actual total will depend on the path of long-term interest rates and the prepayment behavior of mortgage holders. Thus, the Fed’s asset holdings would shrink meaningfully if the FOMC maintains its current strategy of not reinvesting those proceeds.

This is an incarnation of the wise measures adopted by the government under the leadership of the Custodian of the Two Holy Mosques to carry out more structural reforms (institutional and regulatory) which we have begun to feel their positive effects in all aspects of economy. It will be appropriate here to say a few words about the dynamic and crucial role played by the banking sector in the Kingdom, which is manifested in the substantial increase in the credit extended to the private sector which grew by 29 percent annually during 2003 – 2005; and it amounted to Rls 436 billion at the end of 2005. As a result of the expansion in banking business, the assets of the banking sector increased by 14.4 percent annually during the past three years (2003 – 2005). At the end of the first quarter of 2006, they stood at Rls 797.4 billion, constituting about 70 percent of the Kingdom’s economy. Deposits with the banking sector rose by 13.7 percent annually during the past three years, and they amounted to Rls 521.5 billion at the end of the first quarter of 2006. The positive indicators of the banking sector which rest on the robust fundamentals of the Saudi economy have prepared an appropriate environment for banks to adapt to successive, regional and international changes during the previous period. Banks operating in the Kingdom have been able to overcome the crises that hit other economies, and have been able to benefit from banks’ experiences and modern banking technology.
The maintenance of financial stability was accordingly recognized in the legislation setting up the Central Bank of Malta in 1968, but it was only pursuant to the 2002 amendments to this legislation that the Bank’s responsibility was made more explicit.1 These amendments also recognized the Bank’s role in preserving a sound and efficient payment system. The Bank’s efforts to strengthen its capacity in the area of financial stability commenced before its responsibility for banking regulation and supervision was transferred to the Malta Financial Services Authority (MFSA) in January 2002. In fact in 2000, a Financial Stability Office was set up to identify and analyse potential systemic threats not only in banks, but also in other parts of the financial system, such as the insurance and investment sectors, the securities markets and also selected large corporations in the non-financial sector. The Office has since developed a set of financial soundness indicators and a model which detects and assesses the impact of different types of risks. It has also introduced shock scenario techniques to stress-test the resilience of the banking system. This year the Bank has also started to conduct a bi-annual financial stability review whereby developments abroad as well as in the domestic macroeconomic, regulatory and operational environment are assessed in one analytical framework designed to detect potential weaknesses and to devise appropriate remedial measures. These activities are supplemented by the work of the Bank’s Payment Systems Office, which is responsible for the maintenance and oversight of the payment system.

Recent experience around the world suggests that the potential of a financial centre cannot be maximized unless it possesses another essential attribute. That other ingredient is stability and it is this aspect that I propose to explore today. Ensuring financial stability is a statutory responsibility of the Central Bank of Malta. The Bank is thus obliged to participate actively in the maintenance of a stable and efficient financial system and to contribute towards its development. This applies not only to the payment and settlement system, of which the Bank is the regulator, but to the entire financial system. The Bank has an on-going role to play in assessing the robustness of the system. It must draw attention to any problems and ensure that these do not in any way impede the functioning of the financial markets as efficient providers of capital for companies and households. The Bank’s approach is therefore to consider the general risks to the system rather than the situation of individual credit and financial institutions. The latter is the task of the Malta Financial Services Authority (MFSA), which has successfully assumed, over the last ten years, full responsibility for the supervision of institutions providing financial services. Why central banks promote financial stability There are several reasons why the maintenance of a healthy financial sector is an essential function of central banks, and this irrespective of their involvement or otherwise in regulation and supervision.
It is especially so considering that the shareholders who elect the board are generally a diffuse group with little economic incentive or capability to monitor the corporation closely - until, of course, something goes terribly wrong. Added to these challenges is the difficulty of finding qualified directors who have the time to devote to the affairs of the company and who are willing to face the risk of shareholder lawsuits. Some qualified directors may be reluctant to serve for fear that the potential bad performance of the firm will damage their reputations. The irony is that directors who are most qualified may be the least willing to serve because of the opportunity costs of the time they must spend and the potential threat to their reputations. Given what has transpired over this past year, there may in fact be a need to reconceive the role of directors. Some firms reportedly are already moving away from the tradition of choosing the CEO of another company as a director to choosing people who are equipped with more specialized and technical knowledge. Still open, however, are questions concerning how much time directors should devote to their duties and what the appropriate remuneration should be. 2. Executive Compensation  I have already publicly expressed my views on the trend toward excessive executive compensation. As I argued earlier this month, I can find nothing in economic theory to justify the levels of executive compensation that are widely prevalent today.

