samchain/econo-pairs-v1 huggingface dataset:
How to: MACROPRU. 5 principles for macroprudential policy Speech given by Alex Brazier, Executive Director for Financial Stability Strategy and Risk Member of the Financial Policy Committee  London School of Economics, Financial Regulation Seminar Monday 13 February 2017  I am grateful to David Aikman, Jonathan Bridges, Matthieu Chavaz, Angus Foulis, Rønnaug Johansen, Vasileios Madouros, Joseph Noss, Rachana Shanbhogue, Robert Sturrock and Jagdish Tripathy for their help in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  It is an honour to be here at this LSE London Financial Regulation Seminar. My theme this evening is macroprudential policy – the business of ensuring, through regulation, that the financial system can serve the real economy, in good times and bad. Macroprudential policy regimes are the child of the financial crisis; the institutional memory of the mistakes and behaviour that led to the crisis and that had such severe cost. And the LSE has been the scene of many important contributions to assessing what went wrong and to the building of the post-crisis regime, including from central bank governors, past and present. So I stand tonight on the shoulders of giants. But I want to simultaneously keep my feet firmly on the ground – on the practice of macroprudential policy. It’s now part of the framework of economic policy in the UK. Like monetary policy, it has a statutory policy committee to set it – the Financial Policy Committee of the Bank of England.

23  But even financial companies that are completely safe in their own right, with little leverage, and making no promise that investors will get their money back, can contribute to these loops. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The rapid growth of open-ended investment funds, offering the opportunity to invest in less liquid securities but still to redeem the investment at short notice, has been a sea change in the financial system since the crisis. Assets under management in these funds now account for about 13% of global financial assets. 24  It raises a question about whether end investors, under an ‘illusion of liquidity’ created by the offer of short-notice redemption, are holding more relatively illiquid assets. 25  That matters. Investors have shown a tendency to want to liquidate their holdings as asset prices fall. 26  This  investor behaviour en masse has the potential to create a feedback loop, with falling prices prompting redemptions, driving asset sales and further falls in prices. And in a few cases, that loop can be reinforced by advantages to redeeming your investment first. th  Just look back seven months, to June 24 . Following the referendum, markets downgraded the outlook for UK commercial real estate prices and, amidst great uncertainty, the market went into hiatus. With no transactions taking place, open-ended funds found themselves needing to meet redemptions with their cash buffers.
Against this backdrop, the institutional framework in the EC Treaty for the EMU does not only set a new institutional framework for monetary policy but also for the economic policies of the member states: •  The main tool for co-ordinating the policies are the so called “Broad economic policy guidelines”. They set the overall frame for the economic policies of the Member States. •  Building on this co-ordination framework the EU leaders agreed on a wide-ranging program of structural reforms – the so-called Lisbon Strategy in 2000. The strategy’s aim is to gearing national policies towards macro-economic stability and micro-economic flexibility. •  In addition to the co-ordination of economic policies the EC Treaty has put in place a framework for stability-oriented budgetary policies. The main element of this  BIS Review 17/2008  3  framework is the Stability and Growth Pact, which requires Member States to pursue sound fiscal policies. The economic policy guidelines and the budgetary rules are important so as to facilitate the adjustment to economic shocks in the absence of a national monetary and exchange rate policy. V The EU’s position on unilateral euroisation The EU’s roadmap for euro adoption is solid and indispensable. Accordingly, it is not surprising that the EU has taken a negative position towards unilateral euroisation by a candidate country or a Member State with a derogation.

