samchain/econo-pairs-v1 huggingface dataset:
And to avoid taxpayer bail-out, losses may need to be imposed on a wide class of bank creditors, including holders of debt as well as equity – for example, by “bail-in”. Over recent years, these resolution lessons have been enshrined in banking legislation. For example, in the United States Title II of the Dodd-Frank Act was passed in July 2010. It creates a new regime for the liquidation of financial companies, banks and non-banks, which pose a systemic financial stability risk. It enables losses to be imposed on creditors in resolution, while also prohibiting state bail-outs. Internationally, in November 2011 the G20 endorsed the FSB’s Key Attributes of Effective Resolution Regimes, developed by an international working group chaired by my colleague Paul Tucker. Efforts are now underway to align national resolution regimes with these principles. As part of that, in Europe a draft Directive on bank recovery and resolution was published in June 2012. These initiatives are an important practical step in the right direction, lowering the societal costs of bank failure. As with systemic surcharges, it is striking how much progress has been made in so short a space of time on so complex an issue. The practical question is how far this takes us towards removing the too-big-to-fail externality. During a bank resolution, one way of ensuring continuity of banking services is by transferring assets and/or liabilities of a failing firm to a third party.

Falling short of these principles can drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, fiscal policies should be oriented towards making economies more productive and gradually reducing high public debt. Finally, countries should implement structural policies for intensifying their efforts to green and digitalise their economies. Inflation Euro area headline inflation declined from its October peak, reflecting a drop in energy inflation. Downward base effects, an easing of energy commodity prices, and the impact of government measures to shield consumers from high energy prices all contributed to this decline. By contrast, food and core inflation rates continued to rise, partly as a result of the past surge in energy and other input costs still feeding through to consumer prices. Pent-up demand related to the reopening of the economy and the lagged impact of supply bottlenecks also continue to push prices up. At the same time, employees demanding compensation for the loss in purchasing power amid tight labour markets has translated into higher wage growth, while many firms in sectors facing constrained supply and resurgent demand raised their profit margins. We expect euro area inflation to continue to fall, as lagged price pressures fade out and tighter monetary policy increasingly dampens demand. However, historically high wage growth, related to tight labour markets and compensation for high inflation, will support core inflation over the projection horizon, as it gradually returns to rates around our target. This outlook remains surrounded by considerable uncertainty, with both upside and downside risks.
This morning, I would like to talk about some of the changes we are seeing in the practice of risk management and reflect on important priorities for risk management as observed from our work at Bank Negara Malaysia with the financial industry. I will then offer some brief perspectives on business continuity management and close with some final thoughts on the prospects for the insurance industry in Malaysia to contribute towards the advancement of risk management capabilities across Malaysian businesses. Changing practices in risk management Since the financial crisis, risk management practices have come under intense scrutiny. The spectacular failures in risk management in the lead up to the crisis prompted deep reflections on what had gone wrong with risk management systems and practices – not least of all among companies that had invested heavily in sophisticated risk measurement and management systems only to have them ultimately fail to detect or control risk exposures. Closer to home, businesses in Malaysia are currently facing a set of challenging business conditions and some are likely to find themselves ill-prepared to respond to the challenges, with important implications for their future prospects. So what can we learn about the changing practice of risk management from these experiences? A first observation to my mind concerns the importance of building a strong risk culture supported by governance arrangements that are explicitly aligned to a firm’s risk appetite.