The major initiative by the public sector has been the passage by Congress in July of the SarbanesOxley Act of 2002. Although most of the new laws governing public companies are not immediately effective - and many require implementing regulation by the Securities and Exchange Commission several provisions were put into effect right away. One of these provisions required CEOs and CFOs to certify, as of the second quarter of this year, that their quarterly and annual reports fully comply with the reporting requirements of the SEC Act of 1934 and that the reports fairly present the financial condition and operating results of the firm. Included in the legislation are criminal fines and imprisonment for false reporting. These critical efforts at reform recall the private/public sector cooperation that was so successful in the preparations for the Y2K century date change. Experience has shown that such cooperation works best when both sectors go beyond the need to solve the immediate problem - that is, when they work together to learn from past experience and to anticipate problems and thereby strengthen the financial system on a longer-run basis. Why is this private/public sector cooperation so productive? I would argue that it is because each sector has its part to play. The private sector is motivated by self-interest, the public sector by the public interest. In this instance, private self-interest and the public interest coincide: both have a stake in the healthy functioning of the financial markets.
The euro is relying now on a more than 20-year old solid track record of stability: it is backed by a soft power based on the respect of international rules, multilateralism and openness. The euro is also at the centre of broad international trade links. It is at least a credible complement to the dollar as a safe asset. II. Promoting the international role of the euro as a pillar of monetary cooperation From the inception of the euro and during the last two decades, the Eurosystem adopted a neutral stance with regard to the development of the international role of the euro. It does not belong to the Treaty’s objectives: the euro was created for internal purposes, to avoid exchange fluctuations within Europe and accelerate economic convergence between Member States, not primarily to act as an international currency. Economic developments since 1999 have alleviated concerns voiced at that time about a potential loss of monetary policy control in case of a swift internationalization of the euro. A stronger international role of the euro would now be associated with more monetary policy autonomy and reduced impacts of exchange rate shocks on inflation. After a decade in existence, by the time of the GFC, the euro had become the second most used currency globally. But since then its growth has stalled. Today it still accounts  Page 5 sur 7 for roughly 20% of global currency holdings in central banks as well as just short of 20% of global debt and global loans.

The Committee adjusted monetary policy boldly and decisively on the way down in order to meet the inflation target. And, let me assure you that, when the time comes, we will be prepared to respond with equal vigour on the way back up. 6  BIS Review 46/2009
Or it 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  might be that pay initially only rises for workers moving jobs, and that pay for workers staying in the same job doesn’t pick up until the stock of unemployment workers is used up. That would be consistent the fact that pay growth for “switchers” has recovered by much more than pay growth for “stayers” (Chart 9). In the more recent period it might be that this is another effect of Brexit: as I argued last autumn, workers might have responded to uncertainties about the outlook by showing even more flexibility in their wage demands, or employers might be acting in a more precautionary way. Chart 9: Pay growth for “switchers” and “stayers” Median pay rise, per cent  12  Workers moving jobs 10  Workers staying in jobs  8 6 4 2 0 2001  2003  2005  2007  2009  2011  2013  2015  2017  This chart contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. A second explanation would be if technological or other developments have reduced individual workers’ bargaining power. This would be a continuation of a long run trend rather than a development specific to the financial crisis.

