samchain/econo-pairs-v1 huggingface dataset:
Whichever direction we are headed, there is one thing we supervisors worry about: increasing or unidentified risk. And there are indeed some risks that have become more apparent now that fintechs have entered the scene. A basic truth is that new players make the market more competitive. And that could squeeze profits and force banks to cut costs in areas such as risk management. This is a general concern we have. At the same time, bank funding might become less stable. New products, tools and services 1/3  BIS central bankers' speeches  enable depositors to easily and quickly switch banks; they can select a better offer in a heartbeat. For banks, deposits might become a less reliable and more costly source of funding. With regard to lending, we are also seeing new trends such as peer-to-peer lending and crowdfunding. Here, savers and borrowers interact directly – banks no longer serve as middlemen. As these new businesses grow, risks associated with traditional banking might emerge – just think of the risks from maturity and liquidity transformation. Some peer-to-peer lenders are already securitising the loans they originate from their platforms. Regulators will need to deal with the resulting vulnerabilities. The work on shadow banking done by the Financial Stability Board and the Basel Committee on Banking Supervision might serve as a basis. Some fintechs also apply new models for scoring the quality of loans. These models are based on vast amounts of data and are supposed to be more precise than traditional approaches.

Fintech, as it is known, seems to be the next big thing. It’s true that, in continental Europe, fintechs still account for just a small share of the markets for banking, payment services and asset management. Still, over the past years, they have received a lot of attention and a lot of funds. Fintechs are on the rise. They have entered the markets, and they are competing with banks – at least in some parts of the value chain. The question is: where will this innovation take us? Is it the end of banking as we know it? Will it create new risks? As I said before, it is hard to guess how innovations will evolve and easy to get it wrong. That said, let us take a very brief look at some potential futures. Scenario one: banks might embrace the digital trend and team up with fintechs. For banks this would be one of the more benign outcomes. And it seems to be happening right now. Scenario two: fintechs might break up the value chain of banking. Banks would end up losing revenue, market share and direct contact with clients. The result might be a more fragmented market where some players operate outside the scope of regulation and supervision. Scenario three: banks might still end up being crowded out. At the same time, however, the fintechs could be swallowed up by big tech companies, such as Google, Amazon and Facebook. The market would become more concentrated, less competitive and less diversified.
Second, because stress tests tend to take the form of point forecasts, they assume that we can predict the form of the next crisis, and typically they will place too much weight on the recent past to predict what will happen next. And third, they don’t tell us what we should do about the stress. So stress tests are useful but nowhere near sufficient. RRPs are a big step beyond that and one that should complement stress tests. The objective of a recovery plan should be to set out how a bank may react to a whole range of stresses and the steps that it could plausibly take to head off the impact of these stresses in order to avoid formal resolution actions in the event of failure. Recovery plans should encompass contingency funding plans and the use of contingent capital instruments as well as the sale of assets and/or business lines. They should not assume the use of extraordinary public support. A key element of the recovery plan is that it should make management more aware of the risks run in their businesses while they can still manage out of a stressed situation, thus reducing the likelihood of failure. This calls for a sharper use of risk management tools and systems. To be blunt, I have seen too many banks in the past two years where the systems simply did not support that sort of management under stress.

I would encourage each of you to consider not just specific examples of misconduct, but the patterns within them that point to underlying causes. I suspect we will see a strong overlap with those factors that contributed to the financial crisis. I think your focus should be less on the search for bad apples and more on how to improve the apple barrels. Role of the official sector Dodd-Frank strengthened bank balance sheets, and banks have become more resilient to systemic shocks. This is a positive development. At the same time, it is also important to mitigate the sources of systemic shocks. Dodd-Frank apparently did little to curb misconduct – a possible source of systemic risk. If the people managing capital cushions and liquidity buffers view these tools as sufficient mitigants for the costs of misconduct, or if powerful incentives encourage workarounds of the new regulations, then the connection between post-crisis reforms and greater financial stability becomes threatened. In the last year, we have seen emerging approaches to supervision that aim to address culture, conduct and governance. These methods are being developed in a number of jurisdictions. 8 I am pleased to welcome representatives of 15 foreign supervisors and other official sector agencies who are joining the many representatives of U.S. supervisory and regulatory agencies here today. The topic of culture and conduct has truly become a global dialogue. We have a lot to learn from each other.
In relation to international capital flows in particular, the answer is not at all to encourage countries to cut themselves off from international finance through the maintenance or imposition of capital controls - though that is not totally excluded. On the contrary the very positive contribution that private capital has made in recent years to the development of many of the emerging market countries is clearly acknowledged, and the objective of orderly and properly sequenced dismantlement of remaining capital controls is generally maintained. The purpose is rather to help to ensure, through greater transparency and improvements to the financial infrastructure, that capital flows to where it can be most productively invested. That should, in turn, help to reduce capital account volatility. At the same time much more attention is being paid to the importance of the maturity and currency composition of national balance sheets, including particularly the maturity and currency composition of the assets and explicit or implied liabilities of the public sector, and also of the banking sector, which can be relatively easily monitored through the supervisory process. I recognise that this emphasis on balance sheet management - which is especially important where a country is seeking actively to manage its exchange rate - may raise the cost of short-term capital inflows; but that seems to me to be a price worth paying for greater protection against sudden capital outflows if confidence declines.

