samchain/econo-pairs-v1 huggingface dataset:
Second, slower growth of the labor force due to the aging of the population and moderate productivity growth imply a lower potential real GDP growth rate as compared to the 1990s and 2000s. Because the level of real equilibrium interest rates appears to be positively related to potential real GDP growth, this slower trend implies lower real equilibrium interest rates even after all the current headwinds fully dissipate. 1  4  It is worth noting that the views of market participants as expressed in the Eurodollar futures market and those of FOMC participants as expressed in the March Summary of Economic Projections seem consistent with one another and indicate an anticipated lift-off sometime near the middle of next year. BIS central bankers’ speeches  Third, changes in bank regulation may also imply a somewhat lower long-term equilibrium rate. Consider that, all else equal, higher capital requirements for banks imply somewhat wider intermediation margins. While higher capital requirements are essential in order to make the financial system more robust, this is likely to push down the long-term equilibrium federal funds rate somewhat. Putting all these factors together, I expect that the level of the federal funds rate consistent with 2 percent PCE inflation over the long run is likely to be well below the 4¼ percent average level that has applied historically when inflation was around 2 percent. Precisely how much lower is difficult to say at this point in time.

To sum up, this isn’t likely to be a case of black (only total unemployment matters) or white (only short-term unemployment matters) with respect to compensation cost trends. I suspect that the degree of attachment falls on average as one is unemployed for longer periods of time. But, I don’t believe that this pattern of attachment is stable. It is affected by the nature of the business cycle and how and why people have become long-term unemployed. Before I turn to the implications of the economic outlook for monetary policy, let me leave you with a final thought on inflation and our inflation objective. I think there is some confusion as to whether the FOMC’s 2 percent inflation objective is a ceiling or not. My own view is that  BIS central bankers’ speeches  3  2 percent is definitely not a ceiling. Once we reach 2 percent, I would expect that we would spend as much time slightly above 2 percent as below it, recognizing that we will hardly ever be exactly at 2 percent because of the inherent volatility in prices. If inflation were to drift above 2 percent, all else equal, then we would tend to resist such a rise. But, if inflation were slightly above 2 percent even as unemployment remained far above levels consistent with maximum employment, then the unemployment consideration would dominate because we would be further from the unemployment objective than we are from the inflation objective. This should not surprise anyone.
We will continue to set a high bar on professional integrity and quality of advice, and we welcome your ideas and input on how we can continue to encourage firms to grow within the industry and bring financial advisory services to a wider spectrum of the public. The Association of Financial Advisers has a very important role in this process and has been a focal point for the Bank’s engagements with the industry. I look forward to your continued cooperation in achieving our shared goal of developing a financial advisory industry in Malaysia that truly serves to improve the well-being of financial consumers in this more challenging environment, and one that we can all be proud of. Thank you very much for your attention. 4  BIS central bankers’ speeches

It can also reduce the costs of financing, enabling easier access to finance and better opportunities for business decisions. The single currency and the participation in the monetary union provides the country with a backstop in case of financial difficulties and disabled access to international markets through the so-called European Stability Mechanism. Of course, adopting the single currency would mean giving up on the monetary policy independence, which is already limited given the exchange rate peg, and would not require major adjustments. This cost is lesser compared to the benefits that the single market and single currency would bring, under the assumptions that all the policies would be in place and prudent enough to secure sound fundaments and stability of the economy. To recap, the EU integration is a process, which will provide boost and will shape reforms in many areas, underpinning the process of real, social and institutional convergence of the country. It will also impact the monetary policy making, both before and after the final stage of complete monetary integration. The challenges for the central bank are of a multidimensional nature– macroeconomic, institutional, and operational. Steering the wheel properly would require strong institutional capacity and awareness of all the policy makers that smooth integration requires healthy economy, absence of imbalances and sound policies. Thank you. 2/2  BIS central bankers' speeches
To my mind this was because regulators and governments bought completely the view that “equity capital is scarce and very expensive” – which in some ways is a proposition remarkable in its total incoherence (as shown with clarity and precision by Admati, De Marzo, Hellwig and Pfleiderer (2010) and with wit and humour by Merton Miller (1995)). I believe there is a need to break out of the way of thinking that leads to the “equity is scarce and expensive” conclusion. That would help us get to a situation where it will be normal to have banks hold very much more capital that had been assumed in recent decades to be acceptable. And that change would be a return to the past. Having higher bank capital will make the job of monetary policy (which has now to deal with the after-effects of massive instability in financial markets) much easier. Using limits on gearing to help maintain financial stability and monetary policy to help maintain price stability is an efficient allocation of instruments to goals. But it makes little sense to expect this extra bank capital to be in place immediately. Curbing lending and dealing with a debt-fuelled asset price boom is not the problem for today. Higher capital needs to be in place by the time that does emerge as a problem.

