samchain/econo-pairs-v1 huggingface dataset:
John C Williams: Building an equitable future Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Economic Inequality Policy Forum: The Impacts of COVID-19 on Communities of Color and Policy Insights for an Equitable Economic Recovery, 24 September 2020. * * * Hello everyone, and welcome to the New York Fed’s third Economic Inequality Policy Forum. It’s a pleasure to speak with all of you who are joining us for this conversation. For me, today’s event is about sharing research and hearing your recommendations, so I’m going to keep my opening remarks brief. Before I continue, let me give the disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Since the outbreak of the pandemic, we’ve seen severe economic pain, unprecedented levels of unemployment, and enormous uncertainty about the future. The health and economic effects of COVID-19 have created tremendous hardship for many Americans across the country, but they have been especially painful for communities of color. We know that people of color and Black people in particular have experienced higher rates of illness and death.

First, the financial crisis made it obvious that an ability to understand and anticipate what is happening in the household sector is essential to gauging the strength and resiliency of the U.S. economy. Second, our policy actions are intended to change the incentives facing households, so it is important to be able to gauge how our policies are transmitted into household financial decisions. Good information on household borrowing, for example, allows us to see how monetary policy affects outcomes such as auto loan originations. Third, better household finance research helps support our community outreach and development missions. A major challenge to achieving these goals is that household finances have traditionally been poorly documented. We have lots of information about corporate sector debt and equity, but comparable basic facts about the household sector are much harder to come by. For example, the lack of timely, comprehensive data made it more difficult to understand how vulnerable the household sector’s financial position had become by 2007. I’m happy to say that we’ve made progress in beginning to close this data gap. At the New York Fed, we’ve been able to develop products that support a much better understanding of the household sector’s borrowing behavior, ranging from loan-level mortgage information to credit card utilization and borrowing limits. This has greatly improved our knowledge of household debt burdens, new borrowing activity, debt repayment as well as delinquencies.
This will not only help banks that operate on an international basis to establish more convergent information bases across the countries in which they are present. It will also facilitate the exchange of information among supervisors, because we will be speaking a more common language. And, more directly, the transparency requirements will, in themselves, lead to the availability of more, and more comparable, data for market participants and users. Both these initiatives are international in nature. However, as I noted earlier in my intervention, information demands also come from a range of sources including at the domestic level, and it is certainly worth looking to see what can be done at this level too. One such initiative could be to look at the possibility of using IFRS data for market, corporate law, prudential and tax purposes. 2  Convergence of reporting requirements  So, having common regulatory standards and approaches on an international basis can provide a natural basis for more efficient information flows. However, without convergence of the reporting requirements that stem from these standards and approaches, entities will still have to produce and transmit different information, in different formats, to the regulators in the countries in which they are  2  BIS Review 47/2006  present. In other words, common regulation does not automatically translate into common reporting requirements - the second element that I want to mention today. This has been highlighted as a particular issue in the European Union context, given the political objective to promote a fully integrated financial market.

But I think that over the coming years, we should continue to explore ways to encourage institutions to improve the way they collect and use internal information to run their business and manage their risks, as well as the possibilities for harnessing and using this information as regulators. 4  Increased feed-back to reporting institutions  So far, I have mainly talked about initiatives which regulators can take that should have the impact of reducing the costs of producing financial information. But I think it is possible to go further than this. In fact, I think that we can take initiatives that actually give something back to the reporting entities - in other words, initiatives that provide them with clear benefits. This is the fourth element that I wanted to mention, and perhaps is best explained with a couple of examples. Let me take my first example from the Spanish context. In Spain, as in some other countries, we maintain a central credit register. This contains information about all the direct and indirect credit exposures – i.e. loans and guarantees – with a value of € or more, which have been granted by banking institutions and other lenders to their clients. As a central bank and banking supervisory authority, we use this database to assist us in evaluating macro-prudential trends and the credit risk in the economy as a whole. Of course, the data doesn’t get into the register of its own accord but rather must be reported by the lending institutions.
Being in the hands of national authorities, banking supervision sometimes had a bias towards allowing more risk taking and credit growth in the supervised institutions that were operating in competition with banks from other jurisdictions. Consequently, there were cases when banks did not develop sufficient capital and loss buffers in good times, and they  BIS central bankers’ speeches  3  were not sufficiently discouraged from investing heavily in government bonds issued by their own home country. Again, I think you will agree with me that the root causes for the crisis – as I have described them – cannot be addressed by monetary policy instruments. At most, the central bank can foster a smooth adjustment. It must never lose sight of its primary mandate, maintaining price stability. And even if the central bank “buys time” for the governments, there is a risk that this will delay or postpone the actions that are needed in terms of fiscal consolidation and structural reforms. Let me give two examples: First, expectations that interest rates will remain low for a long time, and that abundant liquidity will be provided, might weaken the incentives for banks to downsize operations and repair their balance sheets. In the absence of a tough banking supervision they could delay the recognition of losses and keep non-performing loans on their books for longer than a realistic assessment of their profitability and viability would suggest. On the side of governments, the same expectations for low interest rates could weaken incentives to reduce public sector deficits.

