samchain/econo-pairs-v1 huggingface dataset:
This calls for a closer examination of the fundamental character of modern finance – where ethical and responsible finance that is strongly anchored to the real economy has a more significant role. My remarks today will begin with some observations on the evolution of financial systems and the trends that have increased the vulnerability to financial crises, highlighting some of the key issues that have contributed to the breakdown of financial systems. Finally, I would like to take this opportunity to discuss some possibilities for the future of finance. Financial systems, then and now The development of finance has historically been a positive and inseparable part of world economic growth and prosperity. There is a large body of research that points to the significant benefits of financial development, recognising the economic value in financial intermediation that mobilises savings, catalyses investment, enables an efficient allocation of resources, reduces information asymmetries, and facilitates the management of risks. The transformative role of finance in economic progress is evident throughout history. The intrinsic power of finance essentially lies in its linkage to the real economy – that finance exists to serve the real economy. As has been described, “where enterprise leads, finance follows”. This can be seen in the early financial innovation and growth of financial systems around the world. In the 17th century in the Netherlands, the establishment of the Amsterdam Exchange Bank and the availability of instruments such as bills of exchange contributed towards financing their extensive domestic and international trade.

Improvements in the SDDS and more transparency regarding Article IV reports, letters of Intent and policy papers will certainly improve risk assessment. This could help prevent economic problems from turning into crises and to prevent contagion to other countries. Progress has to be made as regards incentives for sound management. The creation of the CCL is a step in this direction. Designing appropriate incentives is the more effective way to make Members adopt more prudent debt management, effective banking supervision… Given the large number of institutions and fora involved in the efforts aiming at a better global financial architecture, the creation of the Financial Stability Forum reflects an important effort to coordinate work in progress and identify issues not yet addressed. THE EUROPEAN MONETARY UNION WILL YIELD A SUBSTANTIAL CONTRIBUTION TO BETTER ECONOMIC AND MONETARY EQUILIBRIUM IN THE WORLD The introduction of the euro six months ago is the other major event I would like to deal with now. The irreversible nature of this change has convinced an increasing number of political and economic actors that the success of the euro is a necessity for Europe. It is a keystone of the single market. It is clear that, now and for the future, we have to face a number of challenges to make this success sustainable.
The costs of taking these courses in college are high, especially because they do not count for college credit. Low readiness contributes to persistently low college completion rates, with only 55 percent of first-time undergraduates completing a degree within six years.13 College dropout rates are especially high among lowerincome, part-time, and nontraditional students, with high costs, low perceived ability to pay, and a lack of information about the returns to degree completion also contributing to the high dropout rate. The importance of college readiness underscores the value of high-quality K-12 schooling. But, research indicates that fewer than half of five-year-olds from low-income families possess the math and reading skills, behaviors, and overall health required for learning success, compared to 75 percent of children from middle- and high-income families.14 These differences are important because they have long-lasting effects on academic achievement and future careers. A substantial body of evidence, including research by economists at the Minneapolis Fed, points to very large economic returns to high-quality preschool and early-childhood development programs.15 Clearly, such programs can play an important role in improving economic mobility. I benefited from nursery school and kindergarten and a mother who taught me to read before I entered elementary school. And, when my junior high school tried to move me out of an accelerated math program, my mom intervened and got me back in. Paying for college is another major impediment to college attendance and completion.

