samchain/econo-pairs-v1 huggingface dataset:
Elvira Nabiullina: Competition as the key driver for growth Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the meeting of the Association of Russian Banks, Moscow, 28 March 2017. * * * Good afternoon, distinguished colleagues! The Association has chosen the right title for today’s discussion - Competition as the Key Driver for Growth. A comprehensive look at what the Bank of Russia does in the banking sectors - both as a regulator and a supervisor - suggests that it is engaged in shaping a healthy competitive environment and fair competition. The competitive environment is key to the sustainable development of the banking industry. Supervision objectives are often contrasted with market development goals. However, this is a serious mistake. I believe there is no need to remind you that removing fraudulent, unstable and unfortunately - often criminal actors from the banking sector is the Bank of Russia’s top priority. We resort to licence revocation when we see that the bank’s management and owners act against the interests of its depositors and creditors, that the bank is unable to regain stability because it is facing capital shortages. If we fail to revoke the licence from such a bank, it will continue to produce falsified statements and take money from depositors – openly stealing from them and diverting their assets – or lend to inefficient projects of parties affiliated with the bank, etc. In short, such a bank will continue to mismanage and misuse other people’s money.

We run the risk of ending up with international banking groups in which the advanced approaches tend to be used almost exclusively by the parent company. I think that this outcome is neither optimal nor desirable, and falls short of the goals of improving the stability and efficiency of the international financial system, to which Basel II can make a much more effective contribution if it is applied appropriately. Problems also arise over how to consolidate the capital of these subsidiaries. Take, for example, a bank applying an advanced approach at group level with subsidiaries outside the home country that use a standard approach. This bank will have to perform a double calculation: first, using the method applicable under the approaches adopted by its subsidiaries; then, it must recalculate those same subsidiaries’ requirements using the approach for the group as a whole, ie that of the parent company in the home country, for consolidation purposes in order to calculate the overall capital requirement. This double calculation can impose a heavy burden - although a necessary one in some instances and will in any case require close collaboration between home and host supervisors to ensure that the entity’s overall system adequately takes account of the characteristics and sensitivity of the local market. The AIG is attempting to pinpoint which criteria would be acceptable at the consolidated level, assuming the - fairly frequent - scenario of a bank with subsidiaries governed by local requirements that differ from those of Basel II.
How much it does so is, however, a matter of degree. If regulatory constraints act as control bounds on structurally defective business models, that strengthens the financial system, even if (indeed, precisely because) it constrains diversity. Empirical evidence suggests this latter effect dominated during the recent crisis. (ii)  Discretion versus Rules  The new architecture has introduced measures which are likely to make for a greater degree of supervisory or policymaker discretion in the setting of regulatory standards. This arises, most obviously, in the application of supervisory judgement to certain risks that banks face, to stress-testing and to macroprudential policy. Multiple regulatory rules have been augmented with considerable supervisory discretion. Viewed in the round, this new regulatory regime could reasonably be described as “constrained discretion”. Regulatory rules provide the constraint within which policymakers exercise discretion. In its broad contours, this new regulatory framework has some similarities with the prevailing monetary policy framework in a number of countries (Bernanke and Mishkin (1997)). These regimes have been found to be an effective way of balancing the pre-commitment necessary to avoid policy time-consistency problems with the flexibility necessary to respond to unforeseen circumstances (Arestis and Mihailov (2009), Borio (2010)). Equally, as in the monetary policy sphere, there is a question about whether this new regulatory regime strikes the right balance between regulatory rules and the degree of discretion with which they are operated.