We have also abolished the foreign shareholding limit on local insurers to make way for strategic mergers and alliances with reputable international players. Earlier this month, MAS announced plans to introduce a new modular licensing framework for market intermediaries in the securities and futures industries. In addition, MAS will streamline the regulation of financial advisers and require them to comply with standards of market conduct and practices. MAS is also stepping up its review of the policy issues of the securities and futures legislation, to consolidate and streamline the requirements into a proposed Omnibus Securities and Futures Act. In the coming year, the key priority for the MAS is to follow through the reforms that have been introduced over the past year, and ensure that the implementation is carried out effectively. MAS will continue to review and refine our legislation and regulatory framework to keep pace with global developments. The challenge for us is to sustain the momentum and persevere in our efforts to build Singapore into a world-class financial centre. BIS Review 62/2000  2  International relations Let me now turn to MAS’ efforts in the international fora. With the recovery in crisis-affected economies, the focus has shifted from crisis management to ensuring the sustainability of the recovery and reform of the international financial architecture. Singapore has participated actively in the Financial Stability Forum, established over a year ago to monitor international financial market developments for potential vulnerabilities.
In order to answer this question, let me first review the channels through which globalisation may have impacted monetary policy. We can distinguish three main channels: 1) the impact on inflation; 2) the impact on the transmission of monetary policy; and 3) the impact on the natural rate of interest. First, in a context of increasing globalisation, a number of global factors 11 could impact inflation dynamics above and beyond domestic factors – for example commodity prices, global slack, exchange rates, participation in global supply chains and a global component in financial cycles. Indeed, there is evidence that the impact of global slack on domestic inflation is positively related to a country’s level of trade and financial openness.12 Therefore, there has been an increase in the degree of synchronicity among headline inflation rates across the globe. However, these effects are found to have a small impact on core inflation and wage inflation. 13 Indeed, core inflation is less correlated across countries than headline inflation and cross-country correlations of inflation tend to be smaller at longer horizons.14 Globalisation could also affect inflation trends. For example, increased trade integration can impact inflation both directly, through higher shares of imports from low-wage countries in consumption and production, and indirectly, via lower costs for multinationals participating in global value chains, a larger labour supply and less bargaining power for workers. The evidence available shows that this impact has been positive but small in magnitude.

