samchain/econo-pairs-v1 huggingface dataset:
Figure 4 Current account balance (percent of GDP) Developed economies  Emerging economies  Emerging economies  6  15  4  10  2  5  0  0  -2  -5  -4  -10  -6  -15 80  83  86  89  92  95  98  01  04  07  10(f) 13(f)  (f) Forecast. Source: International Monetary Fund (WEO, April 2010). 8  BIS Review 124/2010  Figure 5 Capital Adequacy Distribution Chilean Banking System - Basel II estimate 14  8% 12 12 10 8 6  26% 5  4  1%  23%  2  2  9 - 10%  10 - 11%  42% 4  2 0 11 - 12%  Above the bar: Percentage of total assets. Source: SBIF, BCCh. June 2010  12 - 13%  > 13%  Total capital to RWA  Table 1 Current capital standing of the Chilean banking industry  BIS Review 124/2010  9  References Cowan, K. and J. De Gregorio (2007), “International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile”, in S. Edwards (ed. ), Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, NBER and The University of Chicago Press. De Gregorio, J. (2010a), “Tackling the Capital Inflow Challenge”, Economic Policy paper N° 35, Central Bank of Chile. De Gregorio, J. (2010b), “Monetary Policy and Financial Stability: An Emerging Markets Perspective”, International Finance, Vol. 13, N° 1, pp.

This is an important factor explaining why, contrary to many other experiences with international crises, the financial systems of emerging market economies were extremely resilient during the global financial crisis, and expansionary monetary policies have been very effective because of well functioning financial systems. I will illustrate these points with the case of Chile. Even though capital requirements in the Chilean banking industry still follow Basel I (only credit risk-weighted assets), it is possible to infer that the new BIS capital requirements do not appear restrictive. In fact, considering estimated capital charges due to market and operational risk, Tier 1 and Total Capital indicators are considerably above the BIS minima for 2019 (Table 1). This capital looseness allows for coverage of the conservation buffer and also the countercyclical buffer. As for common equity, more precision is needed. In its most acid definition, common equity corresponds to “paid-in capital”, which represents approximately 65% of Tier 1 capital. In somewhat looser definitions, retained earnings may be accounted for as common equity, which in that case may capture as much as 70% of Tier 1 capital. Either way, implementing a limit on the common equity to risk-weighted assets (RWA) ratio should not represent severe restrictions. Additionally, the Tier 1 leverage ratio for the Chilean banking system is  BIS Review 124/2010  5  approximately 7%, more than twice the BIS preliminary suggestion. The healthy capital condition of the industry average is reflected at the individual bank level (Figure 5).
I do think, though, that it is intrinsically more difficult to standardise the definition of a credit event compared to that of a price or interest rate - the underlying for most other derivative products - where data can be taken off screens or lifted from the pages of the FT. Market participants will therefore have to pay even greater attention to documentation - reviewing new and existing transactions regularly to see whether changes in market practice might leave them with imperfect hedges or basis risks. The 1999 ISDA standard documentation was a great advance. But firms will need to review carefully transactions into which they entered prior to 1999; and, of course, documentation is valid only if both parties have signed the agreement and confirmations have been exchanged. It is not a happy position if back and middle offices are struggling to keep up with traders, in particular to deal with unsigned master agreements or backlogs of confirmations. Basel proposals I have mentioned the new consultative package from the Basel Committee a couple of times. The Bank is of course a member of the Basel Committee, alongside the FSA, and we are keen to hear views from the market on the proposals. As the second theme of my address today, I would like to discuss the possible impact of the revised Accord on securities markets and capital flows. While the Basel Accord ostensibly applies only to international banks, directly and indirectly it will have a significant impact on securities firms.