It would not be easy to reduce the central government deficit in a situation with declining oil revenues. We might, of course, be fortunate enough to experience a rise in oil prices again, so that we do not have to deal with this problem. Perhaps the oil price is abnormally low at present. But it is important to be aware that the government, in expanding welfare programmes and public sector activities, has not taken due account of the possibility that oil prices will remain low over a longer period. 15  BIS Review 20/1999  We have already witnessed a depreciation of the krone in response to the deterioration in Norway’s terms of trade. This may reflect expectations of continued low oil prices and lower revenues in the long term. This also compromises confidence in the government’s long-term financial position. It is risky to increase expenditure and reduce taxes when there is doubt regarding the long-term balance of the economy. An expansionary fiscal policy could increase uncertainty and the fluctuations in the exchange rate, and reduce Norges Bank’s freedom of manoeuvre. On the contrary, fiscal policy should be oriented to provide room for lower interest rates that can counter a cyclical downturn in an environment of stable wage and price inflation. The authorities must be very cautious about further embedding fixed long-term priorities in the central government budget.
Many say today that households’ debt overhang has caused as big a problem for the macroeconomy as the crisis in the banking system (see, for instance, Krugman, 2013). 5  Bech, Gambacorta and Kharroubi (2012) find that expansionary monetary policy has greater difficulty contributing to a recovery from a financial crisis than after a normal economic downturn. 6  That taking risks into account is not the same as “pricking bubbles” is pointed out by, for instance, Woodford (2012). 4  BIS central bankers’ speeches  macroeconomy. Denmark and the Netherlands are examples of otherwise well-managed economies that have suffered this in recent years.7 One risk factor that may be quite specific to Sweden is that the banks’ mortgage lending is largely market-funded and also to a large extent financed from abroad. If confidence were to be shaken for some reason, investors might choose to reduce their exposure to the Swedish banking sector. The banks’ access to market funding would thus decline. This could cause further negative developments or even be a factor that in itself triggers a downturn. The policy is not problem-free Of course, the type of policy we have conducted is not free of complications and problems. Although our policy has aimed to attain a good economic development and target attainment in the longer run, the consequence is that it has contributed, at least on the margin, to inflation approaching the target more slowly than would have been the case with a more expansionary policy.

Employment, total, seasonally-adjusted data Labour force, ages 15–64, seasonally-adjusted data. Source: The OECD  BIS central bankers’ speeches  11  Figure 3. Credit developments in Sweden and the euro area Households and companies, annual percentage change 20  20 Euro area households Euro area companies Sweden households  15  15  Sweden companies  10  10  5  5  0  0  -5  -5 03  05  07  09  11  13  Note. For Sweden, MFI lending to households. Sources: The ECB SDW and Statistics Sweden  Figure 4. Number of occurrences of “household debt” in around 80 newspapers and journals Number of hits 2005-2013 400  400  350  350  300  300  250  250  200  200  150  150  100  100  50  50  0  0 05  06  07  08  09  10  11  12  13  Sources: TNS Sifo and the Riksbank  12  BIS central bankers’ speeches  Figure 5.
In any event, mention should be made of the contribution of monetary policy and the significance of the decision adopted in January this year to enlarge the securities purchase programme with the inclusion of government debt securities. Since then, we have witnessed not only further monetary easing and the depreciation of the euro, but also a more uniform transmission of expansionary impulses to the various countries in the area and, in particular, to those such as Spain which were comparatively more affected by the fragmentation of European financial markets. The latest monetary policy measures have translated into a significant improvement in the Spanish economy’s financing conditions. This improvement is visible not only in the lower cost of new funds, but also in a progressive – but slow – normalisation of credit in Spain. Aggregate balances continue to post negative rates of change, reflecting the headway in the deleveraging of our households and firms; however, these rates are increasingly less negative and are compatible with the growth of new financing flows. Performance of and outlook for the Spanish economy On preliminary estimates in late July, the Spanish economy is expected to have grown by 1% in the second quarter of this year. This growth rate highlights the dynamism of the current recovery phase, now under way for two years. Recent indicators suggest this expansionary trajectory will hold in the second half of the year.

The widening wealth gap, coupled with lower yields on savings has led to the feeling of less hope of a better future. Amidst this frustration with the status quo, sentiments of anti-present economic establishment such as anti-globalisation, antitrade, and even anti-bankers have become more widespread. We see increases in non-tariff trade barriers and oppositions to trade deals, polarization of views among people, Brexit, and the US Election. Populist and nationalist policies are flourishing among middle and lower income people in many countries. Against this backdrop, we also face fast changes in technology. Not since the industrial age, have we witnessed such rapid adoption of technology and innovation, thanks in part to the digital revolution. Although technology increases economic productivity and improves people’s standard of living, it can be a source of stress for the working-age population. Many, even the highly skilled, such as investment professionals, fear being replaced by robots and artificial intelligence. Current business models are rapidly rendered obsolete by new business models and the sharing economy such as Uber or Airbnb. Owing to changing economic environment, social sentiment, and technological advancement, I see five imperatives for ASEAN’s banking sector going forward. First, innovative technology is fast changing financial business landscape and we have to be proactive in embracing technology. Given the low-growth and low-interest rate environment, banks’ income is facing pressure from declining spread and fees. Consumers’ needs and behaviour have changed and they now demand faster and more convenient services.
BIS central bankers’ speeches  9  Figure 4 Real annual contribution to GFCF (*) (percentage points) 16 16  1616  Mining  12 12  1212  88  88  Other  44  Non-mining 4 4  00  00  -4-4  -4-4  Housing  -8-8  -8-8  -12 -12  -12 -12  -16 -16  -16 -16  09 09  10 10  1111  1212  13 13  14 14  15 16 (f) 15 (e) (e) 16 (f)  17 17(f)(f)  (*) 2015 mining investment is etimated using information from listed companies (FECU). Housing investment uses data from the Chilean Chamber of Construction and National Accounts by institutional sector. Other investment calculated residually. For 2016, forecasting models of the Central Bank and other sectoral sources are used, such as the Capital Goods Corporation's surveys and investment plans. (e) Estimate. (f) Forecast. Source: Central Bank of Chile.

