samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Cross-border challenges in implementing Basel II in emerging economies Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the PublicPrivate Dialogue Session of the 7th SEACEN Conference of Directors of Supervision of Asia Pacific Economies, Kuala Lumpur, 4 August 2005. *  *  *  Dr. Subarjo, Executive Director of the SEACEN Centre, Mr. Karl Cordewener, Deputy Secretary General of the Secretariat of the Basel Committee on Banking Supervision, Distinguished Guests, Thank you for the invitation to speak at this 7th SEACEN Conference of Directors of Supervision of Asia Pacific Economies organised by the SEACEN Centre in collaboration with the APEC Business Advisory Council, the Asian Bankers' Association and the Pacific Economic Cooperation Council. This event is of particular significance as it brings together the regulators and practitioners from the banking industry, to exchange ideas and share experiences on the operational and policy issues involved in cross-border banking, in particular, with respect to the implementation of Basel II. The participation of regulators and industry players from Latin America will, I believe further enrich the discussions. It is in our common interest to resolve these issues expeditiously, as the implementation date of 2007 for G10 countries approaches. Ladies and Gentlemen, In most emerging markets, the banking sector forms the key component of the financial system that drives the economy.

And heightened uncertainty can add to market volatility, resulting in diminished market liquidity. But these debates about trade-offs expose a basic problem. Everyone is familiar with the idea of a "jack of all trades." Using monetary policy to mitigate financial stability vulnerabilities can lead to unfavorable outcomes for the economy. Monetary policy should not try to be a jack of all trades and a master of none. There must be a better way. Fortunately, there is. Instead of looking at this as a problem of choosing the point on an unfavorable trade-off curve, we must look for ways to shift the curve by enhancing the resilience of the financial system. The value of this approach to building resilience was demonstrated by the global efforts to strengthen the banking system following the global financial crisis. Despite the economic disruptions caused by COVID-19 and Russia's war on Ukraine, the banking system has functioned well, serving as a source of strength for the economy, not a weak link. Alternative Solutions, Prudent Results As monetary policymakers, we need to count on well-functioning markets that promote financial stability as we pursue our price stability and maximum employment goals. So, what can be done to enhance financial stability? At the Federal Reserve, we have instituted changes over the past few years that support market functioning in times of stress.
Chart 2: The increase in corporate insolvencies has been driven by micro firms Monthly business insolvencies by size over time (number of insolvencies) (a) (b)  (a) Sources: The Gazette and Bank calculations. (b) An insolvency is recognised at the point a liquidator is appointed. Micro firms have less than £ in assets, small firms between £ and £ medium firms between £ and £ and large firms above £  Page 6  Chart 3: The debt-weighted share of low-ICR firms has increased but remains below the GFC peak Debt-weighted share of companies with interest coverage ratios below 2.5 (a) (b)  (a) Sources: Moody’s BvD, S&P Global Market Intelligence and Bank calculations. (b) These data refer to UK PNFCs only. The projected number for end-2023 is based on the February Monetary Policy Report. We use 2.5 as a threshold as companies with interest coverage ratios below 2.5 are materially more likely to experience repayment difficulties. We are also alert to risks not directly visible on balance sheets (relating to off-balance sheet instruments like derivatives for instance). Energy firms for example have relied extensively on derivatives to hedge against price movements. And the rise in energy prices last year triggered margin calls on those derivatives that put some firms in immediate liquidity stress. The Bank and HM Treasury’s Energy Markets Financing Scheme was initiated to ensure that liquidity stress did not turn needlessly into insolvency. We can also see some evidence of the borrower resilience channel at play, with investment intentions distributed unevenly across firms.