In December last year, the People’s Bank of China and the Bank of Thailand concluded the bilateral local currency swap arrangements during the visit of Vice President Xi Jinping to Thailand. The Agreement provides for the exchange of respective local currency upto 70 billion yuan or 320 billion baht, to facilitate bilateral trade and investment. I believe this is a crucial role that the public sector can provide to give assurance to the private sector on the availability of their access to the yuan and the baht for their trade and investment needs. In addition, the Bank of Thailand received approval from the People’s Bank of China and China Securities Regulatory Commission to participate in the interbank bond market and securities market here in China. Our investment would allow our asset allocation and diversification to better reflect the increasingly important role of the yuan in international monetary system. Last but not least, I hope that the inauguration of our Beijing representative office will be more than just another success story. I truly hope that the spirit and friendship behind this long-standing relations and successes, nurtured earnestly over centuries, will continue to serve as solid foundations that will lead to even greater and closer future cooperation between our two nations. Let me end by thanking everyone for being an important part of this success. And, with Your Royal Highness’ permission, may I propose a toast to future success and cooperation as well as to your Royal Highness’s good health and prosperity. Thank you.
I also implore management to provide support to various sectors of the economy, especially the priority sectors of agriculture, tourism, manufacturing and small-scale mining to effectively contribute to the development of the country. Ladies and Gentlemen, the introduction of the fourteenth bank in the banking sector will obviously come with its own challenges. For us at Bank of Zambia, this entails further strengthening of our supervisory capacity. We welcome this challenge and hope to rise to the  BIS Review 117/2008  1  occasion by providing adequate supervisory infrastructure and an environment conducive to conducting good business. In the past few years, the Bank has embarked on a process of strengthening its supervisory framework through various initiatives. One such initiative is the adoption of an enhanced riskbased approach to supervision (RBS). The enhanced RBS approach will entail more regular interaction with the banks than previously in order to understand and monitor activities and risks on a continuous basis. As part of the adoption of the enhanced RBS, the BoZ has formulated Risk Management Guidelines to banks which will serve as a minimum standard in their design and implementation of risk management frameworks, relative to their size and complexity. Further, in 2006, the Bank issued Corporate Governance Guidelines to all Financial Service Providers. The guidelines set forth a broad framework of fundamental governance principles to guide the actions of directors and managers. This will strengthen governance in institutions and minimize the risk of bank failures as a result of bad governance.

The key to realising the higher return is to adhere to the strategy also in times of heightened uncertainty, as we did through the financial crisis in 2008 and 2009. An official framework for rebalancing back to a set allocation to equities has now been established. This will help ensure that this strategy is carried out during the next period of high volatility in financial markets. Chart: Lower costs Management costs for equities are higher than for fixed-income securities. The cost of managing many small shareholdings is higher than managing a few large ones, as is the cost of managing investments in emerging markets in relation to developed markets. Overall management costs as a percentage of the GPFG have nonetheless fallen over time. We have exploited its size to realise economies of scale. In the past few years, costs have been reduced also in krone terms. This is partly due to reduced use of external managers. Costs for external services, such as IT, custodian and settlement services, have also been lowered. Relative to the size of the GPFG, management costs are modest. Norges Bank continuously seeks to achieve efficiency gains without impairing the quality of investment management. In 2012, management costs came to 0.05 percent of the GPFG. Chart: Transparent and professional management Norges Bank meets international and national transparency standards relating to investment management. We have high ambitions with regard to transparency. Yet, we must weigh different considerations.
While explicit coordination looks neither feasible nor desirable, there is more that central banks in general, and the Fed in particular, could do to be better global stewards. As an example, recent events demonstrate the importance of effective Fed communication. It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants. In particular, markets seemed to conflate tapering with monetary policy tightening and raised their expected paths for policy rates. Lately, we seem to have done better: markets now seem to understand that policy rates will likely remain exceptionally low for a considerable period of time even now that the asset purchase program has been completed. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences following Federal Open Market Committee (FOMC) meetings by the Fed chair; the publishing of growth and inflation forecasts of FOMC participants; and a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate. We are, though, still learning how to more effectively communicate, especially given our new and expanded set of policy instruments. A second area in which we can and must do better is safeguarding financial stability. Simply put, we failed to act both early enough and decisively enough to stem the credit excesses that spawned the financial crisis and the Great Recession.

