samchain/econo-pairs-v1 huggingface dataset:
Ravi Menon: Financial regulation - the way forward Speech by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Official Monetary and Financial Institutions Forum (OMFIF) City Lecture, Washington DC, 20 April 2017. * * * Lord Meghnad Desai, Chairman of the OMFIF Advisory Board, Mr David Marsh, Managing Director, OMFIF, Ladies and gentlemen, good morning. I am grateful to OMFIF for organising this City Lecture and giving me the opportunity to share my thoughts with you. The world experienced nine years ago a most devastating financial crisis. In response, we saw the implementation of perhaps the most wide-ranging reforms in financial regulation ever in history. We are now at an inflection point. The phase of active rule-making is drawing to a close. Where do we go from here? The 19th century Danish philosopher Søren Kierkegaard once said: “Life must be understood backwards, but it must be lived forward.” In the spirit of Kierkegaard, I see two key priorities in the next phase of financial regulation: First, to take stock of the reforms to-date – evaluate their effects, consolidate what we need to preserve, and fine-tune what we need to improve. Second, to position regulation for the technological changes sweeping the financial industry – harness the opportunities they present while managing their risks. Taking stock of post-crisis regulatory reforms Reaffirming the rationale In taking stock of the reforms, let us begin with why we embarked on them.

And with support from MAS, FS-ISAC is in the process of setting up in Singapore its Asia-Pacific cyber intelligence centre. Third, we need to encourage sharing of cyber intelligence among financial regulators. Cyber threats do not respect sovereign boundaries. Cyber attacks in one country can have serious spill-over effects on other countries. Regulators need mechanisms to share cyber intelligence efficiently in real-time. There are already informal, bilateral arrangements for such information-sharing. But more can be done. We need to identify and reduce the barriers inhibiting cyber threat information sharing, such as legal, confidentiality, and operational constraints. I believe that cyber risk management is likely to emerge as the new frontier for global regulatory harmonisation and supervisory co-operation. Conclusion Let me conclude. We have accomplished much – regulators and industry together – to make the global financial system safer. But we are not done yet. We must ensure that implementation of regulatory reforms is consistent across jurisdictions. We must evaluate the effectiveness as well as effects of the reforms. We must be prepared to adjust and fine-tune regulations where necessary – but we must do so in a way that does not undermine the gains in financial stability that have been painstakingly achieved. We need to look ahead to a world of technological change. FinTech – if smartly harnessed and safely managed – offers hope and dynamism for an industry facing the triple headwinds of slower growth, tighter regulation, and growing competition.
The Financial Policy Committee of the Bank of England, the FPC, has the task of identifying, monitoring and taking action to remove or reduce risks with a view to protecting and enhancing the resilience of the financial system in the UK. These risks at the level of the system can include those arising from structural features of financial markets, from the distribution of risk within the financial system, and from unsustainable levels of leverage, debt or credit growth. The emphasis here is very clearly on ensuring the resilience of the financial system. But our objective is not to achieve resilience at any cost – our actions must not have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term. Moreover, and here you will recognise the symmetry with the objectives of the MPC, the legislation provides that, subject to achieving our primary objective for financial stability – resilience – the FPC must also support “the economic policy of Her Majesty’s Government, including its objectives for growth and employment”. The reforms have also created the new Prudential Regulation Authority as part of the Bank of England. Here, the statutory objective of the microprudential regulator is the safety and soundness of the firms which we prudentially regulate – banks, insurers and major investment firms. Moreover, our objective of safety and soundness sits in the context of the stability of the financial system. What does that mean?

