samchain/econo-pairs-v1 huggingface dataset:
The first is a certain ‘clunkiness’ in the design of the Solvency II Matching Adjustment (MA), a feature of the regime which gives insurers a capital benefit if they can match asset cashflows with liability cashflows. The rules were written on the assumption that insurers generally match annuities with simple securities, such as liquid corporate or sovereign bonds. This assumption was broadly true when the rules were agreed several years ago, but more recently insurers have increasingly turned their attention to other classes of investments that, generally speaking, have appropriate characteristics for meeting long-term insurance liabilities. But those types of investments often fail to meet certain rather prescriptive rules. Some in the industry argue that we have the flexibility to ignore some elements of the rules. I don’t think that is right. The directive is quite clear that cashflows from MA-eligible assets must be “fixed”, not “predictable” or some other more flexible term. Now, it is not our job to unpick the law. But we should apply it sensibly. And I think there is plenty of evidence that that is what we are doing, whether in our approach to certain assets (for instance in allowing pairing of variable cashflow assets with derivatives, and restructuring of assets like equity release mortgages) or in the fact that we have allowed infrastructure assets in sectors like healthcare, social housing and telecoms infrastructure to achieve MA-eligibility.

Now, given a completely free hand I would probably make modest design changes to the MA, perhaps with slightly greater flexibility around the definition of “fixity” and a greater allowance for unexpected credit defaults. But I contend that we are implementing the regime we have today intelligently, with appropriate recognition of asset and liability matching leading to a £ reduction in capital requirements for the industry. But the MA design itself is not the only reason that we at the PRA sometimes pause when firms discuss new investment opportunities with us. By their very nature, illiquid bespoke loans require very specific skills in terms of structuring, valuation and ongoing risk management. In particular, experience has taught us that the risk firms face from making such loans is related to how skilfully firms can manage any impairment process. These are not traditional areas of expertise for most UK insurers and, in my view, firms must clear a high bar in order to demonstrate that they have adequate systems and controls in place to manage these types of 5  risks and exposures. We recently consulted on this topic and look forward to further engagement with industry. As a final word on this subject, when we have asked insurers directly about the impediments to investing in infrastructure assets, the number one problem raised is the lack of suitable investment opportunities, and not the regulatory framework.
Distinguished Guests, Ongoing deterioration in the global risk appetite, which started in August, has led to excessive depreciation of the Turkish lira. The accumulated depreciation of 30 percent since November 2010 started to pose risks on the inflation outlook. Moreover, in October, adjustments made to administered prices, which were far beyond the assumptions of the July Inflation Report, necessitated a sizeable upward revision of short-term inflation forecasts. At this point, I would like to underline that we would not allow the medium-term inflation expectations and outlook to be affected by these developments, and we will take all necessary policy measures. The policy measures that I mentioned earlier in my speech and the Committee decision of October stipulating a significant increase in the overnight lending rate should be viewed from this perspective (Chart 6). 4  BIS central bankers’ speeches  2. Inflation and monetary policy outlook  Distinguished Members of the Press, I would now like to discuss the macroeconomic outlook and the assumptions underlying our forecasts. First of all, I will summarize the recent inflation developments and then I will compare the short-term forecasts we announced in July with data realizations in the third quarter. In the third quarter, prices of core goods posted a more-than-envisaged increase amid excessive depreciation of the Turkish lira. The annual rate of change in food prices declined significantly due to the base effect in unprocessed food prices.

