samchain/econo-pairs-v1 huggingface dataset:
Alberto G Musalem: US macroeconomic and regulatory developments and emerging market economies Remarks by Mr Alberto G Musalem, Executive Vice President of the Integrated Policy Analysis Group of the Federal Reserve Bank of New York, at the International Financial Conference Annual Meeting, Cartagena, Colombia, 9 March 2015. *  *  *  Thank you for the invitation to speak here today. It has been a pleasure to attend this conference, and to have the opportunity to exchange views with many of you. My remarks today will focus on the potential effects of the U.S. outlook and policy for emerging market economies. I will make three main points. •  The U.S. economy appears likely to make further progress toward the Federal Open Market Committee’s (FOMC) objectives of maximum sustainable employment and price stability. This actual and prospective improvement underlies market expectations that the FOMC will begin raising the Federal Funds rate sometime later this year. •  Emerging market economies (EMEs) have generally performed well during U.S. tightening cycles, especially when such policy shifts are supported by effective communication in the context of U.S. growth. •  There has been notable progress in improving the safety and soundness of the international and U.S. financial systems, to better support financial stability and economic growth. Before I turn to the specifics, let me remind you that what I say today reflects my own views, and not necessarily those of the Federal Reserve Bank of New York or the Federal Reserve System.

Since the end of the Great Recession almost six years ago, U.S. growth has averaged a somewhat disappointing 2.3 percent. But growth has picked up recently, and the latest Blue Chip forecast is for growth to average slightly below 3 percent over the next year. There are good reasons to think that a period of stronger growth can be sustained. •  Household balance sheets are in much improved condition, with total household liabilities well below their 2008 peak, and debt service burdens at the lowest share of disposable income in more than 30 years. Moreover, consumers are benefitting from the positive wealth effect of higher house and equity prices. •  Labor market improvement has picked up pace, with payrolls gains over the last several months the strongest since the mid-1990s. Workers are finally beginning to see at least modest real wage gains. And the U.S. unemployment rate has fallen to the lowest level since mid-2008. •  The recent drop in oil prices is providing a significant boost to household spending power with nearly a percentage point increase to real disposable incomes. •  The housing sector is now in much better balance. The inventory-sales ratio for homes is near, or even slightly below, levels typically considered “normal,” and there has been a significant drop in the fraction of households carrying mortgage balances in excess of the value of their homes. •  The fiscal restraint that has held back growth in recent years has given way to a more neutral posture.
Such enhanced collaboration offers attractive alternatives to ringfencing or other actions that seek to impose local solutions to risks facing globally active firms. Similarly, information about counterparty exposures is not broadly available. Occasionally, information is revealed following specific stress tests, but disclosure is very incomplete and irregular. Nor is good pricing information on many financial market instruments such as OTC derivatives readily available. This may ultimately change as such OTC derivatives instruments become more standardized, are centrally cleared, and the data associated with such trades are reported to trade repositories – but, as noted earlier, this still lies off in the future. Similarly, implementing a global legal entity identifier standard that would enable regulators (and potentially others), to easily aggregate information on a consolidated legal entity basis is still a work in process. Similarly, there has been little progress made with respect to reengineering the financial system so that the transmission mechanisms act to dampen rather than amplify shocks. However, I wouldn’t be very critical here. This is particularly difficult work for several reasons. First, it is difficult because it relates to how all the parts of the financial system interact. It requires a holistic approach and an evaluation of how the financial system responds to shocks. Up to this point, regulatory reform efforts have been more focused on individual banks and infrastructures, rather than how the entire system functions.