It seems to me  8  BIS Review 133/2010  the natural way to do that is to make sure they can withstand falls in asset values by having sufficient loss-absorbing capital rather than to expect monetary policy – moves in interest rates – to substantially reduce asset price variability, much of which might be warranted. The short-term nominal interest rate is a very blunt instrument to use to try to limit gearing of financial institutions. Capital requirements, and explicit limits on gearing, are more direct means to control leverage. This is why I think the direction of the policy emerging from the Basel III process – which will put in place higher capital requirements on banks – is right. It is also why time-varying limits on gearing of financial firms – limits that might vary with asset prices and with the economic cycle – are likely to be useful in helping maintain financial stability. I believe that is a much more fruitful way forward than abandoning inflation targeting. But while I think this is plausible, the case is not proved. Simply because they are a more direct means to control leverage does not prove that capital requirements or limits to gearing are a far more effective tool to preserve financial stability than changing interest rates.
Rachel Lomax: Inflation targeting - achievement and challenges Speech by Ms Rachel Lomax,1 Deputy Governor of the Bank of England, to the Bristol Society at the University of the West of England, Bristol, 18 February 2004. *  *  *  Ladies and Gentlemen, it is a great pleasure to be here in Bristol tonight. Bristol and the Bank go back a long way. Our Agent in the South West, the late Michael Knight, was a founder member of this Society. And nearly two centuries ago - in 1827 to be exact - Bristol was one of the first branches that the bank established outside London. Not that it was plain sailing. The Bank’s first Agent in Bristol, Mr John May, resigned after only a few years complaining of the unhealthy situation of the branch premises, situated as they were next to the City Poor House and a pool of stagnant water, at risk of cholera and - this was the time of the great Reform Bill - riots and fire. By these standards, our present Agent, Kevin Butler, has no grounds for complaint. My subject tonight is a more recent episode in our economic history: the improvement in economic performance associated with the adoption of inflation targets just over a decade ago. I’ll look first at why this approach to monetary policy seems to work, and then consider what challenges remain for policy makers.

The second half of my presentation deals with the modernization of the banking system, of other segments of the financial system, and of the underlying regulation and supervision. I will also discuss some of the most recent developments in financial services and in regulation. A highly regulated financial system The Swedish financial system was heavily regulated from the late 1930s to the beginning of the 1980s. The intention was to ensure a stable financial system which could provide cheap financial services to the consumers and the export industry and, in particular, financing prioritized purposes such as the fiscal budget deficit and apartment housing construction at low cost. More than half of the amount available for bank lending was channelled into these prioritized fields. In addition, the pension funds and the insurance companies were forced to allocate large parts of their funds to similar priority purposes. Competition between the banks was curtailed; for instance, the authorities set floors and ceilings for bank fees and interest rates. Credit expansion was also regulated by the central bank, with the aim of avoiding excessive credit growth in relation to the overall growth of the economy. There were also  BIS Review 111/2006  1  strict liquidity and cash reserve requirements as an instrument of the central bank’s monetary policy. The establishment of new banks was decided by the authorities only if they found that there was a “need” for the proposed bank.
And three points on what it will mean. On the “how”, the first thing to say is that going forward, banks are being required to carry considerably more capital and liquidity. Second, as is now well known within the industry, the international authorities have agreed a blueprint for resolution regimes to manage the failure of so-called Systemically Important Financial Institutions in an orderly way. G20 Leaders have committed to legislate that regime into their domestic systems where necessary. All resolution regimes have the effect of distributing the losses of distressed financial firms – ie losses already or prospectively exceeding equity – across unsecured, uninsured creditors. That is the only place losses can go if taxpayers are to be spared. “Bailin” has focussed minds on this, but is in fact just one method, albeit a very important one, for ensuring that uninsured creditors take losses. Those “how” points are very familiar. A few comments, therefore, on possible implications – all of which, looking ahead, point towards the crucial importance of our capital markets. First, in a world of less leveraged banks, a business model of Originate and Warehouse – because that is what it became by the middle of the past decade – is unlikely to be viable. Maybe a genuine model of Originate and Distribute will emerge, with something like agencytype market making and trading. Second, holders of bank paper – especially bonds – will be living in a different world. They will have a big incentive to monitor the riskiness of banks.