And you will notice that I emphasise “working together”, because while we all clearly have a common interest in that objective, we all - commercial bankers, banking supervisors, central banks and governments - have distinct responsibilities and distinct contributions to make towards bringing it about. And we will not succeed unless we all play our respective parts. From the programme for your convention I see that most of your working sessions have been concerned with the steps that commercial banks can take to protect themselves against risk in a rapidly changing financial environment and the role of banking supervisors. I should like to start from the other end, as it were, and talk about the role of the authorities more broadly. I suppose that the most frequent cause of financial instability is macro-economic shocks of one kind or another. Certainly major disturbances can originate within the financial system itself - and that of course in turn can generate macro-economic instability. But my observation is that the causality more often than not runs the other way. From our own experience in the UK, the exaggerated economic boom and bust cycles of the past - at least I hope they are in the past - and fed in some instances by abrupt financial deregulation - have led to a sharp expansion of bank lending in the upswings, the value of which became impaired, amidst a great deal of social as well as economic distress, in the downturns.
Some parts of the press have described this as “printing money”, linking it with the spectre of hyperinflation and national bankruptcy. Now it is true that some – often corrupt – governments have resorted to “printing money” in order to finance their spending when taxes are hard to gather. But if the Monetary Policy Committee chooses to finance asset purchases through the issuance of central bank money, it will not be to finance the Government’s budget deficit. Rather, the aim will be to push up the rates of growth of the supply of money and credit – which have slowed sharply (see Chart 5) – to levels consistent with steady growth in overall nominal spending in the economy of around 5%, consistent with the achievement of the 2% inflation target. Bank Rate cuts, fiscal policy easing and measures to support the banking system should together provide considerable stimulus to the economy as the year progresses, as will the fall in commodity prices. Other countries have taken similar actions, which should bolster activity overseas and thus the demand for our exports. In addition, the trade-weighted value of sterling has fallen by almost a quarter since the middle of last year. That should encourage a switch in demand at home and abroad in favour of UK-produced goods and services and raise the profitability of exporting. Consequently, it will facilitate the necessary re-balancing of the British economy away from consumption and help to close the UK’s current account deficit.

This could be, for instance, by making banks build up extra capital buffers or reserves in the good times, which can then be drawn on when times turn bad so obviating the need to cut back sharply on their lending. In this way, the real economy can be protected from the financial excesses that seem prone to recur. Central banks and banking supervisors are presently working to identify the best way to provide this missing bit of the toolbox. Last Saturday, I attended the meeting of G8 finance ministers and central bank governors in Rome. Their determination to take whatever further policy actions was necessary to restore their economies to health was evident. Right now, we may look to be in for a long and hard economic winter. But, just as the chills of winter each year give way to the promise of spring,  4  BIS Review 19/2009  you can be equally sure that the current recession will eventually come to an end and economic spring will arrive. Chart 1 Business surveys of output in selected countries  Chart 2 Oil prices  BIS Review 19/2009  5  Chart 3 Consensus forecasts for world GDP growth in 2009  Chart 4 Nominal demand  6  BIS Review 19/2009  Chart 5 Broad money and credit  Chart 6 GDP projection based on market interest rate expectations  BIS Review 19/2009  7  Chart 7 CPI inflation projection based on market interest rate expectations  8  BIS Review 19/2009
3 Mark Carney, Breaking the Tragedy of the Horizon – Climate Change and Financial Stability, September 29,  2015. 4 Climate Risk Management at Financial Firms: Challenges and Opportunities, GARP Risk Institute, May 29,  2019; Climate Risk Management at Financial Firms: A Good Start, but More Work to Do, GARP Risk Institute, May 29, 2019. 5 We’re Only Human: Culture and Change Management, James Hennessy, Federal Reserve Bank of New York,  September 2019. 6 Misconduct Risk, Culture, and Supervision, Stephanie Chaly, James Hennessy, Lev Menand, Kevin Stiroh and  Joseph Tracy, Federal Reserve Bank of New York, December 2017. 7 Leading Change: Why Transformation Efforts Fail, John P. Kotter, Harvard Business Review, January 2007 and  How to Beat the Transformation Odds, McKinsey and Company, Survey, April 2015. 8 Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing, Board of Governors  of the Federal Reserve System, SR 18–10, December 3, 2018. 4/4  BIS central bankers' speeches

