samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Global challenges and local opportunities Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the IBBM-APABI Conference: “Global challenges and local opportunities”, Kuala Lumpur, 8 May 2012. *  *  *  It is my honour to officiate this Asian-Pacific Association of Banking Institutes (APABI) Conference hosted here in Kuala Lumpur by the Institute of Bankers Malaysia (IBBM). This Association has an important role in bringing together financial industry training institutes that share a common goal to equip financial institutions with the capacity to deal with the transformational developments that are shaping the financial sector – by supporting the continued renewal of its most valuable asset, human capital. The global financial industry is experiencing a period of profound change. In the advanced economies, decades of exceptional growth are giving way to contracting financial and economic conditions, greater regulation and significant government intervention, while in the emerging world however, financial and economic growth have continued. In addition, the intensification of policies and reforms to address structural issues in several of the major advanced economies will also have a significant bearing on the future growth prospects for many financial institutions and businesses. This is reinforced by the implementation of new prudential standards, both at the national and global levels, which are also set to substantially redefine the expected norms and the boundaries of modern finance.

With greater cross-regional participation in the respective domestic financial systems, efforts have intensified to build a strong foundation that will promote regional stability alongside the measures implemented to strengthen domestic frameworks. These include wide ranging measures to develop regional financial markets, to improve liquidity management across borders, to strengthen cooperation networks for the supervision of regionally-active financial institutions and to establish regional infrastructure to enhance the efficiency and lower the risks associated with cross-border payments and settlements. Regional arrangements between central banks and supervisory authorities have also been significantly strengthened to actively share information on emerging risks to regional stability and where necessary to coordinate regional responses. An important part of this includes the ongoing work to enhance the frameworks for crisis management including the orderly resolution of financial institutions with significant cross-border operations. Within the ASEAN region, measures are currently being pursued to promote greater consistency in the adoption of regulatory and supervisory standards in anticipation of a larger role for ASEAN banks in driving regional integration as part of the broader agenda to realise an ASEAN Economic Community by 2015. Collectively, these arrangements aim to ensure that the expansion of  BIS central bankers’ speeches  3  cross-border financial linkages takes place within a framework and process that adequately mitigates systemic risk across borders.
But a key challenge is to ensure that maturity transformation does not simply migrate outside of the regulated perimeter, and end up benefiting from an implicit public subsidy (Tucker, 2010b). That is difficult because it is the nature of the services – not the institutions – that is the concern. Ultimately, we need a system whereby the suppliers of funds to risky activities, whether intermediated via banks or any other entity, must understand that they will not be protected from loss by taxpayer bailouts. Creditors should know that they will bear losses in the event of failure. We certainly cannot rely on being able to expand the scope of regulation without limit to prevent the migration of maturity mismatch. Regulators will never be able to keep up with the pace and scale of financial innovation. Nor should we want to restrict innovation. But it should be undertaken by investors using their own money not by intermediaries who also provide crucial services to the economy, allowing them to reap an implicit public subsidy. It will not be possible to regulate all parts of the financial system as if they were banks. As Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, has argued, “merely expanding the scope of regulation to chase those firms that extract implicit guarantees by engaging in maturity transformation would be an interminable journey with yet more financial instability in its wake” (Lacker, 2010).

There was an inability to see through the veil of modern finance to the fact that the balance sheets of too many banks were an accident waiting to happen, with levels of leverage on a scale that could not resist even the slightest tremor to confidence about the uncertain value of bank assets. For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary – indeed absurd – levels of leverage represented by a heavy reliance on shortterm debt. Modern financiers are now invoking other dubious claims to resist reforms that might limit the public subsidies they have enjoyed in the past. No one should blame them for that – indeed, we should not expect anything else. They are responding to incentives. Some claim that reducing leverage and holding more equity capital would be expensive. But, as economists, such as my colleague David Miles (2010) and Anat Admati and her colleagues (Admati et. al., 2010), have argued, the cost of capital overall is much less sensitive to changes in the amount of debt in a bank’s balance sheet than many bankers claim – a proposition demonstrated forcefully by Professors Modigliani and Miller over fifty years ago (Modigliani and Miller, 1958). And the benefits to society, most obviously through greater financial stability, but also through factors such as higher tax revenue, are likely to swamp any change in the private costs faced by banks. What does reduce the cost of capital is the ability to borrow short to lend long.
In these circumstances the gradual withdrawal of the Eurosystem’s expansionary monetary policy stance, begun in late 2005, has only partly reduced the looseness of financial conditions. Immigration flows, which remained very high in 2005 according to the information available, were a further factor behind the dynamism of economic activity and employment. They also added some flexibility to production and working arrangements. On one hand, the increase in the immigrant population has sustained the thrust of domestic spending, while on the other, the resulting greater supply of labour has increased the Spanish economy's productive capacity, enabling increases in output more closely tailored to the buoyancy of demand to be attained. Furthermore, the presence of this additional labour – which has a comparatively higher degree of mobility – has contributed to restricting potential sectoral bottlenecks and the wage pressures that usually characterise situations of notably vigorous expenditure, such as that seen in recent years. The composition of growth in 2005 evidenced few changes in relation to previous years, in step with the continuity of the impulses received by the economy. Indeed, the growth pattern became slightly more unbalanced, as national demand grew by 5.1%, outpacing the related increase in 2004, while foreign trade gave rise once again to a substantial negative contribution to GDP growth. Household consumption and housing-related spending continued to be the main underpinning of the increase in demand, supported in turn by the sound growth of disposable income and of employment, and by the generosity of financial conditions in the economy.