The UK is more dependent on growth prospects in the euro area, which is the market for more than two thirds of UK exports. If there is an impact, it is more likely to come via some other effect such as financial contagion or financial constraints on the UK affiliates of US companies. There is no doubt that a sharp correction in US equity prices would be felt in the UK but with a US soft landing the effects should be more limited, confined perhaps to some reduction in income from US direct investment or slower growth in financial and business services. After all, the two economies are in different positions. The reasons the Fed gave to explain their recent cut do not apply to the UK. The Fed pointed to further weakening of sales and production; tight conditions in some segments of financial markets given lower consumer confidence; and higher energy prices. Current conditions in the UK are more robust. Consumer confidence measures were, if anything, higher in the fourth quarter than the third; household demand has remained relatively strong; consumer credit numbers are strong; and in the pipeline are planned increases in government expenditure, though the outlook for the public finances remains strong. However it is clear that the balance of risks has changed in the last couple of months, with the recent slowdown in world demand, signs of an easier labour market and the latest inflation numbers comfortably below target.
It has been my unwavering objective to achieve full integration between financial supervision and the Central Bank’s other activities as quickly as possible, so as to strengthen supervision, monetary policy, and financial stability in Iceland. We have made good progress thus far, and we look forward to continuing on our shared path. Honoured guests: As I mentioned, Icelanders have been independent politically and economically for just over a century, even though the Central Bank is only 60 years old. Over this period, we have tried out virtually all versions of monetary policy: a currency union, a pegged exchange rate, a crawling peg, a floating exchange rate, and inflation targeting. Each of these monetary policy regimes has its advantages and disadvantages. But what matters most is that each of them requires a certain 4/5  BIS central bankers' speeches  institutional structure, and each requires that the Government and others follow specified and appropriate ground rules. If we have had problems running independent monetary policy, it is not necessarily because the policy itself has been wrong. It is far more likely that we have not followed the rules or have not had the right institutional architecture in place. Indeed, if we think the history of monetary policy in Iceland has been a thorny one, we should remember that we started out with a central bank that effectively didn’t exist until 1961, and until 2001 we had a central bank that did not have the independence it needed to apply its policy instruments effectively.

The establishment of the Central Bank 60 years ago was a major step forward for the country: finally, it would be possible to pursue domestic economic policy in a systematic way. The second of the Triple Crown anniversaries marks four decades since two zeroes were shaved off the króna and a new currency was effectively issued at the beginning of 1981. I remember clearly when the redenomination took place. I was 10 years old and thought it was great sport to have new money in my hands – new krónur, or course, but new aurar, too. Since the redenomination, all of Iceland’s banknotes have been designed by Kristín Þorkelsdóttir, about whom we shall hear more shortly. Kristín’s banknotes alone could have been considered reason enough to issue a new currency. But the real reason, and a far less sentimental one, was the persistent, entrenched inflation that engulfed Iceland, particularly in the 1970s. It stemmed from a number of causes, but the most important one was the fact that the Central Bank of Iceland did not have an independent mandate to apply policy instruments to combat it. And this brings us to the third anniversary we are celebrating in 2021. This year marks the 20th anniversary of Iceland’s inflation target, which is also the 20th anniversary of the 2001 legislation enshrining the Central Bank’s independence in law. In 2001 I was thirty years old, and I remember the Central Bank’s Annual Meeting held on 27 March, and the excitement in the air when the announcement was made.
The first point to acknowledge, which the opponents of the floating BRL often seem to forget, is that regardless of the exchange rate regime, the real effective exchange rate always floats. Or, putting another way, the relative price of tradeables to nontradeables changes continually. Thus, the relative prices that are relevant for production and consumption decisions for exporters, importers, households and enterprises always adjust, whether the nominal exchange rate is fixed by a group of, hopefully enlightened, civil servants, or set by the markets. But when the exchange rate is allowed to float, relative price adjustment tends to be faster, and the impact of external shocks on quantities, that is to say on income and employment, tends to be smaller than when the nominal exchange rate is fixed. The second point to highlight is that even controlling the nominal exchange rate can be a challenge, and comes at the cost of either the ability to pursue an independent monetary policy or of free capital flows. Countries cannot elude this constraint: nominal exchange rate management requires either severing linkages between the home economy and international capital markets, or shadowing some other country’s monetary policy. In sum, adopting a workable nominal exchange rate target (be it explicit or hidden, for the level or the path) imposes macroeconomic choices that fewer and fewer countries have been willing to make. It is somewhat heroic to assume that the State would be extremely competent at setting the nominal exchange rate.

