samchain/econo-pairs-v1 huggingface dataset:
Pavel Racocha: Joining the EU - Impact on the financial sector of new member states Speech by Mr Pavel Racocha, member of the Board of the Czech National Bank, delivered at the conference entitled "The Single Market for Financial Services in the EU and Its Impact on Globalization", Sydney, 3 November 2003. *  *  *  On May 1st, 2004, ten countries will join the European Union. Will the transition proceed smoothly? The main concern related to new countries joining the EU, from the point of view of the financial sector, is what impact the enlargement will have on the functioning of financial markets in new member states. Will competition in financial services increase and place a strain on institutions in accession countries or in the EU as well? Will there be visible impact at all? The new member states consist of eight former transition economies and of Malta and Cyprus. I will focus on developments in the transition countries, and especially in the Czech Republic, which I know best. I will also try to make reference to other accession countries to show that the results of developments over the last thirteen years, at least in the financial sector, are not so different. This brief presentation cannot do more than deliver only a basic description of the past development of financial markets in the transition countries and of their current standing. Hopefully the data from this presentation can serve as background information for those interested in further studies.

Following table illustrates the importance of the banking sector in three major accession countries [Czech Republic, Hungary and Poland]:  2  BIS Review 53/2003  Structure of Financial Sector 100%  90%  80%  70%  Credit Unions Other Pension funds IC&IF Insurance comp. Banks  60%  50%  40%  30%  20%  10%  0%  CR  HUN  POL  6  It is evident that the financial sector in Central European countries relies heavily on the banking sector, which represents approximately 80% of total assets of the whole financial sector. It could be also seen that despite the dominance of banks in all mentioned countries, the structure of other financial institutions differs significantly. This is the result of varying approaches to building these institutions. For instance, in the Czech Republic, we can see the smaller size of the investment business as a result of the quality of the capital markets, the lax regulation at the beginning of the transformation, and the subsequent and rather frequent occurrence of frauds in the past. The delayed start of pension reform has also contributed to this situation. The largest banking sector in the new member states is the Polish one, followed by the Czech and the Hungarian sectors. These three biggest countries account for more than 3/4 of the total new member states banking assets. The banking sector of all new member states is nevertheless very small in comparison with the EU market.
As regards the central banks’ response to the crisis, although they converged in their shortterm liquidity management methods, they nonetheless responded differently in terms of monetary policy. The underlying reasons for this divergence are both due to the nature of the shocks that the economies are facing and the mechanisms of their propagation to the real economy and to nominal variables. Over the recent period, the industrialised economies have undergone three common shocks: rocketing real-estate prices at least in a number of countries, soaring commodity prices and finally the financial crisis triggered last summer. They have also experienced specific shocks: the real-estate crisis in the United States in a context of household overindebtedness, for example. In the latter case, the economic slowdown already underway since mid-2006 and the expected consequences of the credit crisis on economic activity over the medium term has led the US monetary authorities to change their monetary policy stance. The very different situation in the euro area, where activity remained favourable, has led the ECB to keep its monetary policy stance unchanged in spite of the uncertainties generated by the financial crisis in a context also characterised by persistent inflationary tensions. 5)  What lessons can we learn for the future? At the current juncture, financial turmoil is still affecting the markets.

