samchain/econo-pairs-v1 huggingface dataset:
Yet it is unclear that this race will have a winner. If it raises systemic risk, it is possible capital markets could be the loser. To avoid that, a redesign of mechanisms for securing capital market stability may be needed. 1  For a regulatory perspective see CFTC-SEC (2010), for a market perspective see Automated Trader (2010) and for an academic perspective see Easley et al (2011b). BIS central bankers’ speeches  1  2. The topology of trading  During the course of this century, financial market trading has undergone a transformation. This has been driven in part by technology and in part by regulation. The key words are structure and speed. Both the structure of the markets in which participants operate, and the behaviour of those participants, has undergone a phase shift. That highly adaptive topology of trading has made understanding markets a more hazardous science than a decade ago. Chart 1 plots equity market capitalisation relative to nominal GDP in the United States, Europe and Asia through this century. On the face of it, it paints a rather unexciting picture. Equity market values relative to GDP in the US are roughly where they started the century. In Asia there is evidence of some deepening of equity markets relative to the whole economy but it is pretty modest. Measures of equity market capitalisation to GDP have often been used as proxies for the contribution of financial development to economic growth. 2 These effects are typically found to be significant.

But now that we have passed the worst phase of that crisis, a reassessment of policy is needed. I have been arguing for some time that we should be gradually removing some of the monetary stimulus provided in the depths of the recession by raising interest rates to reflect the improvement in the economy at home and abroad and to counter the rather worrying tendency of inflation to run significantly above the 2% target set by the government. In recent months, however, there have been concerns about the sustainability of the UK economic recovery which might seem to weaken this case for higher interest rates. The GDP data for the final quarter of last year were disappointing, even allowing for the impact of the snow, and there are worries about the impact of fiscal tightening as it begins to have an impact through public spending restraint and higher VAT. There are also concerns about volatility on the international scene, with political instability in the Middle East and North Africa and the effects of the earthquake and tsunami on Japan, the world’s third largest economy. In today’s speech I want to discuss the growth of the UK economy over the current recovery and how it should be reflected in the MPC’s decisions on monetary policy.
Combined with continuous capacity building initiatives and institutional development, it has resulted in the opportunity to achieve scale and has allowed the Islamic financial services industry to transition into a dynamic, fast growing and competitive form of financial intermediation for the global community. The IFSB today is celebrating its tenth anniversary in a world which is changing profoundly. A new growth and development agenda is unfolding before us. Given the severe damage and devastation caused by the global financial crisis and the ensuing economic downturns, the road to an enduring recovery and lasting prosperity demands a global policy response that brings about a new economic trajectory built on a strong, more inclusive and more sustainable growth path. Common challenges that have also come to the forefront, such as poverty, increasing inequality and the imperative for greater social cohesion, have also called for the construction of policy objectives and strategies that can enhance stability, social well-  BIS central bankers’ speeches  1  being and environmental sustainability. In the wake of the global financial crisis, there is consensus on the need for a return to financial systems that serve the real economy, and the demands for more responsible financial practices from the financial sector, that also includes the commitment to achieve socio-economic goals. In response, the international community is prioritizing financial stability by strengthening financial regulation. This includes financial reforms aimed at protecting depositors from excessive risk-taking, over-leveraging and unfettered innovation.

We look forward to a productive day and continuing the conversation after the event. Thank you.12 1 From Robin Willner, NYS P-TECH Leaderships Council 2 From Sarah Conte, Per Scholas NY  3/3  BIS central bankers' speeches
In this regard, the Central Bank has ensured that staff will not be forcibly retrenched as a result of this process and that the salary of no employee will be reduced from that which prevailed at end 2013. Also, financial institutions were encouraged to appoint competent Human Resource Consultants to perform independent reviews on senior management, while the Central Bank decided to keep the staff unions informed of the consolidation process to minimise any confusion in the minds of the employees. Fourth: Revival plan for cash-strapped NBFIs In our consolidation strategy, a common merger and acquisition plan was designed for wellrun financial institutions. However, there are few finance companies facing liquidity constraints. For such companies, we introduced revival plans on a case by case basis so that public confidence will be restored and financial system stability will be sustained. Under this revival plan, the Central Bank decided to provide supplementary long-term concessional funding facility through SLDILSS for any new investor or financial institution, which acquires or merges with any cash-strapped NBFI, so that operations of such NBFI could be revived and restructured without weakening the financial position of the acquirer. The liquidity support would be granted on a case by case basis after a careful assessment of the financial position and business restructuring plan of the cash-strapped NBFI by the Central Bank.