The increase in capital reflects a number of factors – a long period of low capital payouts relative to income, significant equity raises, as well as sizable asset dispositions that have shrunk the balance sheet and bolstered capital. The fact that credit losses have abated and this has enabled banks to release reserves has also been important. The second element is the international agreement to implement new Basel III capital standards. Not only will Basel III significantly raise the Tier I capital standard when it is fully implemented in 2019, but also it raises the quality of capital by putting the emphasis on tangible common equity. In addition, we and our partners in the international community are in the process of implementing capital surcharges for large, systemically important financial institutions (SIFIs),  BIS central bankers’ speeches  5  with the size of the surcharge dependent on size, complexity, and interconnectiveness. I appreciate that it is impossible to calibrate “SIFIness” precisely, but this is not a valid argument for no surcharge. The logic behind the SIFI surcharge is that the failure of a systemically important institution would generate a very large shock to the rest of the financial system. As a consequence, it makes sense to require higher capital for such firms to reduce their probability of failure. In addition, the Federal Reserve’s efforts to improve banks’ capital planning processes and evaluate their capital dispositions in the context of stress scenarios – the so-called Comprehensive Capital Assessment and Review (CCAR) process – is an important innovation.
There are fewer of the pegged exchange rate regimes that often came violently undone during past periods of acute market stress. Monetary policy regimes are generally better structured and more coherent. Banking systems are better capitalized and supported by stronger regulatory and supervisory frameworks. Foreign exchange reserve cushions are larger and generally still ample. I think we can remain cautiously optimistic about EMEs’ prospects overall in the years ahead, although particular countries will face considerable challenges over the near term. How will we at the Fed take in and respond to these developments? As I’ve already noted, foreign developments factor into our assessment of the U.S. outlook. Recent FOMC statements have sometimes made this connection explicit, noting that the Committee will be monitoring foreign economic and financial conditions closely. The weakness we have been seeing in EME economies and markets is one of the considerations behind the Committee’s assessment that the appropriate pace of policy normalization is likely to be gradual. The federal funds rate is only one element of the broader set of financial conditions affecting the U.S. growth and inflation outlook. Tighter financial conditions abroad do spill back into the U.S. economy, and policymakers must take this into account in their assessment of appropriate monetary policy. Of course, this does not mean that we will let market volatility dictate our policy stance.

Climate change has been among the focus areas of management since 2006. Our work on financial risk as a result of climate change is incorporated in the investment strategy and the financial objectives of the GPFG. The Ministry of Finance is now working to introduce a new behavioural criterion for companies’ climate emissions in the guidelines for observation and exclusion. Such a criterion must then be managed in line with the highest defined threshold for exclusion. BIS central bankers’ speeches  1  It is important that the overriding principle for Norges Bank’s investment management continues to be that the GPFG is a responsible investor with a financial objective. If the GPFG is increasingly used as an instrument for pursuing objectives other than financial ones, it may reduce the clarity of the GPFG’s role as a financial investor. If the GPFG investment scope is subject to considerable restrictions, it may entail increased risk or lower returns. The management of the GPFG has been successful to date. The total return since the establishment of the GPFG amounts to more than NOK 2 500 billion, or about 40 percent of GPFG capital. Through its management, Norges Bank will continue to promote its overriding objective: to safeguard the Fund’s assets over time. Thank you for your attention. 2  BIS central bankers’ speeches
If assets market are booming and perceived returns are high, banks will always find the necessary capital, whatever the regulatory requirement. They will be able to both meet those requirements and distribute profits. Conversely, capital dries up during downturns, when it is  4  BIS Review 94/2009  most necessary 9 . There is clearly an asymmetry with strong equity outflows in boom times and no inflows in bad times. It is not clear that Introducing counter cyclical capital requirements will suffice to counteract this very powerful dynamic, especially in bad times. It may be necessary to look at other tools in order to address procyclicality and pre-empt the build up of imbalances. Those tools have to act more directly on individual and collective incentives. This is where accounting may matter most. Economically, it will always remain difficult, when looking at revenues drawn from a financial investment, to distinguish excess return from additional risk taking. But financial reporting may be conceived in such a way that this distinction is prudently introduced. There is no reasonable or practical alternative to fair value accounting for tradable securities. This does not mean, however, that any single valuation gain or loss should instantly be recognized as a profit (or loss) and financially treated as such. There is a possibility to delink valuation from income / profit recognition.

