samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Islamic finance – the new regulatory challenge Introductory remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the book launch of “Islamic finance – the new regulatory challenge, 2nd edition”, Kuala Lumpur, 22 July 2013. *  *  *  It is my pleasure to be here this afternoon to witness the launch of the second edition of “Islamic Finance: The New Regulatory Challenge”. As the Islamic financial industry transitions into a new era of growth and development in this post-crisis world, the evolving regulatory reforms that are taking place to strengthen the resilience of the financial industry has presented wide ranging challenges in the implementation of the reforms and in also ensuring a more inclusive and stainable growth. The various dimensions of these regulatory challenges and its impact on Islamic finance are captured in the publication that is being launching today. It is indeed a more challenging time for financial regulators and policymakers worldwide. Priorities for strengthening financial stability and growth are now focused on achieving global financial systems that serve the needs of the real economy. Driven by concerns to ensure that banking institutions are more robust against mutil-faceted and more complex dimensions of risks going into the future, regulatory efforts are being directed at significantly strengthening the capital and liquidity structures of banks, and ensuring that there is better alignment between risk-taking behaviours and long-term viability as well as ethical conduct.

A key area for cooperation that is being advanced relates to the provision of a robust liquidity management infrastructure for Islamic finance. This is an important imperative to ensure the resilience and stability of the Islamic financial system, as well as to reduce the cost of intermediation. A significant regulatory challenge remains in terms of having efficient crossborder liquidity risk management in the Islamic financial system, due to the lack of short-term Shariah compliant instruments in international currencies. A chapter in the book describes the regulatory response to the issue of liquidity risk facing Islamic financial institutions, including the important role of the International Islamic Liquidity Management Corporation (IILM) in facilitating cross-border liquidity management. BIS central bankers’ speeches  1  With these changes set to re-define the financial landscape going forward with far reaching implications, the publication of this book is both timely and relevant. Six years from its first edition in 2007 which made an important contribution to the literature on the regulation of Islamic finance, this second edition captures the diverse range of current information and updates arising from the regulatory issues in a post-crisis global economy. Reviews on the various characteristics of risks faced by Islamic financial institutions will improve the understanding and examination of the implications of current and new reform initiatives for the regulation and supervision of Islamic finance.
When the interest rate appreciates substantially, it prompts a fall in inflation, which will result in a reduction in the interest rate with subsequent pressures to depreciate. However, one must recognize that these are not very significant effects because, in a floating regime, the pass-through coefficient from the exchange rate to inflation is limited. It occurs primarily because of the usual transitory nature of exchange rate fluctuations, due to changes in their fundamentals and their relationship with the stage of the cycle. Emerging economies may feel tempted, after a long history of crises caused by exchange rate lags, to handle it to keep it depreciated, due to fear of floating (Calvo and Reinhart, 2002). Handling the exchange rate is, apart from hardly feasible in the medium to long term, risky. In the first place, in less flexible exchange rate regimes, the transmission coefficient to inflation increases, because the level of the exchange rate may become a coordinator of price expectations, given the policymakers’ commitment to price stability. This, in turn, feeds back to increased pressures to keep the exchange rate stable, thus aggravating the problem. Secondly, a commitment of the authority to exchange rate stability may create perverse  4  BIS Review 68/2009  incentives to take financial risks, by artificially lowering the cost of external borrowing. This reinforces fear of floating, creating a spiral towards exchange rate rigidity, and deriving in the much feared currency mismatches and exchange rate delays that were intended to prevent in the first place.

However, some argue that monetary policy should react directly to asset prices, for example by including them in the Taylor rule. Cecchetti et al. (2000) are perhaps the best representatives of this position, claiming that any inflation-targeting central bank should react to asset price misalignments beyond their implications on expected inflation over the policy horizon. In my view, there are three reasons why monetary policy, in general, should not react to asset prices beyond their impact on projected inflation. First, it is not clear that an increase in interest rates will be capable of stopping an increase in asset prices. The required adjustments might be so large that they could end up unnecessarily generating high unemployment and an unwelcome drop in inflation. Second, what matters here is to safeguard the stability of the financial system. An excessive interest rate aiming at controlling asset prices could even trigger financial instability, which is precisely what it is meant to avoid, especially if the increase in asset prices is accompanied by higher financial fragility. Finally, under inflation targeting, any interest rate movements that are inconsistent with inflation converging to the target may undermine the credibility of monetary policy, and we know inflation expectations are critical in the functioning of the regime. To apply a policy that is inconsistent with the inflation target would end up weakening it as the inflation anchor. This is particularly important in the case of emerging economies with a shorter record of monetary stability.
Today, every $ of bank assets is financed with $ cents of debt – a more modest, though still racy, 95% loan-to-value mortgage. Banks’ liquid assets have risen even more dramatically. UK and US banks’ cash ratios are at their highest levels for several decades. 2  BIS central bankers’ speeches  But this balance sheet adjustment appears to be far from complete. Banks are midstream in their adjustment to new regulatory standards and, in some cases, new business models. That is reflected in expectations of banks’ future profitability. These remain weak. Recent results for the major global banks delivered returns to equity well below target and closer to average levels from the previous century of around 10%. Weak profit prospects are mirrored in equity prices. Today, the average market price of global banks’ equity is slightly below its book value, having traded at a significant premium for much of the past 20 years (Chart 10). Around three-quarters of the world’s 20 largest global banks have price-to-book ratios below one. Equity prices for these banks are, on average, back to levels last seen in 1998. For long-term holders of global bank equity, this has been a lost decade (and a bit). As equity prices have fallen, market-based measures of bank leverage – the ratio of bank assets to the market value of their equity – have risen.