Indeed, the income returns on education are very high, and they continue to rise in spite of very significant increases in the supply of highly educated workers during much of the 20th century. Since the 1980s, however, increases in the supply of welleducated workers in the United States have slowed, while demand for these workers has accelerated due to technological change. These forces have been a major contributor to the increase in the college wage premium.7 While college graduation rates in the U.S. have stagnated, those in many other OECD countries have continued to rise. As a result, only onequarter of those in the 25-to-34 age bracket in the United States have more education than their parents, compared with an OECD average of one-third.8 This represents a dramatic decline in college education’s influence as an engine of upward mobility. So, part of a solution to the increase in inequality and the reduction in social mobility is to increase the level of educational attainment in the population. There are many barriers to expanding post-secondary education, however. From the potential 3/7  BIS central bankers' speeches  student’s perspective, a lack of information, low college preparedness, and high costs are all substantial barriers to college attendance and completion, and these barriers restrict social mobility. Let me discuss each of these in turn. By lack of information, I mean the recognition that in spite of its high price tag, a college degree typically offers an even larger payoff in terms of future earnings.
But for many investors, such a policy generates low financial returns which are difficult to cope with. Pension funds, for example, need relatively long-term, low credit risk investments – such as gilts – and those have been generating lower than normal returns for some years. In fact, the search for yield has tended to depress all financial returns. But I want to reflect on the relationship between rates of return and the real economy. As a general proposition, one cannot expect to earn high risk-adjusted real returns from financial investments if the underlying real economy is not growing. For example, it is business profitability which drives equity dividends and prices. The real “risk-free” interest rate is also associated with real growth. Slow economic growth and low financial yields have been a feature of most of the developed world in recent years because of the global nature of the recessionary forces at work. Once a recovery in the UK economy has been firmly established then one would naturally expect real financial returns to be higher, and the real policy rate (i.e. Bank Rate minus expected inflation) can start to normalise. We can express this thought in a different way. Would it have helped financial investors to have had higher nominal interest rates over the past few years?

That guidance should help to give confidence to businesses and households and help to support demand growth. By reducing uncertainty about our reaction function, guidance should also have helped to counteract the pressure in financial markets to price in the chance of a rapid increase in Bank Rate. We chose unemployment as the threshold indicator not because it was ideal – far from it – but because other indicators were all less attractive. Of course, no sooner had we announced a policy linked to the unemployment rate than it began to fall unusually precipitously. But what is there not to like about sharply falling unemployment? After all, getting the economy back to a medium-term path quickly, allowing policy to normalise, would be a good thing? Right? Well, falling unemployment is undoubtedly a good thing for the individuals who are back in work and on many other social counts. It could only be a purveyor of the dismal science who found rapidly falling unemployment disappointing! Yet, in order to see rising living standards on average, it is crucial to see rising output per head (i.e. rising productivity) – which ultimately drives real national income per head and hence how well off we are as a country. So we need to see rising employment accompanied by even faster growth in output.
We are accountable also to Parliament, which will entail members of the Monetary Policy Committee giving evidence to the House of Commons Treasury Select Committee, most probably on the basis of our quarterly Inflation Report, as well as the Bank’s Annual Report being debated in the full House. And we are accountable to the public through the framework of transparency. 8. Put together, these elements provide for greater transparency and accountability of the monetary policy process than in any other country in the world. None of this, of course, guarantees success. But I believe that this new, and carefully-constructed, framework provides the best prospect we have had for years of delivering price stability as a steady foundation for the sustained growth of output and employment that the UK is capable of achieving. This framework for monetary stability, combined with the parallel commitment the government has demonstrated to fiscal responsibility and to promoting a flexible and competitive supply-side structure for the economy, provides a basis for the UK economy to continue to grow on a sustainable basis in the years ahead. Preparations for EMU 9. These changes in the monetary framework have been a major focus of interest of the UK financial markets over the past summer. But in parallel there has also been close focus on the continuing progress being made within the European Union towards Economic and Monetary Union (EMU). 10. The UK government’s statement on EMU last month provided a clear account of UK policy in relation to the monetary union.