Jacqueline Loh: Keeping green and impact in focus Keynote speech by Ms Jacqueline Loh, Deputy Managing Director of the Monetary Authority of Singapore, at Asian Venture Philanthropy Network (AVPN) Virtual Conference 2020, 8 June 2020. * * * Ms Naina Batra, Chairperson and CEO, AVPN Distinguished guests, ladies and gentlemen 1. Good morning. Thank you for inviting me to the eighth AVPN Conference. I am very glad that AVPN has pressed on with this flagship event virtually in these unprecedented times. The COVID-19 pandemic has resulted in significant health, economic and social challenges globally. The IMF has projected that global GDP will contract by 3% this year1, 2.  marking a significantly deeper downturn than the 0.1% contraction in 2009 during the Global Financial Crisis. “The Power of Networks”, which is the theme of this year’s AVPN conference, is highly apt as we strive towards the United Nations Sustainable Development Goals (UN SDGs). Addressing complex and multi-dimensional challenges like climate action, inequality, and 3.  quality healthcare and education requires policymakers, financial institutions, corporates, nongovernmental organisations, and multilateral development banks (MDBs), to come together on a common global challenge. The financial sector and MDBs have stepped up and shored capital towards building capacity in healthcare and pharmaceuticals, while supporting the recovery. 4. Social and sustainability bond issuances totalled $ billion in the first quarter of this year2, nearly double that of the same period last year.
On the lending side, the dispersion of credit risks through securitisation lowered the incentive to monitor borrowers’ behaviour and led to increased moral hazard. As information became ever more fragmented and financial instruments more opaque, confidence began to dissipate. Now as we know, the market economy – and its ultimate objective, the creation of wealth – are predicated upon the efficient intermediation of money between savers and investors, and this in turn depends on the existence of an intangible, but fundamental commodity, trust. This vital ingredient was being steadily, but surely eroded. The first rumblings of the approaching storm were heard in August 2007, when signs of distress began to emerge in the interbank market, a key component of the monetary policy transmission mechanism. The turmoil then ebbed and flowed in waves, each larger than the previous one. The crisis hit with full force in mid-September this year, however, with the  2  BIS Review 155/2008  bankruptcy of Lehman Brothers, the emergency support given to AIG and the disappearance of Merrill Lynch as an independent institution. When a large money market fund that had invested in Lehman Brothers commercial paper failed, other funds stopped buying commercial paper, forcing issuers to draw on their credit lines, bringing interbank lending to a standstill. Credit spreads rose to unprecedented levels and panic overtook the stock market. The crisis rapidly spread to Europe, resulting in the co-ordinated rescue of Fortis by a number of euro area governments, among other episodes.

