samchain/econo-pairs-v1 huggingface dataset:
Jean-Pierre Danthine: Swiss monetary policy in the public eye Speech by Mr Jean-Pierre Danthine, Member of the Governing Board of the Swiss National Bank, at the Money Market Event, Zurich, 24 March 2011. *  *  *  I would like to thank Marlene Amstad and Gero Jung for their valuable support in drafting this speech. I also want to thank Rita Kobel Rohr for helpful comments. Introduction: the Great Recession vs the Great Depression The Great Recession is behind us. In the case of Switzerland, we may wonder if the term is justified. With a fall in output of 3.2% from the top of the cycle in 2008 to the trough in 2009, the recession was the most severe since the mid-1970s.1 However, measured on a quarterly basis, consumption, which is a more meaningful indicator of economic well-being, barely fell. In Switzerland, the Great Recession was a (relatively severe) recession. What was it, that transformed what many feared could have been a new Great Depression into the Great Recession? As historical data show, the downturn in global industrial output in the first ten to twelve months of the two crises was similar (Chart 1). Economic historians will be occupied with this question for a long time. Let me venture to say that the policy reactions of fiscal and monetary authorities will occupy a central position in the historians’ final answer. Charts 2 and 3 provide some illustrations of the difference in policy responses between 1929 and 2008.

For example, in the establishment of shariah parameters and centralization of shariah rulings and the creation of financial instruments that the Central Bank used to mop up liquidity from the financial market on a daily basis. The forward looking plan of our various institutions of higher learning to offer courses in Islamic finance related subjects that have enable a steady supply of talent and workforce to the industry. Equity-based financing Let me touch on the subject of equity-based financing. This subject has captured the imagination of many especially within the academic circles. Some even went to the extent of saying equity-based financing is the heart and soul of Islamic finance. This is a point that will invite a lot of comments and a subject of endless conversation. In practice, somehow, bankers are not into this. In Malaysia and in the Middle East, however, more than 70% are debt-based financing. Why is this so? Let me discuss this point with greater detail. For the benefit of those who are less familiar, in a nutshell Mudharaba is a profit sharing and loss bearing concept where the Financier provides financial investment in a business and the Entrepreneur provides expertise in running the business. The financier gets to share profits and absorb loses and the entrepreneur have a share of the profit Musharaka is where both Financier and Entrepreneur commit to invest financially in a business. In both cases, the profits and losses are shared according to ratios that both Financier and Entrepreneur agrees prior to the venture.
The FSI provides technical assistance to supervisory agencies worldwide in enhancing the quality of their supervisory systems and the skills of their staff. The Basel Committee and its member agencies remain committed to the activities of the FSI and to working together with fellow supervisors in an efficient and transparent manner. It is one of my highest priorities as chairman of the Committee to strengthen our outreach and communication with fellow supervisors. 4. Accounting  Our overarching goal in these discussions is to help ensure that our supervisory framework keeps pace with evolution in the industry and remains relevant to banking in the twenty-first century. This is, of course, a constant challenge for supervisors in an industry as innovative as the banking sector. Yet we must furthermore look beyond the immediate issues to consider more broadly the many changes in our markets and practices that are relevant to banks’ safety and soundness. In recent years, one of the most important reforms that affects not just banking, but in fact nearly all businesses, is the drive toward harmonised accounting standards globally. It is impossible for us to improve transparency and promote stability without examining the changes underway to the mechanics that define how financial data are recorded and reported. I’d like to conclude my remarks this morning with some preliminary thoughts on accounting and supervision and on our responsibilities in this field as supervisors.