This is prospectively very positive. A couple of years ago I asked around London who were the best analysts of banks. Pretty well all those named were current or past equity analysts. A measure of success of our reforms will be that some leading analysts will concentrate on debt rather than equity, on the downside risks: credit analysts. They will be needed. Maybe there are some already. The upshot is that withdrawing the safety net from banks will require the other parts of the financial system to be sound, because they will have to stand on their own feet. It is sometimes pointed out that the insurance industry – other than AIG – did not benefit from state support. But, of course, insurance companies holding bank debt were the direct  BIS central bankers’ speeches  1  beneficiaries of state support for the banking system. Regulators of insurers – including, in this country, prospectively the Bank of England through the Prudential Regulation Authority – will need to take the changed regime for banks into account. We no more want insurance to be part of a “socialised” financial sector than banking. Finally on the “whats”, a world in which bank debt is perceived to carry risk is a world in which, as I have said before, it may be helpful for banks’ management to be remunerated partly through subordinated debt rather than just equity. Management would then have a clear personal incentive to focus on and contain tail risks.
The first line of defense against procyclicality should be the accounting framework. I strongly support the current focus on changing the accounting rules. More precisely, moving from an incurred loss model to a forward looking model is essential. We need a robust, auditable and straightforward provisioning system at the accounting level based on a forward looking model that would allow provisioning efforts commensurate with credit risks through time. This framework should also be simple, bearing in mind the ultimate objective of creating synergies between prudential and accounting standards. The Basel Committee is working on a very comprehensive approach, which is casted in its “Principles for revision of IAS 39”. Accounting standard setters have also been working hard. I firmly believe that two steps are required going forward. One is that the IASB should follow the principles by the Basel Committee. Another is that the IASB and the FASB should adopt a common methodology regarding provisioning based on expected credit losses. This is a precondition to ensure that the G20 countries have convergent accounting systems. Some of the procyclicality can also be trimmed through prudential regulation. Efforts to make solvency ratios potentially less procyclical are welcome and should be pursued. In particular  2  BIS Review 35/2010  those efforts aimed at imposing a measure of risks “through the cycle” or “downturn” are useful. Other options to take some of the procyclicality off through prudential standards include a fixed buffer, which would act as a capital conservation device. I see some limitations to such an option.

The takaful operators are constantly in search for high level of expertise in all relevant areas in the management of takaful business including technical, actuarial, distribution, underwriting, investment, Shariah as well as strong leadership at the helm of a takaful operator. This talent war even persists in Malaysia where medium and long term plans to develop adequate human capital are in place. It may not be sustainable for the industry to rely on the current pool of intellectual capital in this rapidly growing industry. For this, concerted and collaborative efforts should be taken at the industry level involving all stakeholders to develop structured human talent developmental programmes at all levels which include the leaders, technical personnel as well as the regulators. The organization of this Convention by IBFIM and MTA presents a model for such collaboration between takaful stakeholders in promoting human talent development, not only for Malaysian takaful industry, but also for the global takaful sector. The industry needs also to consider further proactive approach to address this issue. For example, the industry may take a united stance to train a specific number of new talent in key areas. For Malaysia alone, assuming that a good candidate requires two years of training to be a well-rounded takaful practitioner, if each operator is able to train 50 new talent at various levels in specific key areas, we will have at least 2000 new talent in 2009. In fact, we should do better.
There are concerns that the various regulatory reforms taken together may lead to a pullback in trade finance and long-term investment financing. The global regulatory community and national governments have become increasingly sensitised to these concerns. In the area of trade finance, the Basel Committee consulted the World Bank, the World Trade Organisation, and other relevant bodies. A number of adjustments were made to the capital and liquidity rules to facilitate trade finance. •  In the area of capital rules, the Basel Committee waived the one year maturity floor for certain trade finance instruments under the advanced internal ratings-based approach for credit risk. It also waived the sovereign risk-weight floor for certain trade finance-related claims using the standardised approach for credit risk. •  In the area of liquidity, the Basel Committee issued guidance for national supervisors to apply relatively low run-off rates for trade finance commitments. Preliminary data suggests that the availability and cost of trade finance has not been greatly impacted to-date by the implementation of Basel III. Spreads have normalised post-crisis and pricing appears to be influenced more by broader macro factors and competition. Further, there are many well-capitalised banks, especially in Asia, that are well-placed to operate in the new regulatory regime; and many of them have stepped up. We should continue to monitor closely the impact of regulatory changes on trade finance. Trade is the lifeblood of Asian economies. But we have a bigger challenge in long-term financing, especially for infrastructure.

