samchain/econo-pairs-v1 huggingface dataset:
Miroslav Singer: Regulatory earthquake Welcoming remarks by Mr Miroslav Singer, Governor of the Czech National Bank, at the Basel Consultative Group Workshop on the impacts of Basel III on emerging market and smaller economies, Czech National Bank, Prague, 26 August 2013. *  *  *  Dear participants of the Basel Consultative Group Workshop, Ladies and gentlemen, Let me warmly welcome you to the Czech National Bank, which is proud to host this workshop on the impacts of Basel III on emerging market and smaller economies. I am very glad that my institution is involved in this workstream because I believe it is important for emerging economies not to be merely passive recipients of the regulatory “earthquake” in the banking industry which is spreading from advanced countries. Emerging economies should not and cannot blindly adopt new regulatory measures, as their financial markets have their own specific features. What is a priority for regulators in the most developed economies may not be a priority for regulators in emerging economies. On the other hand, the proposed measures within the Basel III framework may have unintended consequences for these countries, so it is worthwhile either to be prepared for them or to try to mitigate them if they are negative. Let me start by underlining what I consider to be the two fundamental difficulties of the current regulatory push.

In addition, while recognising that many developed economies see a need to downsize their financial sectors and/or institutions, this need is not shared in the emerging world and less developed countries. The different mix of regulatory rules – allowing for faster growth of the financial sector in countries where its relative size is lower, even at the expense of higher riskiness of the sector, would also be welfare enhancing. After all, generally faster growth of less developed economies resulting from faster growth of their service sectors – comprising also financial services – would foster growth of the most developed countries’ export sectors and consequently overcome the slack caused by their need to restrict their financial sector growth rates. It is quiet fascinating how this observation – which in essence merely follows some of the basic logic of the Ricardian argument supporting free international trade – is being almost completely ignored in the current regulatory earthquake. This earthquake is mostly due to the financial crisis, which spread swiftly to the world primarily from the US and later from the Eurozone. The emerging markets were hit as well, some of them very strongly, but by and large their financial sectors have shown stronger resilience than in many developed countries. This was also the case of my country – the Czech Republic – as we have had no bankruptcy of any more significant financial institution and consequently no state aid in the financial industry for many years now. However, this is no reason for complacency.
Then, as now, there was a large migration to the cities, and a severe shortage of housing. One means of increasing construction was to push down the cost of building housing. Households and construction companies had the possibility to receive both interest subsidies and interest guarantees if they built housing in accordance with specific requirements regarding design and size. This led to a large demand for loans. The regulations not only governed the terms for households’ loans, but also the terms for the mortgage institutions’ funding of the loans. Mortgage institutions were usually independent of the banks and funded themselves by issuing mortgage bonds. The maturity for these bonds was normally 30 years, but it could sometimes extend to 40 years, that is, much longer than today. Demand for these bonds was governed by the state through so-called liquidity ratios, which regulated how much the banks were forced to invest in mortgage bonds in relation to their deposits. Insurance companies were also obliged to invest in mortgage bonds. One could say that the state created a form of artificial demand for mortgage bonds. The bond yield was set by the Riksbank. It was thus probably lower than it would have been on a free market. Steps towards market funding Right from the start, mortgages were thus funded by bonds since the mortgage institutions were not allowed to receive deposits from the general public.

Let us, in this challenging crisis, stand as pioneers too. (i) Support to mitigate Unemployment Risks in an Emergency (ii) Autumn 2022 Economic Forecast: the EU economy to a turning point, European  Commission, 11 November 2022 (iii) Source: Bloomberg, Banque de France calculations (iv) European Commission, Next Generation EU Green Bonds  (v) Network for Greening the Financial System (vi) International Sustainability Standards Board (vii) Securities and Exchange Commission (viii) Villeroy de Galhau, F., Past progress induces new challenges : raising the stakes  for standard disclosure, supervisory requirements and collective governance, speech, Climate Finance Day, 27 October 2022  4/4  BIS - Central bankers' speeches
As the balance sheet increases in size, the potential costs increase in terms of market functioning, risks to financial stability, and the path of future remittances to the U.S. Treasury. Second, there is a limit on how far the expectations channel can be exploited. As I discussed earlier, since the current FOMC cannot bind future FOMCs and the economic outlook is highly uncertain, it isn’t reasonable to expect that policies that affect expectations many years in the future will have a powerful impact today. I believe that the effectiveness of the expectations channel decays as the length of the horizon extends. Third, monetary policy is only one leg of the stool necessary to generate a vibrant and sustained economic expansion. In particular, as noted earlier, the health of the financial system is critical. For without it, the monetary transmission channels will be impaired and monetary policy will be less effective in influencing the cost and availability of credit. Similarly, it is critical that fiscal policy be set appropriately. This means the short-term impulse needs to be properly calibrated to the current set of economic circumstances (not  9  With respect to borrowing costs, this is particularly true in real terms. BIS central bankers’ speeches  7  too much restraint) and the long-run budget trajectory needs to credible and consistent with fiscal sustainability. Finally, removing structural impediments that hinder growth and economic rebalancing are also important.