I believe that we must strengthen three  BIS Review 52/2004  3  areas of supervision in particular that form the foundation necessary for Basel II - and that are, in themselves, equally crucial to safety and soundness. First, a system of effective supervision must exist in a country. The Basel Committee has previously helped to identify 25 principles that contribute to a supervisor’s effectiveness. They are enumerated in the Core Principles for Effective Supervision and outline the authority and resources that a supervisor must have to promote financial stability. They include having adequate legal authority to set and apply licensing criteria, prudential regulations and capital requirements; having the ability to conduct ongoing evaluations of a bank’s operations and to respond when banks fail to meet regulatory requirements; and having the ability to apply this authority to the consolidated global operations of their banking organisations and to the domestic operations of foreign banks. When applying these principles to internationally active banks, supervisors must furthermore be able to share information with home and host supervisors as necessary. Second, we must ensure that the market in which Basel II is to be applied is moving toward greater transparency and is subject to a clear set of rules. Sound accounting and provisioning standards must be enforced so that capital ratios - however calculated - reflect meaningfully the bank’s ability to absorb losses.
Blended finance typically involves mixing different sources of funds to reduce overall borrowing costs. With the lower cost of funds, DFIs may wish to explore offering instruments that can either enhance the bankability of customers or lower the financing cost for customers. During the pandemic, the British Business Bank (BBB) administered a blended equity financing model to support start-ups that may otherwise be shunned by commercial banks. Under this model, eligible start-ups received a convertible loan with a matching amount based on equity raised prior to the pandemic. The convertible loans will be converted into equity upon exit or maturity with no repayment expected throughout the tenure. Closer to home, one of the Malaysian DFIs has recently made headway in sustainable finance through an inaugural issuance of sustainability Sukuk. The Sukuk has been well received by the market, oversubscribed by more than 3 times, with the proceeds going towards supporting the Government’s sustainability goals by financing SMEs involved in green projects identified under the Green Technology Master Plan Malaysia. Other DFIs are also preparing to issue more sustainability Sukuk which will also deepen the sustainability bond market in Malaysia. This development augurs well for the creation of a vibrant fundraising market that will better support the economic recovery and financing of sustainable and impact projects.

Luis M Linde: International financial integration and fragmentation. Drivers and policy responses Opening remarks by Mr Luis M Linde, Governor of the Bank of Spain, at the Conference on “International financial integration and fragmentation. Drivers and policy responses”, organized by the Reinventing Bretton Woods Committee and the Bank of Spain, Madrid, 12 March 2013. *  *  *  Good morning to all. Buenos dias a todos y bienvenidos a Madrid: It is for me a pleasure to welcome you to Banco de España and to this Seminar on international financial integration. I would like to start by thanking Marc Uzan and the Reinventing Bretton Woods Committee for their fruitful cooperation in organizing an agenda that is indeed very promising. More than five years into the crisis, it is still hard to grasp the real magnitude of the changes that our financial systems are undergoing. In fact, we are still trying to restore the financial channels to support the growth of internal and external demand. While we perform such, so to say, “fire-fighter task”, it is not easy to take a step back and look at how the contours of our economic and financial landscape are evolving. But we can already distinguish some of the characteristics of the new scenario that is taking shape, and that will be our habitat as central bankers, regulators, financial intermediaries or analysts in the years to come.
In this context, global growth lost momentum somewhat in the third quarter. This was largely attributable to special factors, such as production losses in the German automotive industry and extreme weather events in Japan. Economic expansion in the US and China remained robust. Employment figures in the advanced economies rose again and unemployment continued to decline. The growth in international trade in goods also continued. In our baseline scenario for global economic developments, we anticipate solid growth in the coming quarters. In the short term, the world economy is set to continue to expand somewhat above potential, benefiting from the clear improvement in the labour market situation and the ongoing expansionary monetary policy in the advanced economies. However, a gradual slowdown is likely in the medium term. Nevertheless, we also see significant risks to this baseline scenario, primarily in connection with political uncertainties and protectionist tendencies. These risks have considerable potential for damage. The resulting uncertainty alone can curb growth and weaken the resilience of the global economy. For instance, surveys indicate that trade tensions have prompted companies to reassess their investment plans and value chains. As far as Brexit is concerned, uncertainty remains high following the postponement of the vote in the UK parliament. The tension surrounding Italy’s fiscal policy also persists. All these risks could lead to turbulence in the financial markets, jeopardise global economic growth, and also influence monetary policy.

Wishing for an open and fruitful discussion, I look forward, and I think I am not the only one, to listening attentively and hope that the following issues will be addressed: •  Advancements that banks will adopt for the payments in the next 5–10 years;  •  Barriers, problems, opportunities and risks that prevent the progress;  •  Views of traditional banks about the payments via mobile phones supplied by mobile phone companies and assessment of the preparation degree of banks for cooperation or competitiveness;  •  New trends for the increase of payments security. Which is the place of biometric elements? Congratulations and Thank you for the work you do. You are part of the future. We all are looking forward to the next meeting of a continuous discussion on the forthcoming innovations. BIS central bankers’ speeches  3
More than the specific figures in the projections, what matters most is knowing the direction and intensity of the forces driving current dynamics, so we may better identify and gauge the pressing measures needed. The forecasts published by international institutions in recent weeks show that we face a severe global recession. Earlier this month, on 13 March, the International Monetary Fund published for the first time a negative growth rate for the world economy of between 0.5 and 1 pp for this year. A moderate recovery is estimated for 2010, but one still far below what we thought the growth potential trajectory was. Unfortunately, for several months now, each new projection has habitually entailed a notable downward correction on the projection immediately preceding it. It would therefore not be unusual, once the IMF updates its world macroeconomic outlook in a few weeks, that the resulting forecasts should have worsened on those published this month. The outlook for the euro area does not differ substantially from what the IMF anticipates for the developed economies. Early in the month the European Central Bank released what are still the latest projections for the area as a whole, placing growth at between -3.2% and -2.2% for the current year and between -0.7% and 0.7% for 2010. As for Spain, next Friday, repeating an initiative first launched two years back, we shall publish our projections for 2009 and 2010. I shall leave the specific figures for Friday’s release.