Therefore, as you celebrate this great milestone, we join you in anticipating further progress and effectiveness in the execution of your mandate. Mr. Chairman, the central theme of my address today is the important role that information plays in economics in general and in financial markets in particular. In 1970, some 39 years ago, or 4 years before the establishment of the Central Bank of Swaziland, an economist called George Akerlof published a paper called “The Market for Lemons.” By lemons he was referring to used cars in the United States of America. Akerlof, who would later win the Nobel Prize in Economics for his work, demonstrated how information asymmetries between two contracting parties, a used car seller and a used car buyer, could lead to an inability of the car dealer to sell cars. More broadly, the moral of his story was that information asymmetries that allowed for no credible assessment of value of a given transaction, could lead to market collapse – in this instance the market for used cars. Mr. Chairman, if we fast forward to the year 2008, and to the current financial crisis, we note that asymmetries in information between financial institutions, this time relating to the extent of exposure to and value of complex derivative products, led to a freezing up of credit markets, the eventual collapse of some important financial institutions, and the near meltdown of the entire financial system. In these events we can see the insights of Akerlof in his 1970 paper.
For all these reasons, it is clear that there is no room for complacency and that institutions must act to achieve tighter cost control and to rationalise their procedures. Against a background of rising doubtful assets it seems essential to build up both the amount and quality of capital and to establish sound risk control mechanisms. Lastly, institutions should continuously carry out stress testing and develop contingency plans to anticipate what line of action to take in the face of different market situations. Regarding the supervisor, I believe there has been widespread recognition of the reliability and quality of Spanish banking supervision. Therefore this work should continue to cultivate a close relationship and permanent contact with institutions, but without relaxing the demands made of them. The last agent to which I wish to devote attention is households. In the current circumstances it is inevitable that households should regard the future with greater uncertainty and restrict their spending, stepping up their saving and reducing their level of indebtedness. The behaviour of households will be influenced by whether or not they are indebted and, if so, the weight of this debt burden on their current income. In the case of the more heavily indebted households (in proportion to income), the picture is more complicated since, to the prevailing uncertainty about the economic outlook may be added the tightening of financing conditions, which is largely a result of the financial turmoil.

An important, though elusive, indicator of inflationary pressure is the gap between total demand and total output. Most indicators suggest that this gap has become somewhat smaller. In the inflation report, however, the Riksbank judges that the supply of unutilised resources is still relatively good. It is not least the high level of total unemployment that indicates this. A high rate of investment and rapid increases in productivity have contributed, at least to date, to an expansion of potential output to meet the growing demand. This has eased inflationary pressure during the upswing. Inflation expectations Another important indicator of inflationary pressure is the expectations of economic agents about future inflation. Along with actual inflation, these expectations have declined in recent years. They also show a tendency to converge around the 2 per cent inflation target. If this is the case, it is a good sign because it can be seen as increased confidence in the inflation target. This means that to a greater extent, economic agents are basing their own plans on expectations of low inflation, which provides better conditions for monetary policy to fulfil the inflation target. In recent months the expectations of future inflation have tended to move up, but this seems to be mainly an adjustment to the increase in registered inflation. The tendency, however, must be closely watched; a clear increase in inflation expectations above the inflation target would give cause for concern. 3.
Bank-specific elements – which, as noted above, are critical to the microprudential policy objectives of the CCAR and DFAST programs – are introduced by using detailed data provided by each participating institution. Thus, results for individual banks vary based on the characteristics of their balance sheet and business focus, but not due to differences in the way particular net income or capital elements are modeled. Other choices are possible, of course, principally the choice to make greater use of bankgenerated stress test results as a way of capturing institution-specific factors, as is done in supervisory stress testing programs in some other jurisdictions. The European stress tests, for instance, are based on estimates made by the participating banks, subject to a variety of constraints on modeling assumptions and detailed review by supervisors.16 What I hope you take away from this review of the what and the how of stress testing is that the SCAP, CCAR and DFAST programs have involved a series of inter-connected design choices, most of which were intended to address the objectives of the stress test exercises, but none of which were inevitable or pre-ordained. Collectively, these design choices have implications for what the stress tests capture, as well as what they miss. I want to share a few thoughts about 4/8  BIS central bankers' speeches  the latter before turning to some suggestions for how additional research could help.