Part of the recent relative stability relies on specific programs to support the financial system and in monetary policy conditions that have allowed access to liquidity at a very low cost. This has allowed generating profits that strengthened the banks’ balance sheets. However, credit risk in certain assets, such as the commercial mortgage portfolio of US and European banks is still high. The recent default in Dubai is one example of such risk being materialized, considering that Eurozone banks with systemic importance in the area show a high degree of exposure to this type of operations. Another risk comes from challenges posed to macroeconomic management by portfolio rebalancing or external savings being redirected to emerging economies which could cause significant increases in capital flows. Like its emerging peers, Chile has been at the receiving side of important portfolio investment flows. The difference is that outflows from institutional investors have been particularly high, more than offsetting the inflows (figure 16). Another BIS Review 9/2010  5  risk, as has been said repeatedly, relates with uncertainty surrounding the persistent global imbalances. Domestically, it is possible that in the short run economic activity picks up faster than expected because of faster inventory replenishment. Also noteworthy is the risk associated to the trends of the different exchange rates and their effects on the RER. The RER has appreciated since September, with direct consequences on projected inflation. The Board reiterates that it closely monitors the implications of the RER level on inflation and compliance with its monetary policy objective.
Interest rates have subsequently declined. The financial position of households is solid, and as a group they will be able to bear higher interest rates. If households reduce saving because house prices rise, their vulnerability may increase. Some indicators show that house prices are in real terms at the peak level recorded in the 1980s. Bank losses have been unusually low for several years. We expect losses to return to a normal level in the period ahead as a result of weaker cyclical trends. We have also seen an expansion in credit to “weak” enterprises. So far, we have not noted an increase in losses or non-performing loans. Nor have the banks increased loss provisions. The increase in long-term debt in high-risk enterprises would indicate, however, that loss provisions should be increased in the near future. Over the last few years, banks have accumulated substantial short-term external debt. Although this debt has gradually been converted into more long-term debt, there is a liquidity risk associated with the debt. When banks encountered problems with refinancing their foreign debt during the banking crisis, Norges Bank intervened with support. As Norges Bank has done on previous occasions, I would warn the banks against assuming that this will again be the case if similar problems should recur. There is some fear in financial markets that a liquidity shortage may occur around the year 2000 in connection with the Y2K problem. This is reflected in money market rates.

A key determinant of those effects will be the impact on inflation expectations. If households’ and businesses’ expectations of future inflation rise following the initial price shock, pressures for compensating rises in wages and prices are much more likely. Inflation expectations are difficult to measure, but surveys of households’ expectations have picked up since early 2005 (Chart 12). This partly reflects the rise in inflation during 2005-06. But expectations have remained elevated during 2007 despite the easing in inflation in the second half of the year. Conclusion After a long period of stability, we have experienced a major financial shock that has reverberated through the banking sector in all the advanced economies. It has calmed recently, but we should expect a prolonged period of discomfort for individual banks and the financial system as a whole. Unusually, this shock was not the result of bad loans at home  11  Evidence on housing equity is presented in Waldron, M and Young, Y (2006), “Household debt and spending: results from the 2007 NMG Research survey”, Bank of England Quarterly Bulletin, Winter, pp. 512-21. BIS Review 7/2008  5  but it will have an impact on growth through tighter credit constraints and by influencing expectations and confidence. We cannot be sure how large those effects will be but they pose a serious downside risk to growth. To make matters more difficult, we face a sharp rise in inflation in coming months as a result of rising commodity prices worldwide and a fall in our exchange rate.
But there are a number of circumstances that almost certainly contributed, although there is still debate on their relative significance. Poorly adjusted regulations and insufficient oversight One fact that definitely did play a role is that the regulations and supervision did not function satisfactorily. One of the problems was that there was too much focus on the situation of individual agents and too little focus on the financial system as a whole – too much micro and too little macro, if you like. Moreover, the supervision lacked the necessary international oversight as it was largely conducted on a domestic basis by each individual country. There were also loopholes in the regulations that, for instance, meant that some institutions and markets were not covered and could expand without the authorities having any real oversight. Things were not made easier by the fact that there was also great ingenuity in the financial markets that resulted in new financial instruments, where no one properly understood the risks. So all in all, one can say that the deficiencies in regulation and supervision meant that the brakes did not catch when events got out of control and the risks became too great. A North Atlantic property bubble… One of the main reasons behind the financial crisis is sometimes said to be that a property bubble arose in the United States, which then burst and spread extensively. This is largely true, although a simplification.