BIS central bankers’ speeches  15  Figure 14 Housing prices (index, base 2008 avg =100)  200  200  CChC  BCCh RM  BCCh  Previous FS Report  160  160  120  120  80  80  40  40  0  0 04  05  06  07  08  09  10  11  12  13  14  15  16  Sources: Central Bank of Chile (BCCh) and Chilean Chamber of Construction (CChC). Figure 15 Household indebtedness (RDI) and financial burden (RCI) (percent of disposable income)  70  30  60  25 RDI  50  20 RCI (right axis)  40  30  15  06  07  08  09  10  11  12  13  14  15  10  Source: Central Bank of Chile based on SBIF, SuSeSo and SVS data. 16  BIS central bankers’ speeches  Figure 16 Cross-country comparison of capital adequacy indexes (1)(2)(3) (percent)  25  Median  25th and 75th percentiles  Chile  25  Mín-Max  20  20  15  15  10  10  5  5 09  10  11  12  13  14  15  16  (1) Effective equity over risk-weighted assets. 2016 figure uses effective capital increases in 2016 for Chile, ceteris paribus , plus the effect of the CCF reduction CCF (20bp).
We are thus in an environment in which the return demanded by investors is, in general, lower than that obtained by banks at present. And this despite the fact that the risk that the acquisition of bank shares entails should have lessened as a consequence of the reduction in banks’ leverage. 1  Average of SSM institutions according to Banco de España calculations. BIS central bankers’ speeches  1  Naturally, the disappointing performance of bank profits is one of the factors behind the decline in banks’ share prices in recent months which, across the board, stand significantly below their book value, as can be seen in Chart 1. This decline has been somewhat greater in the case of Spanish banks, although these continue to evidence a higher ratio than that of the main euro area banking systems. Chart 1  PRICE TO BOOK VALUE RATIO OF THE BANKING SECTOR 1.2 1.0 0.8 0.6 0.4 0.2 0.0 June 2015  May 2016  SPAIN  ITALY  FRANCE  GERMANY  EURO AREA  EUROPE  SOURCE: Datastream. 2. Challenges for the banking sector  Several factors account for the low profitability of the banking business in Europe. 2.1  Low interest rates  One of the main factors is the maintenance of interest rates at low levels which, along with the low level of economic activity, exerts downward pressure on banks’ net interest income.

A factor that may have contributed to the exchange rate pass-through to consumer prices being smaller after the Asian and Russian crises is that importers turned away from traditional trading partners in the United States, for instance, in favour of countries whose currencies have not appreciated against the krona. Our imports from Eastern Europe and Southeast Asia, for example, have increased markedly since 1995. It is conceivable that the krona’s depreciation at the time of the Asian and Russian crises has been exaggerated because the TCW index measures the exchange rate against the most important industrialised countries and uses weights based on export and import shares from 1989-90. In order to throw light on this, we have constructed a simple, broader preliminary import-weighted index that covers 44 countries. The results again show that the krona was weak in 1998 and 1999 but not as weak as the TCW index indicated. One reason why the exchange rate pass-through to consumer prices became smaller than expected may have to do with changes in the composition of imports. There are, however, also reasons for supposing that the krona’s direct pass-through to inflation has decreased. Simple estimations indicate a marked reduction in the early 1990s, followed by some further fall (Fig. 2). A variety of factors may have contributed to this. •  Exchange rate movements, upwards or downwards, may now be perceived as a more transient phenomenon, whereas the devaluations under the fixed exchange rate regime were regarded as more permanent.
This initiative is experimenting a new coordinating mechanism between the European Union and our region, bringing together representatives from parent banks, subsidiaries, home and host supervisory authorities, international financial institutions and the European Commission. Moreover, the European Central Bank is assuming a new supervisory role for 130 systemic banks in the euro area, some of which operate in Albania or other countries of the region through their branches or subsidiaries. This role, which is expected to become functional in the field as of November this year, will be exercised in cooperation with national supervisory authorities and will have implications for Albania and other countries of the region, given the presence of euro area-based banks in our banking sectors. With the establishment of the Single Supervisory Mechanism, the European Central Bank will become the home supervisor for a number of banks operating in Albania. In addition to improving the quality of banking supervision, this mechanism has the potential to facilitate cooperation between home and host countries, hence fostering cooperation between the European Central Bank and central banks in the region on financial stability. Dear participants, the common challenges that lie ahead of us are numerous and should be solved within a short period of time. On behalf of the Bank of Albania, I would like to assure you that we will continue to be in close contact with the European Central Bank and Eurosystem central banks, furthering our existing open and sincere communication.