Food inflation increased mainly on account of price increases on cereals, selected vegetable, beef products, and fish due to seasonal supply factors. However, non-food inflation slowed down on account of the Kwacha exchange rate appreciation against the US dollar during the period under review. Money supply and domestic credit 6. Preliminary estimates indicate that broad money (M3), comprehensively defined to include foreign currency deposits, increased by 2.5% (September 2010, rose by 7.9%) to K18,477.0 billion in December 2010 from K18,018.4 billion in September 2010. This growth in M3 was below the quarterly projection of 3.2%. 7. The outturn in M3 was largely due to an increase in Net Domestic Assets (NDA) by 10.3% reflecting increased lending to Government. However, Net Foreign Assets (NFA) declined by 7.9% mainly on account of a 1.3% decrease in gross international reserves to US $ million as at end-December 2010, coupled with 1.2% appreciation of the Kwacha against the United States dollar. 8. On an annual basis, M3 growth increased to 30.8% in December 2010 from 32.8% in September 2010. This outturn was due to the rise in NFA by 40.1% (September 2010, fell by 6.9%) primarily on account of an increase in gross international reserves. The NDA rose by a lower margin of 25.6% compared with the rise of 94.6% recorded in September 2010. BIS central bankers’ speeches  1  9.
The Bank of Zambia, as a regulator, is determined to facilitate viable branch expansion, and the introduction of new and innovative financial products, to tap savings and channel these savings to investment. The BoZ will therefore continue to work in close collaboration with the financial sector to cultivate partnership in order to establish the framework necessary for build ing strong institutions that will mitigate risks and build confidence in the sector. BIS Review 69/2009  1  6. As at 30th April 2009, NATSAVE held customer deposits in excess of K135 billion with a loan portfolio of K92 billion and served over 120,000 clients. NATSAVE has also endeavoured to introduce various products such as marketeer and pensioner accounts (specific savings products for people in these categories), as well as loan products such as individual loans, salary loans and money transfer services. The development in Lukulu therefore offers some hope that rural areas, and especially the agricultural sector, may eventually be offered attractive financial products. 7. Notwithstanding this, allow me now to reflect on some of the key challenges in the financial sector that all of us must strive to address: (i)  Increasing access to financial services by the small and micro entrepreneurs who form the backbone of the economy. This sector provides employment for many people who cannot be absorbed into formal employment; increased access to financial services remains a key challenge to this segment.

Caleb M Fundanga: Increasing access to financial services in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of National Savings and Credit Bank, Lukulu Branch, Lusaka, 27 May 2009. *  *  *  The Guest of Honour; the Honourable Minister of Finance and National Planning; Dr. Situmbeko Musokotwane, MP The Honourable Minister for Western Province; The Deputy Permanent Secretary for Western Province; The Honourable Members of Parliament for Lukulu East and West; The Acting Ngambela Imbua Imwaka representing the Barotse Royal Establishment; The District Commissioners for Lukulu and Kaoma; The Board and Management of National Savings and Credit Bank; Distinguished invited guests; Ladies and gentlemen. 1. On behalf of the Bank of Zambia Governor, I would like to thank the Board of Directors and Management of National Savings and Credit Bank for inviting us to the occasion of the opening of another rural branch in Zambia, this time in Lukulu. 2. National Savings and Credit Bank (also commonly referred to as NATSAVE) was established on 1 April 1972 by the National Savings and Credit Bank Act of 1972 and it commenced business operations in March 1973. The amendments to the Banking and Financial Services Act of 2000 extended the supervisory authority of the Bank of Zambia to NATSAVE which was until then, supervised by the Ministry of Finance and National Planning (MoFNP). 3.
Overall, the picture is of a much larger, much more diverse and potentially considerably more complex set of channels of intermediation than in the past. Of course, this stylised map offers only the most cursory of indications of the true degree of complexity in individual interactions within and between sectors. (d)  Complexity of global macro-financial interactions  A final dimension to network complexity is the global one. There has been a dramatic rise in the scale of global trade and, in particular, capital market integration over the past few decades. Both are now at their highest levels for several centuries and, most probably, ever (Chart 10). 8  BIS central bankers’ speeches  For global trade, Chart 11 compares trade flows across 70 countries constituting around 80% of world exports at two dates – 1995 and 2013. The size of the nodes reflects the importance of a country to world trade and the thickness of the links the size of trade flows. It is clear that the wiring of the international trading systems has become considerably more dense and complex over this period, reflecting the deepening and lengthening of global value chains (OECD (2013), de Backer and Miroudet (2014)). This highly interconnected and complex set of global supply chains has the potential to propagate disturbances much more virulently than in the past, as two recent events illustrate. The first was the correlated collapse of world trade during the financial crisis. Between 2008Q1 and 2009Q1, real world trade fell by almost 15%.