•  In the US, the Volcker rule prohibits US-operating banks from engaging in proprietary trading or from acquiring or retaining an ownership interest in a hedge fund or private equity fund. •  In the UK, the Vickers Commission recommends ring-fencing retail banking activities, and subjecting the ring-fenced entity to higher capital requirements. •  In the EU, the Liikanen report proposes a mandatory fencing off of banks’ proprietary trading and market making activities from the rest of the banking group, if the activities exceed a certain threshold, with higher capital charges imposed on the investment banking ring-fence. To the extent that structural measures help to simplify business models and facilitate the resolvability of very large and complex global banking groups, they can help to reduce the risk and impact of failures. But it is not clear if the benefits of such measures outweigh the costs in all instances. First, it is worth considering whether size or complexity are the critical factors. The Global Financial Crisis started not with large universal banks or large global banks, but with narrow or specialised players: Northern Rock in the UK, and investment banks like Bear Stearns and  BIS central bankers’ speeches  3  Lehman Brothers. Interestingly, the Liikanen report observed that there was no business model that performed particularly well or poorly during the crisis.
These have repeatedly surprised to the upside in both magnitude and persistence over the past year, putting painful pressure on the cost of living and placing the MPC in the current, very uncomfortable position of forecasting headline CPI inflation to peak at over 7% in April. For a net importer of energy and goods, these developments represent a deterioration of the terms of trade.2 This is an adverse real shock, with adverse real consequences. Higher international energy and goods prices unavoidably weigh on UK real national income. But it is a real shock with substantial nominal implications. Higher energy and core goods prices account for the bulk of the inflation target overshoot, and a large part of the successive upside surprises we have seen in inflation outturns. This lays bare that we are in difficult trade-off territory for monetary policy. The driver of higher inflation is also a driver of lower real income and demand in the later years of our forecast, and thus higher unemployment. No ‘divine coincidence’ here.3 Bringing down inflation through monetary tightening has to be weighed against its impact on employment and activity. Looking ahead, the sensitivity of headline inflation to developments in international energy prices is significant, as the alternative forecast scenarios published in the MPC’s February Monetary Policy Report illustrate. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Were international energy and goods prices to stabilise – even at permanently higher levels – eventually their direct impact on UK inflation would dissipate.

It is true that people who get their pension from an insurance company which fails should have some protection from a compensation scheme which spreads the cost of failures across the industry, but we should not underestimate the risks to them, the industry and the public purse of a major failure – we need to be sure that the basis on which pension promises are  Page 5  made is solid. What have we learnt about the Matching Adjustment since its invention? Given its size and the very important role in plays in our economy, it might surprise some listeners to learn that the MA is a relatively recent invention. It only came into force in the UK as part of the EU’s implementation of Solvency II a little over six years ago. Before that we had for many years allowed insurance companies to take some capital benefit from future returns – the MA took the basic idea of this older regime, and through the process of EU negotiations turned it into a new form. In many ways the EU’s MA has done its job well over those six years, but our experience of seeing it in action has made us worry about three things: First: the past may not be a good guide to the future. I explained that the MA allows insurance companies to recognise as capital up-front part of the income they expect to earn on their assets in the future.