samchain/econo-pairs-v1 huggingface dataset:
In the EU27, foreign affiliates’ local claims in local currency as a share of total banking assets increased from on average 9.8 per cent during the period 2001–2003 to 16.9 per cent at the end of 2009. The corresponding increase for other advanced economies 4 was from 4.1 per cent to 5.9 per cent. 5 In 2009, European banks had more than 60 per cent of their total banking assets abroad, compared to approximately 30 per cent for North American banks and 25 per cent for Asian banks. While a large part of the European banks’ international operations take place outside Europe, there is a strong regional component to cross-border banking. 6 There is a clear tendency towards regional clusters in cross-border mergers and acquisition activities in Europe – in particular there seem to be such clusters in the Benelux region, the Nordic-Baltic region and in Southern, Central and Eastern Europe. 7 That geography matters for cross-border banking is shown by simple regression analysis relating the local claims of one country’s banks in another country to the size of the home and host economies and the geographical distance between them. Using information on cross-border activities within the EU in 2009 from the Bank for International Settlements shows that, on average, a 10 per cent greater geographical distance between the home and host countries is associated with 14 per cent lower consolidated local claims, controlling for the GDP of the countries involved.

And it helps to lay bare more clearly the underlying growth potential of the economy. BIS central bankers’ speeches  5  The third aspect of the policy response is better financial regulation and supervision. In both the US and UK, the repair of the financial sector was a prerequisite for recovery. Indeed, one of the reasons behind a persistently negative equilibrium real interest rate has been the restricted supply of credit from a damaged banking system. Going forward, financial reforms will help guard against excessive pro-cyclicalities that could emerge in a “low for long” environment. But financial reform is about much more than fixing the failings in advanced economies; it is one of the keys to rebalancing the global economy. The global savings glut will not disappear in the absence of further financial liberalisation in China. That will only proceed if there is a transparent, resilient global financial system worth joining, and will only be completed by further internationalisation of the renminbi. Those realities are key reasons why the Bank of England is so engaged in the work of the Financial Stability Board and has moved to support London as a hub for renminbi clearing. Conclusion For the first time in a long time it seems reasonable to expect the hopes and dreams of the holiday season to be fulfilled. The Ghost of Christmas Present is a cheerful spirit. As uncertainty diminishes, credit conditions improve and balance sheet repair progresses, monetary policy is gaining traction.
Timing issues related to entry in ERM II In this process a first decision relates to the exchange rate strategy to be pursued in the interim period between now and entry into ERM II after EU accession. The EU Treaty is not restrictive in this regard. Any exchange rate strategy is acceptable as long as it contributes to real convergence and macroeconomic stability, and is compatible with ERM II by the time of entry in the mechanism. And since pegs to currencies other than the euro are incompatible with ERM II, our current exchange rate regime, which includes the euro, the US dollar and sterling, would need to change. In view of the positive experience with a fixed exchange rate regime and the absence so far of pressures on the lira during the on-going capital account liberalisation process, our strategy in this regard is to maintain this fixed regime but to gradually reduce the weight of the US dollar and sterling until the euro is the sole reference currency. This adjustment should not pose unsurmountable difficulties given that the euro already carries a weight of 70%. As for the timing and pace of the move to a full euro peg, these would depend, among other things, on the expected date of entry in EMU, which is conditioned by the two-year period embedded in ERM II, and also on the pace of the economy’s convergence to EU income levels and economic structures.