For example, according to the European Investment Bank Investment Survey, the share of EU firms putting effort into shortening their supply chain increased from 10% in 2021 to 20% in 2022, while that increase was from 20% to 30% in the US. And around 40% of German companies are trying to reduce their dependence on Chinese inputs. This increased security is likely to lead to less risk-sharing capacity between countries and higher transaction costs. Third, to the extent that international trade is negatively affected by geopolitical factors, a trend towards regionalisation will also emerge, as a mechanism to continue to enjoy the benefits of globalisation but on a smaller scale. As an illustration, in 2022, 44% of global companies were developing regionalised supply networks (up from only 25% in 2021). Evidently, some of the above-mentioned trends may well imply a further slowdown of the globalisation process beyond that observed in recent years, or even result in deglobalisation pressures. The EU response In response to these challenges, the EU has recently been launching a series of policies within the so-called Open Strategic Autonomy agenda: an emerging set of regulatory, structural and fiscal policies that seek to address the EU’s economic vulnerabilities arising from geopolitical considerations. Under the framework of Open Strategic Autonomy, three types of policies have been proposed to reduce the EU's vulnerabilities. A first set of measures aims to assess supply chain dependencies and vulnerabilities and increase the resilience of the European industrial system.
3/4  BIS central bankers' speeches  It has been said that regulators are pessimists in our DNA and always inclined to worry about things going wrong – and certainly, we cannot ignore the possibility of the failure of key FMIs no matter how remote, and this may occur in FMIs overseas. I started my speech this morning, noting the increasing connectedness between markets. This is true in the ‘life’ of a CCP - and can be true in its ‘death’ too. The failure of an internationally active CCP, that provides critical services in multiple jurisdictions, will have significant cross-border impact. When a CCP fails, its members are inevitably affected. Such members are likely to also have relationships with other financial institutions, or may trade and clear on other trading venues and CCPs. Through these network of interdependencies, the default of a CCP can trigger destabilising effects not only in the home market it serves directly, but outside of it. It is therefore important for authorities of jurisdictions that may be affected by a CCP’s failure to participate in that CCP’s resolution planning. Similar to the establishment of Supervisory Colleges to support ongoing supervisory co-operation, setting up Crisis Management Groups (CMG) for CCPs will allow the cross-border impact to be considered in resolution planning. In a failure situation, when resolution actions are time-sensitive, it may be necessary to limit the size of a CMG to enable efficient and effective discussions. But in normal times, resolution planning can benefit from a broader participation of relevant authorities.

I wish success to the beneficiaries of this project, to the National Bank of Moldova, to Governor Armașu, a reliable partner in our bilateral collaboration. I am convinced that achieving the objectives will lead to increased resilience and will support the development of the economy of the Republic of Moldova. Thank you! 2/2  BIS central bankers' speeches
Advisory supervision allows us to identify problems at an early stage and help the bank’s owners develop a plan for their solution. However, to achieve this, banks must also take responsibility: working transparently with the regulator. In fact, we tend to have friendlier interactions with banks if they are willing to provide reliable and complete information about their operations. This is because advisory supervision instruments are built around banks’ internal procedures: internal stress testing, internal capital adequacy assessment procedures, and risk management. Be aware that if a bank has already violated standards, we will not hesitate to adopt supervisory measures over simply advising them. Advisory supervision involves joint work in the early stages of problem identification. The Bank of Russia will also seek the right to motivated judgment to ensure supervision is proactive and that the instruments we develop to facilitate extensive analysis of the situation in banks and provide early detection of problems are effective. Considering there is a great number of situations, for example those that involve proving the relatedness of parties, it is impractical to rely on formal rules alone. Unfortunately, this reliance is often the case: when the Bank of Russia’s supervision has detected that the bank was experiencing problems but, without the right to professional judgment, wasted time collecting formal evidence, which may result in bank owners receiving the time to siphon off assets. 7 / 11  BIS central bankers' speeches  Last week, the Bank of Russia produced a report for public discussion.

Interest payments, defaults and the proportion of households spending a very significant (>40%) proportion of income on servicing debts are all at historical lows. Interest rates would have to rise a lot – certainly by a lot more than financial markets expect – for this to change significantly. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  But underneath any aggregate, there are always more concerning stories. According to the Bank/NMG survey 7% of households say they are “very concerned” about their debts, even if they are able to service them. And we know from extensive research that financial worries can be an important contributor to poor mental health. High levels of debt are, for example, associated with anxiety and depression, and studies using changes in local house prices and foreclosures have found that changes in households’ financial situation can affect health.1  One thing we also know is that people are generally prone to over-concentrate on present, urgent needs, and neglect things that are more important for us over the longer term. Economists are naturally interested in how people trade off the future against the present. In standard models that seek to describe these choices, it is assumed that people discount the future at a constant rate: the extent to which we care more about things one rather than two months from now (say) is the same as between today and a month away.
It is now widely accepted that these are determined by factors that are not directly affected by monetary policy, such as the rate of technological advances and the efficient functioning of various markets. In general terms, one can say that the policy conducted by the Riksbank is aimed partly at limiting the inevitable deviations from the inflation target and partly at ensuring that the real economy does not fluctuate excessively. The objective of monetary policy is price stability, but the Riksbank also considers real economy considerations to be important. This is characteristic of what is known as flexible inflation targeting, which as far as I know, is conducted by all central banks that have inflation targets. Monetary policy affects the economy with a certain time lag. Monetary policy decisions must therefore be based on forecasts of future inflation. Normally, monetary policy is aimed at achieving the inflation target within two years to avoid the deviations from target from being too large and too protracted. This two-year horizon can be regarded as a restriction that the Riksbank has placed upon itself as a means of upholding confidence in the inflation target. At the same time, it provides an opportunity to show consideration for the real economy.