But probably the most striking unconventional feature of our monetary policy back then was the active recourse to reserve requirements, the rates of which were increased to levels exceeding by far those of any other central bank in the EU: 20 and 40 percent for lei- and forex-denominated liabilities respectively in 2006. However, taking into account that studies published even before 2006 considered the pure IT framework as not necessarily the most suitable for an emerging economy, one might think that the NBR’s departure from the mainstream was less significant. Specifically, the NBR opted for  2  BIS central bankers’ speeches  a “light” version of inflation targeting, which meant retaining the managed float feature of the exchange rate regime, which implied smoothing out excessive volatility, without defending a certain level of the exchange rate or preannouncing interventions. The actual form inflation targeting took in Romania thus matched the “managed-floating plus” concept introduced by Goldstein in 2002, considered the most suitable choice for an emergingmarket economy involved in the global capital market, as it combines the managed float part with an inflation targeting monetary policy strategy and an active pursuit of measures to limit the degree of currency mismatches in the economy. Subsequently, this “managed-floating plus” approach gained acceptance, especially during the global crisis, and now forex interventions are part of the arsenal of many central banks, including some of those using a free floating regime before the crisis. 3. Did markets and banks react to the departure from the paradigm?
BIS Review 33/2010  These strong demand and supply-side fundamentals help to mitigate concerns that the impetus from Asia and emerging markets will quickly fizzle out, or that it will be undermined by the re-emergence of global imbalances. And the increasing importance of Asia in the world economy means it is now a material influence on the growth of the world economy. As Chart 5 shows, the seven largest economies in the Asia-Pacific region, including India, China, Japan and Australia, now account for close to a quarter of world GDP – not far short of the contribution to world GDP from the United States and the European Union. Indeed, there is a worry that growth in Asia and other emerging markets may prove too strong, fuelling the growth of asset prices and putting upward pressure on global energy and commodity prices. As Chart 6 shows – the strong growth in developing economies and emerging markets in the mid-2000s was associated with significant upward pressure and volatility of oil, food and metal prices. BIS Review 33/2010  5  Recent movements of the oil price have been very sensitive to news about the pace of global growth, and commodity prices have picked up more generally as growth has returned to the world economy. If the momentum of the global recovery is sustained, there is a risk of further upward price pressure from this direction, with a knock-on impact on broader measures of inflation around the world.

This positive economic growth has been broad-based, extending beyond the recovery of the mining sector and has withstood adverse shocks, such as, droughts and increases in oil prices. For example in 2006, real GDP growth was largely driven by the mining, construction, and transport sectors. Other sectors that registered positive growth were agriculture, tourism, manufacturing, wholesale and retail trade and the services sectors. Ladies and Gentlemen, bringing inflation down to single digits has been Government’s goal for a long time. Therefore, it is pleasing to note that last year inflation fell to its lowest level in 30 years. At end December 2006, the annual rate of inflation had fallen to 8.2 % compared to the annual target of 10% and the 15.9% outturn in 2005. In January 2007, it remained in single digit level of 9.8%. These unprecedented developments in inflation have been due to continued implementation of prudent monetary and fiscal policies, coupled with increased food supply. In line with lower inflation and yields on Government securities, the average commercial banks’ lending rate declined further to around 28 % in December 2006 from about 34 % in December 2005. In January 2007, it slightly declined to about 27 %. Mr Chairman, clearly, there is a need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia.
•  I am pleased that our industry players have come together to form a workgroup, which issued earlier this year a set of guidelines and best practices for reinsurance contract certainty. •  The workgroup is now monitoring the industry’s progress in achieving contract certainty via monthly submissions by industry players on the level of contract certainty in their reinsurance transactions. •  This is a sterling example of industry collaboration. MAS supports this initiative and has been working with the industry to implement the new standards. Third, creating more platforms to bring buyers and sellers together. This conference is a good example. The Singapore International Reinsurance Conference has become Asia’s version of the Baden-Baden Meeting and the Monte-Carlo Rendezvous. It is a key platform for insurance players not just to share knowledge, but also to negotiate renewals and explore opportunities for collaboration. Foster a conducive business environment Finally, I will touch on our efforts to foster a conducive business environment for insurance. There are two critical success factors. The first is Talent. The insurance industry already has in place some good talent development programmes at the undergraduate and fresh graduate levels. •  Take for instance, the Global Internship Programme (GIP) offered by the General Insurance Association. This is a structured internship programme which gives selected undergraduates exposure in general insurance companies both locally and overseas.