Luis de Guindos: Interview in La Vanguardia Interview with Mr Luis de Guindos, Vice-President of the European Central Bank, and La Vanguardia, conducted by Mr Manel Pérez and published on 12 April 2020. * * *  What is your assessment of the global economic situation in the midst of this coronavirus crisis? The global economy will enter recession and so will the European economy, albeit an even more severe one. The ultimate fall in GDP will depend on how long the lockdown lasts. International bodies have calculated that the economy will shrink by 2% to 3% for each month of lockdown. So one and a half months would be around 5%. Three months would be double that. Do these calculations also apply to the Spanish economy? Spain had an advantage at the start of this crisis – it was seeing growth that was higher than the average of its euro area peers. But it also had a problem – its economy is more exposed to the crisis as it is more dependent on services like tourism, which are heavily affected by the pandemic. This makes it very likely that Spain will experience a deeper recession. And coming out the other side of the crisis, what do you think the economic recovery will look like? In the euro area, the most likely scenario is that we will see some signs of growth starting in the third quarter, but we will have to wait until 2021 to see a genuine recovery in economic activity.
To give these measures teeth, key elements of the Senior Managers Regime should be extended to all firms active in wholesale FICC markets, including dealers and asset managers. That means all senior managers would have clearly defined responsibilities and would be answerable for training, certifying and monitoring the material risk takers they supervise. The FCA should oversee compliance, redeploying resources to focus on Senior Persons. In turn, these individuals would be on the hook for promoting compliance within their organisations. Incentives will be aligned. For the best in the industry, this won’t be new. This is just how you run your business. But for others, who free ride on your reputations: the Age of Irresponsibility is over. Third, regulators should extend the coverage of market abuse regulation to include every major fixed income and currency market. And criminal sanctions should be updated, with market abuse rules similarly extended and maximum prison terms lengthened. Finally we need global standards for global markets. I welcome the FICC Markets Standards Board’s intent to be as global as possible in its membership and influence. All major Central Banks and market participants have begun working on developing a new single Global Code for FX. I would encourage IOSCO to consider complementing these efforts with a similar initiative to cover FICC markets as a whole when they meet in London next week. The FSB will engage with these processes and work to improve the alignment between remuneration and conduct risk across the globe.

Caleb M Fundanga: Brief background to the FinScope Zambia 2005 Survey Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, as background to the FinScope Zambia 2005 Survey, Lusaka, 8 November 2006. *  *  *  Hon. Ministers and Deputy Ministers; Secretary to the Treasury Hon. Members of Parliament; Your Excellencies and Members of the Diplomatic Corps; Representatives of Development Agencies; Chief Executives of Banks, Regulatory Authorities and Financial Institutions; Distinguished Invited Guests; and Ladies and Gentlemen. On behalf of the Financial Sector Development Plan (FSDP) Secretariat, it is my pleasure to present a brief background to the FinScope Zambia 2005 Survey. Ladies and Gentlemen - In recognition of the strategic importance of the financial sector to the country’s development and poverty reduction efforts, in 2003 Government launched a project to formulate the first Financial Sector Development Plan (FSDP) which was approved by Cabinet in 2004. This followed the joint World Bank and International Monetary Fund (IMF) Financial Sector Assessment Programme (FSAP) report of 2002, which identified various weaknesses in the Zambian financial system including the following: •  Unstable macro-environment  •  Low financial intermediation  •  No formal structures for a financial safety net  •  Poor credit culture  •  Weaknesses in the regulation and supervision of non-bank financial institutions. Since the approval of the FSDP in 2004, a number of weaknesses have been addressed.
My motives for the decision are expressed in more detail in the minutes from the meeting, so I shall not say very much on this point. The statistics received regarding developments in Sweden during the second quarter showed a slightly tighter labour market than we expected in June and unemployment was slightly lower than we were predicting (Figure 1). The hiring plans according to the National Institute of Economic Research’s business tendency survey for July also indicated that employment would continue to rise during the third quarter. At the same time, labour shortages in the business sector had continued to increase (Figure 2). I therefore repeated by view from June, namely that companies could be forced to increase their remunerations to obtain skilled labour. This could push up wage increases. If companies instead choose to lower their requirements regarding qualifications this could have an effect on productivity growth which would then risk being weaker than the development we envisaged. In both cases cost and inflationary pressures rise. According to the preliminary National Accounts, which were published in August, productivity showed much weaker development during the second quarter than we had predicted in June (Figure 3). But even if there was reason to believe that it would be short-lived, there is nevertheless considerable uncertainty regarding how productivity will develop in the future. And inflation, what has happened there? It had only been slightly higher than the forecast in June (Figure 4). However, companies’ costs had increased more rapidly than expected (Figure 5).