Let me re-iterate that sustainable economic development is not possible without adequate investment in the knowledge industry. It is precisely for this reason that the nations that have attained great economic progress are also those that have invested heavily in education. Ladies and Gentlemen; in the recent years, the Bank of Zambia has been striving to strengthen its focus on economic research in order to improve the formulation and implementation of monetary policy in this dynamic economic environment. The Bank has in this regard been publishing the BoZ Reader where members of staff and external researchers are encouraged to publish articles which have a bearing to the economy in general and monetary policy in particular. The Bank in collaboration with the Centre for the Study of African Economies at Oxford University is also in the process of publishing a book on the economic prosperity in Zambia. I wish to take this opportunity to encourage all students and academic staff at UNZA to contribute to some of the forthcoming publications of the BoZ Reader. In conclusion, I wish to re-iterate that the Bank of Zambia commits to continue supporting the Economics Department and Research programmes at UNZA and hopes that the University will live up to its obligations under the framework of cooperation to be signed today. We challenge the Economics Department at UNZA through the Vice Chancellor to scale up its research activities in issues of interest to the Bank and the Zambian economy in general. For this is what this MoU entails.
However, in a slowdown, as the impaired assets rise, the specific provision requirements increase and the statistical provision becomes negative. This means that the statistical fund (accumulated in previous years) starts being used, its proceeds (the difference between the latent risk and the specific provision) being credited to the profit and loss account. Therefore, thanks to the mechanism of the statistical provision, the burden of credit risk on the profits of banking institutions is better spread over the cycle and more in accordance with the evolution of expected losses. The new scheme offers banks two options. First, to use their own internal measurements of the statistical credit risk and second, to use a standard method. The Bank of Spain expects that in the future an increasing number of institutions will be able to show robust computations, in the framework of an integrated credit risk management system. However, probably in the next year or two, most banks will use the standard method. In the standard system the supervisor sets the parameters. The portfolio is distributed in six blocks, according to the relative riskiness of the different assets, or off-balance sheet items with credit risk. A vector of coefficients (ranging from 0 to 1.5%) is applied to the exposures contained in the six blocks. The resulting figure is the estimated expected loss for the bank portfolio. The computation produces an aggregate annual gross burden (i.e.

Climate risks include the impact of climate change, uncertainty surrounding future climate policy and potential disruptive technologies. 3/6  BIS central bankers' speeches  Expected return and risk are influenced by firms’ response to potential structural changes. That is why many investors require companies to report on climate issues, as has the GPFG. Managing climate risk is part of the systematic work in the area of responsible investment. Financial investors must manage climate risk on a par with other risks. Virtually all economic activities lead to emissions, either directly or from complex production chains. Climate risks are therefore difficult to isolate and quantify, both at firm and sector level. Identifying the winners in the green transition is also a demanding exercise. The financial sector has to adapt to climate risk, but does not have effective tools to contribute to solving the climate problem. Also, it is doubtful whether defining emissions from sectors or individual businesses as unethical will make a difference. The responsibility for measures to combat global warming must rest with the authorities. The solution lies in economic instruments that promote structural change. Structural change generates growth A shift in consumption patterns and production methods towards lower emissions will reduce demand for fossil fuels. This can influence oil and gas activities in Norway. We have always known that oil and gas activities will be phased out sooner or later. Oil and gas are nonrenewable resources. A stricter global climate policy may mean that this will occur sooner than foreseen earlier.
Crucially, they are ex officio members of the Alternative Reference Rates Committee (ARRC), the private sector group convened to guide the transition away from LIBOR. And of course the Secured Overnight Financing Rate (SOFR), the ARRC’s selected replacement for U.S. dollar LIBOR, reflects transactions that finance U.S. Treasury securities. Before I go any further, I need to give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. Market Conditions I’ll start with recent developments in money markets. Conditions in funding markets became highly volatile early last week, with secured lending rates moving higher on Monday and rising sharply on Tuesday. We had expected a number of factors—including quarterly corporate tax payments and the settlement of Treasury auctions—to put upward pressure on funding rates. However, the size of the reaction in repo rates, the spillover to unsecured markets such as federal funds, and the emergence of strains in market functioning were outside of recent experience. For example, in April and June of this year, sizable payment flows led to relatively muted movements in secured lending rates and small movements in unsecured rates. As had been done ahead of prior dates with anticipated significant funding pressures, on Friday, September 13, the Markets team at the New York Fed, and others in the Federal Reserve System put in place a plan for increased monitoring of money markets.

