samchain/econo-pairs-v1 huggingface dataset:
Expectations of debtors and creditors would have been conditioned ex ante and the severity of the crisis thereby reduced ex post. Second, the Russian experience illustrates the importance of having orderly default mechanisms in place. In assessing the costs of default, the maxim should be: "it's not what you do it's the way that you do it". In Russia, it was not that they defaulted but the way that they did it. The default was disorderly – neither efficient, nor equitable, nor expeditious. And that contributed importantly to the disruption to Russia and more widely. But default need not be like that. There are dead weight costs to  BIS Review 71/2001  7  disorderly default. So there are lump-sum gains – to both debtors and creditors – to having orderly mechanisms in place. This is where the official sector has a role to play. A key principle of any crisis resolution framework is that decisions on a sovereign's debt are the responsibility of the borrowing country, in consultation with its private sector creditors. Neither the IMF nor any group of countries should tell a country to restructure its debt. There are a range of options open to debtors in dealing with their creditors at times of crisis. Countries with a good track record of repayment and long standing relationships with their creditors may be able to borrow more from the international market.

Much has been said, and, more importantly, achieved in the area of transparency in recent years. There has been an explosion of codes and standards on different aspects of economic and financial policy in recent years. So much so, that some countries are claiming that the process needs to slow down. It is certainly important to recognise that the appropriate codes and standards for a country at one stage of economic development may not be appropriate to countries at other stages. I say advisedly "may", because in each individual case the argument has to be made. But if it is accepted that codes and standards are likely to reflect different stages of development, then it is even more important that countries make clear to which codes and standards they are actually adhering. That is why countries should not be able to opt out of "transparency about transparency". Following the production of pilot transparency reports on a number of countries, including the UK and Argentina, the IMF has now made rapid progress in producing reports on the observance of standards and codes (ROSCs). As of April 2001, 110 ROSC modules had been completed for 43 countries, of which 76 have been published covering 31 countries. India has recently had a ROSC published on fiscal transparency. It is critical that monitoring of the observance of standards and codes be fully integrated into IMF surveillance under Article IV. Here implementation is urgent.
It is important that banks in receipt of public support are not encouraged to try to earn their way out of that support by resuming the very activities that got them into trouble in the first place. The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the “too important to fail” question. The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion. Separation of activities does not resolve all misaligned incentives. Where private sector entities outside of the utility banking sector engage in a high degree of maturity transformation on a scale that could have consequences for the rest of the economy, the government would not want to stand aside when such an entity fails. That is the heart of the matter. Maturity transformation reduces the cost of finance to a wide range of risky activities, at least some of which are beneficial, but the implicit government guarantee means that the true cost of that maturity mismatch does not, as it should, fall on those who receive the benefits. The aim of policy should be to minimise or eliminate that subsidy. Separation of activities helps not hinders that objective, not least because it is the mixture of activities that  BIS Review 129/2009  3  reduces the robustness of the system.

Although there are no simple answers, it is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities. The case for a serious review of how the banking industry is structured and regulated is strong. By international standards UK banking is highly concentrated. There are four large UK banking groups. Of these four, two are largely in state ownership and their assets are a multiple of the assets of the next largest bank. As in the English Premier League, getting into the top four will not be easy for those outside it. But in both cases I hope greater competition will produce less rigidity in the composition of the top four. Whichever approach to the “too important to fail” problem is adopted, there is growing agreement that such financial institutions should, as I argued at the Mansion House in June, be made to plan for their own orderly wind down – to write their own will. I welcome that, but without separation of the utility from other components of banking it will be necessary to develop detailed resolution procedures for a very wide class of financial institutions. The options may turn out to be separation of activities, on the one hand, or ever increasingly detailed regulatory oversight, with the costs that that entails for innovation in, and the efficiency of, the financial system, on the other.
Moreover, the collapse of the investment bank Lehman Brothers demonstrated how difficult it is to manage very large institutions that experiences problems and to avoid the problems spreading to other banks and having negative repercussions on the financial markets. The intention is that Basel III should capture the risks in the banking system better than the previous regulatory frameworks and thereby reduce the likelihood of new financial crises. Basel III is thus a reaction to the fact that previous regulations were inadequate. The Basel III regulatory framework was published for the first time in its entirety in December 2010. Since then, the Basel Committee has worked to finalise the regulations. Beginning in 2013, Basel  BIS central bankers’ speeches  1  III will gradually replace earlier Basel regulatory frameworks. In Sweden, Basel III will be incorporated through EU legislation. More capital and larger liquidity buffers will increase resilience Put simply, Basel III is founded on four measures that act as instruments for assessing various risks in the banks. On the basis of these measures, the framework then stipulates certain minimum requirements, for example how much capital a bank must hold. The first measure is the risk-based capital measure, which is what we normally refer to when we speak about capital requirements. The risk-based capital measure was already a part of previous regulatory frameworks, but in Basel III it has been made much stricter. In addition to this there are three new measures: a complementary capital measure, the leverage ratio, and two liquidity measures.