Ardian Fullani: Albania on the road to EU integration Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the launching ceremony of the Needs Analysis for the Bank of Albania project, Tirana 17 April 2014. *  *  *  Dear Mr. Mersch, Dear Mr. Hamza, Dear Mr. Bajrami, Your Excellencies Ambassadors, Dear guests, The purpose of the programme we are launching today is to support the Bank of Albania in the process of approximation with the EU central banking rules, procedures and standards. This is another step forward in the increasingly closer cooperation between the Bank of Albania, the European Central Bank (ECB), and the Eurosystem. I am delighted we have here today the Governor of the Central Bank of Kosovo and Vice Governor of the National Bank of Macedonia, as co-beneficiaries under this project. The Project addresses 13 different fields of central banking, as identified by Bank of Albania and ECB experts, wherein the Bank of Albania needs to make progress to reach comparable benchmarks to an EU central bank. These fields relate to all the main functions of the Bank of Albania, such as monetary and financial stability, operations, financial infrastructure, transparency, accountability and human capital. For the first time, information technology is also incorporated in the project scope, hence reflecting the impact of technology’s evolution on central bank operational systems over the past decades.
It is also possible that the increase in debt is partly an adjustment  4  BIS Review 51/2004  to an economy with - compared with before - better functioning financial markets, low inflation and expectations of relatively low interest rates in the future. Most indications also suggest that the majority of households would be able to service their debt even if interest rates were to rise sharply. Nor does it appear likely that banks and mortgage institutions would risk incurring losses that would appreciably affect their capital bases. This wasn’t the case either during the financial crisis at the beginning of the 1990s. While the banks’ losses during the crisis were largely propertyrelated, they did not stem from lending against collateral in housing but from loans secured by commercial properties. And prices of commercial properties have this time not at all shown the same development as prices of residential property. On the contrary, they have fallen during the economic decline and have still not recovered. What remains then are the effects on the economy in general. In this respect it is perhaps first a question of whether the build-up in debt and developments in house prices should prove unsustainable, that the prices therefore should fall and that this on the whole should result in a decline in the real economy in general. The risk of this happening is of course related to your view of residential property prices.

A common use case for crypto tokens is payment. But does that make them Money? Money – as we learnt in Economics 101 – serves three functions: as a medium of exchange, a store of value, and a unit of account. No crypto token currently meets these three functions in sufficient measure to qualify as Money. My colleagues on the Financial Stability Board – Agustin Carstens and Mark Carney – have spoken at length on this subject recently, with erudition and eloquence. Let me briefly echo some of the key points. With the possible exception of the dark web, crypto tokens are not widely accepted as a medium of exchange in any market, let alone across any variety of transactions Payment transactions in crypto tokens are often slower and more expensive than conventional electronic transfers of funds. Crypto tokens cannot be a store of value if their prices fluctuate so much. Since the beginning of last year, the daily value of Bitcoin against the US Dollar has fluctuated about 20 times more than the Singapore Dollar did against the US Dollar. People may buy some crypto tokens to speculate on their values. But with such volatility, I doubt they will put their retirement savings into them. Crypto tokens also fail as a unit of account. How many entities do we know of, which maintain 1/6  BIS central bankers' speeches  their financial statements in crypto tokens? So, does it mean that crypto tokens can never become Money? With technology, we can never say never.