samchain/econo-pairs-v1 huggingface dataset:
Denis Beau: Financial supervisory and coordination - new issues and challenges  regulatory  policy  Contribution to the panel discussion by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Salzburg Global Finance Forum, 22 June 2021. * * * Regulatory policy and Supervisory coordination has always been fraught with challenges. I remember panel discussions with market participants about this very topic at the BIS twenty years ago. No surprise for me that it is still a topic today, because there is a deeply rooted reason for it: the inevitable tension between market forces on the one hand, which push for a borderless financial system in many of its layers, despite step backwards, as we have seen since the Global financial crisis, and on the other hand the jurisdictions in which regulators and supervisors operate, are accountable and must discharge their obligations, which at best are regional for some and most often are national. This observation does not mean that we have not made progress in addressing this tension over the last decades. Nevertheless, I would differentiate between coordination issues to manage large-scale crisis and to prevent those crisis. Regarding the former, I think it is fair to say that the Covid-19 pandemic acted as a test of the resilience of our global coordination framework, which has improved with a strong G20 dimension after the GFC.

International organizations, among which the Financial Stability Board, and Standard Setting Bodies have played a very important role in gathering and disseminating information, as well as ensuring adequate coordination among major public authorities. I would also point out that monetary policy has not been the only tool we have used to increase resilience and defuse the shock. Different authorities have worked hand in hand, under a lot of time pressure, including financial regulators and supervisors, to deliver a very comprehensive and largely consistent set of measures to maintain the core functions of the financial system in these unprecedented events. Comprehensiveness and consistency have been key elements in our collective ability to foster resilience. So the test regarding coordination in crisis time has been passed rather well so far. However, it’s not over yet and good coordination should be maintained for the exit phase of support measures, generally speaking. In the field of financial regulation and supervision, there were variations in approaches, see for instance the leverage ratio for credit institutions, which was okay for the duration of the crisis, but led to divergence in the implementation of standards that should not last. Getting out of the crisis and unwinding support measures will require  further coordination and an adequate timing, in order to avoid possible cliff-effects and to address level playing field concerns. Regarding the prevention of crisis, I would be more prudent because, from my perspective, the jury is still out in terms of appropriate coordination across regulators and supervisors.
I can report informally that I personally am highly satisfied with the progress that the joint Basel Committee and IOSCO working groups have achieved to date, which reflects in no small way the cooperation of the industry in preparing data and responses for the discussions. I expect that the Committee will release a proposal for a six-week period of public comment next month such that the proposals can be released in final form this summer. However, intensive work will continue prior to the discussions at the meetings of the Basel Committee and IOSCO’s Technical Steering Committee toward the end of March and the beginning of April. So I cannot yet comment on the solutions that may be proposed or approved by the Committee and IOSCO. I can tell you that we set, as a guiding principle, a goal to apply Basel II to these exposures in a manner that reflects as best as possible sound practices already in use when those practices appeared to be both prudent and broadly acceptable to many kinds of banks and markets. Some industry representatives have raised concerns that finding ways to apply Basel II to trading book exposures might lead to a revision of the existing “Market Risk Amendment” to the capital framework that was approved in 1995. Understandably, those industry representatives expressed concern that this might disrupt banks’ efforts to prepare for Basel II, which addresses mainly credit and operational risk.