I will briefly deal with the general approach, then discuss the instruments available to mitigate procyclicality. General approach As in many matters of public policy, there is a choice between rules and discretion in dealing with procyclicality. The rule based approach can be built on "automatic stabilizers" which would constrain institutions in their behaviour, regardless of their own individual situations. Examples would include contra cyclical capital requirement, for instance, as well as dynamic provisioning. Alternatively, discretionary action could consist in "top down" interventions from macro prudential authorities. They would step in and impose (or relax) constraints whenever they come to the conclusion that dangerous imbalances are building up (or unwinding). We probably cannot dispense of this second approach. The difficulty to date cycles makes it dangerous to rely purely on automatic mechanisms, which cannot be precisely calibrated. Financial cycles, in particular, are driven by changes in risk appetite which are impossible to predict. Actually, one essential objective of macro prudential supervision may be to "regulate" (not in the legal sense, but economically) the aggregate level of risk appetite inside the financial system. This unavoidably involves some degree of discretionary judgement. How that judgement is made will determine the relevance and effectiveness of macro prudential supervision. The prudential apparatus has worked in the past on the presumption that all movements in asset prices were based on fundamentals. This approach may prevent supervisors from dealing with excessive procyclicality until it is too late. The existence of bubbles, for instance, is impossible to prove until they burst.
The second component of the analysis – risk assessment – aims at evaluating the potential impact or severity of the risks identified, should these crystallize, as well characterising the ability of the financial system to absorb the shocks. Both the likelihood, the probability of a risk scenario, and the severity of a specific risk, need to be considered in an overall assessment. Macro stress-testing models are essential tools to assess the resilience of the financial system to risks identified in the surveillance process. This approach might sound mechanistic but the analysis can clearly not be fully technical. Both rigorous quantitative-based risk analysis and expert judgement should be seen as input to inform decisions of policy makers on how to address the risks identified as material. When it comes to macro-prudential policy to mitigate the risks to financial stability, a key part of developing macro-prudential instruments relies on the adaptation of existing microprudential tools, such as prudential standards (relating to capital requirements, liquidity buffers) and limits on activities that increase systemic vulnerabilities and risks. 2  BIS Review 125/2010  In addressing the development of financial imbalances overtime, these standards and limits might need to be varied, or adjusted in a countercyclical manner, as proposed under the new Basel III regime in terms of regulatory tools addressing macro-prudential objectives. In this context, policy instruments would need to be adjusted dynamically in response to changing assessments of financial risks.

The ECB will provide the secretariat and analytical, statistical, administrative and logistical support to the ESRB. As the ESRB will start to operate from 1st January 2011, we are intensifying the work needed for the definition of the activities that will underpin the ESRB analysis. This includes several strands of work. First, we have started to identify the analytical tools and methodologies that will support the identification and surveillance of systemic risk. This is quite a challenge in itself, as this is a new field in which further research is needed. Second, the risk assessment analysis will have to be supported by adequate information, to be provided by central banks and by supervisory authorities. This will include information both at aggregate level and, when necessary, related to individual institutions. The latter will be gathered through the European Supervisory Authorities. In particular, the ESRB may request information from the ESAs in summary or collective form, such that individual financial institutions cannot be identified. The ESRB may also address a reasoned request to such Authorities to provide data that are not in summary or collective form when the latter are not sufficient. In fact, the establishment of a framework for efficient cooperation between the ESRB and the European Supervisory Authorities is of utmost importance for the successful pursuance of the tasks assigned to the ESRB. This is recognised by the legislation that provides a duty of cooperation and reciprocal exchange of information between the ESRB and the ESAs.
The lessons of Northern Rock were dramatically underscored a year later by the failure of RBS and Lloyds. Faced again with the choice of insolvency or taxpayer intervention, the government was forced to inject £ into the two banks. The banks were not put into insolvency and it proved impossible fully to write down the existing shareholders or impose losses on the bond holders. The first lesson from this was that constructive ambiguity simply didn’t work. The market had always suspected this to be the case. The implicit subsidy enjoyed by the largest banks before the crisis illustrated the market’s assumption that the state would always intervene to prevent their bankruptcy. And the market was generally proved right. The exception that proved the rule was the Fed’s decision to let Lehman Brothers enter insolvency. The fallout globally from Lehmans demonstrated dramatically, why, for large banks that perform critical functions, insolvency is not a viable option. The second lesson, which follows from the first, was that if we want, when a bank fails, to have better options than a disruptive insolvency or a taxpayer bailout, those options have to be put in place well beforehand. Doing so comes at a cost to banks and to public authorities. But if at the point of failure, there are no better options than were available in 2008, moral hazard cannot be avoided.