John C Williams: LIBOR - the clock is ticking Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 2019 US Treasury Market Conference, Federal Reserve Bank of New York, New York City, 23 September 2019. * * * As prepared for delivery Good morning everyone and welcome to the New York Fed. It’s a pleasure to be speaking at the fifth annual U.S. Treasury Market Conference. This conference is particularly valuable because it brings together market participants and five public sector bodies—the New York Fed, the Board of Governors, the Treasury, the SEC, and the CFTC—to discuss the U.S. Treasury market. The Treasury market is arguably the most important market in the world, and today is a unique opportunity to discuss some of the big topics in front of us. Increasing transparency, preparing for future risks, and taking advantage of innovation in this market are vital areas of discussion. This morning, I’ll begin with some observations on recent volatility in money markets and the Fed’s approach to support stability in this critical part of the financial system as we carry out the FOMC’s monetary policy decisions. I’ll then pivot to a different but related topic: the transition away from LIBOR. I think I can get away with it because this conference’s five sponsoring agencies, which first came together following the “flash rally” in 2014, also all play a vital role in facilitating the industry’s move to more robust reference rates.
But let me sketch three broad areas that seem important to us. First, successful transition away from LIBOR in its current form will unbundle the risk-free and bank sector credit risk elements of the interest rate curve. Including compensation for banking credit risk may have made eminent sense for those syndicated loans made in the 60s and 70s, without greatly affecting variation in the level of LIBOR (as shown in Figure 1). But many LIBOR-linked instruments no longer directly involve banks, yet remain exposed to variations in the perception of bank risk seen in the past decade. That does not reflect an efficient allocation of risk in the economy, and poses material economic and distributional risks at times of stress, as we saw during the financial crisis.

A single curve would have many potential benefits:   It is the logical completion of the move away from LIBOR discounting to SONIA-referencing OIS discounting begun a decade ago, eliminating the basis between swap exposures and how they are valued, and thereby simplifying risk management of swaps portfolios;    It could simplify the risks arising from the optionality embedded in certain products such as credit facilities where funds can be drawn across multiple tenors of benchmark reference rates;    It would simplify curve construction and validation processes;  8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8    A switch from term to overnight compounding would provide customers with the scope to construct a more complete interest rate hedge by using the minimum possible period for each observation 5; and    It could help guide further ‘electronification’ of the sterling market, through the provision of executable quotes and central limit order books, which itself could provide new opportunities for product development. The potential role that a well-specified SONIA curve could play in helping to price cash instruments has been the subject of a great deal of discussion amongst market participants. Many issuers have found it easier than had been initially expected simply to use compounded realised SONIA as a reference rate. This has rapidly become a convention for a range of sterling Floating Rate Notes and securitisations; and recent announcements suggest similar approaches are also feasible for a range of corporate bonds and loans.
Moreover, there now seems to be a tendency towards investing in property and taking up loans at a more mature age so that younger generations not only inherit dwellings, but debt as well. Both debt and wealth are on the rise for these more mature age groups. Sharp increases in asset prices and debt accumulation may pose a risk to economic stability. With a view to mitigating this risk, it will be appropriate in some situations to apply a somewhat longer time horizon than the usual two years to attain the inflation target. At present, however, debt accumulation is high only in the household sector. There is little borrowing activity in the enterprise sector. House prices are rising, but prices for office space are stable. Output and employment are at trend level. Unemployment is on a par with the average for the 1990s, wage growth is consistent with the inflation target, credit growth is close to long-term nominal GDP growth, relative labour costs and prices are approximately at the same level as the average for the past 30 years and the interest rate differential is close to zero. But inflation is low, as a result of the lagged effects of the strong krone, low import prices and high productivity growth. The analyses in the inflation report indicate that inflation will remain low this year, picking up thereafter. The krone depreciation since January 2003 is expected to push up prices for imported consumer goods.

When inflation increases from a very low level, this will provide a basis for gradually moving towards a more normal short-term interest rate level in Norway. This may counter excessive credit growth and excessive pressures on domestic resources in the medium term. Interest rate developments in other countries may also have a considerable impact on the krone and hence on Norwegian interest rates. Interest rates were left unchanged at Norges Bank’s Executive Board meeting on 21 April 2004. In reaching its decision, the Executive Board had weighed the objective of bringing inflation back to target and stabilising inflation expectations against the risk that output growth may eventually become too strong. Furthermore, according to Norges Bank’s assessment, with a sight deposit rate of 1.75 per cent at present, the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher. BIS Review 23/2004  7