For one, advances in technology, telecommunications, and markets have changed the way that banks collect, measure, and manage their risks. Having gained experience in quantifying exposures to market risk, leading banks today are quantifying and using increasingly reliable estimates of the credit risk associated with particular borrowers. Evolution in markets has furthermore provided banks with more tools for managing and transferring credit risk, such as through securitisation transactions and credit derivatives. Likewise, many banks seek to quantify in a more reliable manner their exposures to operational risk, or the risk of losses stemming from failures in internal processes or systems or from damage caused by an external disruption. As risk management becomes more sophisticated, the simple and static rules of the 1988 Accord are becoming less relevant. Leading banks increasingly view the old rules as a burden, constraining their abilities to administer their businesses relative to the best information and practices available today. Supervisors, for our part, have less confidence in the 1988 Accord’s measures of risk for banks that engage in the most sophisticated forms of risk taking and risk mitigation. By the late 1990s, it became clear to banks and supervisors that we needed a new capital framework. But the Basel Committee sought more than just a reworking of the minimum requirements. We wanted instead to create incentives for the industry to enhance the state of the art in risk management.
This is unambiguously preferred to point A, with greater stability in both the financial system and, in particular, the wider economy. But could we do better still by having monetary policy assume explicit responsibility for safeguarding financial stability? If we augment this monetary policy rule to take account of financial stability factors, by having interest rates respond to credit spreads, we move to point C. This has the benefit of improving financial stability relative to the conventional monetary policy case. But this comes at the cost of destabilising somewhat the macro-economy. It is unclear whether point C dominates B in a welfare sense. In other words, having monetary policy meet both macroeconomic and macro-prudential objectives involves a trade-off. Once we add an explicit macro-prudential instrument to the equation, however, this trade-off disappears, or at least is lessened. In particular, let’s add a regulatory-set counter-cyclical capital buffer for banks, the like of which is now part of Basel III. Used in tandem with optimal monetary policy, this moves the economy to point D. This involves both greater macroeconomic and financial stability than the alternatives. On the face if it at least, it is welfareimproving. Although the model used is specific, the policy lesson appears to be a general one. Having two instruments (monetary and macro-prudential) leads to an improvement in macro-financial stability. Two policy hands beat one when there are two policy objectives.

For example, the CRISIS (Complexity Research Initiative for Systemic Instabilities) project is a consortium of EU universities, private firms and policymaking institutions which is building large-scale calibrated models to capture sectoral behaviour, including between the economy and the financial system. 12 At national level, promising progress has also been made in developing ABM models of the housing market. For example, Geanakoplos et al (2012) develop a regional model of the US housing market, which does a much better job than aggregate macro-economic models in matching housing market patterns, both in in the run-up to, and following, the financial crisis. As part of its new research agenda, the Bank of England is working currently with the Institute for New Economic Thinking (INET) at Oxford to try and develop an ABM model of the UK housing market. 13 As with Geanakoplos et al (2012), the aim is to provide a calibrated, granular model which better captures the dynamics of the housing market. It could also, potentially, be used to help evaluate the efficacy of macro-prudential interventions in that market – for example, policies which alter mortgage loan-to-income or loan-to-value limits. A third promising area of research concerns the interaction the macro-prudential and macroeconomic layers of the system – that is, the interplay between macro-prudential and monetary policy tools. This is another priority area for the Bank’s new research agenda. Although these policies have distinct primary objectives, their transmission channels are likely to be closely interwoven, with both affecting risk-taking and economic activity.
While the double digit growth is commendable, the takaful industry is still small i.e. constituting 6.3% in terms of assets of the insurance industry. The success of takaful in the future rests on the ability of the industry to collectively position itself strategically to meet the needs of the economy and the ability to be competitive and innovative. Global takaful strategies Let me now turn to t he strategies for the global takaful industry moving forward, which essentially is the theme of the Convention. The key strategy is to amplify a simple, but yet a powerful concept, which is the core concept of takaful itself, that is, collaboration. That is in consonance with the Quranic verse from Surah Aali-Imran verse 103's quote: "And hold fast, all together, by the rope which God (stretches out for you), and be not divided among yourselves and remember with gratitude God's favour on you…" end of quote. Allow me to expound a few angles on this new collaborative framework. 2  BIS Review 95/2007  The first area is talent development A key challenge confronting the industry at present is the shortage of talent. Rapid development of the takaful industry in recent years demands adequate supply of competent human capital to drive innovation, to sustain competition and to raise the performance of the takaful industry to greater heights.