And lastly, we will do more in the future to enhance the attractiveness of the Paris financial centre: the Government will do its part – the Prime Minister will talk about this later –; the Ile-de-France region and the Paris City too; and the ACPR will examine in a prompt way all applications in its remit coming from financial institutions that are already licensed in another EU member state. Of course, Paris is not the only financial centre in the euro area, but it has everything it needs to be one of the best. It depends on us, on all of us. Therefore, now more than ever, the time has come for Paris Europlace to take center stage. BIS central bankers’ speeches  3
And I believe that the best way of managing risks is for those concerned, not just the authorities responsible for the maintenance of systemic monetary and financial stability but more importantly also those actually assuming risks, whether as investors or as financial intermediaries, to be alert to them, and to understand that they may have peculiar characteristics. Then there are importantly those innocent parties in society, who are often hard-pressed to make ends meet or struggling to acquire a dwelling place, who could be further disadvantaged if there were monetary and financial instability, should the risks materialise to the extent of causing a shock of systemic dimension. Sub-prime crisis The FIRST such issue is the sub-prime crisis in the United States. The use of the word "crisis" is not an exaggeration on my part, notwithstanding the absence so far of anything approaching a crisis in Hong Kong. It is the word that is increasingly being used in the developed markets and in international finance when talking about the current difficulties in the United States and Europe that originated from sub-prime mortgages. At the risk of oversimplifying something that is really quite complex, let me make a few observations that might help understand what is going on. First, sub-prime mortgages are really mortgages extended to those who are, to put it bluntly and simply, not credit worthy. And as mortgages are assets on the books of the lenders, subprime mortgages are really sub-standard financial assets.

In the end, the most risky behaviour is one characterised by over-optimism, and lack of consideration of all the relevant risks. This means that when shocks occur, entities are unprepared and tend to react abruptly, causing problems for their institution and, sometimes, for the whole system. On the contrary, adopting a forward-looking approach, which takes account of the possible impact of broader changes in the cycle, should help institutions to avoid mistakes and bad decisions, and to detect and respond to problems in a smoother fashion and at an earlier stage. Conclusion In closing, I would like to thank you as risk professionals for your inputs to the various Basel Committee initiatives during my Chairmanship, especially Basel II. A unique element of Basel II is that rather than imposing a purely regulatory approach, it incorporates what the Basel Committee views as leading practices in bank risk management. In developing the revised Framework, the Committee sought to incorporate rigorous and comprehensive risk management approaches into the regulatory structure. We could not have come as far as we have without the advances in risk management that you in the industry have developed. Moreover, as industry practices continue to evolve, I believe the Framework is flexible enough that these advances can be incorporated on an ongoing basis. These past several years have been among the most interesting and challenging in my career, and I will always look back on the accomplishments of the Basel Committee over this period with a mixture of pride and humility.
Term premia  Thus far the explanations I have covered have ranged from transient, to cyclical to structural. Let me turn now to the unobservable. Economists refer to the factors which move the yield curve in addition to the expected path of rates as “term premia” – the (positive or negative) compensation that investors require to invest in a longer dated security in addition to the returns that could be expected from rolling over short term investments. 14  As outlined in Gordon (2012). Gordon (2014) emphasises that this slowdown in innovation will be one contributing factor to a generalised slowdown in growth that is also driven by demography, educational attainment, inequality and a public sector debt overhang. 15  See Mokyr (2014) for the optimists’ case  16  See McKinsey (2013) for an outline of the potential of these and other technologies  BIS central bankers’ speeches  5  Because they are by their nature unobservable, term premia must be estimated. Chart 9 shows one estimate of the effect of term premia on UK government bond yields over the period since August of last year, using a technique based on that of Adrian, Crump and Moench (2013). More information about how these estimates are arrived at will soon be available on the Bank’s forthcoming staff blog, but the main message is that over this period term premia were a big driver of the move lower in yields. There are several potential practical developments that one could attach to declining UK term premia.