David Clementi: Recent developments in securities markets and the implications for financial stability Speech by David Clementi, Deputy Governor of the Bank of England, to the Euromoney International Bond Congress, London, 21 February 2001. *  *  *  Introduction Let me begin by saying how pleased I am to be giving the closing address at this Conference. I know, in previous years, the Governor has done the honours. While he is engaged elsewhere today, I am glad to keep up the association with the Bank. Especially now we have joined the ranks of issuers in the Euro markets in our own name. If you did not have a chance to subscribe to our euronotes in January, the issue - the 4.5% of 2004 - will reopen in April, July and October. But I have not come to plug our paper. Nor have I come to talk about monetary policy. The minutes of the February meeting, published this morning, are designed to set out the MPC's considered view as well as the vote itself. On the voting front, you will find there was a rare outbreak of unanimity in the Committee with a nine to nothing vote for the recent ¼% cut in rates. But there is little on this front that I can add that is not already in the minutes or in the Inflation Report we published last week. I want to talk instead about recent developments in bond markets that impinge on the Bank's role in relation to financial stability.
1/3  BIS central bankers' speeches  While capital flow risks have become more complicated, the issue faced by policymakers remains unchanged – that is, how can we better manage these risks and yet maximise the benefits that come with capital flows. The experience of our economies in dealing with capital flow volatility underscores the need to ensure our economic fundamentals are robust. While this is necessary, it is not sufficient. We have seen how external developments that are beyond our control, such as Taper Tantrum and trade tensions, could trigger periods of sharp capital flow volatility in emerging economies with severe consequences. There are “innocent bystanders” who are gravely impacted. It is therefore imperative that collectively, we continue to urge the global community to better manage the risks arising from financial openness. More needs to be done at the international level to have, to quote IMF MD Christine Lagarde, “safer capital flows". Nevertheless, we have to recognise that it is not easy to expect change at the international level. It will definitely take time. While the global community continues to debate and explore possible solutions to manage spillovers and spillbacks of policies in advanced economies, our economies will have to continue to grapple with capital flow volatility and its consequences on financial and macroeconomic stability. Therefore, I strongly believe that emerging economies must have the necessary domestic policy space in dealing with capital flows.

This is the reason why it has always been my firm belief that timely sharing of experiences and lessons between policymakers is in itself a big part of policymaking. Candid discussions on policy effectiveness and unintended risks that could arise go a long way in minimising potential policy missteps. While capital flow volatility will remain a key feature of the global financial system, we have to acknowledge that with heightened uncertainties prevailing in the global economy, capital flow volatility would only intensify. For example, in Malaysia, two-way capital flows have increased by almost three-fold in the aftermath of the Global Financial Crisis. Yes, we have had large swings in capital flows before and we have been able to manage these surges. What worries me, however, is the fact that monetary and financial stability risks posed by large and destabilising capital flows are expanding, evolving and becoming more entangled. We are very familiar with the risks posed by volatile capital flows. At the extreme, capital flows can lead to the build-up of domestic vulnerabilities, such as currency mismatches, external indebtedness and broader financial imbalances. These risks are becoming more entwined and complex than ever before. Capital flows undoubtedly complicate efforts to achieve monetary and financial stability. Allowing exchange rate adjustment to deal with capital flows may also be too simplistic.
21  Moreover, average real household income has risen by almost 15% since the turn of the millennium. This can also produce a rise in demand for more and/or better quality housing, with an associated increase in the demand for mortgage loans. Page 11/16  However, momentum on the mortgage and real estate markets has been considerably stronger in recent years than can be explained by such fundamental developments. The ratio between the volume of outstanding mortgage loans and nominal gross domestic product (GDP) since 2000 has risen from 110% to some 145% (cf. slide 21). Lending has thus grown significantly faster than income in recent years. At the same time, we can observe increasing risk appetite among banks in their lending business. This is because banks’ income from interest rate differential business is suffering due to the low interest rates. By taking higher risks – in particular in mortgage lending – banks are able to counter this decline in income in the short term. Yet, this exacerbates their susceptibility to negative developments on the real estate and mortgage markets or to an unexpected sharp interest rate rise. Given the potentially far-reaching negative effects of a debt crisis as outlined in the second part of this speech, it is clear why the SNB has been carefully monitoring these developments for some time and pointing out the associated risks. Should central banks use interest rates to curb excesses on the credit market? But what should central banks do to counter excesses on the credit market?

