samchain/econo-pairs-v1 huggingface dataset:
Jörg Asmussen: Exchange of views with the Economic and Monetary Affairs Committee of the European Parliament on financial assistance to Cyprus Introductory statement by Mr Jörg Asmussen, Member of the Executive Board of the European Central Bank, at the European Parliament, Brussels, 8 May 2013. *  *  *  Dear Madam Chair, Honourable Members of Parliament, Thank you for inviting me to this exchange of views on financial assistance to Cyprus. The substance of the decisions, and process of how they were taken, have been debated controversially – also in this House. I am therefore pleased to be given the opportunity to provide the ECB’s views and to participate in a public debate on this matter. Initial conditions in Cyprus  Before discussing the key elements of the EU/IMF adjustment programme, it is very important to understand how Cyprus got itself into such difficult situation in the first place. Why were imbalances of such magnitude allowed to develop? What made the nature of the challenges faced by Cyprus so exceptional? I find these essential questions that I hope we can address during our exchange of views today. Let me focus here on the banking sector. In the 2000s, the Cypriot economy evolved towards a rather unbalanced business model with an inordinate weight for the financial industry. The country aimed to become leading provider of international banking services. Cypriot banks attracted large inflows of foreign deposits. They expanded their balance sheets dramatically over recent years, both domestically and externally.

The balance financial intermediaries are regulated by various authorities while some are not regulated at all. Banking companies in Sri Lanka come under several jurisdictions, but the Banking Act is the centrepiece for financial regulations. It sets out all necessary regulatory provisions for capital requirements, shareholder limits, credit operations, provisioning requirements, consolidation, acquisition and mergers, suspension, winding up of banking companies, etc. Sri Lanka’s banking sector is currently operating on Basel I, but getting ready to implement Basel II Capital Adequacy Ratios from early 2008. Basel II is basically risk mitigation in banking operations and, it allows supervisors and regulators to encourage or require banks to build up capital buffers in good times. Financial regulations have thus been set taking into consideration the cyclical situation which banking firms face in home and host countries. In addition to the provisions in the Banking Act, the Monetary Law Act which governs the operations of the Central Bank, also provide for regulation of banking companies. However, in recent times, through various amendments, most of the provisions of the Monetary Law Act have been incorporated in the Banking Act. Their stock market operations come under the purview of the SEC Act. In addition to the banks, the Central Bank regulates the finance companies under Finance Companies Act and the leasing companies under the Leasing Act. The primary dealers who deal in the government securities market irrespective of whether they are banks or not, are under the supervision of the Central Bank.
That is why, in the UK, the Monetary Policy Committee periodically takes stock of developments and updates its estimates of key variables such as the equilibrium rates of interest and unemployment. 34  The MPC provided our assessment of the equilibrium rate of interest – the interest rate that sustains inflation at target and output at potential – in its August Inflation Report. The equilibrium interest rate provides a way to think about the forces acting on the economy, and whether policy is stimulative or contractionary. It is affected by shorter-term influences, such as headwinds to demand, and by slow-moving structural factors that affect the balance between the demand for capital and the stock of wealth available to finance it. For open economies like the UK and Ireland, those factors will be heavily influenced by global developments. As the MPC noted at the time, increased automation could push the equilibrium interest rate up or down. On the one hand, the increases in productivity that result could increase businesses’ demand for capital, pushing up the equilibrium interest rate for a period – and permanently if automation raises productivity growth. 35  On the other hand, however, increases in inequality would likely shift income to those with lower  propensities to consume,  36  increasing the stock saving and pushing the equilibrium rate down.