The increases in official interest rates scarcely fed through in 2005 to longterm interest rates, which led to the forceful flattening of the yield curve, an unusual occurrence at this  BIS Review 60/2006  1  stage of the cycle, although the rise in long-term yields in the opening months of 2006 is contributing to lessening the scale of this discrepancy. Finally, the increase in household wealth, stemming from the rise in the value of financial and real-estate assets, eased the drag on real income arising from dearer energy products in the oil-importing countries. Yet there has been a significant contrast between this optimism on financial markets and the wariness of companies, mirrored by slack investment in the real sector which is particularly striking if regard is had to the favourable trend of corporate profits. Several explanations have been offered for the muted performance of business investment in recent years, such as the difficulties in valuing investment in intangible assets appropriately, over-investment in the second half of the nineties (which caused surplus capacity in recent years), the ongoing reduction in corporations' financial leverage, the uncertainty generated by globalisation and companies' caution following the recent changes in the legislative and accounting framework in the wake of the corporate scandals in some countries. Insofar as some of these factors are probably transitory, greater investment momentum may be expected in the coming years.
Second, visibility over the customer is reduced, which hampers the proper estimation and control of risks. In conclusion, digital transformation is not only a driver of cost reduction, it is also critical to mounting a defence against these new competitors. 2/5  BIS central bankers' speeches  The aim is to increase customer loyalty, either by creating tailored products that better cater to their needs, or by developing collaborative solutions between institutions, of which Bizum, the well-known instant payment system, is a prime example. In this defensive context, the sector must be able to harness its traditional strengths. We must not forget that banks have customers’ trust, providing services to practically the entire population in Spain. In fact, the COVID-19 crisis has served to remind us of the importance of banking, which has been central to the structuring of the public support measures. As regards the new customer interaction channels, the report focuses on the growing use of mobile devices to take out products and to perform transaction enquiries. Naturally enough, the focus is on the importance of apps as a response to the changing preferences of digital users, particularly the younger segment. Having an attractive interface and making applications easy to use is no doubt important. But in my view there is an even more critical aspect: the use of customer data. Let’s not forget, customer data constitute the commodity upon which the Fourth Industrial Revolution rests.

Challenges for financial markets Speech given by Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Authority Board  Association for Financial Markets in Europe Annual dinner, London Thursday 3 November 2016  1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  I am very pleased to have the opportunity to speak tonight at the annual dinner of the Association for Financial Markets in Europe (AFME). The Bank of England has throughout its history had a close association with financial markets and with the institutions that support them. Indeed, the Bank was instrumental in the creation in 1914 of one of AFME’s distant ancestors – the quaintly named Accepting Houses Committee. The outbreak of the First World War and consequent disruption of international payments threatened to bring down the London markets and the international merchant banks that supported them. The Bank enabled a moratorium on war disrupted payments and offered to purchase the war disrupted bills. One contemporary historian of the City hailed this as “the greatest evidence of London’s strength as a financial centre that could have been desired or dreamt of”. 1  Over the following century, the Accepting Houses Committee became the forum of the City’s most influential merchant banks; its members enjoyed the implicit backing of the Bank of England. The Committee eventually became part of the London Investment Banking Association which merged with the European part of SIFMA to create AFME in 2009.
I want now to look at the aftermath of that crisis and pick out several developments that are important for understanding current and future risks to financial stability. The first development concerns the overall pattern of activity in financial markets. While the size of global bond markets has grown rapidly, the evidence indicates that trading volumes in a number of markets have declined. Bond inventories held by primary dealers have likewise reduced, bid-ask spreads have risen in the corporate bond markets, and it has become more expensive to hedge named credit risk using derivatives. A key point here is that the balance sheets of dealers active in these markets have shrunk markedly, with many fewer firms active in market-making. Markets have grown, but the capacity to maintain liquidity – as judged by the market–making capacity of the major banks and broker-dealers – has declined. 4 As my colleague Chris Salmon recently put it, this reduction in market making capacity has been associated with increased concentration in many bond markets, as firms have become more discriminating about the markets they make, or the clients they serve. But this trend has gone hand-in-hand with a growth in assets under management, with important implications for the provision of liquidity by market makers in times of stress in those markets. (Salmon (2015)). The second post-crisis development is the natural consequence of the severity of the crisis and its impact on real economies.