On 8 October, six of the world’s major central banks, including the ECB, cut official interest rates by half a percentage point in a coordinated move. Later in the month, the Eurosystem shifted the conduct of its monetary operations toward the injection of liquidity at fixed rates, with full allotment at the minimum bid rate, to ease funding concerns and to drive money market rates closer to official ones. A further half-point interest rate cut by the ECB followed in November, and yesterday we reduced rates by a further 75 basis points amid growing evidence that inflationary pressures are diminishing further. The crisis has so far had a limited impact on the domestic financial system and on the Maltese economy. While the latest data point to continued, if slower economic expansion in the third quarter, Maltese banks continue to benefit from an approach based on traditional intermediation between retail depositors and borrowers. Their funding model, therefore, eschews reliance on wholesale markets; they have substantial liquidity, adequate capital and prudent lending policies. Exposures to asset-backed securities or failed institutions are small, while lending in foreign currency to residents is limited. It would be naïve, indeed dangerous, however, to expect that the turmoil abroad will leave the Maltese economy and its financial system unscathed. First, Malta has a small open economy, highly dependent on trade. As the recession grips our major markets, Maltese exporters will be increasingly affected.
While some of these developments are conceivably temporary, the high cyclical sensitivity of our imports alerts to the need to broaden our export base and to continue increasing the presence of Spanish companies in markets with greater growth potential. It is also an indicator of the problems our competitiveness poses not only for exports but also, domestically, with regard to imports. On a par with other euro area countries, Spain’s inflation rate is trending extremely moderately. In the summer months the year-on-year rate of change in the CPI turned negative (-0.2% in September) owing to the influence of temporary factors that affected the prices of unprocessed food and energy products, following marked increases in 2013. That said, core inflation has posted practically zero growth since the start of the year, suggesting there are other, more persistent factors making for a greater sensitivity of costs and prices to the need for the economy to adjust. At the end of the year the inflation rate is expected to return to positive – though very low – values. Fiscal policy Such is the macro-financial setting in which the State and Social Security Budget for 2015 has been drafted. The scenario is more favourable than in previous years, which should help us to continue the fiscal consolidation process. The improved cyclical position and the significant reduction in the risk premium and interest rates on public debt have a major direct positive effect on public finances, in contrast to the adverse pressure wielded by these variables in recent years.

The corresponding figures concerning the increase in housing prices are for the UK +220%, the US + 110 %, Australia + 140 %. In recent years, household borrowing has also increased, both in absolute terms and relative to household income. Rapidly growing house prices and household indebtedness were increasingly highlighted by members of the Executive Board from around 2004 and onwards. From 2006 statements  2  BIS Review 96/2007  regarding the development of house prices and household indebtedness have often been included in press releases following monetary policy decisions, and discussions in the minutes from the Executive Board meetings. The role of house prices in an inflation targeting regime With these institutional and other details in place, let me turn to a more general discussion of the role of house prices in an inflation targeting regime. As we are all well aware, the debate regarding the role of house prices in the formulation of monetary policy has yet to settle in a working consensus. There are many ways in which the different views in this ongoing debate can be summarized. Without claiming to have captured all views, and perhaps exaggerating a bit, let me mention three: “textbook flexible inflation targeting”, “leaning against the wind”, and “extending the forecast horizon”. Let me elaborate on each category in turn and then return to our view.
It is clear, for instance, that the maturity of the covered bonds is considerably shorter than that of the government bonds, which means that most of the holding will have declined within five years through maturities, should the Executive Board decide not to make any reinvestments after 2022. Thoughts regarding the future In conclusion, I would like to talk about the lessons we can learn for the future. During the coronavirus crisis we made extensive purchases that we are now planning to phase out in a predictable manner. We believe that the purchases have worked well. But as you know, no two crises are the same. What strategies are available in the future? Go big and fast, buy a little at a time or take a middle way? One alternative is what Andy Bailey and others at the Bank of England have discussed, namely to 'go big and fast' and then fairly quickly dismantle the holding as soon as the situation improves, to have your ammunition ready for the next crisis or economic downturn.24 I think that the holding should be phased out when it is politically motivated and I am not keen on dismantling it to increase our purchasing scope. This is a variation on the theme of raising the policy rate just to be able to lower it later. Another option is to buy a limited amount of assets when the need arises, combined with a commitment to buy more if the situation deteriorates.

Monetary policy: achievements and challenges Már Guðmundsson, Governor of the Central Bank of Iceland. Monetary policy meeting of the Iceland Chamber of Commerce, held at Gamla Bíó in Reykjavík on 16 November 2017 Madame Chairman, honoured guests, Once again, we gather here at the Iceland Chamber of Commerce’s monetary policy meeting, which for years has been held after the Central Bank has published its autumn forecast and, in latter years, the Monetary Policy Committee’s interest rate decision. I would like to thank the Chamber of Commerce for continuing this tradition and for giving me the opportunity to talk to you about monetary policy. In my speech at this same meeting last year, I noted that the Icelandic economy had seldom been stronger, as we were experiencing the combined effects of robust GDP growth, full employment, large rises in real wages, below-target inflation, a current account surplus, a strong international investment position, and lower private sector debt than had been seen in years. At that time, we had also achieved a historical milestone in bringing inflation expectations back to target by most measures. The outlook was positive as well, with the prospect of continued strong GDP growth, a current account surplus, and target-level inflation throughout the forecast horizon. But there were concerns, too: the potential for overheating, the possible overvaluation of the króna, and the uncertainty about what would happen after the general liberalisation of the capital controls.