Dependence on one or a few products leaves the economy susceptible to external shocks. (vi)  In the financial sector, the key lesson is that liberalisation of the industry is not tantamount to relaxing of regulatory and supervisory measures. In fact the legal, regulatory, and supervisory frameworks should be strengthened to deal with any excesses arising from entry of institutions with poor management or governance practices due to the attractive liberal environment. (vii)  Legal and operational framework requires continuous reviews to remain relevant in this technologically fast moving world. Ladies and Gentlemen After learning the lessons from the past 40 years, the following are some of the challenges we have to confront: •  Achievement and maintenance of price stability, i.e. low and stable single digit inflation;  •  Maintenance of a stable and competitive exchange rate;  •  Diversification of the economy and the export base;  •  Enhancing economic policy credibility. Policy reversals tend to undermine gains made in achieving macroeconomic stability; and  •  Sustained reduction of fiscal dominance (deficits) to contribute to low inflation, lowering of interest rates and release more funds for lending to the private sector. Turning to the question of where we go from here, I wish to state that all indications are that the economic outlook for Zambia, in the medium and long-term, is favourable. This is premised on the continued favourable performance of a few sectors, such as agriculture, mining and tourism.
Recognizing this is important to understanding both why the U.S. imbalance has grown as large as it has and, perhaps, more importantly why it has been financed with such apparent ease despite obvious concerns about its sustainability. If the U.S. external deficit continues to run at a level close to 7 percent of GDP—and most forecasts assume it will for some time, then the net international investment position of the United States will deteriorate sharply, U.S. net obligations to the rest of the world will rise to a very substantial share of GDP, and a growing share of U.S. income will have to go to service those obligations. The anomaly is that these imbalances have persisted on a seemly unsustainable path with relatively low interest rates and very little evidence of rising risk premia. Economists have invested quite a bit of effort over the past two years in exploring alternative explanations for the coexistence of these phenomena, and their potential implications for policy. Much of the focus has been on looking at the forces behind the current pattern of global capital flows and how those forces might evolve over time.

For the same reason, this phenomenon can act to mask or offset the effects of high levels of present and expected future government borrowing on interest rates, perhaps contributing to a false sense of reassurance that we can continue to run large structural deficits without risk of crowding out private investment and damaging future growth. BIS Review 18/2006  3  What might this mean for the conduct of monetary policy? To the extent that these forces act to put downward pressure on interest rates and upward pressure on other asset prices, they would contribute to more expansionary financial conditions than would otherwise be the case. And, if all else were equal, which of course is unlikely ever to be the case, monetary policy in the affected countries would have to adjust in response; policy would have to act to offset these effects in order to achieve the same impact on the future path of demand and inflation. To do otherwise would run the risk that monetary policy would be too accommodative, pulling resources from the future in a way that would alter the trajectory for the growth of the capital stock, perhaps amplifying the imbalances, and compromising the price stability. Finally, these aspects of global monetary arrangements and financial conditions have important implications for how we communicate about monetary policy. They strengthen the case for why central banks should be clear about their objectives and credible in their commitment to price stability.
I will briefly deal with the general approach, then discuss the instruments available to mitigate procyclicality. General approach As in many matters of public policy, there is a choice between rules and discretion in dealing with procyclicality. The rule based approach can be built on "automatic stabilizers" which would constrain institutions in their behaviour, regardless of their own individual situations. Examples would include contra cyclical capital requirement, for instance, as well as dynamic provisioning. Alternatively, discretionary action could consist in "top down" interventions from macro prudential authorities. They would step in and impose (or relax) constraints whenever they come to the conclusion that dangerous imbalances are building up (or unwinding). We probably cannot dispense of this second approach. The difficulty to date cycles makes it dangerous to rely purely on automatic mechanisms, which cannot be precisely calibrated. Financial cycles, in particular, are driven by changes in risk appetite which are impossible to predict. Actually, one essential objective of macro prudential supervision may be to "regulate" (not in the legal sense, but economically) the aggregate level of risk appetite inside the financial system. This unavoidably involves some degree of discretionary judgement. How that judgement is made will determine the relevance and effectiveness of macro prudential supervision. The prudential apparatus has worked in the past on the presumption that all movements in asset prices were based on fundamentals. This approach may prevent supervisors from dealing with excessive procyclicality until it is too late. The existence of bubbles, for instance, is impossible to prove until they burst.