Two trends are noteworthy for Asian banks: the rise of the Asian middle class and the regionalisation of Asian corporates. 2  BIS central bankers’ speeches  Rising incomes and the agglomeration effects of urbanisation will significantly expand the ranks of the Asian middle class. •  In ASEAN, the middle class is projected to make up two-thirds of the population by 2030, compared to less than a quarter in 2010. This rapid expansion of the middle class will spur demand for a wide range of goods and services. Modern services, such as telecommunication, banking and finance, have higher income elasticities of demand compared to traditional services. This means that as income rises and wealth accumulates, the demand for financial services – be it consumer credit, wealth management, or insurance – will rise more than proportionately. As Asian economies develop and integrate further, Asian corporates will expand and internationalise. They will need more funding – not just traditional bank credit but debt and equity financing. They will need more cash management and transaction services. Asian banks who have been serving these corporates in their home markets will follow them as they regionalise their businesses. Financial regulation The second driving force that will shape banking in Asia is financial regulation. The Global Financial Crisis has spurred far-reaching financial regulatory reforms. The ones impacting banks most will be the new Basel III rules.
Chart 18: In 2004 increasing banks’ capital requirements would have improved the balance between GDP-at-risk and the central GDP forecast 30,31  1yr ahead median GDP growth forecast (%) 4.0  2004  3.5 2004  2014  2004 + 2pp tce  2007  2004 + 1pp tce 2006  3.0  2000  2004 + 3pp tce 2015 2.5 2005 2001 2016 2.0 2017 2010  2003 2002  1.5 2019  2008  2018  1998  2013 2011 1999  1.0 0.5  3yr ahead 5th percentile GDP growth estimate (cumulative, %)  2012  0.0 -6  -5 Error band  VI. -4  -3  -2  -1  1yr median vs. 3yr tail trade-off (UK)  0  1  2  Policy frontier (2004)  The Forward Agenda for Macroprudential Policy  Addressing structural vulnerabilities in open-ended funds Growth in market-based finance over the last decade is a fundamentally positive development that brings welcome diversity to the financial system. 30 Chart 19 draws on the approach and methodology in Aikman, D, Bridges, J, Hacioglu Hoke, S, O’Neill, C, Raja, A,  (2019) ‘Credit, capital and crises: a GDP-at-Risk approach’, Bank of England Staff Working Paper No. 824. TCE stands for Total Capital Equity ratio. One difference with this paper is that we replace the y-axis with the relevant MPC forecast. The data point for 2009 has also been removed to avoid the significantly negative year distorting the chart.

In contrast, the macroprudential policymaker’s loss function has no simply defined target – instead the policymaker has to make a judgement about when GDP-at-risk is within an acceptable range. GDP-at-risk, 𝐺@𝑅𝑡+𝑖 , is not directly observable and must be estimated. And optimising for policy, 𝜌𝑡 , requires estimating 𝐺@𝑅𝑡+𝑖 with and without policy, or for different policy calibrations – building estimates upon estimates. The fog of financial stability can be dangerous. A booming economy can give the illusion of lower risk, feeding assumptions that potential growth is stronger and GDP-at-risk lower. Proving otherwise can be difficult in the face of inherent uncertainty and growing complacency. 12  All speeches are available online at www.bankofengland.co.uk/news/speeches  12  As GDP-at-risk is not directly observable, it must be estimated using intermediate indicators and drivers of financial stability.11 Bank of England research finds that the indicators with greatest signalling power for GDP-at-risk are credit metrics, the current account, asset prices and metrics of banking system resilience.12  Chart 4 plots the estimated contribution of these indicators to GDP-at-risk over time. Specifically it shows the 5th percentile of the estimated forecast distribution of the level of UK GDP in t+3 years’ time, conditional on risks at time t. The focus on 3 years ahead reflects lags between setting macroprudential policy and the full impact of that policy on GDP-at-risk. Chart 4: Intermediate indicators suggest UK risks around standard (a)  Sources: Aikman et al., (2019), Bank of International Settlements, UK house price index, Datastream, Office of National Statistics, Bank calculations.
These are known as ‘transition risk’ and ‘physical risk’ respectively. In response, investors are increasingly keen to see those responsible for managing their savings take more forceful actions to support transition to net zero – channelling their holdings away from firms whose activities are seen as incompatible with that transition, and towards those whose are.10  For much of its history, the Bank of England has not itself been a direct investor in corporate assets. And, more recently, our primary engagement with the financial sector on climate issues has been to ensure that banks and insurers can manage their large transition and physical risks effectively, and in ways that do not threaten system-wide stability. In 2019 we became the first supervisory body globally to set formal expectations in this area. And this year we are conducting a system-wide exercise to assess its resilience to the sorts of climate scenarios shown in Chart 2.11  10  I discussed these trends in more detail in https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/from-hot-air-to-cold-hardfacts-speech-by-andrew-hauser.pdf?la=en&hash=5D73B8F9748EC41ECFFAD676A6D1D71A93703E15 11 For more extensive information on the Bank’s work on climate change, see Climate change | Bank of England. 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  In 2016, however, the Bank’s Monetary Policy Committee (MPC) voted to purchase £ of sterling corporate bonds in the secondary market as part of a package of measures designed to ease monetary conditions following the referendum on leaving the European Union.

