samchain/econo-pairs-v1 huggingface dataset:
Risks and alternative scenarios  Distinguished Members of the Press, I would like to devote the last part of my speech to the risks to monetary and inflation policy in the upcoming period, as well as the alternative projections that we mentioned in our Inflation Report within this framework. Currently, developments in the global economy are influencing the monetary policy outlook via credit channels and portfolio flows as well as via the foreign trade channel. As uncertainties regarding the global economy still persist, assumptions pertaining to the timing and magnitude of recovery are still important, as was the case in the January Inflation Report. As you will recall, in the January Inflation Report, three different scenarios were presented based on the depth of economic contraction and the timing of recovery: (i) baseline scenario, (ii) early recovery and (iii) late recovery, and the medium-term inflation forecasts were based on these scenarios. In this Report, the “early recovery” scenario was dropped because global economic growth forecasts were continuously revised downwards. Therefore, the final chapter of the April Inflation Report contains only one alternative scenario that is compared with the baseline. In the alternative scenario, it is assumed that the global crisis will grow deeper and recovery in global activity will start at the beginning of 2011.

4  BIS central bankers’ speeches  appropriate boundaries for covert action. At the same time, the consequences of premature disclosure were vividly illustrated by the case of Northern Rock in September 2007, when a press leak led to long queues at branches, and required the government to issue a blanket guarantee to ease public concern. Where liquidity shortages are widespread, or central bank support would otherwise be seen as clearly confidence-enhancing, there are strong advantages in central banks conducting overt operations. But the capacity to operate covertly, subject to accountability safeguards, remains an essential part of the central bank toolkit. The final UK lesson is that LOLR frameworks must be flexible enough to respond to changes in the structure of financial markets if societies are to guard against the twin perils of lending “too little” or “too much”. At the start of the crisis, the UK’s LOLR toolkit was poorly equipped to deal with the needs that emerged, and had to be innovated rapidly. The changes introduced in recent years have reduced the risk that the Bank would lend “too little” if the same risks re-occurred. In all probability, however, the next crisis will not be like the last one. It is important that policy steps taken to prevent central banks lending “too much” to today’s financial institutions do not also impair their ability to maintain financial stability as the structure of financial markets adjust and policy needs change. One important change is the shift from bank to market-based finance.
But given that banks are in the business of risk-taking, compliance functions can and should also provide the means by which a bank can take reasonable business risks based on more informed judgements. In other words, compliance doesn’t only serve to constrain risk-taking, it can help banks assume legitimate business risks more responsibly and with greater confidence. Our economy still relies strongly on bank intermediation. An excessive aversion to risk by banks has dire consequences on economic growth. A strong and effective compliance function can redress this by assisting banks to form better judgements about risks taken by their institutions. In a 2017 survey of 28 countries including Malaysia, the financial services sector was ranked as the least trusted industry, coming in last after the technology, food and beverage, consumer packaged goods, and energy sectors. I recently shared that popular polls also show that most people do not hold banks in high regard in terms of ethics and honesty. This is, indeed, a very unfortunate state of affairs. This brings me to my third point on the impact of compliance on public confidence and trust in the financial industry. When things go wrong, two questions inevitably get asked. Were there any rules to prevent this from happening, and if so, why were they not followed? And if this could happen, how far can we really trust banks to act in the public’s interests? Today, banks remain dominant players in many aspects of financial services.