Interest rate tool  2 Within this framework, it shall have the following tasks:  … e. It shall contribute to the stability of the financial system. 22  1 November 2017  Collegium generale | Fritz Zurbrügg | © Swiss National Bank  Should the interest rate tool be used to curb excesses on the credit market? Tinbergen rule: 1 target = 1 instrument  Unwelcome strong side-effects  Excesses only in certain segments  1 The National Bank shall pursue a monetary policy serving the interests of  the country as a whole. It shall ensure Price stability. In so doing, it shall take due account of economic developments. Interest rate tool  2 Within this framework, it shall have the following tasks:  … d. It shall contribute to the Stability of the financial system. 23  1 November 2017  Collegium generale | Fritz Zurbrügg | © Swiss National Bank  Macroprudential instruments as a target-oriented alternative to the interest rate tool Tinbergen rule: 1 target = 1 instrument  Unwelcome strong side-effects  Excesses only in certain segments  Article 5: Tasks 1 The National Bank shall pursue a monetary policy serving the interests of the country as a whole. It shall ensure Price stability. In so doing, it shall take due account of economic developments. Interest rate tool Macroprudential instruments  2 Within this framework, it shall have the following tasks:  … d. It shall contribute to the Stability of the financial system.
Under the law, the New York Fed does not have the authority to provide what I would characterize as a “naked” guarantee – one that would be unsecured and not limited in amount, and would put the U.S. taxpayers at risk for the entirety of Lehman’s trading obligations. As Chairman Bernanke has observed, “the Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability and economic prosperity….” 6 In this case, Lehman had no ability to pledge the amount of collateral required to satisfactorily secure a Fed guarantee, one large enough to credibly withstand a run by Lehman’s creditors and counterparties. As events subsequently played out, several weeks after Lehman weekend, on October 2, 2008, Congress passed the Emergency Economic Stabilization Act (EESA), which provides the U.S. Treasury Department with legal authority to issue a guarantee. 7 Again, the Federal Reserve did not then, and does not now, have such authority. Even if it had been legally possible, a Government guarantee would have also placed the taxpayer at enormous risk because it would have undermined deal certainty. It is important for the acquirer – and not a third party – to issue the guarantee because it gives the acquirer a strong incentive to close the deal and assume control of the target. For example, J.P. Morgan Chase, which proffered the guarantee needed to merge with Bear Stearns, negotiated a host of provisions from Bear Stearns that assured deal certainty.

In going beyond profit, VBI is set to be one of the drivers for Islamic financial institutions to assist entrepreneurs to grow their businesses. This would require an understanding of the entrepreneurs’ specific needs and circumstances prior to recommending a particular product or service, rather than focusing on a predetermined range of services. Islamic financial institutions are also expected to assist and guide businesses to adopt sustainable business practices. The financing model for businesses and SMEs will be more holistic; including provision of environmental-friendly business solutions, entrepreneurship training and consulting services. This model can better assist aspiring businesses to improve efficiency and reduce costs, which will lead to greater sustainability. Before I end my remarks, I would like to emphasise that the practice of Islamic finance is not and should not be exclusive to Muslims. Many of its underlying ideas, the pursuit of economic justice and risk sharing align with traditional and conventional economic thinking. Mutual insurance companies which derive from risk sharing, limited-purpose banking which moves away from interest-based or fractional banking and equity financing, are all ideas consistent with Islamic finance principles, and are practised across the world without any reference to the religion. Indeed, Islamic finance is for all. I hope that today’s programme will lead us to a step closer in bridging Islamic finance and businesses.
This means, quite simply, that the members act as individuals. This applies both when we are out speaking and when the interest rate is set. The interest rate decisions are made through voting and the members can publicly state whether or not they share the majority view. In the case of so-called collegial committee, there is instead an agreement that the individual members’ views are subordinate to the group’s overall opinion. If there are internal differences of opinion, they  8  See, for example, Blinder, A.S., (2007), "Central Banking by Committee: Why and How?” European Journal of Political Economy 23, 106-123. BIS Review 40/2007  7  are often concealed from the outside world and once a decision has been taken, all of the members officially support it. The combination of making interest rate decisions in a group and signalling between the monetary policy meetings is not entirely problem-free. If we assume, for instance, that an individual member is to hold a speech a few weeks prior to a monetary policy meeting where he or she gives signals that the interest rate should be changed. Regardless of whether or not the Executive Board is an individualistic committee, I believe that sometimes there may be uncertainty as to who is actually sending the signal. Is it merely the individual member who is describing his or her view, or is he or she expressing the majority's opinion?