In the last quarter of the year, there was a positive contribution of the external sector to annual GDP growth of more than 2 pp. In under two years, external financing requirements might have halved. Further, in December last year, the Spanish inflation rate stood at 1.5%, a substantially lower figure. And since then inflation has continued falling and the difference with the euro area countries, now in our favour, has improved to stand at 0.5 pp last month. Nonetheless, such a rapid adjustment of the external deficit and of inflation, centred predominantly as it is on the contraction of demand, activity and employment, entails very high costs. In social terms, the ranks of the unemployed have swollen to around 3.5 million. 2  BIS Review 43/2009  The productive structure is also being affected through the closure of numerous firms, just as the budgetary position is worsening notably under the pressure of more social benefit disbursements and the contractionary effects on revenue due to the fall-off in activity. Uncurbed, all these factors will bear heavily and adversely on our ability to overcome the crisis. Accordingly, all tiers of government and social agents - central, regional and local government, Parliament and the regional assemblies, employers' associations, trade unions, institutions, etc. - should join forces in identifying the measures and action needed to resume as swiftly as possible a sustained growth path, and implement them with the utmost determination and diligence.
This means that the credit granter is more protected than in the case of ordinary bonds. Covered bonds are therefore good collateral and many other central banks accept these bonds on a larger scale than the Riksbank. In our case the permitted share was raised from 25 per cent to 75 per cent. This measure means, put in very simple terms, that participants in the RIX system can use more collateral to borrow against if necessary. Another measure is that, for instance, the Riksbank and the central banks of Denmark and Norway, together with the US Federal Reserve, have reached an agreement for the purpose of increasing access to dollars in the Scandinavian financial markets, if necessary. For the Riksbank this involves the possibility to obtain access to US dollars in addition to the foreign currency reserve. This is what is known as a swap facility and amounts to a total sum corresponding to USD 10 billion. Our assessment is that it will probably not be necessary to use the money. It is nevertheless important to demonstrate that we are prepared to act if it should prove necessary. The agreement can be quickly put into operation if it should actually become necessary. Financial stability is satisfactory What is happening now has not come as a bolt from the blue. And it is not a question of the central banks sitting with their arms folded ignoring the risks taken by the commercial banks.

Over the past year, for instance, the interest rate has not been raised dramatically, but at a more gradual pace, despite a rapid increase in inflation. The Riksbank’s assessment is that a cautious increase in the interest rate is sufficient to bring inflation back around the target of 2 per cent a couple of years ahead. However, the Riksbank’s task is to maintain price stability. This sets a limit as to how restrictive one can be with the interest rate weapon. Without the interest rate increase inflation could have soared similar to the way it did in the 1970s and 1980s. At that time the economic policy did not prevent inflation from becoming entrenched. The inflation target has been set to create conditions for good growth that is sustainable in the long term. An expansionary monetary policy which perhaps contributes to more favourable developments in economic activity in the short term can provide major problems for production and employment in the long term. The most recent decision When the most recent interest rate decision was made, we six members of the Executive Board held differing opinions. I and two of my colleagues voted to raise the interest rate to 4.75 per cent. There have not been many cases where the voting is a “draw” and the casting vote determines the decision; this has happened only four times since the Executive Board was formed almost ten years ago. The result is not particularly strange or surprising given the situation when the decision was made.
If one assumes, for instance, that both the conventional bond market and the inflation-indexed bond market are efficient and arbitraged by economic agents so that they incorporate the same information about the real interest rate, then the difference between the conventional nominal rate and the real rate would provide, by factoring in an inflation risk premium, a measure of the expected inflation rate over the same period, known as the “break-even inflation rate”. Now, if we had both nominal and indexed bonds across the whole maturity spectrum, up to, say, 30 years which is the maximum maturity at which inflation-indexed bonds are currently issued, then we would be able to pin down market expectations of inflation for all the forecast horizons, up to 30 years, as well as forecasts of inflation for each year up to the maximum maturity. So you can easily imagine the importance of such information for central banks, information which is, moreover, updated on a daily basis. Our staff and also private forecasters are unable to routinely produce inflation forecasts in such a detail, at such a frequency and for such horizons! As far as the euro area is concerned, the reliability of both the inflation-indexed yield and the break-even inflation rate is strengthened by the significant development of the market for indexed bonds over the recent years, which accelerated further in 2003 with the arrival of two new government issuers: Greece in March and Italy in September.

