samchain/econo-pairs-v1 huggingface dataset:
Transparency is traditionally not a focus of supervisors, so it needs to be explicitly enacted, independently of how supervision is organised. The fourth condition is the efficiency and efficacy of supervision. Does the authority perform its services at a reasonable cost? To a large extent this depends on the organisation of the work itself and not the overall supervisory structure. There is also an argument of economies of scale and scope, implying that some costs could be reduced if you combine the supervisory authorities. 2  BIS Review 49/2007  A more important aspect of efficacy is whether the authority lives up to its stated objectives, for instance to ensure a safe and sound financial system. This has not so much to do with the organisation of the authority but more with its legal powers and independence. An even broader issue concerns the appropriate range of objectives for a supervisory authority, for instance if consumer protection, competition policy or promotion of the financial sector should be included together with the basic objective of financial stability and smooth operations in the financial sector and its institutions. My experience from many countries is that it is usually more efficient to separate these objectives between different authorities. For instance, handling consumer issues is resource intensive and may negatively affect confidence in the supervisory authority. Having too many objectives might also lead to conflicting goals for the authority.

Finally, the time has come to answer the question in the title of this presentation “Is there an optimal way to structure supervision”. My answer is “No”. The different supervisory structures reflect the specific situation of their countries, which may change over time, and there is no globally agreed best practice. As former Chinese Chairman Deng Xaioping once said: “The colour of the cat does not matter as long as it catches the mice”. 5  Ferguson, R (2000) Alternative Approaches to Financial Supervision and Regulation, Journal of Financial Services Research, 17(1), 297-303  6  BIS Review 49/2007
•  The third option is to secure as efficient as possible operation of the education market in the private sector where people themselves pay for their education. One possibility to contribute to this is, for example, through carefully planned implementation of the system of education capital units that has already been under discussion, in the similar way to the pension insurance system that has been successfully launced. When we know which areas will boost Estonia's competitiveness, we should make sure that those who pay for their education themselves would choose the right specialities (they should be motivated by the fact that their anticipated pay is going to be higher - hence they would be willing to bear higher costs). Currently the problem in Estonia is that people choose law and business specialities where the external impact is small, and fewer engineering professions, mathematics, etc. where the external impact is presumably high. •  Probably the main problem here is lack of information. In order to secure improved circulation of information, future students should be systematically informed of the  8  BIS Review 26/2004  differences in pay and the opportunities of finding employment in different areas - however, pay differences today do not always reflect what is to become in the future. For example, the excessive supply in business specialities compared to other areas should lower entry-level salaries. Another area about which students should be systematically informed is the level of schools.

Although copper still accounts for a relevant portion of Chilean exports, an important number of new markets for a variety of products have been opened thanks to both the unilateral efforts of trade liberalization and the significant spread of bilateral trade agreements with the major economic countries and zones. Finally, a sound financial system, with globally integrated, well-capitalized, and adequately-regulated banks. Actually, the regulation of the domestic banking system prevented some of the most notorious credit excesses that happened in advanced economies, or in the past of many emerging markets, including Chile. 1  Banco Central de Chile (2007). 2  See Marcel et al. (2001) for a discussion of the budget rule. BIS central bankers’ speeches  1  I will continue my presentation speaking about how all the shocks we have seen the last few years have affected the Chilean economy and the policy responses we have put in place. Then I will describe the recovery process and I will finalize presenting some thoughts on the lessons that can be drawn from our recent experience and some challenges I see for the future. The run-up to the financial bust By March 2008, Bear Stearns had already gone bankrupt and the risk of a higher stress episode at the world financial markets had increased greatly. Due to the risks of a potential sudden stop if the financial crisis should worsen, and in a context of a severe appreciation of the Chilean peso, in April, the Central Bank decided to start accumulating reserves through sterilized intervention.
This is reinforced by a dedicated focus on the vulnerable segments of the society, such as how to plan for retirement, the importance of living within one’s means and behaviours that can lead one into high indebtedness. These programmes are delivered to consumers in the workplace and colleges. Our collaboration with employers has proven to be particularly effective in delivering financial education on responsible financial management. Under this approach, strategic alliances have been forged by the Credit Counselling and Debt Management Agency with more than 200 organisations in Malaysia to deliver financial capability programs at the workplace. Equal emphasis is given to developing the enabling infrastructure to support the effective delivery of financial capability initiatives. In Malaysia, the meaningful access to financial education contents and tools, a rigorous assessment framework and an effective partnership that involves the Government, educators, non-Governmental organisations and the financial industry form the vital components of the enabling ecosystem to support the overall financial education strategies. In many instances, changes in consumer behaviour are needed for the intended benefits to be realised. In Malaysia this is the case in the efforts to promote e-payment as a means of improving economic efficiency, productivity and competitiveness. Central to this agenda has been the implementation of various financial education initiatives to encourage changes in consumer behaviour and to inspire confidence in the use of e-payments.