One example is when the Japanese central bank committed itself during a deflation crisis to keeping the policy rate at a low level during a certain period. For another example, see the press release from the Federal Reserve Board of Governors on 12 August 2003. 4  BIS Review 40/2007  levels we foresee two years ahead. And the focus should be on not only current interest rates, but also expectations of future interest rate changes 6 . …to market expectations… We left most of these problems behind us when we changed over in October 2005 to making forecasts based on market expectations of the future development of the policy rate. Compared with the assumption of an unchanged repo rate, market expectations normally provide a much more realistic forecast. This was one thing that made it easier to evaluate us. However, an assumption that the policy rate will develop in accordance with expectations in the financial markets has its disadvantages. This perhaps applies above all to the difficulties in communicating the interest rate path when market agents’ assessments differ substantially from those of the Riksbank. Another problem that could lead to a lack of clarity in communication is how market expectations of the development of the policy rate should actually be measured. It may be difficult to estimate and adjust for different premiums – the compensation for differences between securities with regard to the maturity, credit risk and degree of liquidity required by an investor. There are also different ways of doing it.
This is so to the extent that the development of the bond market, at least in this region, may have been inhibited by the rather more efficient banking and equity markets. Understandably, vested interests may have exerted a degree of influence to this effect, and this is one reason why the bond market, where it is underdeveloped, may have to be  BIS Review 94/2001  1  considered as a public good that justifies the involvement of the official sector in its development. This is indeed the case in Hong Kong, but it has come about only after a long period of agonising over whether such deliberate government involvement, in the freest economy in the world and without a continuing need for government borrowing to finance budget deficits, was appropriate. Perhaps with greater institutional integration in the provision of financial services, the lack of enthusiastic support in the development of the bond market from service providers in the alternative channels of financial intermediation will in time be transformed into co-operation or even initiative, thus obviating the need for government involvement. In the meantime, however, and having regard to the degree of financial sophistication of most economies in the region, some official sector involvement in bond market development seems justified. This might be in the form of facilitating development of the market infrastructure, ironing out administrative obstacles, helping with education, etc, rather than more direct or obvious forms of subsidy. Fourth, bond market financial intermediation need not be narrowly confined to just a domestic phenomenon.

This seems worth trying, for the downside risks are minimal and the benefits could be substantial, to the Mainland in terms of potential savings in borrowing and road show costs, and to Hong Kong, in terms of consolidating our position as the regional bond centre. And we are ready to play our part in the development of the RMB bond market in the Mainland, in accordance with the timetable associated with WTO accession, starting, slowly, with the establishment of joint ventures for underwriting and trading, and the development of RMB bond funds and so on. But what we hope for is that, in the fullness of time, the Mainland authorities can come around to accommodating full access to the RMB bond market from Hong Kong. I am sure there will be demand for RMB assets in Hong Kong, if the demand is not there already. I know that this matter, and other issues concerning financial intermediation of the RMB outside of the Mainland, raises complicated issues of capital account controls that need to be resolved cautiously. But I would like to reiterate my view that, with increasing economic integration between Hong Kong and the southern part of the Mainland, some, possibly an increasing degree of, mobility of capital between the two economies is inevitable.
BIS central bankers’ speeches  7  In a speech last month, I set out the reasons why this might be the case.6 First, the relationship between spare capacity and inflationary pressures may be much more complex than the simple model suggests – particularly in the services sector which now dominates the UK economy. Second, the very accommodative policies we pursued in the depths of the recession allowed companies to pass through cost increases and may have encouraged companies to believe they have more pricing power than in the past. We have seen further evidence of this today in the very strong price expectations which are continuing to be registered by manufacturers in the CBI survey. And, third, the UK is a very open international economy. Global price pressures and the value of the pound appear to be having a greater impact on our inflation rate than the domestic margin of spare capacity. There are other criticisms which can be made of the “output gap” view of the world. Measures of the “output gap” are frequently revised, partly because of GDP data revisions and partly because of changes in our view of where the trend or capacity level of output truly lies. For both these reasons, the “output gap” is notoriously difficult to measure in real time.7 Indeed, there have been quite significant revisions to the GDP profile of the early 1990s recession from the initial estimates.

It is possible to view the development in itself as a risk in that it has created new, potent instruments and possibilities for speculation. If used incorrectly or carelessly, these instruments could destabilise the financial system or in other ways lead to inconvenience. It is therefore important that both the financial agents themselves and the authorities responsible in this field closely follow developments in both theoretical and practical work and are prepared to take action if they identify risks to stability. Of course, it is another matter in this context - as in others - that the costs of new methods of control must be weighed against the risks to be managed. Regardless of the fact that there are now outstanding issues to be resolved to improve risk management, my overall conclusion is positive. The development underway with regard to identifying, measuring and managing risks provides possibilities to improve stability in the banks and other parts of the financial sector. We still have some way to go, but the work is proceeding and is presently in an intensive phase in both the financial institutions and the authorities concerned. The Riksbank intends to continue to play an active role in this work. Thank you. 4  BIS Review 10/2004