In brief, these involve raising the international requirements regarding the capital and liquidity the banks must hold. For instance, a larger share of the capital must be real equity capital. Another example is that the EU has established a special body, the European Systemic Risk Board, which is to identify risks in the financial system and to provide warnings and recommendations to the countries and authorities concerned. Public finances an acute but difficult problem The two other challenges are rather more difficult. The problems with public finances entail a difficult balancing act for the countries concerned. On the one hand, it is desirable that the  2  This and the third challenge are taken up by, for instance, Olivier Blanchard in the foreword to the IMF’s World Economic Outlook, October 2010. BIS Review 149/2010  3  savings do not increase too much too soon thereby withdrawing public sector demand while private sector demand is still weak. This could lead to a negative spiral, with falling demand and production, where public finances are weakened rather than strengthened. On the other hand, the deficits and the government debt must not continue to grow to the extent that doubts arise regarding the ability to repay the debt at all. Such a situation would hardly be preferable. A further complication is that this time there are many large countries who need to save at the same time. The effects on the global economy could then be substantial, particularly if the balancing act is not successful.
Even with the benefit of hindsight, it is hard to demonstrate that the economy was running significantly above capacity in the last few years. The flow of migrants eased capacity constraints in the labour market and the surveys of capacity utilisation rang no alarm bells (Chart 4). Indeed when I arrived on the MPC, some members were arguing that we needed to cut rates again following a year in which unemployment had increased and house prices appeared to have achieved the mythical “soft landing” after a relatively light touch on the interest rate tiller. And while the expansion of low cost producers in Asia had been a helpful tailwind, the system seemed to have dealt with some big shocks, like the East Asian Crisis and the bursting of the Dotcom bubble. So most commentators concluded that a good policy framework had played its part. The last 18 months have shown that the reduced volatility of growth and inflation did not tell the whole story. There may not have been a boom in activity in the West but there certainly was in many emerging markets. And rising savings there, channelled a huge flow of funds into the world’s financial markets, depressing risk-free interest rates. After the postmillennium collapse in the world’s stock markets this was compounded by a coordinated loosening of monetary policy. Cheap money supported an increase in leverage in the financial sector (Chart 5). And banks became increasingly dependent on funding from wholesale markets rather than their traditional deposit base.

6  Last year, Svein Gjedrem quoted Willem F. Duisenberg:  “Transparency in monetary policymaking should be understood as the extent to which the external presentation of the decisions corresponds to the internal decision-making process.” The following quote from a report written in 2001 by five internationally known economists (A. Blinder, C. Goodhart, P. Hildebrand, D. Lipton and C. Wyplosz) may provide a good supplement to Duisberg’s words: “…transparency should allow the public to understand, and possibly anticipate, the central bank’s decisions, to see each of them as the logical conclusion of a chain of past and future decisions aimed 7 at a clear set of targets,…. We in Norges Bank wish to be credible so that in retrospect our actions are understood and appear to be logical in relation to the inflation target. 5  Frøyland, Espen and Ingunn Lønning (2000): “The significance of uncertainty in monetary policy”, Economic Bulletin 4/2000, Norges Bank. 6  Duisenberg, Willem F. (2000): “Making monetary policy in a broad monetary union”, BIS Review 8/2000. 7  Blinder. A., C. Goodhart, P. Hildebrand, D. Lipton, C. Wyplosc (2001): “How do central banks talk?” Geneva Report on the World Economy no. 3, May 2001. BIS Review 7/2002  5  The Executive Board assesses economic developments and the outlook for the economy to the best of their judgement. However, our assessments may deviate from the assessments of others. Many factors are evaluated before an interest rate decision is made.
Ladies and Gentlemen, it is in this regard that the Bank of Zambia and Professor Collier with the support of the UK Department for International Development partnered to hold this international symposium whose objectives include: (i)  enhancing understanding of advantages of central bank independence among central bankers, Government, banks, non-bank financial institutions, the business community, academics and other stakeholders;  (ii)  drawing lessons and sharing experiences of central bank independence in developed, emerging and developing countries;  (iii)  appreciating the political, economic and legal aspects of operationalising greater independence for central banks; and  (iv)  exploring ways of enhancing fiscal and monetary coordination. Ladies and Gentlemen, the selection of papers to be presented and discussed at this Symposium will provide a platform for sharing ideas required for practical solutions aimed at improving the Bank’s service delivery. As we tackle issues of inflation, exchange rates, and other key macroeconomic indicators, let us use this forum to outline some of the past developments and challenges that lie ahead of us as we aim to taking Zambia’s financial sector to higher heights. Lastly, let me say that while we can all learn from what other central banks have done, each country should establish the legal framework for its central bank, and allow for its evolution, in ways which best fit that country’s own history and institutions. I have no doubt that the symposium will be thought-provoking and highly participatory.

