samchain/econo-pairs-v1 huggingface dataset:
Beverly Hirtle: The past and future of supervisory stress testing design Remarks by Ms Beverly Hirtle, Executive Vice President and Director of Research of the Federal Reserve Bank of New York, at the 2018 Federal Reserve Stress Testing Research Conference, Federal Reserve Bank of Boston, Boston, 9 October 2018. * * * Good afternoon. It is a real pleasure for me to be here today at the fifth annual conference on stress testing research. As many of you know, I spent a considerable portion of my career working on stress testing issues, starting with the Supervisory Capital Assessment Program (SCAP) in 2009, through the initial implementation of the Comprehensive Capital Analysis and Review (CCAR) and the Dodd-Frank Act (DFAST) stress testing programs, as well as my personal research agenda on the impact of stress testing. And even now, though my responsibilities have changed, I remain actively engaged in debates and discussion as the CCAR and DFAST programs evolve, and as the details of stress test modeling and design evolve with those programs. In fact, I want to make this evolution the focus of my remarks today. I will begin by briefly reviewing how stress testing emerged as a key supervisory policy tool, and talk about how the original goals of the SCAP, CCAR and DFAST stress tests affected modeling and design choices. I’ll then talk about some of the consequences of those choices – in particular, what is missing or not well-captured in the current approach.

Melitz, J. and Zumer, F. (2002). “Regional Redistribution and Stabilization by the Center in Canada, France, the UK and the US: A Reassessment and New Tests”. Journal of Public Economic, 86, pp. 263–286. McCallum, J. (1995), “National borders matter: Canada-US regional trade patterns”, The American Economic Review, 85 (3), 615–623. McKinnon, R., (1963), “Optimum currency areas”, American Economic Review, Vol. 53, Sep, pp. 717–25. McKinnon, R., (2004), “Optimum Currency Areas and Key Currencies: Mundell I vs. Mundell II”, Journal of Common Market Studies, Vol. 42. Number 4. pp. 689–715. Mundell, R. (1961), “A theory of optimum currency areas”, American Economic Review, Vol. 51, Sep. Mundell, R. (1973), “Uncommon Arguments for Common Currencies”, in Johnson, H.G. and Swoboda, A.K. (eds). Persson, T. and G. Tabellini (1996), “Federal Fiscal Constitutions: Risk Sharing and Moral Hazard”, Econometrica 64(3): pp. 623–646. Rose, A. (2000), “One money, one market: estimating the effect of common currencies on trade”, Economic Policy, Vol. 15, April, pp. 7–45. Rose, A. and van Wincoop, E. (2001), “National money as a barrier to international trade: The real case for currency union”, American Economic Review 91(2), pp.386–390. Rose, A., (2009), “Is EMU becoming an optimum currency area? The evidence on trade and business cycle synchronization”, mimeo.
Inflation has also rebounded quite strongly, with headline inflation at 3.4% in September, according to the flash estimate, and inflation excluding energy and food at 1.9%. This rebound fuels a lively public debate, but we should be vigilant without being feverish: clearly, there is no such thing as stagflation. This rebound results mainly from several temporary factors, as already stressed by my ECB colleagues Philip Lanei and Isabel Schnabelii. Part of the rebound just offsets exceptionally low prices during the Covid crisis in 2020. Compared to September 2019, consumption prices have only increased by 1.5% on an annual basis, and prices excluding energy and food by 1.0%. A second cause can be attributed to the strong rebound of energy prices, in particular oil and natural gas, the latter having also a direct impact on wholesale electricity prices. It is of course very hard to forecast prices, but futures markets for natural gas are currently pricing a sharp decrease in the second quarter of 2022, once the current high demand related to stock replenishment and the winter season is over. A third cause is the global shift from the consumption of services to the consumption of goods as the global economy reopened while health restrictions or behavioural changes still affect the service sector. With low inventories, severe supply bottlenecks in some key sectors such as shipping or semi-conductors, and shortages, supply-chains are struggling to serve this demand. The resulting increase in the price of raw materials and industrial inputs has been transmitted to manufactured goods prices.