This initiative grew out of the recognition of the fact that financial institutions and certain NGOs that were engaged in promoting various financial education activities and programme were operating in isolation. What was clearly missing was a coherent and well-co-ordinated strategy among these organisations for delivering an effective education to enhance financial literacy and inclusion. Consequently the FSDP identified the need to develop a coordinated approach to financial education as a meaningful way of bringing progress to this process. It therefore, started its intervention by commissioning a stock taking study of financial education efforts taking place in Zambia in order to establish its true status. DFID provided financial support in the form of technical assistance which enabled the FSDP to recruit FinMark Trust to carry out the study. Subsequently, a report was produced and presented to various stakeholders in November last year. The recommendations from the stakeholders meeting were then sent to the FSDP Steering Committee in April this year. This Committee endorsed the report and it is this report which is being launched today as the National Strategy on Financial Education for Zambia. Once launched, it will be implemented in earnest. Honourable Ministers, the activities that have been carried out under this programme have been made possible by the very generous financial support extended throughout the different phases of the programme by the IMF, World Bank, DFID, SIDA and the Government of the Republic of Zambia.
This is a question that has been much discussed in recent years, both between central banks and within the academic world, as house prices have risen rapidly in many countries, including Sweden. This debate could in itself be a subject for a speech, so let me just briefly mention that the Riksbank’s view is that we do not consider it reasonable to completely ignore these risks, although it is not possible to give consideration to the risks in any simple manner in the normal forecasting process. We have therefore acted to reduce these risks to some extent and to contribute to a smoother adjustment in indebtedness and house prices. The approach we have chosen has in practice only meant a fairly marginal change in the timing of our interest rate decisions. Neither household indebtedness, house prices, nor other asset prices have any significance for monetary policy in themselves, apart from their effects on inflation and the prospects for the macro economy. The inflation forecast and future interest rate developments As I mentioned earlier, our work procedures have changed and developed over time. This is natural. We have had new experiences and been given new conditions along the way. As recently as three days ago, we members of the Executive Board of the Riksbank decided to change the assumption for the policy rate on which we base our forecasts – this is a step in our work on improving the bases for our monetary policy decisions and our communication.

To create greater clarity, monetary policy is guided by a principle that the Riksbank’s ambition is normally to bring inflation back on target within two years. One might say that this two-year horizon is a restriction that the Riksbank has placed upon itself to maintain confidence in the inflation target. 1  A description of the Riksbank’s objective and strategy for monetary policy can be found in the document “Monetary policy in Sweden”, which can be downloaded from the Riksbank’s website, www.riksbank.se, or ordered in printed form. 2  See Lars Heikensten’s speech at the Swedish Economics Association on 22 February 2005, “Thoughts on how to develop the Riksbank’s monetary policy work”. BIS Review8/2007  3  We have chosen a two-year horizon for monetary policy because this is considered to give sufficient scope in most cases to ensure acceptable developments in the real economy. However, the exact pace at which inflation should be brought back on target within this horizon will of course depend on what kind of shocks have affected the economy. 3 Sometimes the deviations from target can be so large that there is reason to allow inflation to return to target beyond the normal two-year horizon. In these cases, we shall explain this clearly in connection with our decisions. These thoughts on how to take into account developments in the real economy are not, of course, unique to the Riksbank.