Scope 1,2,3 GHG Emissions  42%  22%  39%  41%  28%  26%  29%  38%  c. Climate-Related Targets  50%  24%  45%  53%  32%  30%  24%  51%  Recommendation Governance  Recommended disclosure  Strategy  Through multi-sector TCFD summits and more focused TCFD industry preparer forums, companies should continue to share knowledge on how, what and where they disclose information to give the market the information it needs. Better TCFD disclosure is an opportunity. Research by the Bank of England and PwC finds a positive correlation between companies’ stock price and the number of TCFD disclosures that firms make.10 This could be because investors reward companies that are leaders in managing climate-related risks or simply  9  TCFD Status Report (2019) On average each additional TCFD disclosure correlates with a 0.18% increase in stock price. While a positive correlation between financial metric and TCFD disclosure does not indicate that TCFD disclosure caused an increase in stock price, it raises questions for further analysis about the effect of climate-related disclosures. 10  6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  because TCFD adoption identifies companies that are more naturally disposed to longer-term strategic thinking and planning.
The Icelandic authorities were assuming, however, that the banks were solvent. Their published CAD ratios were well above the 8% threshold, and as late as August 2008, the Icelandic Financial Supervisory Authority had deemed them able to withstand severe capital shocks. Now, however, we know that this was probably not truly the case, as there were hidden vulnerabilities in their capital positions. Be that as it may, with the solvency assumption in mind, the authorities tried to build defences against potential foreign currency liquidity problems at the banks by negotiating swap lines and tapping foreign capital markets, in both cases with limited success. 2  BIS central bankers’ speeches  There was also a failed attempt to nationalise one of the banks in late September. It was fortunate that it failed, as nationalising the bank would have turned a bank foreign currency refining problem into a sovereign problem, with the serious risk that the sovereign might have defaulted on such foreign currency payments. In this light, and given the lack of international co-operation, the Icelandic authorities were forced to consider radical solutions. Although they were not necessarily articulated fully at the time, these solutions entailed several goals: to preserve a functioning domestic payment system, ring-fence the state in the case of bank failures, limit the socialisation of private sector losses, and create the conditions for rebuilding a domestic banking system. The adopted solution included a declaration that all deposits in Iceland were safe and all deposits in Icelandic-headquartered banks were given priority over other unsecured claims.

MAS posted a net profit of $ 5.0 billion for the year due to higher returns from MAS’ foreign investments in buoyant financial markets globally. VIII  Further enhancing transparency of MAS’ operations  In this annual report, we have included a new section that highlights our key achievements and work in progress. To enhance transparency of our decision making framework, we also disclosed details of the Board Committees in the annual report. Conclusion In closing, MAS continues to be focused on supporting non-inflationary economic growth, developing the financial sector and enhancing the supervisory framework for a sound and resilient financial sector. The economy is expected to do well this year. The IMF/World Bank Financial System Stability Assessment concluded that our financial sector is robust, and our legal, supervisory and institutional framework is sound. Rating agencies like Standard & Poors, Moody’s, and Fitch continue to re-affirm the strength of our economic fundamentals, which underpin our status as the only Asian country with a triple A sovereign credit rating on both domestic and foreign currency debt. We are committed to Singapore’s vision as a leading financial centre. We continue to stay abreast of market developments and industry concerns and uphold our high standards of regulation and supervision. We will work with the industry to continue to develop a more dynamic, competitive and vibrant financial sector. BIS Review 43/2004  3
When the central bank has pushed interest rates do wn as far as it can, we say that the interest rate has reached its effective lo wer bo und (ELB). 3  by buying government bonds and other securities in the secondary market – an assetpurchasing policy often referred to as quantitative easing (QE) –, and through targeted longterm lending to commercial banks. Let me now recall briefly how each of these policy instruments works. I will start with asset purchases. The ECB launched its Asset Purchase Programme (APP) in September 2014. The purpose of asset purchases (i.e. buying bonds from euro area governments and other public sector entities and from the safest corporate issuers) is to decrease longer-term interest rates. Conventional interest rate policy moves the short-term rate on interbank markets, but medium and long-term rates also have a bearing on investment decisions, be they buying a house or purchasing new machinery. Long-term rates are the sum of three components: the expectation of future short-term rates, the term premium and the default premium. Asset purchases affect each of these components in different ways. First, the signalling channel, by which bond purchases often signal to markets the central bank’s commitment to engage in expansionary monetary policy. This adjusts market expectations about the future course of short-term interest rates, which in turn affects longterm rates. Second, investors demand a term premium over expected short-term rates.