But the interest rates households and companies could borrow at did not fall as much, as risk and liquidity premiums increased at the same time. However, these observations do not mean that the effects of changes in the repo rate have altered. A more reasonable interpretation is that the cuts in the repo rate have been counteracted by, and perhaps sometimes drowned  BIS central bankers’ speeches  11  in, other effects.22 If the repo rate had not been cut as aggressively, households and companies would most probably have had to pay higher interest rates. Misinterpreted: Monetary policy in small economies is determined internationally A traditional textbook account would say that a country that has a floating exchange rate and allows the free mobility of capital across national borders can formulate its monetary policy to attain a domestic inflation target. But Rey (2013) claimed recently in a widely-read paper that this conclusion is no longer valid. She argued that globalisation and the increasing international flows of capital meant that monetary policy around the world must adapt to monetary policy in the dominant economies, primarily the United States. Rey’s theory is that large amounts of capital will flow into a country that tries to conduct a tighter monetary policy. The capital inflow will either lead to an undesired appreciation of the country’s currency or to asset prices in the country rising too quickly.
It is estimated that 2.7 billion adults in the world economy are currently excluded from the financial system. In addition to the G20 initiative, there are other global institutions such as the Consultative Group to Assist the Poor (CGAP), Alliance for Financial Inclusion (AFI) and the International Finance Corporation (IFC) that have assumed an increasingly active role at the international level in developing new research, setting standards and providing a platform for policymakers to share experiences. This improved visibility of financial inclusion on the global agenda has lent significant support to the initiatives at the national level to promote greater financial inclusion. In this recent decade there has also been a growing body of research in the area of financial inclusion. This has contributed towards enhancing our understanding of the different approaches and policies that have been adopted and their relative successes in achieving greater access to financial services. This has also allowed for an enhanced appreciation of the issues that need to be addressed and on how sustainable financial inclusion might be achieved in our own countries. While considerable progress has been made in improving the financial inclusion environment, the sheer numbers that remain excluded from the financial system suggest that much more needs to be done, both at the national and international level. Barriers to financial inclusion continue to exist in many countries.

Even with only one goal and with only one instrument, in theory Central Bank actions can be organized in different ways. For a long time in the past, monetary policy was conducted through the control of monetary aggregates. This practice, however, proved to be increasingly inefficient as economic systems designed new substitutive mechanisms to create money that had not been supplied by the monetary authority. With advances in information technology and its effects on the productive processes of commercialization and of consumption, this element of endogenous money creation made control of money ineffective, which in turn led Central Bankers to abandon the use of targets for monetary aggregates. It is important to highlight that this does not mean that the evolution of the monetary aggregates will be watched or treated carelessly. They are still closely monitored, but they have ceased to be the policy variable. Another choice available to the Central Bank is to conduct monetary policy through the control of the exchange rate, which implies that the focus of the monetary authority is aimed at managing the exchange rate's trajectory. This option has been also abandoned due to its high costs and to its limited effectiveness when the economy goes through significant changes and shocks. The option that has proven to be most efficient to conduct monetary policy is the inflation targeting regime. This system has explicit targets for the monetary authority, which brings transparency to the targets being pursued and allows for reporting to society the absolute commitment to the control of inflation.
Mojmír Hampl: The trilemma of the banking sector Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at the Czech National Bank and OMFIF Central Bank Meeting “Central banking in Central and Eastern Europe: Policy making, investment and low yields”, Prague, 7 June 2016. *  *  *  Ladies and gentleman, good morning, First of all let me express my gratitude for the kind invitation to speak at this event. My special thanks go to our departing Governor Miroslav Singer and to David Marsh for the energy – I would almost say nuclear energy – he constantly invests in the OMFIF and its events and publications, which has made the OMFIF what it is now. Reading the OMFIF daily commentary has become an almost indispensable part of my working day, I have to say. Looking at the impressive list of distinguished participants at today’s meeting, I intuitively started asking myself: what really unites us? What do we share regardless of whether we come from the east, west, north or south, or here from Prague for that matter? And I am pretty certain that from the financial or monetary point of view there is at least one important thing. In all our countries we have not only central banks, but also commercial banks operating in a system of elastic money, i.e. private banks as entities that also create money. And we all share the same desire.