Ladies and gentlemen, As you know, financial inclusion has become an important factor in economic efficiency and social equity, and international organizations have, for nearly a decade, underlined its importance and the need for public authorities to adopt national strategies for financial inclusion. The World Bank considers financial inclusion as a key factor for poverty alleviation and has set itself the goal of achieving universal access to 2  financial services by 2020. Under this framework, it targets 25 priority countries, including Morocco. To this end, it launched in 2012 the Financial Inclusion Support Framework (FISF), aligned with the Maya Declaration, to support the implementation of country commitments. For its part, the G20 has made financial inclusion one of its working themes, and in 2009 established an expert group who drew up the nine Core Principles for Innovative Financial Inclusion. In 2010, the G20 launched the Global Partnership for Financial Inclusion, including all G20 countries and interested non-G20 countries. This partnership helps strengthen coordination and collaboration between the various national and international stakeholders through its three key Implementing Partners: the Alliance for Financial Inclusion (AFI), the Consultative Group to Assist the Poor (CGAP), and the International Finance Corporation (IFC). Certainly, all these organizations, to name but a few, and policy-makers are aware of the increasingly critical role of data and its impact on the efficiency of the decision-making process, from the design phase to monitoring and evaluation.
Issuance of asset-backed securities (ABS) globally was $ billion in the first half of 2007, up from $ billion 9 years previously. There  2  BIS Review 93/2008  was rapid expansion in the market for collateralised debt obligations (CDO) from $ billion in the first half of 2005 to $ billion in the first half of 2007. And innovation spawned greater complexity. Investment banks launched a series of highly complex products such as constant proportion debt obligations (CPDO) and re-securitisations of CDOs and ABSs (so called CDO-squared and CDOs of ABS). •  Demand for such tailor-made products has plummeted over the past year, while other markets such as the corporate CDS market have continued to expand rapidly. A possible explanation and assessment of the implications is set out in the remainder of the paper. Section 3: Financial innovation: a broadening of choice 6 A crucial function of the financial system is to help companies and households to manage risks. The discharge of this function depends on the type of financial products or contracts made available to companies and households to hedge and take on risk exposures in close alignment with their individual risk preference and tolerance, as well as the capability of the institutions that make up the financial system to manage the risk inherent in these products.

We should trigger four accelerators: a macro accelerator, which would consist of a collective economic strategy shared by all euro area Member States; a micro accelerator, which would take the form of a Financing Union for Investment and Innovation, going beyond the CMU (Capital Markets Union); a fiscal accelerator, which would draw on a euro area budget. The fourth is not an accelerator in substance, but rather a “facilitator” for the first three: on institutions, a euro area Finance Minister and Parliament. These accelerators would contribute to the functions of economic policy, as described by Musgrave:2 allocation, stabilisation and distribution. The allocation function aims at making sure that resources are used in an efficient way. This would obviously be the role of the micro accelerator, but also of the fiscal one – through the financing of European common goods. The stabilisation function consists in the smoothing of the cycle and cushioning of the impact of crises, and this could be ensured mainly by the macro accelerator, but also by the micro one, thanks to enhanced private risk sharing, and possibly by the fiscal one. Finally, the distribution function is to foster an equitable sharing of income. This role could possibly fall to the fiscal accelerator but its implementation would require increased trust and greater economic convergence between euro area Member States in order to avoid a “transfer union” which would 1/4  BIS central bankers' speeches  be a one-way budget: in that case, I would understand German fears.
The Governing Council consists of the Executive Board of the ECB and the governors of the central banks in the euro area. Monetary policy decisions are implemented by the Eurosystem, which comprises the ECB and the national central banks of the 11 participating EU Member States. The national central banks are, above all, entrusted with the decentralised implementation of the single monetary policy and the relevant activities in their countries. First, I should like to say that the launch and the first few months of the common currency have, in our view, gone well. The initial experiences with the euro and the single monetary policy have proved to be both positive and encouraging. We have currently achieved price stability and the prospects look good for this to remain the case in the years to come. The Governing Council of the ECB has become a truly supranational body. The members of the Governing Council clearly see themselves as committed to this joint cause. They take the whole euro area into consideration when discussing and taking decisions on monetary policy. The efforts made prior to and at the time of the changeover weekend at the beginning of this year are already part of history. Since the beginning of this year the euro has been quoted on the international financial markets and used for cashless payments.