Although our financial systems have undoubtedly become more efficient thanks to innovation and globalisation, it remains to be seen as to whether progress has been made in terms of resilience. The central banks’ role of keeping pace with these developments and assisting in periods of increased volatility highlights the importance of our co-operation and the resulting capital of trust. In this respect, I wholeheartedly thank all of the speakers and moderators here today, as they are further contributing towards strengthening this capital. According to a Japanese proverb, “with a friend at your side, no road seems too long” (« tabi ha michidure »). Governor Fukui, I would venture to say that today’s celebration of the friendship between our two nations and more specifically between our two institutions will soon seem to us like a fleeting moment. However, I am also convinced that our institutions will continue the road together with constantly renewed pleasure derived from our productive and friendly exchanges. It is now with great pleasure that I give you the floor, Governor Fukui. BIS Review 1/2008  3
This comprises the Shariah Advisory Council of Bank Negara Malaysia as the highest authority in the ascertainment of Islamic law for Islamic financial business; and a Shariah committee setup in each Islamic financial institution to advise the management and the board on all matters relating to Shariah issues that are specific to the institution. Currently, we are in the midst of revising the Shariah Governance Framework to further strengthen it by providing, among others, greater clarity on the roles, responsibilities and accountabilities of the board, Shariah committee and key organs involved in instituting a robust Shariah compliance risk culture. Through the governance, 2/4  BIS central bankers' speeches  application of Shariah will be more closely integrated with the business and risk strategies of Islamic financial institutions. These efforts, and many more, have culminated in an unparalleled growth in the Islamic banking market share which grew six fold over the last 20 years. Islamic banking system now comprises over 30% of the overall. Takaful has also grown in acceptance, registering double digit growth rates outpacing the conventional counterpart for the past few years. Ar-Rahnu, Islamic investment accounts are becoming more familiar products among Malaysians. We have also become and have maintained a position among the world’s largest sukuk issuers. Islamic finance is thriving and competitive. Islamic financial institutions should consider the wider impact of their activities Beyond this, Islamic finance is also spearheading initiatives in sustainable finance with Islamic banking institutions championing the implementation of Value-based Intermediation (VBI).

The figures for the third quarter are unlikely to be dramatically different from what we have seen so far. Unemployment is still rather stable at a relatively low level. We have, of course, started to see the first signs of a slowdown in our major markets with some companies reducing the number of work days and letting go of some employees. We are a very open economy, we depend on external demand and it is only natural that we will be affected. Has personal debt in Malta increased in the last years? As you would expect in a growing economy, household debt has been rising. It is currently estimated at € billion or 48 per cent of Malta's GDP. It was 31 per cent in 2002, but the ratio remains below the euro average of 60 per cent. The interest burden on Maltese households arising from this debt as a proportion of disposable income is comparable to the euro area average at three per cent. Are we saving more? It is unlikely. There has been a declining trend because habits and cultures change. The existence of a very extensive social safety net has acted as a disincentive to save for one's old age. It is appropriate for households to borrow funds to smooth their consumption patterns as long as this is backed by reasonable income expectations. The number of non-performing loans has been coming down for some years in the household sector though it has risen slightly recently to 2.5 per cent.
Public debt is of a somewhat different nature: we do not know if nor when the tragedy – a major confidence shock, for instance – may happen. But we know for sure that rising public debt is a growing risk hanging over us, and still more over our children and grandchildren. Let us therefore call it a “tragedy on the horizon”: a moving horizon – indeed nobody knows precisely where geographically the horizon lies –, but it will not be any less threatening. So what would our best response to this possible tragedy on the horizon be ? And what can we do to avoid it? Let me elaborate somewhat on a simple triptych (i) Monetary Policy (ii) Fiscal Policy and (iii) their renewed interactions. I. Monetary policy and the ECB mandate In order to address this unprecedented Covid crisis, the ECB acted boldly and rapidly, using all the tools at our disposal and inventing new ones such as the PEPP. By doing so, we successfully avoided both fragmentation and deflation. We rightly decided to keep a steady hand in the last Governing Council meeting, and I still think today that our present very accommodative monetary stance is appropriate. But steady hands are not tied hands: we have free hands for the future, and will be ready to act further if needed. Let me now turn to the ECB’s strategic review, on which work has restarted.