These factors will become more acute in an increasingly complex and technologydriven financial system. Financial education has an important role in breaking such barriers. This will require more innovative approaches, broader partnerships and a deeper understanding of the social attitudes. Our own experience in Malaysia through the work of Bank Negara Malaysia and the Credit Counselling and Debt Management Agency (a subsidiary of the Bank) has shown that the impact of financial education strategies depends  2  BIS central bankers’ speeches  on the ability to effectively combine broad-based and targeted strategies, and having a wellcoordinated approach that relies on multiple channels to reach different groups. Financial education is also a lifelong endeavour, from encouraging children to save their pocket money to helping adults attain financial security and independence for their old age. In supporting the inclusion agenda, financial education initiatives in Malaysia are designed as an important life skill, where consumers are exposed to knowledge on financial management during the different periods in their life. An increasing trend is for financial capability to be promoted from an early age through the integration of financial education into the formal school curriculum that covers basic money management, spending and savings, credit and debts, e-payments, financial risk management and consumer responsibilities. For the youth and adult segments of the population, Malaysia has also adopted a life event approach to the development and delivery of financial capability programmes.
A survey in 2011 asked about the meaning of the words “inflation” and “GDP”, the two central concepts in macroeconomics. Only 16% of the public could clearly define inflation, while only 10% could define GDP. Other surveys have reached similar conclusions, sometimes with slightly higher fractions. 3  4  This unfamiliarity with economic concepts extends to a lack of understanding of these concepts in practice. For example, the Bank of England regularly surveys the general public to gauge their views on inflation. When given a small number of options, less than a quarter of the public typically identify the correct range within which the current inflation rate lies. More than 40% simply say that they do not know. 5  If we turn from economics to finance, the picture is no better. In a recent survey, the UK’s Financial Conduct Authority (FCA) found that almost half the public believed they had “low knowledge” of financial matters. 6  7  Some surveys put the fraction of the public who are financially capable at only around 60%. Fully two-thirds 8  of the public say they are confused when making decisions about money. And the UK consistently performs poorly in international league tables of financial literacy. 9  This understanding deficit appears to extend to economic and financial policy. For example, fewer than one in ten people know that the interest rate in the UK is set by the Bank’s Monetary Policy Committee (MPC). Only around a quarter understand “quantitative easing” and fewer still “forward guidance”.

Recent research using Facebook data has shown that the views of (economically and geographically-distant) friends can materially change peoples’ views of the housing market, independently of local factors and conditions. 38  This is a concrete example of social  media fanning economic and financial flames, even when the fire itself is small. There are other, distinct, costs that arise from a loss of trust in the economy, financial system and the institutions charged with safeguarding them. All businesses and policy institutions exist courtesy of a social contract with society. That contract is maintained not by law but by trust. A loss of trust in institutions is important because it is a breach of that social contract and signals an erosion of social capital. That puts the loss of trust in institutions over recent years into sobering context. The associated breach of social contract explains why the legitimacy of businesses and public institutions has been called into  35  Akerlof and Shiller (2009). Shiller (2017). 37 For example, Aral and Nicolaides (2017) find evidence that exercise is socially contagious. Christakis and Fowler (2007) find that social networks can allow obesity to spread. 38 Bailey et al (forthcoming). 36  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  question. 39  The accompanying loss of social capital could carry significant societal costs. The absence of  institutions endowed with such social capital has, historically at least, been the reason Why Nations Fail.
Despite the speed with which Bank Rate was cut to 0.5% in late 2008 and early 2009, and the rapid move to quantitative easing, the economy is still looking fragile. During the pre-crisis period, MPC members recognised in a number of speeches the possibility that the upward trends in property prices and in the growth of credit were increasing the risk of a period of economic instability. For example, as long ago as 2003, Charlie Bean suggested: “Action taken today to reduce the build-up of imbalances might pay off in the longer term by reducing the future uncertainty that the policymaker will face as imbalances unwind.” 2 At around the same time I commented, with reference to the rising household debt/income ratio, that this “...may have increased the risk from policy error, or from an adverse shock to the household sector.” 3 And Andrew Large argued: “the key issue  1  World trade monitor, source: Netherlands Bureau for Economic Policy Analysis. 2  Bean (2003). 3  Barker (2003). BIS Review 27/2010  1  for monetary policy is that the more capital gearing or leverage increases, the greater the vulnerability to shocks and the consequent adjustment to consumption behaviour.” 4 One conclusion might be that the depth of the present crisis might have been mitigated if the MPC had taken the view that, in those circumstances, it was preferable to miss the inflation target on the downside in the short-term.