Only recently, the Fed and the Bank of Japan have announced a numerical inflation goal. The second element: central banks should be independent on legal and operational grounds. Indeed, the independence of central banks is enshrined into primary law in a number of advanced and emerging countries and has been key for a stability oriented monetary policy. For crisis management, the so-called Jackson Hole consensus 2 of the 1990s and early 2000s foresaw only a limited role for central banks. Following the logic of the consensus, monetary policy should react to financial imbalances only to the extent that they affect the inflation forecast. Yet, as asset price build-ups are often accompanied by relatively contained inflation rates, 3 “ex-ante” monetary policy reactions were considered difficult. Effectively the consensus implied that central banks would only intervene “ex-post” to counter potential deflationary risks and risks to financial stability. The dot-com bubble of the beginning of the century was an illustration of such strategy. The ECB with a special emphasis on monetary developments The ECB’s standpoint differed from the Jackson Hole consensus. We have always emphasised that focusing on money and credit developments provides for a medium- to long-term perspective. It was believed that the monetary pillar would release warning signals and hedging against the building up of financial imbalances. 4 Indeed, as of 2005, on the basis of its monetary pillar, the ECB has repeatedly warned on the observed strong credit growth and the accompanied under-pricing of risk.
The point about the new technology is not just that it might make exchanging assets more efficient, to a greater or lesser extent. In principle, it also makes it easier to widen the access to those assets, perhaps dramatically so. If you create a platform on which the existing participants can more easily exchange central bank money, why not extend the right to others? As I said in the introduction, this certainly isn’t impossible under the current settlement system, known as RTGS (for Real Time Gross Settlement). There are already some non-bank institutions that have access to the Bank of England’s regular facilities7. As my fellow Deputy Governor Minouche Shafik recently explained, the Bank is currently undertaking a review of RTGS and the question of access will be one of the issues involved (Shafik (2016)). But it seems likely that a distributed ledger would make it that process easier, opening up the balance sheet to a wider variety of financial firms. One might go further, giving access to nonfinancial firms, or perhaps even individual households. In the limit, a distributed ledger might mean that we could all of us hold such balances. If so, our accounts would no longer be a claim on commercial banks but, like banknotes, the liability of the central bank. 6  Banks can also transfer resources by buying and selling their own short-term debt in the “money market”, but ultimate settlement is made by exchanging central bank reserves. 7  Carney (2013).

(2) Includes the United States, Japan, the United Kingdom and the Eurozone. (3) Includes Australia, Canada, Norway and New Zealand. Source: Central Bank of Chile based on data from CEIC and the International Monetary Fund. Figure 10 Long term indebtedness and financial burden (percentage of disposable income) 80  18  70  15  60  12  50  9  40  6  30  3  20  0  Jun.02  Jun.03  Jun.04  Jun.05  Jun.06  Indebtedness  Jun.07  Jun.08  Jun.09  Financial burden  Source: Central Bank of Chile based on information from SBIF, SVS, SuSeSo. BIS Review 9/2010  11  Figure 11 National employment and unemployment rate (seasonally-adjusted series, percent)  3  12  2  10  1  8  0  6  -1  4  -2  2  97  99  01  03  05  Quarterly change in employment  07  09  Unemployment rate  Sources: Central Bank of Chile and National Statistics Bureau (INE).
We have also been able to note that productivity growth has shown an increase trend over the past decade. This has confirmed our opinion that structural factors in the economy lie behind the strong productivity growth. It is one thing to observe structural changes in the economy and have an opinion on the direction in which they will have an effect. It is another thing entirely to be able to predict with any accuracy how large and how lasting the impact will be. One of the conditions that must be taken into account is that  2  BIS Review 17/2007  productivity growth usually varies over the business cycle. At the beginning of the business cycle, for instance, productivity growth is usually quite high. Part of the strong productivity in recent years has probably therefore been cyclical. But exactly how much is difficult to say. At the same time, the assessment of productivity growth is an important building block in the Riksbank’s inflation forecasts. Gaining a deeper knowledge of the driving forces behind productivity growth will therefore remain a high priority area for the Riksbank. The Bank already has a project aimed at improving understanding of the correlation between, among other things, IT investments and productivity growth. We also intend to invite various researchers to an in-depth discussion on the driving forces behind productivity in Sweden and abroad. Hopefully, this will give us some new insights into productivity development.