In effect, the mere existence of a digital euro would offer a fallback solution in the event of geopolitical tensions. Moreover, when carefully designed, a digital euro could be a catalyst for innovation at a wider scale in that it could support intermediaries’ role in developing new types of services on top of it while enjoying Pan-European reach. 1  Negroponte, N. (1995). “Being Digital”, Vintage International. Random House, New York. Cunliffe, J. (2022) “Some lessons from the Crypto Winter” (https://www.bankofengland.co.uk/speech/2022/july/joncunliffe-speech-on-crypto-market-developments-at-the-british-high-commission-singapore). 2  1  A digital euro does, however, exhibit a number of non-trivial risks as well. If, for example, anonymity was to be allowed as a means to provide the highest possible level of privacy, we would be compromising our commitment with fighting money laundering and the financing of criminal activity. What’s more, this setup would put into question the effectiveness of the tools to limit the use of digital euro as a store of value, a point on which I will come back later. In that respect, a balance needs to be struck between minimizing the Eurosystem’s and intermediaries’ involvement in the processing of users’ data and still ensuring compliance with the law. A digital euro is likely to increase as well the Eurosystem’s general operational responsibilities over the payments channels irrespective of the role it ultimately intends to play in the settlement of these transactions.
But that needn’t be so – because key aspects of Islamic finance make it particularly well suited to financing the post-Covid recovery:   First, the philosophical focus on equity-like sharing of risk and reward will become increasingly relevant as market participants get to grips with the scale of debt accumulated in response to Covid. The attractions of debt are obvious when interest rates are so low – particularly for those able to lock in long-term fixed rates in local currencies. But those borrowing at floating rates, at short maturities, or in foreign currencies, face sharp negative income shocks when rates rise, debt rolls over, or local currencies depreciate. Risk-sharing contracts, including those promoted by Islamic finance, pose materially lower medium-term risks to stability.12 The Bank of England has long advocated the risk-sharing merits of GDP-linked instruments, which could be packaged in sukuk form. 13 And, together with HM Treasury and the FCA, we have recently announced a high-level working group to consider ways to foster a longer-term financial markets culture to support productive investment.14    Second, Islamic finance seeks to avoid investing in socially detrimental activities. In fact, it was pro-ESG before the term was ever invented!

But as I mentioned earlier, confidentiality and privacy should not be compromised. Part of future-proofing our payment systems is to enhance the efficiency of cross-border payment services. In this globalised world, there is a growing demand for faster, reasonably priced and more transparent cross-border payments. This will become even more important as international trade and investment linkages deepen, such as through the growth of e-commerce. Yet, cross-border payment services still pale in comparison to domestic payments, which are increasingly real time and zero cost. PayNet and the payment system operators in Indonesia, Singapore, Thailand and Vietnam have entered into a Memorandum of Understanding (MoU) to link their respective real-time payment systems. This will give rise to great opportunities for the region to forge closer economic and financial integration. The industry should capitalise on such developments to enhance their cross-border payment offerings to better serve their customers, reduce costs and enhance safety. Harnessing greater efficiencies of cross-border payments can be a lucrative area and those who can innovate will certainly benefit most. Embracing digital disruption that redefine payments This brings me to my second point. Technology, as you know, is fundamentally changing the way we live. Many industries have redefined themselves and embraced digital disruption to remain relevant. Unlike previous disruptions that came from within the industry, we now see enormous interest in mobile payments and the proliferation of non-bank payment providers. Data collected showed an increase in the number of non-bank e-money issuers from 26 in 2016 to 41 as at the end of last month.
3  The Future of Community Banks: Lessons Learned from Banks That Thrived During the Recent Financial Crisis by R. Alton Gilbert, Andrew P. Meyer, and James W. Fuchs all of the Federal Reserve Bank of St. Louis. 2  BIS central bankers’ speeches  characteristics across the successful banks? These characteristics are undoubtedly important and will be an essential element of success in the future. Some factors that one might think are important turn out not to be critical in determining performance. For example, asset size was generally not a factor in performing well during, and following, the financial crisis. Community banks that thrived varied in asset size – from below $ million, to as large as $ billion in assets. Geography, though, did matter to a degree. By definition, community banks are not geographically diversified, so those located in states that were most severely affected by the financial crisis and the recession faced the largest challenges. However, there are examples of banks that performed well in Michigan despite the severe economic problems that Michigan experienced; and there are examples of banks that floundered in Texas despite the solid economic performance that Texas experienced. Here in the Second District, while we had relatively modest declines in real estate values on average, some local areas saw house price declines as serious as in the worst hit states such as Arizona, California, Florida and Nevada. Recent research has identified several characteristics common to community banks that prospered during and following the financial crisis.