As Chart 2 shows, long-dated corporate borrowing rates have followed much of the downward move in government bond yields over recent years. Whether you believe this is reflective of the prospect of gloomy days to come or the result of some other factors will determine whether you – as corporate treasurers – view very long low yields as a warning or an opportunity. In the rest of my remarks I will cover four possible explanations for the current level of long yields: (i)  lower inflation expectations;  (ii)  the balance of savings and investment intentions;  (iii)  diminished potential output growth; and  1  Bernanke (2005). BIS central bankers’ speeches  1  (iv)  reduced term premia  I will argue that it would be overly pessimistic to believe that the headwinds currently affecting the nominal and real economy will persist for decades to come. But I will also argue that there are other influences on long yields affecting saving and investment decisions (including the persistent-but-not-permanent effects of a balance sheet recession, and greater weight being attached to downside risks) and on term premia (including the impact of central bank asset purchases). 2. Inflation expectations  Let me start with inflation expectations. Because some of the decline in nominal yields over recent years coincided with a marked and unexpected decline in headline inflation in the UK, a natural question to ask is whether or not this was caused by a shift lower in inflation expectations.
If EU withdrawal results in significant new barriers to trade between the UK and its major trading partners in the rest of Europe, one plausible consequence would be a marked shift in relative demand for UK output. The economy would probably experience less demand for the things we’ve been exporting to the EU and more for UK-based substitutes for the goods and services we’ve tended to import. That wouldn’t matter much if the resources for one could be seamlessly and costlessly transferred to the other. In reality, however, those resources, human as well as physical, are likely to be specialised: they’re more productive in some areas than others. A plant used to produce a particular car part, as part of an integrated European supply chain, cannot suddenly be converted into one that makes a complex German 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  machine tool. A field currently producing barley, sold into the European market, can’t easily or as fruitfully be replanted with olive trees. Someone steeped in one particular area of financial services cannot overnight, or costlessly, be reborn as an expert widget-maker, able to generate the same contribution to GDP. In the presence of specialised inputs a significant shock to relative demand can have coincident and material effects on aggregate supply. The general lesson here is that “total factor productivity” doesn’t just depend on aggregate resources. To the extent those resources are specialised it also depends on their allocation.

Svein Gjedrem: Globalisation and monetary policy in Norway Address by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at the Nordic CFO Seminar, Stockholm, 10 May 2006. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 26 April, Inflation Report 1/06 and on previous speeches. Please note that the text below may differ slightly from the actual presentation. The  Charts in pdf-format can be found on the Norges Bank’s website. *  *  *  Thank you Madame Chair, Let me first say that I am glad of this opportunity to address you on the issue of globalisation and monetary policy in Norway. Effects of increased globalisation The term globalisation can mean different things to different people, but today I refer to the growing interdependence of national economies as reflected in greater and freer flows of goods, services, capital and even labour across national borders. The globalisation process has accelerated over the last 15 years through increased trade liberalisation, political changes, technological advances, and a sharp reduction in transaction costs. As illustrated in this chart, cross-border flows of goods and capital are growing at a markedly faster pace than world production. These developments present challenges to monetary policy. Financial imbalances have been building up internationally as a result of a strong rise in cross-border capital flows and foreign asset ownership. In Norway, we are facing a significantly changed terms-of-trade pattern.
The economy is more or less at full employment, consumption has rebounded, and household income growth has recovered to near pre-crisis rates. The problem with the US recovery, at least from the perspective of Singapore and the region, is not its pace of growth but its composition. US GDP growth is not generating as much trade as previously, with persistent weaknesses in business investment, including in IT. This has implications for export growth in Asia and in Singapore. US consumption generates only around two-thirds the import demand that US investment does. So for Asia and Singapore, we need to see a recovery in US investment. BIS central bankers’ speeches  1  China’s growth should slow but we do not expect a “hard landing”. The official target of 6.5% is quite attainable on the back of fiscal stimulus and continued credit expansion. In fact, the risk is not of too low a growth rate but a growth rate that is achieved by adding to the underlying vulnerabilities in the Chinese economy: high and rising levels of corporate debt, industrial over-capacity and deteriorating asset quality in the banking system. Changes in the composition of China’s growth will continue to have an impact on Asia and Singapore. The rebalancing of demand away from investment and towards consumption has weighed on the region’s exports of commodities and capital goods. But over time, there are opportunities for countries which re-orientate the structure of their exports to tap on China’s burgeoning demand for consumer goods and services.