Ten years on: Lessons from Northern Rock  Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  Single Resolution Board Annual Conference, Brussels Friday 29 September 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  th  This month marks the 10 anniversary of the failure of Northern Rock. The failure of a middle size British mortgage bank was followed by the collapse of much bigger and globally systemic banks. But the picture of the queues forming outside the branches of Northern Rock remains for many the picture of the start of the financial crisis. Prior to September 2007, I knew of the existence of bank runs from economic history books, the experience of developing and emerging economies and the film of Mary Poppins. Seeing one happen in London brought home that it is never different “this time”. The fundamental basis of the financial system is trust. And trust, if not properly managed and protected, can disappear instantaneously. And once that happened, the UK had no effective way of managing the failure of a bank. And no way to avoid the taxpayer having to step in to stop such a failure leading to the loss of critical services to the economy and contagion to other banks.
Measured in terms of relative labour costs in a common currency, competitiveness can be estimated to be close to 8 per cent weaker than the average for the past 30 years. Over the past 30 years, manufacturing industry has been scaled back in waves. Ahead of these periods, the manufacturing sector’s competitiveness deteriorated. The last wave came after the turn of the millennium. The decline has now come to a halt, or at least taken a break, in spite of the strong real exchange rate. High export prices, solid demand for many Norwegian export goods and buoyant growth in oil-related industries are making a contribution. According to Statistics Norway’s business sentiment survey of industrial leaders, growth in production and employment is expected to continue in the period ahead. According to Norges Bank’s regional network, capacity utilisation is high in manufacturing, particularly among suppliers to the oil industry. Norges Bank’s regional network is an important part of the information basis for our analyses of the Norwegian economy. Information about the state of the Norwegian economy is available earlier than information provided by official statistics, and it is edifying to have closer contact with the labour market and business and industry throughout the country. The main impression from the latest round of interviews is that demand and output are rising in all sectors. Growth is expected to remain high over the next six months. The industry structure in North and South Trøndelag does not differ substantially in most sectors from the country as a whole.

Many people have travelled to the UK and Ireland in particular, and the barriers to inward labour migration may be greater in the Norwegian labour market than in the British and Irish labour markets. Activity is edging up in the central European countries. Therefore, there is uncertainty about how large the supply of labour will be from these countries in the future. There is also considerable inward labour migration from other Nordic countries, but measured in terms of number of persons, the supply of labour from these countries has not changed substantially in recent years. Swedish nationals have comprised the bulk of the supply of labour from the Nordic countries. In view of the tightening taking place in the Swedish labour market, there may be reason to expect a reduction in the supply of Swedish labour to Norway. The supply of labour is also affected by developments in persons on disability benefit and sickness absence. The trend in sickness absence has reversed and is now rising, and the number of persons on disability benefit continues to show a steady increase. This is offsetting the rise in the supply of labour stemming from inward labour migration when we look at the labour market as a whole. Behind us, we have a period of moderate wage settlements. It appears that the wage settlements this spring will, as expected, result in somewhat higher wage growth.
Thomas Jordan: The Swiss National Bank’s monetary policy decision and assessment of the economic situation Introductory remarks by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Zurich, 19 March 2015. *  *  *  Ladies and gentlemen It gives me great pleasure to welcome you to this news conference. Following the discontinuation of the minimum exchange rate, we have decided to hold an extraordinary news conference at our quarterly assessment in March, in addition to the traditional six-monthly news conferences which will take place in June and December. In my presentation, I will explain the Governing Board’s monetary policy decision and outline our assessment of the economic situation. Afterwards, my colleagues and I will be at your disposal to answer questions. Monetary policy decision I will begin with our monetary policy decision. The SNB has decided to leave the target range for the three-month Libor unchanged at between –1.25% and –0.25%. Interest on sight deposits at the SNB remains at –0.75% and the exemption thresholds remain unchanged. Negative interest helps to make it less attractive to hold investments in Swiss francs. Overall, the Swiss franc is significantly overvalued and should continue to weaken over time. The SNB will continue to take account of the exchange rate situation, and its impact on inflation and economic developments, in formulating its monetary policy. It will therefore remain active in the foreign exchange market, as necessary, in order to influence monetary conditions.

I am glad to say that my colleagues Ben Broadbent and Martin Weale are now working with Bank staff on just that. While we cannot yet tell whether a clear message will emerge, it is the kind of work that is needed when the real economy is undergoing a degree of structural change. Policy The uneven and unavoidably difficult path for rebalancing in the real economy makes it harder than usual to read the signals of cyclical conditions. But, by the same token, our monetary accommodation can help to ease the costs to firms and households of adjusting. By smoothing the path of aggregate demand, the impact on capital resources and on human livelihoods can be limited somewhat. In the Committee’s latest forecasts, the central projection is for inflation to be under the 2% target in two-to-three year’s time. But it also has inflation rising back towards target through that period as monetary stimulus gradually helps the economy to achieve escape velocity, reducing slack in firms and the labour market. Given the ferocity of the shocks that have already hit the economy, and the pervasive uncertainty that persists about global economic and financial conditions, these are circumstances where taking longer than usual to reachieve the 2% target is warranted. It will help to mitigate the risks of the economy’s supply capacity being impaired. But that is to look ahead to the most likely path of inflation in a year or two.