Moreover, as many of you here are accounting, financial and business leaders of Hong Kong, I am sure you will also share my view that enhancing the financial literacy of our citizens is a difficult but worthy task, requiring the collaborations of all sectors of the community to work closely together. You are well positioned to help our public education programme, and we in the HKMA look forward to your continued support and advice. Thank you. BIS central bankers’ speeches  5
Jörg Asmussen: Stability guardians and crisis managers – central banking in times of crisis and beyond Distinguished lecture by Mr Jörg Asmussen, Member of the Executive Board of the European Central Bank, at the House of Finance, Goethe University, Frankfurt am Main, 11 September 2012. *  *  *  Ladies and Gentlemen, It is a great pleasure to be here today at the Institute for Monetary and Financial Stability and I would like to thank Prof. Siekmann and Prof. Wieland for their invitation. I know that the Institute was founded in November 2007, only three months after the outbreak of what would become the worst financial and economic crisis of the post-war period. Truly timely, I would say. The Institute’s objective to highlight the significance of monetary and financial stability impressively reflects the practise and the challenges of monetary policy over the last five years. Let me in today’s remarks take the opportunity to reflect on the double role of central banks as stability guardians and crisis managers. Had I been here before August 2007, this title would have mainly implied discussing the central banks’ role as guardian of price stability. But there cannot be stability without adequately managing the crisis. So, why have central banks assumed such an important role in crisis management? Well, responding to the sudden financial tensions, central banks crisis measures have contributed to calming and avoiding highly detrimental feedback loops between financial markets and the real economy.

Also, insufficient financial sector policy reaction on the side of governments exacerbated the detrimental dynamics and represented itself as a source of risk and uncertainty during the crisis, ultimately fostering dynamics of self-fulfilling prophecies. The ECB’s non-standard measures In this environment the ECB took bold and decisive action. The disruptions in banks’ short-term funding led to a strong tightening of credit standards to both businesses and households. This threatened to undermine bank lending to the real economy with risks of a severe credit crunch. In turn, the transmission of monetary policy became seriously impaired. And, central banks were less effective in steering term money market rates via the setting of their policy rates. Ultimately, the interest rate set by the central bank did no longer reach the real economy across the euro area in the same way. The size of the shocks and the extent of global and intra euro area adjustments required exploiting the ECB’s full toolkit to implement a wide range of non-standard measures. Here, we always had to keep in mind the importance of the banking system for the financing of the economy. In the euro area, two-thirds of external financing – and even a larger share for small- and medium-sized enterprises – originates from banks. Our measures included the provision of unlimited funding support to banks at maturities up to three years, the extension  6  The Japanese experience since the 1990s was widely seen as an exception.
Banking problems have afflicted both industrial and emerging market countries, including the US, which weathered the savings and loans and banking problems of the 1980s and early 1990s. Crises around the world have exacted a high price, with direct fiscal costs of associated resolutions typically starting at roughly 5 percent of GDP (in the US case, such costs ran more than $ billion). To these substantial sums, one must add the less quantifiable, but no less real, consequences for the economy and financial system. A weakened financial sector cannot serve its role as intermediary - as banks seek to repair their balance sheets, restrict new lending, and shore up capital - leading to diminished growth prospects. In a number of Asian countries today, exporters have difficulty obtaining trade financing from domestic banks, delaying the process of economic recovery and raising fears of a credit crunch in which even sound companies are driven into bankruptcy. Banking sector problems reduce depositor confidence in the banking system and can trigger capital flight. Banking system problems, significant in their own right, can cause distortions in monetary policy, render monetary policy tools less effective, and put at risk the integrity of the payments system. In an integrated international financial system, it is increasingly difficult to contain a banking crisis within a country’s borders. Finally, we must not forget the human consequences of a financial and broader economic crisis, which disproportionately fall on those least able to weather the storm.