4 First, thriving banks exercised a comparatively conservative growth strategy during good times, with a management culture that focused on long-term franchise value and not short-term profitability. Successful banks had lower concentrations in commercial real estate lending generally; and much lower concentrations in construction and land development loans specifically. While profitable during the boom, these loan categories suffered the greatest losses as real estate values declined and the recession set in. As the boom progressed, the more conservative underwriting standards of successful banks led to declines in their market shares as other banks competed for business by relaxing their standards. However, successful banks were able to gain back this market share and then some after the bust due to the relative strength of their balance sheets. The successful community banks were patient and conservative regarding investments – desiring reasonable, sustainable returns, not necessarily “spectacular” returns. It seems that their managers devised their business plans heeding Friar Lawrence’s advice to Romeo as he devised his courtship plan for Juliet: “Wisely and slow; they stumble that run fast.” Other noteworthy characteristics also identified in this research were an engaged board of directors, talented staff who were familiar with the community, sound senior management oversight and thorough due diligence before offering a new product or service.
A very topical issue is how the accounting and auditing rules should be designed to create the best possible conditions for lenders and investors to form an opinion of a company’s future profits and ability to pay. It is never possible to completely prevent unlawful actions, but is there something that can be done to avoid such scandals as have arisen with the fall of Enron and Worldcom? Transparency must in any case be our guiding star! The present situation Finally, I should like to comment on the present situation. Quite contrary to what many feared, the downturn in economic activity following the unusually strong and prolonged upturn that was driven by the US economy appears to be moderate and short-lived. Growth appears to be on the way up already this year. The heavy fall on the stock markets, terrorist acts, the crisis in Argentina and the Enron affair do not seem to have had excessively negative effects on the global economy. There is still some uncertainty, particularly with regard to the capacity of the US economy to once again take on its role as engine for growth. This uncertainty is partly connected with whether we have really seen the entire downside of the financial bubble, and partly with the consequences of the terrorist attacks. Uncertainty has increased somewhat in recent weeks, but we can still assert that the turbulence in the financial markets does not appear to have had particularly major effects on the real economy. What could be the explanation for this?

A salient feature of the Norwegian economy is the importance of oil revenues, which may fluctuate considerably from year to year. The Government Petroleum Fund was established to serve as a buffer against fluctuations in oil revenues. It dampens the impact of changes in oil prices on the Norwegian krone. In recent years, a number of countries have switched to a monetary policy regime based on a target of low inflation. With a passive fiscal policy, monetary policy then in practice assumes a greater role in the stabilisation of economic developments. In Norway, we have a different institutional structure and monetary policy objective. When the krone has been stable and inflation shows signs of rising, Norges Bank’s first reaction is to inform the political authorities that measures other than those available to the central bank are required. Norges Bank would do the same if the requirement of returning the krone to its initial range could no longer apply. In a country with an inflation target, the central bank would deal with this itself, without first consulting with the government authorities. However, as mentioned, Norges Bank cannot with open eyes inflate or deflate the economy. Norges Bank’s mandate must be viewed in the light of the emphasis placed by the government authorities on conducting a disciplined, but active fiscal policy. The mandate gives Norges Bank a basis for conducting a monetary policy that provides a nominal anchor for the Norwegian economy.
Because banks are now a smaller share of the system, a given level of stress on nonbanks creates greater strain on the system as a whole. It is in part the consequence of the fact that the present system focuses on mitigating the risks of firm specific shocks, rather than a systematic market shock. And it is in part the consequence of the fact that the present system is not designed to induce institutions, particularly the largest ones, to internalize the negative consequences, the negative externalities, of their actions on markets as a whole in conditions of stress. There is no simple solution to this problem. It requires a broad look at the design of the present capital regime, the incentives it creates for holding different forms of risk, and the scope of the application of these requirements. As we move to a more modern and risksensitive capital framework and reduce the perverse incentives in the current capital requirements, we need to make sure that reserves, capital, and liquidity provisions are more forward looking, and adjust appropriately through the peaks and valleys of the cycle. This will increase the scope for banks and other institutions that are subject to risk-based capital requirements to act more as a stabilizing force in response to future financial market shocks. Market infrastructure We are in the midst of a dramatic period of financial innovation and growth in derivative instruments, but the pace of change the growth in volume has brought a lot of challenges.