The need for talent is particularly acute for supervisors in emerging economies, as the banking system grows rapidly. With the growing demand for risk managers, some supervisors are facing higher attrition. We have to significantly expand the talent pool, and work with international and regional bodies like the FSI, the World Bank and IMF to step up our efforts. 25. Finally, supervisors should not be acting alone in achieving the desired regulatory outcomes. Good outcomes cannot depend on a “cat-and-mouse” game of supervisors prescribing rules and then checking for compliance. The primary responsibility of having a sound bank must rest with the Board and senior management of the bank. They need to take ownership of and responsibility for managing risks, and to have the requisite knowledge, skills and experience to discharge their responsibilities effectively. 26. In this regard, MAS recently proposed a number of enhancements to the corporate governance framework for locally incorporated banks. We welcome the Basel Committee’s present initiative to revisit its 2006 corporate governance guidance, and to address weaknesses identified during the crisis. 27. In promoting shared outcomes, political support is crucial in various areas. It is difficult to build a strong banking system on weak macro-economic foundations. Supervisors in all countries, but more so in emerging economies, are sometimes under political pressure to tilt credit growth in certain directions, or to exercise forbearance. While the financial system has to be responsive to the needs of the economy, a politicised supervisory process will almost certainly bring adverse consequences down the road. Conclusion 28.
However, unlike Hong Kong, the $ exchange rate could and did adjust down  BIS Review 93/1999  2  relative to the $ in line with its trading partners. This extra degree of freedom helped to soften the impact of the sharp regional slowdown and depreciation of its neighbours’ currencies. In addition, the Government sought to make prompt and direct adjustments to the real economy, cutting taxes and levies, reducing the CPF contributions with the support of unions and workers and building capabilities for the longer term. These measures helped see Singapore through the storm and are now enabling Singapore to recover, together with the rest of the region. Lessons from the crisis When the Asian currency crisis first broke out, many observers blamed the “Asian model”. But then other emerging markets, even the developed world, came under fire. It became clear that the problem was not just Asia, but also weaknesses in the structure of the global financial system. There is general agreement on what the key weaknesses were, but not yet on their solutions. Very broadly, I identify five issues: •  Capital controls – can they help? •  Exchange rate regimes – fixed or floating? •  Hedge funds – what do they imply for global systemic stability? •  Global financial supervision – is this possible? •  Strengthening domestic institutions – a prerequisite to participation in the global system. Capital controls This crisis has prompted a reconsideration of the merits of capital controls.

I will mention three of these challenges. BIS central bankers’ speeches  1  2. But challenges remain to be addressed. 2.1. The challenge for each individual euro country: achieving strong fiscal consolidation while ensuring long-term growth  The first challenge is the seeming dilemma between fiscal consolidation and long-term growth. One thing is very clear: this crisis is fundamentally a sovereign debt crisis; hence the priority in order to exit it once and for all must be a return to a sustainable fiscal path. In fact, an impressive effort has already been made. The Portuguese deficit shrank from around 10% in 2009 to around 6% last year. The Italian deficit has been reined in from 5.4% in 2009 to 3.9% in 2011, and Italy actually ran a primary surplus of 1% last year, which is very rare among developed economies. The French deficit has been cut from 7.5% in 2009 to 5.3% in 2011. If we look at the aggregate picture for the euro area, we see that it is the economic zone that has tackled fiscal consolidation with the greatest intensity and the best results. According to the IMF (January 2012 fiscal monitor), after peaking at 6.5% of GDP in 2009, the public deficit in the euro area started to decline in 2010 and stood at around 4% by the end of 2011 (down by 40%). Over the same period, the US deficit was reduced from 13% to 9.5% (down by 27%) and the UK deficit from 10.4% to 8.6% (down by 17%).
Specific calibrations of these tools will be chosen in ways that are clear, transparent and evidence-based, and ensure the continued effectiveness of the CBPS as a monetary policy tool and the safe and appropriate use of public money. This framework draws heavily on thinking by non-profit, central bank and investor groups – and will in turn have its greatest impact if it operates in concert with them. The CBPS itself is limited in size, scope and longevity. But we hope that, by working collectively, both with those already involved and those persuaded to do so by our lead, our influence can reach beyond those limitations and help play a part in supporting transition to net zero. We look forward to your comments today, and in the weeks ahead. 19  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  19

Still, the main features of the agreement are relatively clear at this point, and the Basel Committee is now working on the final details. However, I do not intend to focus on the details today, as they are many, but instead on the fundamental blocks on which Basel III is built. The reforms of banking regulation that lie ahead will strengthen global financial stability and this will be good and important for Sweden, which is a small and open economy. Moreover, it is largely Swedish authorities that determine how, more exactly, Basel III will affect the Swedish banking system. But I shall begin by providing some perspective on banking regulation in general and the work of the Basel Committee in particular. And let me point out that what I will talk about today is neither the first nor the last amendment to the regulatory framework for banking operations to see the light of day. The work on developing and revising the bank regulations is a continuous operation and should be so. I usually 1 [12]  * I would like to thank Tomas Edlund for his help with this speech. compare this task with cycling; if you stop pedalling then sooner or later you will fall off. One reason for this is that society is developing and changing over time. New values gain ground and new experiences are added to old. This is a general feature of standards and rules in society and it also applies to banking regulation. To be a little more specific.