Additionally, it incorporates a new policy tool for the Central Bank of Chile, which would be able to engage in repo operations with the Open Market Operations System member entities under exceptional circumstances where the stability of the financial system may be at risk. (iii)  A broader and more efficient large value payment systems that promotes market neutrality and financial stability  Payment systems are essential for the functioning of the economy and the financial system as they allow transactions of persons and companies to be undertaken. The contribution of payment systems to the economy is enhanced when there is adequate interoperability between different payment instruments and the infrastructures that process transactions. Currently, interoperability is somewhat restricted because non-banking institutions cannot participate directly in key financial infrastructures such as clearing houses and the RTGS system. Expanding the participation of the Central Bank of Chile’s RTGS system to nonbanking entities, so far almost exclusive for banking institutions, will encourage competition in the payment service provision markets, improving efficiency, market neutrality and financial stability. 11  In this context, the “Resilience Bill” beforementioned includes provisions that would allow the Central Bank to open settlement accounts and some liquidity facilities to Central counterparties, Clearing Houses, systemic Saving and Credit Cooperatives, and non-banking issuers and acquirers of payment cards. Having this access would, for instance, facilitate the provision of instant payment services for non-banking issuers of payment cards.
We aim to protect the system, not to keep in being unviable banking capacity …...” And, paraphrasing Mervyn King in 2007: “if the [authorities] underwrite any [risk] that threatens to damage the economy as a whole, it encourages the view that as long as a bank takes the same sort of risks that other banks are taking then it is more likely that their problems will be insured ex post.” Extrapolating, common principles for LOLR, MMLR and COLR might include that the terms must help prevent and contain crises; not incentivise imprudent behaviour; be timeconsistent, which is to say that they must be credible; and lead to an exit strategy. Elsewhere in the repertoire, we are clear, for example, that the costs of LOLR should fall to shareholders; and that the costs of deposit insurance should be recovered by levies on the banking sector as a whole. Building on that, one possible way through the COLR maze might conceivably be to establish, over the medium term, a regime where the eventual cost of any COLR would in some way be allocated back to the banking system itself rather than to the general taxpayer. If it is unavoidable that, instead of allowing banks to fail, the banking system occasionally needs to be rescued through injections of equity capital, “insurance” is in effect being extended to ordinary creditors generally and not just to retail depositors. The funding of that insurance would, perhaps, be extended in a similar fashion.

Differences on this scale provide strong tax-based incentives to increase leverage. They also generate strong incentives to simultaneously avoid tax and arbitrage regulation. One recent example was hybrid bank capital instruments. These counted as capital for regulatory purposes, but benefitted from interest deductibility for tax purposes. In short, they were winwin. The UK hybrids market grew to around $ billion between 2000 and 2007. By then, they accounted for around 25% of UK banks’ tier 1 capital. Up until the 1990s, empirical evidence had tended to find little effect of tax on firm leverage (Graham (2008)). But a raft of recent studies has found tax effects on corporate financing behaviour which are both statistically and economically significant. Pooling the results from existing studies, de Mooij (2011) finds a marginal tax elasticity of 0.28. In other words, a fall in the tax shield by 10 percentage points would lower the debt-to-asset ratio of a typical firm by 2.8 percentage points. This elasticity is based on a range of firms with an average debt-to-asset ratio of 0.5. Banks rely much more heavily on debt, which provides closer to 95% of their financing. That would imply a marginal tax elasticity closer to 0.5 – double that for non-financial firms. At these levels, tax biases are likely to have had a material amplifying effect on bank incentives to increase leverage. Debt and discipline In principle, these balance sheets risks (higher asset volatility and leverage) ought to have had a natural counterweight – the disciplining effect of debt.