The diversification into a broader range of activities however increases the potential for conflicts to arise between the interests of clients in a traditional broking context, and that of the broker which may seek to protect relationships with insurers that it has dealings with in a different context. Brokers engaged in risk consulting activities may also have strong incentives to increase commission revenue by inappropriately influencing clients to purchase more insurance than they need or which do little to provide meaningful protection. In Malaysia, these issues are coming into greater focus with growing demand for valueadded services that brokers can provide. We do not believe that disclosures alone are sufficient to mitigate the risk of conflicts. We have presently required brokers to limit the revenue earned from these activities to 20% of total revenue in the previous financial year. We are also insisting on strengthened procedures and controls within brokers to manage conflicts. And we are asking brokers that engage in additional activities to demonstrate to us that their core broking responsibilities have not been compromised – including in terms of the adequacy of competent resources performing core broking functions, the quality of infrastructure supporting core broking activities and the outcomes produced for broking clients. This is also a time for the industry to come together collectively to raise the bar on standards of professional ethics and conduct that must be demonstrated towards clients. Such a code needs to clearly address new business realities and changing expectations of the industry.
However, the cut-off of Russian gas is a major determinant of mediumterm inflation reaching such high levels under that scenario. In other words, the upside risks to the inflation projected under the baseline scenario reinforced the need to accelerate the interest rate rises. Looking ahead, we will continue our monetary policy normalisation, the pace and scale of which will depend on the materialisation of the risks to our medium-term inflation target At least two risks are and will remain central to our monetary policy deliberations and decisions. First, a potential de-anchoring of medium and long-term inflation expectations above the 2% level. The materialisation of this risk would be the worst-case scenario, since it would affect the price- and wage-related decisions that firms and households make in the present. This would cause even higher and more persistent inflation, requiring still more forceful monetary policy measures that would harm activity and employment. The information available to date shows no indications of expectations becoming deanchored. However, there are some early signs that need to be watched. The most recent surveys of professional forecasters put inflation in 2024 at, or just over, 2%. The latest data from inflation-linked derivatives markets (adjusting for risk premia) suggest likewise. However, the most recent round of the ECB’s monthly Consumer Expectations Survey (CES), published in early September, puts the median inflation expectation three years ahead at 3%, up from just over 2% at the start of the year. We will be extremely vigilant of these indicators in the coming months.

Such people were until then regarded by many as possessing the best qualifications to become dealers or floor traders in the City of London. 1  BIS Review 15/2000  The IT revolution has not of course been a static one. Since the introduction of the first computers into financial product development and trading, computing power has grown exponentially. New vistas and previously unimaginable complexities for trading strategies have thus continually opened up; and the ever-increasing speed of processing and communication has progressively rewritten the definition of “time critical”. The stream of innovation requires us not only to master the mathematics but also to assimilate a whole new vocabulary of jargon - designed, no doubt, to make the underlying mathematics more easily digestible. For example, I received a document from a leading international bank the other day explaining to me that the butterfly involved three tenors where the middle was the bullet and the wing was the barbell; moreover I could long a two-five-ten by being long the two and the ten, each for a PV01 of half the sum for which I should short the five; in so doing I could profit from a bow at five but would be indifferent to any directional move provided it was parallel. Meanwhile, our universities today probably devote more teaching time to gamma trades than to gamma rays; I’m not sure whether we, as citizens of the world at large, should be elated or depressed by this.
The higher productivity levels and thus the value added to the economy by the financial sector has increased to 11.7% of GDP in 2009, compared to 9.2% in 2000. Commensurate with the higher value added by the financial sector is also reflected by the higher average wage in the sector which is about 70% higher than the national average. This trend towards higher productivity levels needs to be generalised throughout the economy. For the successful shift to higher value added activities and for productivity to become an important driver of growth, new talents are required to achieve this. Human capital development is, at the heart of Malaysia’s transition to become a high value-added economy. Physical capital accumulation will no longer be sufficient for Malaysia to make the transition into a more innovative and entrepreneurial society. A fundamental rethinking of our education system is thus crucial for the effective development of talents with the necessary skills and competencies required to achieve this. The cultivation of continuous learning is needed for the constant upgrading of talents. In the financial sector, there is now a comprehensive institutional arrangement to generate the supply of the right kind of talent required by the industry – from pre-employment to leadership development not only to focusing on the development of technical skills but also on the capabilities that practitioners require in the context of an emerging economy. The fourth critical factor is the extensive enabling infrastructure to facilitate private sector economic activity.