It’s not easy being green – but that shouldn’t stop us: how central banks can use their monetary policy portfolio to support orderly transition to net zero Speech given by Andrew Hauser, Executive Director, Markets  At Bloomberg 21 May 2021  This speech launches, and draws heavily on, the Discussion Paper ‘Options for greening the Bank of England’s corporate bond purchase scheme’. That paper was produced by an internal team led by Matt Trott, and I am hugely grateful to him, Sadia Arif, Andrew Bailey, Ryan Barrett, Beth Blowers, Sarah Breeden, Jon Bridges, Rohan Churm, Eleanor Eden, Chris Faint, Bianca Ginelli Nardi, Maggie Illingworth, Zane Jamal, Josh Jones, Rebecca Maher, Nick McLaren, Tom McLaren, Rhys Philips, Dave Ramsden, Francine Robb, Philip Temme, Thomas Viegas and Sebastian Walsh for their input both to the Discussion Paper and this speech  1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Introduction I am delighted to be with you here today to launch our Discussion Paper on greening central bank asset portfolios. The Paper sets out our analysis and proposals in detail.
The role of the PRA is to make sure that the risks for which insurance companies provide protection do not revert to the customer when bad outcomes happen. It would be grossly unfair if you had paid somebody to take your risks away, only to find that you had unwittingly acquired a huge credit risk by giving your money to a financially unsound company. Our main job at the PRA is to ensure that firms are safe and sound, and contribute to policyholder protection. That way, the shareholder can reap the rewards if the risks pay off, but will bear the cost if the firm loses money. This public policy case is well established in many countries, such that the approach of different regulators is often founded in commonly agreed principles. For instance, in the 1970s, the introduction of Solvency I codified these principles into a set of requirements across the EU. The birthplace of insurance However, looked at across the sweep of insurance history, this public policy case is a newfangled set of ideas. I have tried to find out what, if anything, public authorities have thought about insurance through time. In my quest to find the answer to this question, I ended up going back further than anticipated – to around 3000 B.C. – and came across the curiouslynamed practice of “bottomry” in the era of Babylon.

Despite contemporary opinion at the time suggesting that a delicate balance needed to be struck between the role of the state and the activity of the market, the willingness of the state to legislate on these matters was a significant step in that it acknowledged more explicitly than before a legitimate public interest in insurance 18. Despite this, many thought that the Act was not robustly implemented, nor did it deliver results overnight. Indeed, the 1870 Act was relatively non-interventionist compared to how insurance regulation would evolve throughout the 20th century. But before we come to developments in the nearer term, it is worth noting that it wasn’t just the private sector that was mobilising itself in the insurance industry at this time. In 1865, Parliament passed the Government Annuities Act, which empowered the PostmasterGeneral to conduct life assurance business on behalf of the state. A year earlier, Gladstone (then Chancellor) delivered a speech to the House of Commons in which he was particularly scathing of the high lapse rates and expense ratios which it was felt were giving  14  Clayton (1971). See also, Alborn (2009). 15  Rawlings (2015). 16  Alborn (2009). 17  Council of The Institute of Actuaries, Minute Book II: January 1854 – May 1866, see minutes of 9 March 1854 and 1 August 1857. 18  Rawlings (2015). 6  BIS central bankers’ speeches  policyholders a raw deal.