As always, the thoughts I offer today are my own, and should not be interpreted as representing the position of the FOMC or the Federal Reserve System. First, what we may see in terms of market strains and macroeconomic adjustment during this normalization process will not be new. Changes in Fed policy, and especially the tightening of monetary policy, have often created challenges for countries abroad, especially in EMEs. Second, these countries, as a group, are better equipped today to handle those challenges than at perhaps any time in the past. This reflects the fundamental improvements and stronger policy frameworks that many EMEs have put in place over the past 15 years. Third, given the dollar’s role as the global reserve currency, the Federal Reserve has a special responsibility to manage U.S. monetary policy in a way that helps promote global financial stability. Like other central banks, our monetary policy mandate has a domestic focus. But, our actions often have global implications that feed back into the U.S. economy and financial markets, and we need to always keep this in mind. For most of us, the market volatility that we saw during the so-called “taper tantrum” in the spring and summer of 2013 still remains fresh in our minds. EME financial markets were hit hardest, with declines in equity prices, a widening in sovereign debt spreads and a sharp increase in foreign exchange rate volatility.
Central banks in the advanced economies increasingly began to resort to unconventional instruments. At the SNB, these included long-term repos, purchases of Swiss franc-denominated bonds issued by domestic, private-sector borrowers and interventions in the foreign exchange market. It is worth noting that the SNB had intervened only very rarely in the foreign exchange markets between the early 1980s and 2009. And on the occasions when it had, the SNB’s interventions had typically been small-scale and had been coordinated with the Group of Ten central banks. BIS central bankers’ speeches  1  This changed in March 2009, when, having reduced the short-term interest rate to near zero, the SNB began purchasing foreign exchange in an effort to counter upward pressure on the Swiss franc and prevent an undesirable tightening of monetary conditions. The first escalation in the euro area debt crisis in the spring of 2010 required the SNB to make extensive foreign currency purchases; these were provisionally halted in June 2010 once the economic recovery had gained a foothold. In the first half of 2011, the situation in the euro area took another turn for the worse. Other euro area countries were being dragged into the crisis. The global economic outlook deteriorated and uncertainty on the financial markets was compounded by the US budget dispute. Upward pressure on the Swiss franc was immense at this time. In August 2011, the real export-weighted Swiss franc exchange rate was 40% above its long-term average (cf. chart 2).

BIS central bankers’ speeches  3  But there are exceptions, and the discontinuation of the minimum exchange rate – a measure that was directly linked to the foreign exchange market – is one such exception. An announcement, or even the slightest hint of an imminent decision to dispense with the minimum exchange rate, would have triggered massive speculation against the SNB. We would then have been forced to, as it was, subsidise this speculation via foreign currency purchases. Incidentally, these same arguments also explain why a gradual exit from the minimum exchange rate or a “gentle” transition to a policy involving some other form of explicit exchange rate linkage (e.g. pegging the Swiss franc to a basket of currencies) was impractical. Such a policy would likewise have opened the floodgates to speculators. There was thus no reasonable alternative to exiting the minimum exchange rate suddenly and completely. We discussed when would be the best time to communicate the decision. Our choice of the morning of 15 January was designed to allow market participants to start from a level playing field when adapting to this undoubtedly challenging new situation. By discontinuing the minimum exchange rate on a weekday when market participation was high, we minimised the risk of some banks and their customers being put at a disadvantage, or of individual participants gaining an advantage.
Such people were until then regarded by many as possessing the best qualifications to become dealers or floor traders in the City of London. 1  BIS Review 15/2000  The IT revolution has not of course been a static one. Since the introduction of the first computers into financial product development and trading, computing power has grown exponentially. New vistas and previously unimaginable complexities for trading strategies have thus continually opened up; and the ever-increasing speed of processing and communication has progressively rewritten the definition of “time critical”. The stream of innovation requires us not only to master the mathematics but also to assimilate a whole new vocabulary of jargon - designed, no doubt, to make the underlying mathematics more easily digestible. For example, I received a document from a leading international bank the other day explaining to me that the butterfly involved three tenors where the middle was the bullet and the wing was the barbell; moreover I could long a two-five-ten by being long the two and the ten, each for a PV01 of half the sum for which I should short the five; in so doing I could profit from a bow at five but would be indifferent to any directional move provided it was parallel. Meanwhile, our universities today probably devote more teaching time to gamma trades than to gamma rays; I’m not sure whether we, as citizens of the world at large, should be elated or depressed by this.