Page 1  Investing in financial stability − speech by Sarah Breeden Given at the Insolvency Practitioners Association annual conference  Page 2  Published on 27 April 2023  Sarah Breeden discusses why we monitor corporate debt given its impact on financial stability. She goes on to explain how the financial system can assist longterm productive investment and where it can do more to support business investment. Speech Introduction I suspect I won’t need to convince this audience of the importance of corporate debt and financing conditions. What I’d like to do instead is explain why the Financial Policy Committee (FPC) cares about them. The FPC has two objectives: a primary one to maintain financial stability, and a secondary one to support economic growth. The supply of finance to the corporate sector touches on both. For our primary objective we look to ensure that risks to financial stability aren’t generated by excessive levels of corporate debt – where indebtedness might build in an upswing and lead to a damaging credit crunch in a downturn. And for our secondary objective we want to make sure the financial system is supplying enough long-term, stable funding to allow businesses to make productive investments, and finance major economic transitions such as the journey to net zero. So, in both cases, stability is our watchword. We are aiming at a supply of business finance which is stable through the economic cycle – avoiding damaging swings from credit boom to bust.
Once the testing system is fully operational and we are convinced of its efficiency, these restrictions will be gradually lifted. We believe that at this juncture it is our responsibility to protect our investors. We might as well move forward some of the law regulations — those making customers’ qualification tests mandatory — from April 2022 to at least 1 October 2021. At the time, we went along with market players and provided for a fairly comfortable and soft transition period in the law. We had an extensive discussion with Federation Council members. It stands to reason however that the major shift in the situation calls on us to take meaningful action to protect consumer rights. I admit that financial institutions themselves are unlikely to welcome this proposal, and their feedback will be negative. This is where we count on you to help, just as we have always counted on your support of our initiatives related to efficient consumer right protection in the financial market. The key reason for this is the nature of financial institutions: they are financial intermediaries which should operate in the interest of businesses and consumers, just like the Speaker said. We therefore believe that now is the time for prompt and serious discussion of this matter to make a decision. I am now handing over the floor to Sergey Shvetsov, who will enlarge on these and other initiatives I have presented.

The strategy has been to institute the entire financial system chain to ensure its smooth functioning thereby contributing to a balanced allocation of financial and economic resources within the economy, and a greater diversification of risks within the system, and thus achieving overall stability of the Islamic financial system. The initiatives taken include building the required financial institutions, robust regulatory and supervisory framework, effective legal and Shariah framework, the financial markets, effective payment and settlement system, reinforced by the development of the skill talents, and putting in place the mechanism for the operation of the Central Bank. The development of this chain has promoted greater linkages and integration within the domestic Islamic financial system. Attention has therefore been given to the development of the key structural components of the system, comprising the Islamic banking industry, the takaful industry, the non-banking institutions and the Islamic interbank and capital markets. These respective components of the Islamic financial system have now become highly integrated and interdependent. This more diversified financial infrastructure has also enhanced the efficiency in the functioning of the overall financial system. The development of the Islamic financial system in Malaysia started with the establishment of Tabung Haji in 1969 as the first Islamic savings institution. This was followed by the establishment of full-fledged Islamic banking and non-banking institutions. A year after the establishment of the first Islamic Bank in 1983, a takaful or Islamic insurance company was established under the Takaful Act.
It has made it clear that it sees no constitutional bar to British membership. There are advantages. For example, the introduction of the single European currency will help to complete the Single European Market. And the uncertainty associated with investment decisions within the euro area will be reduced. Europe will continue its consolidation as a major trading bloc. And financial benefits should flow from the introduction of the euro as a major currency for financing. The tradeable government debt of the EU as a bloc, for example, amounts to around 2.6 trillion dollars equivalent, compared to 2.1 trillion here in the US. This will give the euro debt markets a broadly similar size and liquidity as hitherto has been the preserve of the dollar markets. But there are also risks. For example, will the UK economy be able to live comfortably with euro interest rates on a permanent basis? And if problems emerge after EMU begins, will a ‘one-size-fits-all’ monetary policy be adequate to deal with them, particularly if there is insufficient flexibility in product markets and labour markets? A particular concern is the high rates of unemployment in some Continental European countries, and the differing rates between them. The British Government has set a number of economic tests to ensure that, before the UK joins EMU, there will be sustainable convergence between the UK economy and the euro area.