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.
The context of the Russian war in Ukraine challenges us to reinvent the dialogue with political authorities, for at least three reasons: because geopolitics are today a major determinant of the economy; because the energy markets, their regulation and pricing are key for inflation; and lastly because fiscal choices regarding subsidies to households or even to firms are far from neutral for monetary authorities. Another challenge, and a much more tough one, is that the populist ideology creates an atmosphere of general mistrust of institutions – and still more of independent ones. In the name of popular sovereignty, we would return to a power of elected sovereign that would be absolute – and not relative anymore. At worst, this would call into question our democracy and its necessary checks and balances. At the very least, it is imperative for us to be efficient in our mandate, and to increase our accountability. 2. Efficiency of our mandate Price stability, which is a prerequisite for long-term growth, is the primary objective of most central banks. Broader mandates nevertheless apply to some, notably the Federal Reserve with its dual objective on employment and inflation. Other central banks have expressed sensitivity to inequalities, or to other issues, and have therefore contemplated a broadening of their mandate. Some observers questioned this alleged “mission creep”, and wondered whether central banks have lost sight of their primary responsibility.

Today, I will focus my remarks on how best practice efforts can help support the integrity and effectiveness of financial markets. I will draw upon the New York Fed’s experience with the Treasury Market Practices Group (TMPG), the Foreign Exchange Committee (FXC), and the Bank for International Settlements (BIS) Foreign Exchange Working Group (BIS FXWG) in developing and refining best practices for financial markets. The markets covered by these groups are those for U.S. Treasuries, agency debt, agency mortgage-backed securities (MBS), and foreign exchange (FX). Segments of these markets have historically operated under an over-the-counter (OTC) trading model and, as a result, lack a formal central trading venue like an exchange with established rules. 2 These markets are of particular interest for central banks globally, because of their important role in the implementation of monetary policy. In light of these considerations, central banks have made extensive efforts to convene market participants to develop best practices that help cultivate fair and effective markets. 3 As a participant in these markets, the Desk has a direct interest in their integrity and effectiveness. I hope my remarks will reinforce why the New York Fed and primary dealers as a group should be interested in continuing to support best practices. Your engagement in  1  The “Desk” refers to the Federal Reserve Bank of New York’s trading desk, which implements monetary policy on behalf of the Federal Reserve System, as directed by the Federal Open Market Committee.
The differences compared with developments during the inflationist and unstable 1970s, often entitled “The Great Inflation”, have been so notable that this development has been awarded its own title in academic research – “The Great Moderation” 6 . Although the reasons for the greater real economic stability are not entirely clear; there are hypotheses that economies have undergone various types of structural changes which have subdued the fluctuations – such as improved stock management among companies and financial innovations – or that the shocks to the economies have quite simply been smaller than during the 1970s. However, it is most likely that a better monetary policy has played some role in the increased real economic stability. We have thus established what a central bank’s primary tasks should be: to maintain price stability, to promote stability in the financial system and – as long as the nominal anchor formed by the price stability target is not threatened – to try to stabilise the real economy. There may nevertheless be reason to provide an example of what is not an appropriate objective for a central bank. As I have tried to emphasise, the real economic objectives that central banks have entail stabilising real quantities such as production and employment. By stabilising I mean that one tries to reduce the fluctuations around the long-term trend. However, it is important to realise that this long-term trend development is not something that monetary policy can directly influence.

During this period one could say that the central banks’ original task of guaranteeing the value of the means of payment was neglected as other tasks, primarily affecting demand in the economy, were perceived as more important and more interesting for monetary policy. The consequence was that the nominal anchor was relinquished and to establish it again proved to require considerable effort. Let me before I discuss the other important component of an efficient payment system – financial stability – say something about the most common approaches to attaining price stability. There are currently two predominant means of trying to ensure that inflation remains at a low and stable level. One is to tie one’s own currency to the currency of a country with a long tradition of low and stable inflation. The fixed exchange rate thus becomes an intermediate target through which one hopes to attain the ultimate target – price stability. The other means is to allow the exchange rate to float and to give the central bank the task of acting more directly to attain low, stable inflation – what is known as inflation targeting. The changeover in monetary policy made by Sweden at the beginning of the 1990s meant that we switched from the first method, fixing the exchange rate, to the second, targeting inflation. The reason was quite simply that the fixed exchange rate had not functioned very well as a means of keeping down inflation and establishing a nominal anchor in the economy.