This assessment will eventually be extended to also cover other parts of the Basel III framework. However, it is already clear that this is an effective way to ensure that the frameworks agreed on are actually put into place and to ensure that the regulations are used as intended. The Basel Committee is also reviewing how the banks calculate their risk weights. Put simply, the risk weights determine how much capital the banks need to hold for a certain asset, for example a loan or a security. So far, the Committee’s work has resulted in three studies that have compared how international banks calculate their risk weights for different portfolios. The latest study examined, among other things, the banks’ risk weights for lending to companies, while the earlier studies focused on risk weights for the banks’ trading operations. However, all three studies have revealed that the risk weights the banks calculate themselves using their own models vary to a relatively great extent without this always being justified by differences in the risk associated with the assets. This means that it is not possible to effectively compare the banks’ risk weights. There is a risk that this could have a negative impact on confidence in the risk-based capital regulations. The banks’ risk weights must be credible I would like to focus on risk weights for a moment as we are currently discussing these here in Sweden too, although the discussion here differs somewhat from the discussion abroad, for example in that it primarily concerns mortgages.
The Supreme Court was to decide whether a the driver of a car was negligent when in a very difficult intersection he crashed into a car that had the right of way on the other crossing road. The collision occurred in the midst of rush traffic, and the Court argued that crossing traffic should be expected at that time. However, a number of conditions made it difficult for the man to see the traffic before he was close to the intersection. It was dark, with rain and sleet and icy roads. On the other hand, the driver was very familiar with the site and he should have been aware of the all the risks at the intersection. As he did not adjust his driving so that he was able to stop, the Court found that the driver had acted negligently. See Norsk Retstidende (Norwegian journal of law) 1984–91. 36  Preben Munthe, professor of economics, believes that the government was probably surprised by the magnitude of the sterling devaluation. He writes: “When the authorities learned of the British decision, they probably felt they were under time pressure, which is why the situation was not nearly as thoroughly discussed as it actually could have been.” See Jahn Eriksen and Munthe (1996), p. 371.

Determining what might have happened if the authorities had acted otherwise is no easy task. Allow me to present a hypothetical example: The central bank thinks financial imbalances are building up, and the Executive Board sets the key rate higher than it otherwise would have done. While a financial crisis does not actually materialise, unemployment rises and economic growth slows. Inflation could fall below target. In this situation, it may be difficult to assess whether the Board made a good decision to raise the key rate. Such assessments of motives and outcomes are also the subject of moral philosophy and its discussion of what constitutes a good decision. In setting the key rate, both intentionalist and deontological ethics will provide us with the same guidance as to what good decisions are. In both cases, the decision must be based on achieving the objective of monetary policy, and  35  A fundamental principle of criminal law is that a person can only be judged if that person can be charged with a criminal offence and is proven guilty. There are two forms of guilt: One is guilty with intent, which typically means that the offender intended to produce the negative outcome. The other form of guilt is negligence, which somewhat simplified implies a failure to use reasonable care or prudence. In determining whether an offender has acted with negligence, his behaviour must be measured against ordinary reasonable and prudent behaviour in a comparable situation. A Supreme Court ruling from 1984 provides an illustration of negligence consideration.
19% of jobs in EU15 have been threatened by offshoring 24 . It should be noted, however, that for the developed countries this process does not mean losses of jobs. Mankiw and Swagel 25 cite research results, according to which relocation of jobs abroad may be positively linked to an increase in employment in the home country of the relocating company. It stems from the fact that foreign branches do not compete but rather complement the hitherto activity of companies, and thus help to improve effectiveness and quality, and lower costs, which may lead to an increased market for products or services of the given company, what may in turn result in an increase in employment in the home country. It is first of all the countries capable of manufacturing products and rendering services at a competitive price that gain a major advantage in acquiring new investments and creating new jobs. It is worth adding that the growing significance of offshoring has an impact on the distribution of remuneration in the countries, whose participation in the globalisation process is increasing. The wages of unqualified workers from the developed countries are falling, while workers with higher qualifications from countries with lower labour costs are being better rewarded. Labour costs remain an important, although not a sole, factor of investment attractiveness of a given country. In A.T. Kearney’s research 26 countries from our region, i.e. the Czech Republic, Poland and Hungary, are in the top eleven offshoring locations.