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In a severe crisis, which requires prompt action with long-lasting effects on the lives of citizens, the risk of a mistake is enormous, particularly if decisions are taken in a monolithic society or there is a tendency to share a common mindset. The existence of European institutions does not eliminate the possibility of error, but forces together the different cultures and opinions that form the Union in the decision-making process. As a result, decisions may be wiser, even if taken in a cumbersome way and in a context of deep discord. One example is the decisions to support the three countries which experienced economic difficulties. Opinions differed within the Union. Some were tempted to leave the countries to their fate, to pay for the mistakes they had made. But others were prepared to help – even unconditionally – thinking that in future they might benefit from the same assistance if needed. In each case it was difficult to forge an agreement, but finally a balanced solution was found with a view to creating the appropriate incentives for adjustment. Resorting to European institutions does not mean that all decisions need to be centralised at the Union level. Maintaining decentralised decision-making and some form of competition in some sectors can be an important factor in encouraging less competitive countries to emulate more efficient ones. In several European countries, for instance, the reform of the labour market to align it with best practice has become a priority in the adjustment process.

With the benefit of hindsight, we can see the introduction of the euro ten years ago as a prescient, forward-looking response by Europe to the challenges and risks of the present world. I would now like to consider my third question: What challenges lie ahead for the single currency? Despite all the achievements, this is not the time for complacency. There are important challenges. The most important and most direct is of course to tackle the financial market turbulence and the economic downturn. But there are also challenges which go beyond tackling the current situation. But they are related to it in part. I would like to consider three challenges briefly: the securing of sound government finances, structural reforms in the euro countries and the expansion of the euro area. Securing of sound government finances Sound government finances are critical. They complement the ECB’s stability-oriented monetary policy. They prevent the fiscal policies of one country in the euro area from having  6  BIS Review 16/2009  negative effects on other countries. Beyond that, sound finances make a national economy more flexible. They are part of a growth-friendly environment. The fiscal policies of the Member States should promote the smooth functioning of Europe’s Economic and Monetary Union. The Stability and Growth Pact is the instrument to guarantee this. The Pact is the most important pillar in the economic union. It supports the monetary union. The strict and credible implementation of the Stability and Growth Pact is essential.
Ultimately, returns depend on the pace of growth in the world economy and the share of that growth that accrues as value in the companies and bonds in the Fund’s investment portfolio. These variables are uncertain. Growth in the world economy may come to a halt. Governments may default on interest payments. Real properties may fall in value when bubbles burst. To achieve returns, we must take on risk. The Fund features a very long investment horizon and a sizeable capacity to bear short-term risk. If we can exploit these distinctive features when making investment choices, it should be possible to obtain a return in excess of average market return. Shareholders are last in line when company profits are to be distributed. They bear a considerable risk. As compensation, shareholders have received a higher return over time – a risk premium. It is sound investment logic for a fund such as ours to exploit this risk premium to boost returns, which is why the chosen allocation to equities is relatively high. In addition, a reasonable distribution between bonds and equities can contribute to reducing the Fund’s overall risk, as bond and equity prices tend to move inversely. The bond portfolio may thus be seen as a kind of hedge against a drop in equity prices. In recent years, the Fund has also invested directly in real estate. In the light of its size and long horizon, the Fund is well poised to make gains in low liquidity markets. Real estate investment is an example.

Last autumn, the Storting decided to spend less than 3 percent of the Fund over the fiscal budget for 2014. It would seem that the return and actual spending of petroleum revenues are moving in opposite directions. The figures 3 and 4 have apparently switched places since 2012. Petroleum revenue spending is not falling in absolute terms. On the contrary, fiscal policy has stimulated overall demand in the mainland economy over several years. The sharp increase in the value of the Fund is the main reason behind the decline in the percentage share of spending via the fiscal budget. Quite paradoxically, low growth and low interest rates abroad are probably the main factors behind the solid performance of the Fund over the past two to three years. 6  BIS central bankers’ speeches  Chart 10: Annual return on the GPFG Since the end of the 1990s, a persistent fall in yields has driven up government bond prices. In recent years, the unconventional monetary policy measures of the world’s major central banks have contributed to even lower interest rates and higher prices for equities and other securities. This has resulted in above-normal returns on the Fund’s investments. But today there is no longer room for a considerable fall in interest rates and equity prices have risen to fairly high levels. Chart 11: Annual return on the GPFG divided into value gains and cash flow Our return measure includes both value gains and direct cash flows, which comprise dividend and interest income.