[14] The guidance covers risk management, operational processes, and stress testing capabilities. The responsibility of ensuring the resilience of LDI funds lies not just with LDI managers. Pension schemes which invest in LDI products must also contribute to resilience. I’ve already spoken about pension schemes’ role in ensuring LDI managers can use their resilience as collateral by remaining invested in LDI funds as they do so. Beyond this, TPR has published guidance on the responsibilities of pension scheme trustees in ensuring LDI resilience. [15] Fred Berry, from TPR, will speak about this later this morning. Pension schemes should also have regard to the Government’s broader strategy[16] to ensure that defined benefit schemes (DB) schemes in the UK are sustainable, well-governed, and that scheme members achieve better outcomes. The government is in the process of encouraging DB scheme trustee boards to more actively detect and respond to risks. Given the potential risks to financial stability from DB pension schemes, this work is essential. How can this framework enhance resilience in non-banks more widely? Now I would like briefly to change tack and think about whether our approach to LDI funds’ resilience might also be relevant when considering the appropriate resilience of other non-banks whose activities can impact UK financial stability. As non-banks play a greater role in the financial system[17] as well as the real economy[18] we will  Page 6  continue to ask questions on the resilience of non-banks[19] so that they absorb rather than amplify shocks. What vulnerabilities have we identified?
Investors are still feeling their way: for example, deciding on a benchmark yield for the euro, when there is a significant spread of perceived credit risk even between member state governments, is one area where fund managers may still be finding their feet. Although I am not close to it myself, it is my impression that the industrial and commercial sectors have also adapted well to the euro, although the amount of adaptation that has been required differs across individual cases. Many may not be affected, but equally many may be experiencing a drift towards more quoting and invoicing in euro; in some cases there will be pressure to do so which, on competitive grounds, they can ill afford to ignore. And there will be some who find themselves at a slight competitive disadvantage if they are bidding for business in a euroland country against a competitor from another euroland country; previously both bidders had to take account of exchange risks and conversion costs, but now it is only the Hong Kong bidder who faces these. Finally, I understand that among the general public there was an initial burst of interest in euro deposits (over and above mere redenomination of existing ones in the parent currencies), but that this interest waned somewhat with the euro’s subsequent depreciation.

Challenges for policy Turning now to macroeconomic issues, we in the Hong Kong Monetary Authority have had a particular interest in the arrival of the euro, since it was the final step in the transition of the eleven participating countries from closely aligned rates to irrevocably fixed rates, and has therefore consolidated the number of economies where, like Hong Kong, some form of fixed exchange rate arrangement is regarded as both desirable and workable. Of course, I accept that technically the eleven currencies have not been fixed or pegged to one another, but have gone a stage further and been replaced by a single successor. But the critical point is that the euro countries individually have to a large extent, as Hong Kong did to an even larger extent over fifteen years ago, surrendered scope for exchange rate adjustment as an instrument of policy. In the euro case the surrender is not total since, although no member can any longer move relative to the ten other participants, the European Central Bank can of course still pursue an independent monetary policy relative to the rest of the world. Hong Kong is more tightly bound, since we are linked to the US dollar over whose wider value we have no influence. When we pegged the Hong Kong dollar to the US dollar in 1983 we did so at a time of crisis and partly because there was, for institutional reasons, effectively no viable alternative available to us at the time.
The Federation of Industry recently held a national seminar on this very issue and I am sure that these indicators and targets will continue to attract the necessary attention, not least within the Malta Council for Economic and Social Development (MCESD). Allow me, however, to make a few observations about how Malta is performing in this regard. I shall do so by comparison with the international best practice benchmarks upon which most of the Lisbon Agenda criteria were built. So how does Malta fare, especially when compared to the peer group of the new EU member States? Based on data relating mainly to 2002, Malta’s GDP grew by 1.5% compared to 2.5% in the other new member States. And this is not simply because less advanced economies than Malta’s need to grow faster in order to catch up. Indeed, the two acceding countries which are richer than Malta, namely Cyprus and Slovenia, grew by 2.0% and 2.9%, respectively. Turning now to possible reasons for Malta’s slower growth rate, a first observation is that our unit labour costs are relatively high. On average, other new member States have labour productivity and price levels which hover around 50% of the current EU average. In Malta labour productivity is relatively higher, at 70% of the EU average, but the price level is higher still at almost 90%. This suggests that Malta needs to increase its productivity to match its price level. A second measure relates to public finances.