Caleb M Fundanga: Central bank independence – a Zambian perspective Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the symposium “Central Bank Independence: Does it hurt the Treasury?”, Livingstone, 12-13 November 2007. *  *  *  The Chairperson The Guest of Honour, the Hon Minister of Finance and National Planning The Attorney General Honourable Minister of Southern Province Honourable Members of Parliament present Fellow Central Bank Governors present His Worship the Mayor of the City of Livingstone Deputy Central Bank Governors present Senior Treasury Officials present The Executive Secretary of SADC Members of the Diplomatic Corps and Representatives of International Organisations present Distinguished Invited Guests Ladies and Gentlemen, On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important symposium entitled “Central Bank Independence: Does it Hurt the Treasury?” To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, in particular to Livingstone, our tourist capital. Like the rest of Zambia, Livingstone is a city of tranquility with an easygoing African charm. The city is not short of interesting sites and places to visit. It hosts the Victoria Falls, also known among the locals as “Mosi-o-Tunya, the Smoke that Thunders” and is one of the world’s seven wonders! There is also a game park, a well-stocked curio market and the Mukuni Cultural Village, among the many attractions.
In other words, we always assess the risks in conjunction with the expected benefit. One example of a poorly compensated risk, from the point of view of a Swiss franc investor, is the USD currency risk on bonds. Our experience has been that expected earnings on bonds in other currencies, such as euros or sterling, are comparable, while currency risks are significantly lower. Consequently, and also because another important reserve currency was available in the form of the euro, we have substantially reduced our share of USD investments over the past few years. Along with the expansion in the range of permissible bond classes and the addition of shares, the risk/return profile of our foreign exchange reserves has improved substantially. This has helped to ensure that results on foreign exchange reserves have remained positive for the past ten years. Naturally, part of the background to this development has been the favourable interest rate environment that has prevailed since the mid1990s. Our analysis of the overall risk for all investments shows that the traditional risk factors such as the gold price and the dollar exchange rate continue to dominate. Gold poses the most substantial contribution to risk. By way of illustration: The gold price in terms of Swiss francs has fluctuated by over 10% in about half of the years that have elapsed since 1980. In terms of the SNB's annual result, this means that gold can be expected to contribute more than +/- CHF 3 billion to the result every second year.

Philipp Hildebrand: Risk management Introductory remarks by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 14 December 2006. *  *  *  As I have reported at a number of recent media conferences, the SNB has updated its investment policies for foreign exchange reserves over the past few years. I would like to take this opportunity to look back, once again, at our motives for these adjustments and to outline the context of conflicting objectives within which the investment policy of a central bank operates. I would like to devote special attention to risk management, which performs a key function in investment policy at the SNB. Looking at the current structure of our foreign exchange reserves, it is evident that we have moved a certain distance from the traditional structure of central bank portfolios. Traditional portfolios consisted almost exclusively of short-term government bonds in USD as well as, possibly, EUR or JPY. By contrast, we at the SNB have gradually diversified our currency risks over the past few years, have lengthened the maturities of our investments and invested in additional bond categories and in shares. As a result of these adjustments, we are probably one of the most innovative central banks in the area of investments nowadays. However, I would like to stress the fact that we have never pursued innovation for its own sake.