The exit from exceptional monetary measures should be fully in the hands of the central bank and guided by its mandate of price stability. Fiscal authorities must also be credible and give guidance on their future actions, by committing to tightening the stance when the economy has recovered. They should follow a stronger countercyclical fiscal policy in good times, to create the space that is necessary in bad times. What Blanchard and Summers5 call “semiautomatic stabilizers” – stabilising fiscal policies that operate according to predefined triggers – could be an avenue worth exploring. Let me add as a conclusion that, against this backdrop, the Next Generation EU package constitutes a new and innovative element of the European fiscal framework, which contributes to a sounder policy-mix. Beyond the most recent political and institutional discussions, which belong to elected leaders, a quick implementation of this European Recovery Fund is an economic must. This innovation, while still a one-off, could also imply lessons for the Economic and Monetary Union, which from the start has lacked a permanent fiscal capacity at supranational level for macroeconomic stabilisation in deep crises. Either we succeed in designing – at end – credible and coordinated countercyclical rules for national fiscal policies, or we should think about some 4/5  BIS central bankers' speeches  central fiscal capacity, reversible in its use, controllable in its size, but effective through the cycle. This should be one area of discussion in the “European momentum” which the crisis has initiated. Thank you for your attention.
It will be possible for instant payments to be made 24 hours a day within 10 seconds from debiting the payer’s account to crediting the payee’s account and receipt of confirmation by the payer. Instant payments will be settled applying the widely used in Europe pre-funding model. It requires a special account with the central bank, intended only for settlement of instant payments. All banks are expected to be able to receive instant payments by April 2023. Meanwhile, as a next stage of the same project, the preparation for processing of customer batch credit transfers in the national currency is underway. These payments are based on the requirements of the SEPA Credit Transfer scheme. Customer transfers will be send by the originator bank in batches for processing by BISERA6 and the pre-funding model will be used for their settlement. This will speed up customer payments that will be credited to the payee account 1/2  BIS central bankers' speeches  within less than an hour. Banks in Bulgaria are expected to migrate from credit transfers with predefined moment of settlement (three times a day), to processing of batch payments by the end of 2021. Preparation of the payment service providers and payment infrastructure for processing instant payments and customer batch payments in the national currency based on SEPA credit transfer schemes would allow, upon the adoption of the euro as a legal tender in the country, for smooth transition of the services without major modifications of the payment systems and banks’ internal systems.

First and foremost, I would like to focus on instant payments introduced in response to the dynamic development of communications, digital services and e-commerce. Instant payments outline the forthcoming changes in payment infrastructure both in the EU and in the country. Their advantage is the possibility for synchronisation between dispatching of goods and receipt of payment. Transferred funds are immediately available, which enhances the security and trust in business relations and in the payment process. In the EU Retail Payments Strategy, instant payments are called ‘the new normal’. The Commission aims at full uptake of instant payments in the EU by the end of 2021. In Bulgaria the project of instant payments in the national currency (BGN) is already at an advanced stage. It has been developed by the BISERA6 retail payment system operatorBORICA AD with the assistance of the BNB as the operator of the national RTGS system RINGS. Recently, the necessary amendments have been made to the legal framework and the payment systems. Technical and functional changes were implemented in the BNB-operated RINGS system that ensure a possibility for making instant payments. The license of BORICA AD as the operator of the BISERA6 payment system was updated, thus allowing the system to process instant payments of up to BGN 100 000. The operator BORICA AD developed the necessary infrastructure that made possible the launch of testing and implementation of the new functionality with market participants. Instant payments are based on the SEPA Instant Credit Transfer scheme.
The banking system’s aggregate exposure to the O&G sector is around 10%. For local banks, this figure is lower at 6-7%. Banks in Singapore have also made adequate provisions for their overall NPLs. The overall provisioning cover for the banking system, as a percentage of total unsecured NPLs, is above 100%. The local banks’ provisioning cover is even higher, at above 200%. The good news for Asian banks is that these cyclical headwinds should pass in time. Growth is recovering, monetary policy is normalising, and commodity prices are stabilising. Asian banks are positioning for Asian growth and a digital future And that takes us to the medium to long term. The prospects for Asian banks are good – chiefly because the prospects for Asian economies are good. The region is expected to continue registering relatively high growth rates in the medium term – about 6% on average over the next 5 years, compared to the global average of 3.7%. Higher Asian incomes will drive demand for financial services, leading to more opportunities in banking. At the same time, financial inclusion remains low in many parts of Asia. A 2015 World Bank study found that of the 2 billion adults on the planet with no bank accounts, more than half were in East and South Asia 3. A more recent study by the ADB covering Cambodia, Indonesia, Myanmar and the Philippines found significant gaps between demand and supply in several financial services, including payments, savings, and credit4 .