That is the limitation we face and will always face in the banking sector, and that’s why no perfect and once-and-for-all accepted way of achieving the “ideal state of affairs of banks” will probably ever be established. All the more so as the reality makes achieving any ideal less likely in the future than it is now. Look, for instance, at the issue of resolvability of banks. Yes, we in the EU have the BRRD  BIS central bankers’ speeches  1  (Bank Recovery and Resolution Directive) as our European answer to the question of resolvability. Let’s put aside the fact that its practical implementation and the enforcement of its key principles have not always been convincing so far. And we are not sure that these principles (namely bail-in) will be applied in a dynamically consistent way across countries and banks in the future. But still many believe we have made banks more resolvable (and also resilient) since 2008. And I think there are underlying real-time processes that are actually making banks less resolvable now compared to the past. Why? What worries me is that over time many end-users (and also policy-makers) tend to look at standard commercial banks as utilities with all their typical features. One of those features is that the population is becoming more and more incrementally dependent on the services such utilities provide, quite often without the very same population even noticing it. A typical example is electricity.
According to the preparatory materials for the Act, the Riksbank’s monetary policy is also aimed at attaining the inflation target, and at the same time it is to support the objectives of general economic policy with a view to achieving sustainable growth and high employment. The Riksbank also has a mandate from the Riksdag (the Swedish parliament) to promote a safe and efficient payment system. The Riksbank has interpreted this as meaning that it shall act to promote stability in the Swedish financial system as a whole. 2  In the so-called KIX index, which measures the importance of various regions and countries for Sweden’s foreign trade, the euro area has a weight of about 50 per cent. BIS central bankers’ speeches  1  know, the global financial crisis of 2008 was followed by a sovereign debt crisis in the euro area a few years later. Developments in recent years have therefore entailed an unexpectedly weak level of economic activity abroad, and this has had consequences for Swedish inflation and the real economy. In conjunction with this, inflation also became surprisingly low both in Sweden and abroad. Long-term inflation expectations in Sweden started to fall – the credibility of the inflation target thereby risked being undermined (see Figure 1). Figure 1 Inflation expectations among money market participants Per cent  Source: TNS Sifo Prospera. Monetary policy abroad affects the conditions for Sweden Sweden is a small, open economy, which is reflected, not least, by its monetary policy.

It is not too far-fetched – to envisage the generation of breakthrough thinking for future research collaboration that is solution-driven; practical; and innovative in future meetings of this forum. Ibnu Taymiyyah once said: “Surely among the main thrusts in a religion is the union of hearts, the unison of views and easing of disputes conducted in good way.” I implore all of us to begin today’s dialogue with an open mind and candid sharing of experiences that can benefit us all. It is through collaboration and cooperation that the intended values and impact of Islamic finance can be realised for the betterment of the ummah. On that note, I wish you a productive and engaging discussion. 2/2  BIS central bankers' speeches
If we believe these activities provide essential credit intermediation services to the real economy that could not be easily replaced by other forms of intermediation, then the same logic that leads us to backstop commercial banking with a lender of last resort might lead us to backstop the banking activity taking place in the markets in a similar way. However, any expansion of access to a lender of last resort would require legislation and it would be essential to have the right quid pro quo – the commensurate expansion in the scope of prudential oversight. Substantial prudential regulation of entities – such as broker-dealers20 – that might gain access to an expanded lender of last resort would be required to mitigate moral hazard problems. For example, firms might take less care in managing liquidity and capital if they know they have a lender of last resort backstop and be subject to less counterparty and creditor discipline. In addition, the fact that an institution has access to a lender of last resort facility has value to the institution, even if that institution never taps the facility. Thus, without a corresponding imposition of offsetting obligations and costs, the granting of access would create a significant competitive advantage. Extension of discount window-type access to a set of nonbank institutions would therefore have to go hand-in-hand with prudential regulation of these institutions. Many thorny issues would have to be resolved. For example, who would have access and on what terms and conditions? How would foreign-owned broker-dealers be treated?

Here I am thinking about variables like the economy’s potential growth rate, the output gap and the NAIRU etc. Why should identifying asset market misalignments, excessive credit growth and a rapid decline in private financial balances be more difficult than forming an opinion about variables such as these? My view about monetary policy in this respect is of course closely bound up with my experience of the Swedish banking crisis, but it is also in line with a central bank’s mandate to achieve long-run price stability. If anything, a financial crisis substantially increases the risk of outright deflation after some time. The central bank could manage this risk in two ways: by at least trying to prevent the bubble from building up by tightening monetary policy at an early stage, and then by loosening monetary policy aggressively if a bubble builds up and bursts anyway. To my mind, both such actions would be in line with focusing on long-run price stability, whether the central bank follows an explicit or an implicit inflation targeting approach. Although I will be leaving my job as governor of the Bank of Sweden towards the end of this year, I have no qualms about forecasting that financial stability will remain on the agenda and be a key challenge for financial authorities for many years to come. 2  BIS Review 68/2002