A substantial portion of the revenues from the sale of oil and gas is invested in foreign equities and bonds through the Government Petroleum Fund. As a result, short-term fluctuations in the oil price have less impact on the domestic use of petroleum revenues. In the last 20 years, fluctuations in the terms of trade  3  See for example Tom Bernhardsen and Øistein Røisland. ”Factors that influence the krone exchange rate”, Economic Bulletin no. 3/2000, November 2000. BIS Review 74/2001  5  have been three to four times greater for the Norwegian economy including the petroleum sector than for the mainland economy. The Petroleum Fund thus relieves pressure on the krone exchange rate. Changes in the krone exchange rate may also be due to interest rate changes. Higher interest rates normally make it more attractive to buy NOK-denominated assets and reduce NOK-denominated debt, leading to an appreciation of the krone. In contrast, a decrease in interest rates will normally result in lower demand for the krone and a weaker exchange rate. Experience shows that the interest rate only has this predictable effect on the krone exchange rate when it contributes to stabilising inflation. The exchange rate constitutes an important channel through which monetary policy operates. Changes in the exchange rate are both desirable and intended when they contribute to stabilising inflation. However, fluctuations in the exchange rate can also be a source of economic disturbances.
4 More recently, supervisors have traditionally addressed firm’s management of misconduct risk by assessing the effectiveness of firms’ risk management and internal control functions, such as compliance and audit. Yet, despite regulations, supervisory focus, and firms’ own efforts, significant misconduct risk and bad outcomes continue. Why? What explains this persistence? One hypothesis is that recent problems are just a stream of idiosyncratic events, random draws of “bad apples.” Another hypothesis is that some firms have operational weaknesses, “bad processes,” that allow these outcomes to occur. I don’t believe, however, that either of these hypotheses tells the whole story. Root cause analyses of many recent cases of misconduct in the financial sector suggest that misconduct is not just the product of a few individuals or bad processes, but rather the result of wider organizational breakdowns, enabled by a firm’s culture. From both a prudential perspective and a financial stability perspective, misconduct risk threatens our core supervisory objective to sustain the efficient provision of financial services to the economy. This suggests that supervisors have an obligation to promote strong internal practices and behaviors that mitigate misconduct risk and create a healthy culture. Misconduct Risk and Cultural Capital One way to think about this is “cultural capital.”5 A firm’s cultural capital is a type of asset that impacts what a firm produces and how it operates.

The ECB will be accountable for its policy changes and for its announced policy intentions. This will contribute to transparency in its daily operations. In addition, for the sake of transparency the minutes of ECB Executive Committee meetings should be made public. On this issue, the ECB has one concern. If a member of the Committee approves a decision that is not advantageous for his own country, it may cause some problems. Indeed, the publication of the minutes of meetings years later could create some risks. At this stage, I find this a reasonable objection. Maybe in time this problem can be solved. The fourth important characteristic of the ECB is that to reduce uncertainty, policymaking and economic indicators are treated on a forward-looking basis. The Bank’s fundamental strategy is to calm down expectations for the future, since uncertainty is the most important ingredient of instability. The main sources of the ECB’s monetary policy, which is based on these principles, are thus determined. These are monetary aggregates, inflation targets and other intermediate objectives such as selected monetary indicators, and finally the conduct of monetary policy in the light of all these elements. The ECB has indicated that even if it has an inflation target, it will not announce it. These monetary policy conditions absolutely guarantee that there will be some uncertainties and questions, and the first question will be whether it will be possible to lower the inflation rate below 2% when the intermediate targets are indicators calculated using the monetary aggregates of member countries.