The tests include cyclical convergence and structural flexibility, the impact on investment, the impact on the financial services industry and the impact more generally on growth, stability and jobs. So the UK will not join EMU at the outset. But financial firms in London, whatever their nationality, see the euro as a key part of their business. With our support at the Bank of England, they have been actively preparing for the introduction of the euro. London thrives on liquid markets, regardless of currency. So the introduction of the euro is a major opportunity for London. BIS Review 11/1998  -2-  From the start, London will act as a link between New York and the euro area by providing a full range of euro services in wholesale financial markets. That includes euro payments and settlement, so that anyone who wishes to do so will be able to trade and settle in euro in London from the first day of EMU. But it also extends to euro banking, foreign exchange and derivatives trading, bond and equity issuance and trading, fund management, financial advice and professional support services as well. The City of London is Europe’s leading financial centre and one of the top three global centres, alongside New York and Tokyo. Here in New York, the financial centre is influenced by the size of the domestic economy. That is true of Tokyo as well. But London’s success has historically been due to its international financial business.
The 2002 wage settlement resulted in very high wage growth for the fifth consecutive year. The Norwegian economy was exposed to considerable unexpected disturbances from the end of 2002 and in 2003. Economic developments in other countries were an important factor behind the appreciation of the krone. In the autumn of 2002 and into 2003, growth in the global economy moved on a different path and was substantially weaker than Norges Bank and other observers had expected. Weak developments in the global economy resulted in lower interest rates abroad and a wider interest rate differential between Norway and other countries. Developments in international equity markets and the risk of higher oil prices also contributed to strengthening the krone. A persistent downturn abroad, the likelihood of lower wage growth in Norway and a strong krone have led to reductions in the interest rate of more than 5 percentage points since December 2002. The sight deposit rate has been 1.75 per cent since March this year. Monetary policy easing has been aimed at  2  BIS Review 61/2004  bringing inflation up towards the target of 2.5 per cent and stabilising developments in output and employment. The decline in interest rates since December 2002 has contributed to weakening the krone. Measured by an index of 44 trading partners (I-44), the krone depreciated through 2003 by almost 11 per cent from its strongest level in January of the same year. The krone has fluctuated moderately in 2004.

We wish you another equally successful decade – and look forward to another decade of working successfully together. BIS central bankers’ speeches  3
The effects that are attributed to monetary policy should only be the effects the deviation between the short real rate and the neutral rate, not the effects of the whole level of the short real rate, the sum of the deviation and the level of the neutral real rate. The neutral real rate is affected by many things and can be low  4  Woodford (2011) sets up a model where the probability of a financial crisis is assumed to be an increasing function of a state-variable that may be identified with leverage. Furthermore, leverage is assumed to be increasing in lagged leverage and the current output gap and is also subject to shocks. From these assumptions obviously follow a case for tighter monetary policy, “leaning against the wind,” in order to, everything else equal, reduce the output gap and thereby leverage and the probability of a financial crisis. However, the introduction in Woodford’s model of financial-stability instruments such as capital requirements, possibly cyclical ones, would allow leverage to be controlled more directly than indirectly and bluntly by the policy rate via the output gap. Monetary policy would be free to focus on stabilising inflation and the output gap and need not lean against the wind.

Different economic policies, such as fiscal policy, monetary policy, and labour market policy, can be distinguished according to their objectives, the policy instruments that are suitable for achieving the objectives and the authority or authorities that control the instruments and are responsible for achieving the objectives. From this point of view, it is clear that monetary policy and financial-stability policy are distinct and different, and understanding this is important. Monetary policy, in the form of flexible inflation targeting, has the objective of stabilising both inflation around the inflation target and resource utilisation around a sustainable level. Under normal circumstances, the suitable instruments are the policy rate and communication, including the publication of forecasts of inflation, the real economy and (by some central banks) the policy rate. In times of crisis, as we have seen during the financial crisis, in particular when the policy rate is at or close to the zero lower bound, other more unconventional instruments can be used. These instruments include fixed-rate lending at longer maturities, asset purchases (quantitative easing) to affect longer interest rates and expectations of future short rates and foreign-exchange intervention to prevent currency appreciation or even to induce currency depreciation. The authority responsible for monetary policy is typically the central bank. In many countries, including all the member states of the EU, the central bank is given exclusive authority over monetary policy by statute and various measures to protect this policy independence are put in place. Financial-stability policy has the objective of maintaining and promoting financial stability.
A more flexible and efficient labour market is necessary to overcome the distortions that are contributing to a deterioration in competitiveness and to provide an appropriate framework so that firms will find sufficient stimulus for job creation, the introduction of new technologies, the efficient use of factors of production and the enhancement of productivity. 8  BIS Review 45/2005  In this setting, the persistent ratio of temporary to permanent employees, which seems to have encountered a floor at levels above 30%, with the attendant negative consequences for productivity and human capital accumulation, makes it advisable to review the effectiveness of the incentives in force to hire permanent workers in recent years. This would involve redefining the measures designed to reduce non-wage costs linked to this type of employment and introducing incentives to rationalise the use of temporary employment contracts. It is also necessary to set in train a reform of collective bargaining to make the wage-setting mechanisms more flexible, so that compensation is brought into line with the specific conditions of the productive sector and of firms and with the characteristics of workers. This reform would also eliminate, or at least reduce the emphasis on, wage-indexation mechanisms. The stepping-up of investment in training, in physical capital and in technological capital in line with the objectives of the Lisbon Agenda is fundamental for boosting productivity. As mentioned, Spain has notable weaknesses in the areas of innovation and of its incorporation and diffusion in the productive system.