This requires us to produce more, and more intelligently, and to devote a larger share of the nation’s resources to fund the investments which are vital for its continued economic development. Policy Dimensions I have often stressed that the solution to such problems lies in the implementation of a coherent reform strategy that enjoys as wide a measure of support as possible. Today I would like to dwell on two considerations arising directly out of EU membership, which should in themselves help to promote progress in this direction. These are Malta’s expected contribution to the realisation of the Lisbon Agenda and its participation in the Economic and Monetary Union (EMU). Malta and the Lisbon Agenda The central objective of the Lisbon Agenda is to address supply-side impediments to growth. The Agenda states: “The Union has today set itself a new strategic goal for the next decade: to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion” As from May next year, Malta will automatically be part of a process which presents opportunities for improving supply capabilities through focused policies and for which specific funding is available. It, however, also involves a greater degree of competition, and thus constitutes a driving force for countries to move ahead rapidly with the required structural reforms. The Lisbon Agenda establishes numerous competitiveness indicators, as well as a set of targets to be achieved by 2010. I do not intend to dwell on these here.
In its last meeting in June, the ESRB underlined the threat to financial stability stemming from the interplay between the vulnerabilities of public finances in certain EU Member States and the banking system, with potential contagion effects across the Union and beyond. To ensure the resilience of the EU financial system and limit the potential for adverse spillovers,  BIS central bankers’ speeches  1  the ESRB at the time also stated that backstop plans should exist, starting with resources from private markets and, if necessary, with public funds. As we also said at the time, we are furthermore working on specific issues such as FX lending, complex financial products and mismatches in the funding structure between various currencies. Let me mention that we have our next ESRB General Board meeting next Wednesday. Basel III implementation As regards Basel III, compared with Basel II, the new framework envisages higher minimum capital requirements, better risk capture, stricter definition of eligible capital elements and more transparency. These elements should substantially improve banks’ capital position and loss absorbing capacity, thus enhancing the resilience of the financial sector. The new Basel framework also introduces entirely new concepts, such as a non-risk-based leverage ratio and mandatory liquidity requirements. It has been agreed that these measures will be introduced gradually during a transition period. It is essential that prior to their introduction the potential impacts of these new elements on financial markets are carefully assessed to ensure that these measures do not hinder banks providing funding to the real economy.

Although substantial progress has been made, many households still need to rebuild their net worth following the housing bust. More than 20 percent of homeowners with a mortgage are “underwater” – meaning they owe more on their home than it can be sold for. •  Fiscal drag. State and local governments have been cutting spending for over two and half years and federal government spending is also contracting. While fiscal consolidation is essential over the medium to long term, spending cuts reduce demand and are a drag on near-term growth. •  Risks relating to Europe. The crisis in the euro area has reduced the demand for U.S. exports and weighed on financial markets. •  Fiscal uncertainty at home. Families and firms face elevated uncertainty relating to future taxes and government spending, in particular from the so-called “fiscal cliff” –  4  BIS central bankers’ speeches  the prospect of sharp increases in taxes and cuts in spending at the start of 2013 if Congress and the White House cannot agree on an alternative fiscal plan. Given the signs of improvement in some of these areas, including the slow but steady progress in healing balance sheets and restoring the supply of credit, I anticipate that the pace of economic growth will gradually pick up, supported by very low interest rates. But heading into the FOMC meeting last week, I judged that, if we did not ease monetary policy further, the pace of improvement would be unacceptably slow.