On that basis, the euro-area would have no reason -- and certainly no right under European legislation -- to seek to act in any discriminatory way. Indeed, it would be economically damaging to both sides if it were to do so. I have no serious concerns on this score. Assuming, as I do, a continuing responsible and constructive relationship -- which, as I say, would clearly be in our mutual interest -- it seems to me that some of the concerns that are occasionally expressed, for example, about the possible loss to the UK of internationally mobile investment, are exaggerated. I would suppose that, in the future as in the past, investment will be located wherever it is expected to earn the highest return -- indeed I would suppose that shareholders would insist that this be the case. And while exchange rate uncertainty may be a factor in such decisions, it is not at all clear that it is likely to be the decisive factor very often, when set, for example, against the whole range of supply-side influences, including labour market flexibility. Similarly, in relation to concerns about the future of the huge UK financial services industry, the reality is that financial activity will be carried on wherever it can be carried on most conveniently, efficiently and profitably. And in this case, too, the question of whether or not the UK is part of the single currency is unlikely to be decisive.
The literature has typically assumed (i) that a monetary policy tightening is effected by the central bank withdrawing reserves from the system (or slowing the pace of reserves injection); (ii) that banks are required to hold a proportion of transactions deposits in reserves, so that reduced reserves provision entails slower deposit growth; and (iii) that they do not have unrestricted access to liabilities that are not subject to reserves requirements, and so cannot fill the gap left by slower deposit growth and must, instead, slow loan growth, which they do by tightening credit conditions. 9 The first two steps seem archaic. We effect monetary policy changes by controlling the price not the quantity of central bank money in the system; and, in the UK, banks choose their own reserves targets rather than having them determined by a balance sheet ratio of some kind. But the third plank in these models – restricted access to non-deposit liabilities, whether capital-like or not – plainly is still relevant today. In a world of asymmetric information, banks do not have unrestricted access to resources, and we do not believe that a bank’s lending  7  Adrian, Tobias, and H. S. Shin (2007), “Liquidity, Monetary Policy and Financial Cycles”, paper prepared for Current Issues in Economics and Finance. Adrian, Tobias and H S Shin, (2007), “Liquidity and Financial Cycles”, paper presented at the 6th BIS annual conference on “Financial System and Macroeconomic Resilience”.

Source: Bank of England  Chart 7: Spread of effective mortgage and personal loan rates (new business) to Bank Rate P ersonal loans  30  50  5  PNFCs  100  Chart 8: UK corporate bond spreads  Per cent 6  Basis P oint s 1200 Non-invest ment grade  5  M ortgages  1000  4  800  3  600  2  400 Invest ment grade  1  200  0 2001  2002  2003  2004  2005  2006  2007  0 1998  Source: Bank of England  2000  2002  2004  2006  Source: Bloomberg, Bank of England  Chart 9: Decomposition of UK noninvestment grade corporate bond spreads  Chart 10: Issuance of UK residential mortgage-backed securities  Basis point s  Residual including liquidit y Uncert aint y about default loss Expect ed default loss  £ blns 60  1000 Actu al  50  800  40 600  30 400  `  20 200  10  0  0 2000 2001 2002 2003 2004 2005 2006 2007  -200 1998  2000  2002  2004  2006  Source: Dealogic  Source: Bloomberg, Bank of England  12  BIS Review 149/2007  Chart 11: Gross corporate bond issuance by UK private non-financial companies (all currencies)  Chart 12: Basis between credit spreads on bonds and credit default swaps  £ billions 12  basis point s 150  10  100 Europe  8  50  6  0  4  -50 -100  2  US -150  0 2003  2004  2005  2006  -200  2007  -250  Source: Bank of England Jan.  Apr.
Choosing the alternative connected to the forecast that provides the best target fulfilment is sometimes called forecast targeting. 1 A further argument for making forecasts is that the efficiency of monetary policy can be improved through transparency and credibility. By publishing our forecasts and explaining how our monetary policy decisions relate to them we make it easier for the outside world to have correct expectations of how the Riksbank will react to new information. It is important that we are clear about how the Riksbank views developments and what effects the monetary policy decisions are expected to have. Forecasts and uncertainty As I said, forecasts are always uncertain. Neither the Riksbank nor other forecasters have access to all of the information that has significance for the development of the economy during the forecast period. Shocks to the economy can occur suddenly and surprise the forecasters. It is thus impossible to avoid forecasting errors. One example of a time of great uncertainty over future economic developments is the recent financial crisis. One indicator of this uncertainty is reflected in the broad spread between the different analysts’ forecasts. According to the compilation of around 30 different forecasters’ assessments in “Consensus Forecasts” (CF), which has, for instance, compiled forecasts for GDP growth each month since 1989, the uncertainty over developments in the US economy was the largest it has been in at least 20 years.