An essential characteristic of the Chilean economy is that it has very few distortions in its price-setting mechanism. This results in increases in international prices of goods being transmitted quickly to local prices, while in many other countries this is avoided by explicit price controls or massive fiscal subsidies5 (Figure 3). The most critical phase in this process began in May 2008. After a period with stable monthly inflation figures in the first quarter of last year, large and unexpected inflation rises began taking place. As we then noted, propagation effects were being generated on a higher scale than expected and they could prevent inflation from reaching its target of 3% within the policy horizon of two years. Inflation expectations also started to rise. Both unwanted second-round effects and increased expectations demanded a fast and determined response by the monetary policy aiming at mainstreaming the inflation path to reach its target. This was essential to prevent inflationary persistence from generating a wage/price spiral which would have been harder to revert, if no early measures were adopted. In fact, output costs would have been even harsher, if inflation had been allowed to persist. But the world has changed, and it has done so in a radical way. What was expected to be a mere global economic slowdown, gradually turned into a severe drop in output. Consequently, commodities’ prices began to plunge with unusual strength. After having reached almost 150 dollars halfway through 2008, the oil barrel tumbled down to 40 dollars in December.
My concern is that we could over-engineer the financial system, building in complexity in response to potential risks that might, or might not, manifest themselves in the future. The complexity might not gain us much in terms of greater financial stability, either because the problem that ultimately manifested itself was different than we planned for, or because people found a way around the constraint that we had imposed on the system. There are also the challenges of appropriate calibration and timing. How much restraint should the rule exert as home prices rise or aggregate credit growth picks up? Without historical experience and with an underdeveloped macroprudential framework, getting the calibration right is a difficult issue at this point. Also, how quickly should the tool be unwound once it has done its work? The tool needs to work in a countercyclical way, but turning points are difficult to anticipate and which makes it challenging to get the leads and lags right. We have a very complex financial system in the United States. I think we need to do much more work in developing a coherent macroprudential framework before we start contemplating putting a number of countercyclical measures in place. Such a framework needs to take into consideration how it interacts with other policies, such as microprudential policies – to ensure the safety and soundness of individual institutions and monetary policy – designed to help ensure a stable macroeconomy. When are these policies substitutes? When are they complements? How will they interact?

Support for using macroprudential tools in the United States has also been bolstered by our experience during the financial crisis. The U.S. housing boom and subsequent bust might have been less severe had a set of macroprudential measures been in place at the time to limit the degree of leverage and speculative activity in the housing sector. The housing boom was fueled by optimistic expectations for house price appreciation, combined with lax underwriting standards embodied in such practices as no-doc mortgages and widespread speculative activity by investors. I remember, for example, the website, Condoflip.com, which says it all in terms of the degree of speculative fervor that was evident at the time. If underwriting practices had been held to high standards (e.g., strict mortgage service-toincome ratio limits had been honored) and speculative activity had been constrained (e.g., by lower loan-to-value ceilings for investors with multiple mortgage liens outstanding), this might have limited the size of the boom and subsequent bust. My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States. There are two major sets of difficulties. First, unlike monetary policy and microprudential regulation, there is not a welldefined framework for identifying emerging imbalances and applying macroprudential tools in response. A recent tabletop exercise conducted by a number of Federal Reserve Bank presidents, which I will discuss a bit later, indicates some of the difficulties here.
The same message is conveyed by a more intuitive interpretation of key historical episodes in which finance appears to have played a key role in increasing overall welfare. I have in mind, for instance, the financing of railway expansion in the 19th century (an early form of syndicated loans), the financing of high-technology firms in the 20th century (venture capital), or “microfinance”, allowing local, small-scale business initiatives in low-income countries to tap the global capital market. The recent financial crisis, however, has prompted us to review this benign assessment. Today, there is broad support for the view that not all forms of financial development are favourable to economic stability, growth and welfare. More extreme views are also prevalent, such as Paul Volker’s, “I wish that somebody would give me some shred of neutral evidence about the relationship between financial innovation recently and the growth of the economy.” How can we reconcile the pre and post-crisis views on the question posed in the title of my address today? To try and answer this, at least partially, I will focus on one specific and very visible aspect of financial development – financial liberalisation. During the final two decades of the last century financial liberalisation led to a deepening of credit markets on a global scale. The end of what many have called “financial repression” permitted households, banks and sovereigns to accumulate increasing amounts of debt. Of course, debt is not bad per se.