Four of the top five brokers in the world have their regional hubs in Singapore. Today, brokers are not just intermediaries, but also high-value service providers who drive innovation and collaboration in the industry. •  Many brokers provide a wide range of risk management services. These include dynamic financial analysis, risk management and actuarial consultancy, portfolio and financial modelling, and catastrophe modelling. •  Some brokers have also begun to tap alternative risk transfer solutions to manage more complex and larger risk exposures and liabilities. We are keen to encourage brokers to use Singapore not just as a placement centre, but also as a centre of excellence for innovation. •  A good example of this is Aon, which recently established its Analytics and Innovation Center in Singapore to provide analytics solutions to the Group’s business units on a global basis. Second, encouraging a subscription market. To underwrite large and complex risks, insurers need to collaborate. Risk sharing enables market participants to diversify their portfolios. We want to promote a true subscription market, where insurers not only share risks, but also expertise. The subscription concept leverages both the deep expertise of the lead insurer and the supporting capacity of the other insurers to cover a variety of large and complex risks. 4  BIS central bankers’ speeches  Such deep collaboration requires contract certainty. Contract certainty ensures the finalisation of terms and conditions of the policy prior to inception of risk and therefore, serves to minimise ambiguity and disputes over claim and coverage.
Instead of duplicating resources to build costly and overlapping payment infrastructures, the industry should collaborate at the infrastructure level to improve the network architecture and achieve this more quickly, thus benefitting from economies of scale and new opportunities to serve customers better. Competition should continue to exist at the product level, where industry players compete to deliver a positive user experience through value-added product offerings. This would not only avoid market fragmentation, but also allow a more optimal use of scarce industry resources. Such ‘co-opetition’ is not new in Malaysia. We used to have three ATM networks in the country. In 1997, the three ATM networks were consolidated into MEPS, immediately allowing the public to withdraw funds from a larger network of ATMs nationwide. In 2005, the financial industry collaborated to adopt the EMV Chip technology to enhance the security and interoperability of domestic payment cards. This eradicated counterfeit card fraud and boosted public confidence in the use of payment cards. As a result, payment card spending increased by almost threefold from RM47.5 billion in 2006 to RM141.6 billion in 2016. More recently, such collaboration can be observed in the industry-wide migration to adopt PIN and EMV contactless technology to further enhance the security and convenience of domestic payment cards. Throughout these developments, appropriate policy interventions played an important role to encourage ‘co-opetition’ in the payment market – in particular, to overcome the natural resistance of banks to collaborate due to a perceived loss of competitive advantage if they do so.

As you will hear in a moment, we have already learned a lot. I’d encourage you all – those in the room and viewers elsewhere – to submit your questions and contributions via Twitter (#FutureForumBoE). Finally, let me thank Ranvir Singh, our moderator for today’s Future Forum, for keeping us on track today – and with that I’ll hand back to her. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5
•  But there are many others in this room who are better placed to judge that. Old wine in new but bigger bottles: macroprudential regulation Even as we re-discover the virtues of microprudential policies, we realise they may not be sufficient in the face of overwhelming exuberance and risk-taking. •  This is where macroprudential policy comes in. •  Macroprudential policy can be more effective than monetary policy in “targeting the cracks” where specific vulnerabilities are concentrated. Macroprudential policy is related to but distinct from microprudential policy. •  Some have called macroprudential policy “old wine in new bottles”. Yes and no. •  Many of the tools are indeed the same: loan-to-value ratios, debt-to-income ratios, debt service ratios, and so on. But there is a difference. When these limits are used for macroprudential purposes, the scope and calibration are much larger. For example: •  A loan-to-value ratio of 80% for property loans, applied through the cycles, as we have in Singapore, is a microprudential tool. •  But when we tightened the loan-to-value ratio to as low as 20% for a third property loan, as we did a couple of years ago, it became a macroprudential tool. •  Macroprudential policy may well be old wine, but it is in much bigger bottles! Macroprudential policy can also come in several different bottles. •  Instead of relying on a single tool (e.g. the interest rate for monetary policy), macroprudential policy is often multi-pronged.

•  Many of them were also banking supervisors. They saw financial stability as the preserve of prudential regulation and supervision. Those were the good ‘ole days. •  Keep monetary policy focused on macroeconomic stability and regulatory policy on financial stability and all will be well. •  In short, consistency between instrument and objective: Tinbergen would have been proud. Financial stability: what we know, what we don’t The Global Financial Crisis of 2008 changed all that. •  Its devastation and virulence, but most of all, its suddenness, shook conventional macroeconomic thinking. •  HM Queen Elizabeth II asked: “Why did no one see it coming?”  BIS central bankers’ speeches  1  •  That question illustrated vividly how little we knew about financial stability, let alone the interactions between the financial sector and the macroeconomy, between monetary policy and financial stability. But there are two things we did learn from the crisis about financial stability. First, macroeconomic stability does not guarantee financial stability. •  Beneath the still waters of macroeconomic stability during the 2000s, deadly whirlpools of financial imbalances were forming. •  The “Goldilocks” or “NICE” economy sharply reduced risk premiums, stoked a credit boom alongside speculative activities that ultimately undermined financial stability. Second, effective regulation of individual institutions does not deliver stability of the financial system as a whole. •  Risks may be reasonably well managed in individual institutions but the system as a whole could be pro-cyclical and hence more risky.