There have been a number of positive effects from the policy of injecting additional money into the economy – including a sharp fall in corporate bonds spreads, a rise in equity prices, and the fall in three-month LIBOR back towards expected Bank Rate. 12 In addition, the MPC’s continuing strong commitment to support the economy and therefore achieve of the inflation target over the medium-term has had a positive effect on confidence. Most indicators of consumer confidence have been improving fairly steadily from low points in early 2009, as have indicators of business confidence. A significant part of the transmission mechanism has been via the rise in the prices of riskier assets. As yet, I don’t consider the evidence suggests that this rise in asset prices has gone too far, and therefore do not believe that this has become another risk to future economic stability. Rather, my concern is that this channel might become less powerful if quantitative easing were to be extended, as confidence effects might be less apparent, and there might be reluctance to engage in further portfolio rebalancing as the price of risky assets rose. This could prove a concern, given that there are still some risks on the downside to the path of economic activity, including a continuing weakness in the world economy, particularly the EU. Credit conditions also remain a concern.
One way or another the imbalances in the world economy will be corrected. That is likely to go hand in hand with changes in exchange rates and other asset prices. Whether this will happen gradually or through a sharp adjustment is impossible to know. But those changes will have a major influence on the speed at which the economic see-saw in the UK will move back to balance. The message for policy is that it is important not to let domestic demand grow too rapidly for too long. The longer the correction is left, the sharper the required adjustment will be. The higher one end of the see-saw, the greater the subsequent lurch will be. The trade deficit cannot continue to widen indefinitely. Hence, at some point domestic demand will have to grow at below its sustainable trend level rather than significantly above as it has done now for some time - over 4% a year on average over the past four years. By acting preemptively, and trying to anticipate developments, the MPC has been able to maintain overall stability in the economy, but the sharp rise in sterling led to a lurch in the economic see-saw. In one of the most influential contributions to monetary policy in the post-war period, Milton Friedman wrote that the characteristic of most central banks was that “too late and too much has been the general practice”.

Energy price inflation will also be considerable lower ahead. In August, the enterprises in Norges Bank’s regional network noted that there had been a shift in sentiment in the Norwegian economy. An extra round of calls to some contacts in October indicated that the outlook had worsened since August. The latest reports from enterprises in Region East indicate that demand has declined since summer, with a further drop in September and October. Customers are responding to tighter lending conditions by postponing projects. The changes have occurred rapidly, and there is now considerable uncertainty among our contacts in this region with regard to developments over the next six months. The majority of the enterprises report that they will reduce investment. Many are considering workforce reductions as an alternative if the situation does not change in the New Year. The majority also envisage lower wage and price inflation ahead. In the past year, unemployment has been as low as in the mid-1980s. Seasonally adjusted registered unemployment was 1.8 per cent in October. The enterprises in Norges Bank’s regional network are expecting some reduction in the workforce ahead. There has been a slight increase in layoffs. Going forward, enterprises will probably adjust the workforce to lower output growth and reduce the use of overtime. After a long period of high housing investment and rising prices, activity in the housing market is now slowing. Tighter credit conditions are amplifying the fall in house prices.
Our critics have told us that we should not have squeezed so hard on interest rates last October and that we should not have increased the cost of borrowing for business and for those who have to service their home mortgages. We should have introduced our measures to strengthen our monetary and financial systems earlier. We should not have departed from our free market policy and intervened in the stock and futures markets. That there was a lack of a “sense of crisis” in how we handled the situation. These are the more significant criticisms. 4. I can fully understand the sentiment behind these criticisms. The people of Hong Kong have been suffering the worst conditions we have had to face for many years. Even the most patient and understanding community will have grievances when the value of the assets they hold has been halved while they have to pay significantly higher interest costs for their liabilities. Furthermore, income has not been growing, and, for some, it has been shrinking. And, worse still, the probability that they may lose their jobs has doubled in the past year. 5. So, whatever the cause of this difficult situation, whether or not it arose from events outside the control of the authorities, it is considered, and rightly so, the responsibility of a caring government to do what it can to relieve these grievances. Refusal or reluctance to do so, even for very sound reasons in the larger long-term public interest, is not looked upon kindly.