This part of the monetary policy decision-making process is important, as it provides a base for the Executive Board to be able to choose the decision alternative that appears to provide the best target fulfilment. The staff’s proposal for monetary policy is the most important base for the discussion at a longer meeting that includes a large number of analysts from the Monetary Policy Department and the Executive Board, and which is normally held around two weeks prior to the monetary policy meeting. The Financial Stability Department of the Riksbank also plays an important role in the analysis work and therefore takes part in this meeting. The Riksbank has always considered it important to monitor developments in the financial markets and in the Swedish banks, and this has been particularly important in the forecasting work during the financial crisis. The Executive Board members’ input is important at this meeting and may in particular affect the forecast for the repo rate. However, this has repercussions for the forecasting work as a whole, as the future repo rate affects most of the other variables in the forecasts. The Executive Board may also have views on other parts of the forecasts than the repo rate path, but the discussion usually mainly centres on what is a well-balanced monetary policy. At a shorter meeting that usually takes place the day after the large meeting, the members of the Executive Board have the opportunity to discuss the main scenario and give their views on it in a more limited circle.
Back then, monetary policy was faced with the dual challenge of inflationary pressures from escalating global commodity and food prices, as well as headwinds in global growth from the unstable global financial markets. In this case, despite the upside risks to inflation, monetary policy was maintained given the need to balance against the weakening global growth prospects and its implications on the domestic economy. BNM recognised that the upside risks to inflation originated mainly from supply-driven factors, in which the members opined that monetary policy was not the appropriate tool to alleviate the impact. In this situation, raising rates to achieve a stable inflation at all cost would be against our philosophy and against public interest. During that time, our monetary policy inaction was criticised for being behind the rate-hike curve relative to the actions taken by other regional central banks. But in retrospect, we were attempting to do the right thing based on the prevailing data and our assessment. We would like to think that our departure from the convention stood the test of time, and that we were eventually proven right when Malaysia was able to withstand the crisis. Staying committed to our decisions, however, does not imply inflexibility in our approach. When global conditions deteriorated rapidly, monetary stimulus was swiftly and significantly front-loaded between November 2008 and February 2009, to cushion the domestic economy from adverse spillovers.

The socio- and geopolitical paralysis that is splicing the centre towards the far-left and far-right in so many parts of the world can be traced back to the unequal sharing of global economic progress in past decades. This underscores the importance of broader-based economic growth and the urgency 7/8  BIS Central Banker's Speeches  to close the inequality gap. Leaders from the public and private sectors must help boost labourmarket participation; across genders, creed and nationalities and cushion any negative social costs that may arise as a by-product of growth. Only by reawakening growth, reigniting productivity and restoring inclusiveness, can we reclaim a positive and sustainable future. On that note, I would like to congratulate MIER on its commitment to research this past 30 years. It is my hope that MIER will continue to produce quality policy-informative-research, strengthening the synergies that exist between policy-making and research efforts. Finally, my wish is for MIER to become the leading “global bearer” for economic research in Malaysia; a think-tank that matters, to the sound policy formulation of the nation. Thank you. 1 Income Inequality: The Gap between Rich and Poor, B. Keely (OECD Insights, 2015). 2 Sharing the Growth Dividend: Analysis of Inequality in Asia, S. Jain Chandra et al. (IMF Working Paper, 2016). 3  The Morning Ledger: Productivity Slump Threatens Long-Term U.S. Growth, W. Azeez (Wall Street Journal, 2016). 8/8  BIS Central Banker's Speeches