Of course, last year the fall in the oil prices was also beneficial for the trade balance. On the financing side, the financial flows were large enough to cover the current account deficit and to provide additional reserve accumulation. It is important to note that FDI inflows continued to flow in the economy, with their ratio to GDP being kept stable at 3.3% of GDP. Yet, the largest part of the financing flows came through the government borrowing at the international market, at rather favorable terms, pinpointing the perception of the investors for sound fundamentals and rather prudent policies in the Macedonian economy. Observing the inflation path, it more or less resembled the inflation pattern elsewhere, with the falling food and energy prices pushing prices down. The average headline rate for 2014 was mildly negative (–0.3%), while the core inflation albeit slowing down, on average remained positive. The inflation adjustment is perceived as temporary, driven by supply-side factors, and without any risks to become entrenched in the inflation expectations and to jeopardize the  BIS central bankers’ speeches  1  economic recovery. The fact that the negative output gap has been narrowing and the fall of the prices has been significantly slowing down in the first months of this year, just support the former notion. Domestic financing through the banking sector significantly increased in 2014, with credit market recovering much faster compared to the previous years.
However, more complex systems and the potential of new participants increase the need for the public sector to take on partial responsibility. This is the background to the proposal for a new act on payment systems, which is under deliberation in the Storting. According to the bill, Norges Bank is to be granted responsibility for licensing and supervision of interbank systems in Norway. We wish to exercise this responsibility together with the industry and its participants. In the following, I will take a closer look at this interaction, how it may be developed and what our respective roles and responsibilities should be. I will also briefly touch on 11 12 13  CLS: Continuous Linked Settlement. Based on combined average daily turnover of about NOK 175bn in NBO and total collateral of NOK 37bn. VPS: the Norwegian Central Securities Depository. BIS Review 7/2000  10  our preparations for the new role as licensing authority, and provide a few opinions on which requirements must be placed on the interbank systems. 4.1. The importance of self-regulation  Norges Bank’s new licensing and supervisory responsibility will be a supplement to present-day self-regulation. Up to the present, participants have cooperated on standards, rules and routines for security and transaction exchange within the payment system. Agreements on obligations and responsibilities between the participants have assured coordination between banks. Self-regulation has primarily taken place through and between the two banking associations.

Many of Norges Bank’s activities within this area are linked to our role as issuer of banknotes and coins; these activities are a public service, and costs are covered by the central bank. However, Norges Bank is also often in competition with others when it performs a number of other payment system services for banks and the postal system, which incur either no charges or no cost-covering charges for these services. This practice is currently under internal evaluation at the Bank. Consequently, we must anticipate that pricing for processing cash will approach full cost over time. It will be interesting to see if this has any affect on the public’s use of cash. 3.2. Interbank systems (clearing and settlement systems)  I would now like to look more closely at risk and efficiency in interbank systems and, particularly, at our standing internationally. 3.2.1. We have made a fair amount of progress  The establishment of NICS and NBO8 provided us with a modern clearing and settlement system in Norway, which we managed to implement at approximately the same time as the G10 countries and the EU. Our systems have certain positive properties, such as the possibility of releasing a gridlock situation in gross settlement (in NBO) and centralised information on banks’ liquidity (in NICS). Our central bank lending arrangements are generally similar to those found in other countries, where it is commonplace for collateral to be furnished for all loans in the central bank.
On the whole, these measures were successful, which was a key factor in mitigating the effect of the banks’ failure on the economy. The domestic payment system functioned more or less seamlessly throughout, and there was continuous access to deposits and basic banking services in Iceland. International payment flows were seriously affected, however, not least because of the freezing order imposed by the British authorities on Icelandic banks, but also because of a general distrust among foreign counterparties. Normal payment flows were restored through a concerted effort by the Central Bank in the ensuing months. 1  See : “Financial globalisation and challenges for prudential policies and macroeconomic management“, 18 May 2007, http://www.bis.org/speeches/sp070525.htm  2  BIS central bankers’ speeches  I have painted the banking crisis and the immediate policy responses with a broad brush, but I expect that Geir will give you a fuller story. It will also be interesting to hear from Patrick what the essential features of the Irish banking crisis unfolding around the same time are seen to be now, five years later. Let me turn now to the macroeconomic part of the saga. I do not have time to discuss the macroeconomic build-up to the crisis, as the focus of this short meeting lies elsewhere.

However, there was no safety net of the type that we have in a national setting to back it up. This turned out to be the fatal flaw in the whole setup, although we now know that these banks were also undercapitalised, which might have done them in at a later stage. But so were also several European banks that were considered solid at the time! In the panic that gripped global financial markets after the collapse of Lehman Brothers, Iceland’s big banks were faced with a wholesale run on their foreign currency liabilities and were therefore heading towards a default on those liabilities in the absence of LOLR assistance in foreign currency. However, given their size, it was impossible for the Icelandic authorities to provide such assistance on their own. Liquidity risk was generally underestimated in the build-up to the crisis, both by the financial industry and by supervisors. This applied even more to FX liquidity risk, which can be more lethal due the lack of backstops and safety nets. For example, before the crisis, European banks had built up huge USD-denominated balance sheets that were balanced to a large extent – except, of course, in terms of maturity. This became a major problem when there was a run on such dollar-denominated bank liabilities post-Lehman, and many big European banking names might not be with us today had it not been for the USD swap lines granted to the European Central Bank, the Bank of England, and the Swiss National Bank.