The MPC’s guidance is fully consistent with price stability. I can also assure you of my personal commitment to price stability. I certainly have no hesitation in raising interest rates when required – when I was Governor of the Bank of Canada, we raised interest rates as the recovery there gathered pace. But that was the appropriate policy for Canada at that time. The challenges in the UK today are different, and policy must be tailored accordingly. The Bank of England’s remit recognises that, at times, it is appropriate to bring inflation back to target more slowly in order to avoid unnecessary volatility in output. With a depressed level of output and inflation above target due to temporary factors rather than demand  3  The trend is adjusted for the secular decline in North Sea oil and gas production. BIS central bankers’ speeches  3  pressures, this is such a time. The MPC is charting the right path back to its 2% inflation target. CPI inflation is currently being pushed up by rises in utility prices and tuition fees that do not reflect the underlying pressure of demand on supply, along with the effect of past increases in import prices. Underlying domestic inflationary pressure is subdued, with wages growing at only around 1% per year. Although there will be bumps in the road, inflation is set to fall back over the next two years. In these circumstances it would not make sense to choke off the recovery by raising interest rates prematurely.
Swedish firms that are dependent on exports have been hit in particular, along with their suppliers. At the same time it should be noted that Swedish households, who account for around 50 per cent of demand, have lowered their consumption. Like their counterparts in the United States, people in Sweden have reduced their expectations about future income and wealth. Infrequent purchases, such as cars and household appliances, have fallen in  4  BIS Review 72/2001  particular. Sweden has been hit by the global slowdown in technological sectors such as IT and telecom; firms are being compelled to undertake structural adjustments and close down some production capacity. But although Sweden is affected more than other countries, on account of the dominance of IT and telecom firms, compared with earlier downturns the situation still looks relatively favourable, at least so far. The important thing now is to look to the future. It is not the most recent economic figures that determine the course of events and it is not entirely clear what conclusions should be drawn with regard to developments in one to two years' time. One thing that is clear, however, is that resource utilisation this year will be slightly lower than economic analysts have been counting on. If it turns out to be true that GDP growth only reaches a figure of just under 2 per cent this year, this will nevertheless be a fairly creditable result for the Swedish economy.

One alternative might be to act in relation to a shorter time horizon, which would oblige us to adjust the interest rate more markedly as well as more frequently. Both I and many others believe that would be bad for output and employment. As we all know, assessing the future is difficult and the predictions can almost always be questioned and debated. Interest rate decisions by the Riksbank’s Executive Board are preceded by extensive discussions and our opinions sometimes differ. Disagreements are obviously not intrinsically desirable but when a group of people have to decide about complex matters, they are liable to reach different conclusions at times. That happens in business and it also applies to economic policy. The difference is that the Riksbank is an open institution, which means that our task-masters - ultimately the Swedish nation - can, from the minutes of our meetings, see the basis for a decision, the preceding discussion and the positions Board members have taken. I see that as basically an advantage for people’s confidence in Sweden’s monetary policy. Having said that, I also want to underscore the broad agreement among members of the Executive Board as to the fundamental framework for our efforts. It is important to bear that in mind. After these preliminary remarks, I shall now turn to developments in the Swedish economy in recent years. Sweden’s rapid economic expansion has slowed Economic growth in Sweden has been strong for a number of years. And although demand has risen rapidly, inflation has been low.