Second, I would welcome the efforts of the supervisory community, namely through the Basel Committee on Banking Supervision and the Committee of European Banking Supervisors, in keeping each other abreast of developments and in considering jointly possible measures to contain the potential effects of the turmoil. Third, I would underline the importance in stress situations, like the current one, of effective and smooth cooperation and exchange of information between the supervisory authorities and central banks. As to the policy lessons to be learned in order to avoid the recurrence of similar disruptions in the future, I would say that, while it is still too early to draw definitive conclusions, there is a common understanding on the key issues requiring further analysis. In this respect, let me recall a few topics. First, the need for the financial industry to provide significantly more public information about securitisation, credit risk transfer and complex structured products. Transparency appears to be of the essence in order to restore trust and confidence. Second, the need for rating agencies to review their methodologies for complex structured products and to address very seriously potential conflicts of interest. Third, the need for investors to review their investment behaviour excessively reliant on ratings. Fourth, the need for supervisors to implement the new capital framework under Basel II as rapidly and effectively as possible and to reflect on possible improvements of the framework, including the enhancements of the supervisory regime for liquidity risk.
2.2 Banks are adapting to the digital and green transition [SLIDE 7] Beyond the regulatory response, banks themselves will be in charge of another course of action: far from being merely a source of risk, the digital and green transition offers growth opportunities for the banking sector, which has already found ways to adapt. Efforts to adapt to the digital challenge are already under way, as illustrated by three examples. First, the ACPR study on the digital transformation of the banking sector published in January, shows the wide array of initiatives taken. Strategies aimed at acquiring fintechs or developing partnerships with them point to the emergence of a new rationale of “coopetition”. This kind of cooperation by competitors is proof that banks and fintechs can grow together and that the digital transition can be a boon for all participants. Next, banks are increasingly harnessing new technologies. Artificial intelligence, as I mentioned earlier, is being built into new operational systems, where it is helping to improve aspects ranging from customer relations to risk management. Banks are also experimenting with blockchain technologies. And they are collaborating on an initiative that has our strong backing: the European Payment Initiative, more widely referred to as EPI, seeks to provide Europeans with an everyday payment solution that combines card and mobile components and addresses all use cases. Banks are also adapting to ensure the transition to a sustainable economy.

May I conclude by extending my warmest congratulations to all of those involved in taking forward this important project. I hope that this project will prove to be a success and I look forward to further cooperation in the future with all who have an interest in developing the debt market in Hong Kong and in the region as a whole. BIS Review 84/1999  2
However, these general responses are tinted by the intense uncertainty—observed both in Chile and around the world—regarding the shock’s persistence, its actual consequences and the magnitude of its indirect or second round effects. (6)  Optimal response to foreign exchange shocks  The above considerations can apply to the optimal response of monetary policy to parity shocks. In general, in its conduct of monetary policy, the Central Bank does not react to exchange rate movements beyond their effects on inflation and output. This because of the favorable response of the Chilean economy to increased exchange rate volatility that has been present since the late nineties. First, the pass-through coefficient from exchange rate depreciation to inflation has dropped substantially in Chile, to very low figures in the range of 20% to 30%, in the policy horizon. Second, the currency mismatch has been reduced in non-financial firms which, in turn, are being insured against residual parity risks generated by short-term exchange rate volatility in an increasingly deep market. Finally, the Central Bank reserves the option to intervene directly in the foreign exchange market with sterilized operations and in publicly announced conditions, if it evaluates that a temporary exchange rate volatility or misalignment so warrants.

The target range and the length of the policy horizon reflects that the Bank will tolerate deviations away from the target range, particularly if caused by temporary supply shocks that raise headline inflation and recognizes that a tradeoff exists between the length of the policy horizon and the volatility of output and employment. This raises several questions, such as: Is the present combination of a 2-4 target range for annual inflation and a 12-24 month policy horizon optimal? How flexible should the extent of the policy horizon to the type of shocks—temporary vs persistent—of supply vs demand? Is it advisable to review the length of the policy horizon as a way to consider asset prices or, in general, financial stability concerns in the conduct of monetary policy? (4)  Measurement and implications of inflation expectations  Of all monetary schemes, the one based on inflation targeting is the most sensitive to private expectations regarding future inflation, because this is the main anchor of inflation and, together with output gaps, is also the main determinant of medium-term inflation. In addition, central banks have no direct control on such expectations. Inflation is the result of pricing decisions of a large number of decentralized agents, whose actions are significantly influenced by their views of what the future aggregate inflation rate will be. Recognizing this, in our Central Bank we assign great weight to direct measures of expected inflation and to inflation compensation derived from the differentials between nominal and inflation-indexed interest rates.