Dear ladies and gentlemen, The promotion of the above objectives is not only important for the functions of the Bank of Albania as the monetary authority, but it also provides an essential contribution to the economic development and welfare of the general public. All these developments would provide the expected effects only if they are based on measures in the framework of financial education of the public. Being aware that financial literacy constitutes a significant instrument for promoting the development of the market, for more than a decade, the central bank has been engaged in designing and developing educational programmes to address the needs of groups of interest. It is not a coincidence that the focus of central bank, in both, advanced and developing countries, is on enhancing financial literacy. Numerous studies have shown that financial education has multiple benefits. Being familiar with the basic financial and economic concepts, appropriately knowing and using banking products and financial instruments as well as the ability to manage personal and household finances, are crucial to achieve individual, and societal welfare. On the other hand, a well-informed financial decision of households helps central banks to accomplish their mandate in achieving price stability and safeguarding financial stability. A better understanding of monetary policy accelerates its effective transmission to the real economy. Meanwhile, the quality of decisions for financing or investment has a direct impact on the stability of the whole financial system.
Each firm benefits from a pool of competitors taking different positions. There are also some centrifugal forces that tend to limit the size of clusters and ultimately drive firms away. The more concentrated the activity, the more vulnerable trade can be to external shocks, whether from earthquakes, wars or taxes. If there are restrictions on the supply of labour, concentration can lead to shortages. And of course clustering can drive up prices of other factors of production. In a successful urban centre, land in particular can become expensive. The history of the City of London But on balance the history of London’s financial sector illustrates how powerful the factors leading towards concentration and clustering have been. During the 18th and 19th centuries, it was not hard to see why international finance developed in London alongside Britain’s pre-eminence as an economic and trading power. The need to provide finance for trade stimulated the development of the money markets here, based around commercial bills, and that in turn provided essential liquidity for longer-maturity securities markets. 6 By 1914, while Britain had been overtaken as the world’s leading economy, it remained the hub of the international monetary system – the Gold Standard. UK had 42% of the world stock of overseas investments and around one third of all the negotiable instruments in the world were traded on the London Stock Exchange.

And it will further sharpen the dependence of the British economy on wider international movements in financial markets. I plan to return to these implications in coming months. 13  6  McKinsey Global Institute, McKinsey & Company's economics research institute. BIS Review 29/2007
Even if swap agreements can be concluded proactively, which is not at all certain, there are no guarantees that they can automatically be used in the event of a crisis or when we consider it necessary to do so. It is the creditor who decides whether it wishes to lend in each specific situation. The Riksbank has a responsibility for financial stability... The measures and phenomena I have now spoken of have led to banks always turning to the central bank in difficult times. Regardless of where the supervision is formally located, central banks therefore exercise some de facto supervision of banks. Everyone knows that “the central bank is where the money is” and that it is not willing to lend it to just anyone. For us at  10  See Buiter (2008). 11  See Fleming and Klagge (2010). 12  See Molin (2009). 13  See Capie (1998), Cechetti (2014). 6  BIS central bankers’ speeches  the Riksbank to be able to fulfil our role as liquidity provider, we must have good access to information on financial institutions and markets. The fact that the banks have been subject to regular analysis by the Riksbank – both before and after the deregulation of the financial markets in the 1980s – is a natural consequence of their central role in the payment system and the special systemic risks with which their operations are associated.

As under the gold standard or the fixed exchange rate regimes, it is again our own choice of nominal anchor that determines the rate of inflation in Norway over time. 2  BIS Review 102/2007  Future studies will probably find that inflation reverts to the inflation target over time. This is an indication that monetary policy is working and not that there is a natural inflation rate or a natural, self-regulating mechanism. Inflation is still influenced by exogenous conditions. Increased globalisation, particularly China’s growing importance in world trade, has in the past ten years for example resulted in low imported inflation measured in a foreign currency. At the same time, productivity growth has been high in many countries. These positive supply-side features have for a period contributed to a favourable development in the short-term trade-off between economic growth and inflation. As a result, many countries where inflation was a little too high at the outset have been able to bring down inflation at virtually no cost. In this respect, we can probably talk about some degree of endogeneity in inflation.1 However, it is still up to the authorities through the orientation of monetary policy to choose whether inflation is to remain low and stable on a more permanent basis. Over time, interest rate setting is aimed at keeping inflation close to target. In the process, interest rates will have short-term direct or indirect effects on a number of other economic variables.