In the light of experience of this practice, consideration can later be given to do the same for the minutes of meetings of the EFAC. Accountability 26. The third area that requires attention in the political process of monetary management concerns the accountability of the HKMA. Here again, there are certain characteristics peculiar to Hong Kong. Unlike arrangements in other jurisdictions, the HKMA, as the institution responsible for issues generically called central banking, is not a body established by law. The legal entity is the Monetary Authority, as a person, appointed by the Financial Secretary to assist him in the performance of his duties under the Exchange Fund Ordinance. I have the honour of being the person who has been so appointed. That means I am accountable to the Financial Secretary for my actions when exercising the authority delegated to me by the Financial Secretary under the Exchange Fund Ordinance. The Financial Secretary is advised by the EFAC appointed by the Chief Executive of the HKSAR, whose authority has been delegated to the Financial Secretary. 27. It is through the Financial Secretary that the Monetary Authority is accountable to third parties, and the form this takes is determined by the Financial Secretary. If the Financial Secretary wants me to appear before the Legislative Council and formally present a report to the Council every six months, as suggested by some, I am quite happy to do so. But the Financial Secretary must of course make an assessment of whether the implications of such a practice are acceptable.
BIS Review 40/2010  11  43 countries found a conglomerate “discount” in their equity prices. 38 In other words, the market assigned a lower value to the conglomerate than the sum of its parts, echoing Merton’s 1973 insight. This is evidence of diseconomies of scope in banking. On the face of it, these findings are a puzzle. The most likely cause was articulated by Austin Robinson back in the 1930s – “Man’s mind and man’s memory is essentially a limited factor…Every increase in size beyond a point must involve a lengthening of the chain of authority…at some point the increasing costs of co-ordination must exceed the declining economies”. 39 Oliver Williamson’s “span of control” theory of organisations made rigorous this intuition thirty years later. The essence of these arguments is that limits on the optimal size and scope of firms may be as much neurological as technological. Numbers of synapses may matter more than numbers of servers. The history of military units provides a good illustration. In Roman times, the optimal size of a military unit was 100 – hence the Roman centurion. This was the maximum number of men a general felt able to know well enough to lead and control. The constraint was neurological. Two millennia have passed. Extraordinary advances have been made in military telecommunications technology. And the optimal size of the military unit in the US army today? Just under 100 people.

Simpler financial eco-systems offer the promise of greater robustness, at some cost in richness. In the light of a costly financial crisis, both eco-systems should be explored in seeking answers to the $ billion question. 42  Washington Mutual, with assets of around $ was resolved by FDIC, but was perceived by many to have caused systemic spillovers. 43  For example, Tucker (2010). BIS Review 40/2010  13  References Aikman, D, Barrett, P, Kapadia, S, King, M, Proudman, J, Taylor, T, de Weymarn, I, and T Yates (2010), Uncertainty in Macroeconomic Policy Making: Art or Science?, available at http://www.bankofengland.co.uk/publications/speeches/2010/speech432.pdf Amel, D, Barnes, C, Panetta, F and C Salleo (2004), “Consolidation and Efficiency in the Financial Sector: A Review of the International Evidence”, Journal of Banking & Finance, vol. 28(10). Baker, D and T McArthur (2009), “The Value of the ‘Too Big to Fail’ Big bank Subsidy”, Centre for Economic and Policy Research. Barro, R J (2006), “Rare Disasters and Asset Markets in the Twentieth Century”, Quarterly Journal of Economics, vol. 121(3), p.823–866. Barth, J R, Caprio Jr., and R Levine (2004), “Bank Supervision and Regulation: What Works Best?”, Journal of Financial Intermediation, vol. 13(2), p.205–248. Basel Committee on Banking Supervision (2009), Consultative Document: Strengthening the Resilience of the Banking Sector. Beale, N, Rand, D, Arinaminpathy, N and R M May (2009), Conflicts Between Individual and Systemic Risk in Banking and Other Systems, forthcoming.