To that end, the Basle Capital Accord’s market risk amendment, which went into effect at year-end 1997, represents a significant shift in capital supervision, moving away for the first time from the prevailing approach of a mandated and rigid regulatory formula or ratio. The amendment also represents a major step toward a more market-based approach to supervision that draws on banks’ internal methodologies for risk measurement, places greater emphasis on promoting sound risk management and control processes, and encourages further innovation and improvement in the banks’ internal models. While the market risk amendment is a major step in the right direction, we need to begin thinking now about a conceptual framework for the next generation of capital rules, particularly given the long lead times involved. The original Basle Capital Accord took about five years to develop, and almost seven more years were required to reach agreement on the market risk amendment. I intend to do whatever I can as chairman of the Banking Supervision Committee to raise the relevant issues and promote the development of new approaches to capital adequacy as early as possible. In discussing the challenges ahead, I should also note some recent accomplishments, particularly the work of the BIS Committee on Payments and Settlements Systems, of which I was the former chair, on reducing Herstatt risk in foreign exchange settlements.
If this is the case, then indeed the rules are just ‘burdens’, rather than instruments to assist banks’ operations and safeguard confidence in the financial system. Compliance therefore, is merely a means to an end. It is a process that enables us to achieve certain outcomes. Having the right controls in place merely gets us to the starting line. The real race is in creating and sustaining an environment where everyone in the organisation is involved 1/4  BIS central bankers' speeches  in preventing the systematic abuse of the financial system. This process is not a sprint, but a marathon of endurance and perseverance. To drive the point, someone once asked, “How many compliance officers does it take to change a lightbulb?” The answer is three, one to change it, one to check it and one to check it again, and file a report. This illustrates how compliance can often be seen as an end to itself, forgetting that it should be focusing on the end game, the quality of light emitted. From the regulator’s perspective, rules have progressively evolved from detailed prescriptions in the past, to standards and best practices today. This is due to the rapid pace of innovation, increasing complexity of financial services and the realisation, that a ‘one-size-fits-all’, micromanaging and prescription-based approach is not an optimal approach in regulation. Thus, institutions have more latitude in implementing these standards at the micro level.

Conclusion In my remarks, I have outlined that to “future-proof’’ compliance, we must change the way we think about the subject. I also emphasised that a narrow focus on rule setting and micro managing would likely fail. 3/4  BIS central bankers' speeches  Instead, compliance needs deep understanding. It needs to consider incentives, ethics and professional conduct. It needs to leverage on mutually reinforcing partnerships. It needs to fulfil its responsibility to contribute to the well-being of society. After all, compliance is an enabler, it is not the end outcome that we seek. This is how we should future-proof our financial system and compliance. On that note, I wish all of you a productive conference. 4/4  BIS central bankers' speeches
Instances of “follow-the-leader” behaviour occur not just in bullish stockmarkets but also in the currency market when many countries with different conditions are lumped together in a general assessment. Market players must assess each country separately. Central bank interventions under certain circumstances are uncommon with a flexible exchange rate regime but they do occur. I cannot exclude the possibility of the Riksbank intervening again if this were to be called for. Growth in the industrialised countries may thus be affected by the real economic crisis which has hit the emerging markets and resulted in a sharp fall in output there. The magnitude of such an effect will be highly dependent on confidence - confidence among households and firms so that they are prone to consume and invest, confidence among banks so that they are prone to provide credit. The Riksbank’s appraisal In the Riksbank’s most recent Inflation Report we counted on an OECD area growth rate of around 2 per cent in the years ahead. It should be borne in mind that this figure represented the latest in a series of downward revisions over the past twelve months. Since the publication of the September Report, our assessment of tendencies in the rest of the world has not changed. Considering the mechanisms to which I have just referred, however, it is not surprising that our Report highlighted the risks associated with the external situation. This situation is unusually difficult to evaluate and has to be followed closely.

The problems showed up first in Thailand but soon spread to South Korea, Malaysia and Indonesia. While the deterioration in these countries was partly a consequence of the economic stagnation in Japan, perhaps the main cause of the acute crisis was that a strong capital inflow from the West, above all from the United States, suddenly turned into an outflow. For various reasons, political as well as economic, assessments of the development potential in the countries in question had been gradually revised. More recently the problems have spread to Russia, where the economic situation - as in Japan - was already troublesome. The situation became so precarious that the Russian government suspended payments on government debt denominated in the domestic currency. That was a very far-reaching decision. Since then, capital outflows have also hit Latin America. For a long time it seemed that the Asian crisis would not have sizeable repercussions in industrialised countries in the West. The direct real economic impact was judged to be small and at first it looked as though the main effect would be a tendency to keep inflation down, while growth would remain good. As Russia also encountered increasing problems, however, there was growing concern and the crisis BIS Review 83/1998  -2-  accordingly began to spread even to financial markets in the West. During the summer, share prices began to fall. Credit risks rose. Investors and banks started to become increasingly cautious, partly on account of some losses.