One person at the San Franciso Fed that we had a close working relationship with was Teresa Curran, who passed away last year. We will miss her, her professionalism, and her passion for the Asia-Pacific region. Since this is a symposium on Asian banking and finance, let me share some quick thoughts on the subject: how Asian banks have stepped up in recent years to play a greater role in the region; how they are dealing with the challenges posed by today’s environment; and how they are positioning themselves for a digital future. Asian banks have stepped up Asian banks emerged from the global financial crisis with stronger fundamentals relative to their global peers. The crisis revealed glaring weaknesses in many global banks. This led to the implementation of wide-ranging regulatory reforms. These weaknesses were less pronounced in Asian banks, which had already built up significant buffers following the Asian Financial Crisis. Asian banks’ strong deposit funding placed them in a strong position to meet the new, higher global standards. Helped by stronger fundamentals, Asian banks have stepped up in regional markets where global 1/5  BIS central bankers' speeches  banks have retreated. First, they have increased their lending to the region significantly. In 2007, Asian banks accounted for just a third of all international claims 1 to the region. Today, they account for more than 60% of non-local lending to the region2.
Fadilj Bajrami: ECB regional cooperation programme with central banks in the Western Balkans Address by Mr Fadilj Bajrami, Vice Governor of the National Bank of the Republic of Macedonia, on the occasion of the third Programme Steering Committee Meeting of the ECB Regional Cooperation Programme with central banks in the Western Balkans, Pristina, 27 March 2015. *  *  *  Dear Governor Hamza, Dear Deputy Governor Gjoni, Dear Mr. Fehlker, Dear Mr. Chlad, Representatives from central banks, Ladies and Gentlemen, I am glad to be here, in Pristina, with you today, on the occasion of the third and final meeting of the Steering Committee, to officially mark the successful completion of the joint cooperation programme between the ECB and the national central banks of the Eurosystem, on the one hand, and the central banks of the Western Balkans, on the other. The inclusion of the three central banks in this programme, which aims to strengthen their institutional capacity and align their operations with the central banking standards of the EU, is of enormous importance for the region, given the role of central banks in the EU accession process. Namely, this regional approach of the ECB allows raising the level of compliance with the EU standards and policies, but also creates an opportunity to advance the cooperation between the central banks in the region and the central banks of the EU.

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For example, we saw a  BIS central bankers’ speeches  1  strong period of growth in the middle of 2010, followed by softer indicators towards the end of last year, with the bad weather making it particularly difficult to interpret the trend in economic activity over the winter. And it is not surprising to see a softening in indicators of consumer spending in the early months of this year in response to the recent rise in VAT and other inflationary pressures which have squeezed real incomes. Despite these pressures, however, recent business surveys and employment data suggest that the UK’s economic recovery has continued in the early months of this year after a disappointing fourth quarter affected by snow. The indicators from manufacturing industry continue to show strong growth on the back of buoyant export markets and activity is also expanding in the services sector, albeit at a relatively modest pace. Meanwhile, the latest Labour Force Survey estimates show that employment growth is picking up again, driven by private sector job creation.

That immediately highlights two major problems of using this concept in real time: GDP figures are frequently revised; and our view of the economy’s capacity and its trend rate of growth has to be estimated as it cannot be measured directly. Both of these problems are particularly acute in the aftermath of a recession, when early estimates of GDP may be less reliable than normal and when we are more likely to see structural changes in the economy which may change our view of the level of capacity in the economy and its growth rate. On the question of GDP data revisions, I well remember the experience of the early 1990s recovery, when I was working as Economics Director at the CBI. Initial estimates of GDP growth were much weaker than the picture that we now have of that recovery. And we have already started to see something similar happening over this recovery too. The first GDP growth estimate which signalled the economy was coming out of recession – for the final quarter of 2009 – has already been revised up from 0.1% to 0.5%. For this reason, I would caution against putting too much weight on the initial estimate of GDP growth for the first quarter of this year which we will receive tomorrow. Such early estimates of GDP need to be interpreted alongside the other evidence we already have about the performance of the economy – including business surveys and employment data.