Also, I wish to thank other institutions and various parties involved directly with the Central Bank and the financial institutions including the Ministry of Finance, Inland Revenue Department, Securities and Exchange Commission, Colombo Stock Exchange, Registrar of Companies, Panel of Auditors, legal and other consultancy firms for their valuable contribution to make this programme a success. Last but not least, my sincere thanks is extended to the directors and the staff of the two departments, the Supervision of Banks, and, the Supervision of Non-bank Financial Institutions, for their untiring contribution in making this programme one of the most successful projects carried out by the Central Bank in the recent past. Once again, I wish to thank the Governor and the Organising Committee of the Annual Oration headed by Mr. D Wasantha, Assistant Governor of the Central Bank, for inviting me  16  BIS central bankers’ speeches  to share our thoughts on this important policy reform with this distinguished gathering today. Ladies and gentlemen, while thanking you for your patient listening, I invite each of you to be an active partner of this financial sector consolidation programme and stand by our vision, “TO TRANSFORM SRI LANKA’S FINANCIAL SECTOR TO BE AMONGST THE TOP 5 WELL-MANAGED FINANCIAL CENTRES IN ASIA BY 2020”. THANK YOU. BIS central bankers’ speeches  17
Cooperation can take a variety of forms, including formal arrangements that are organized under memoranda of understandings, specific protocols or other documentation for the exchange of critical information, and informal arrangements for regular and ad hoc communications. Much work is currently underway to establish various forms of effective cooperation, particularly for individual CCPs and trade repositories that are becoming globally important. However, as the work toward meeting the G-20 commitments continues, much more work is needed to design and implement such arrangements for the relevant FMIs. In terms of the issue of access, explicit requirements for FMIs are embedded in the Principles. The Principles establish a framework that covers access by direct participants, indirect participants – i.e., those who trade indirectly through a direct participant, and access and links between FMIs. In terms of the lender of last resort issue, the Principles strengthen the requirements for FMIs in terms of such aspects of financial strength such as capital and liquidity, and operational and business risk. This implies that enforcement of the Principles should significantly mitigate any moral hazard issue that could arise if an FMI were able to obtain credit from a central bank. On resolution, the Principles contain explicit requirements to ensure that all systemically important FMIs have viable recovery plans and, if circumstances ever warrant, could be wound down in an orderly fashion without the disruption of the provision of key services.

Reports from the Bank’s regional Agents indicated that business sentiment had deteriorated sharply, and the CBI October Industrial Trends Survey showed that optimism about business conditions among manufacturers fell to its lowest level since 1980. The possibility of a recession was widely discussed. The MPC responded to the change in sentiment and to worsening conditions in the world economy. It reduced interest rates by 2½ percentage points between October 1998 and June 1999. There has been a marked turn around in sentiment during this year. Confidence measures have returned to their pre-October 1998 levels. This volatility in sentiment, is not reflected in the statistics on economic growth. The latest estimates of output for the UK show that over the past two years, output growth has been steady and close to trend with the exception of two quarters (1998 Q4 and 1999 Q1) during which a run down in stocks temporarily reduced growth. In part this stability was the result of pre-emptive monetary policy which, by reacting to the forward-looking information in surveys and other data, was able to offset the volatility in confidence feeding through to the real economy. For sometime now, the high level of sterling together with falling world commodity and food prices have restrained retail price inflation. The prices of imports into the UK fell by 15% in the past four years. It is inevitable that this favourable impact on inflation can be only temporary.
At the same time, households and firms could remain confident that the expansionary monetary stance would not contribute to price and wage spirals in the longer term. In Norway, various measures of underlying inflation have been close to 2.5 per cent in recent months. Lower wage growth, reduced capacity utilisation and low global inflation have counterbalanced the effects of higher energy prices and the krone depreciation in autumn 2008. Consumer price inflation is expected to fall to somewhat below 2 per cent in 2010 following the krone appreciation over the past year. The interest rate is set with a view to stabilising inflation close to 2.5 per cent over time and bringing capacity utilisation gradually back to a normal level. Growth in the Norwegian economy is expected to gradually pick up through the remainder of this year and next. Capacity utilisation is expected to be close to a normal level in 2011 and to reach this level in the course of 2012. In our projections, inflation gradually moves up towards 2.5 per cent around the end of the projection period as capacity utilisation reaches a normal level and the effects of the krone appreciation unwind. Wage growth shows a gradual increase. The projections are based on a gradual rise in productivity. Improved productivity will ease cost pressures for firms. The projections are also based on increased scope for firms to strengthen profitability by raising prices. Activity in the Norwegian economy picked up towards the end of 2009.

The United States is in one of the longest phases of rising GDP of the post-war period and, last year, the euro area had the highest growth in ten years. However, it takes time for the strong economic activity to affect inflation. Although the recovery has come far after the years of financial crises and low growth, wage increases have been unexpectedly low in many advanced economies. In large economies such as the United States, Canada, Germany, Australia, as well as in Sweden, unemployment is close to or below levels at which wage growth, historically speaking, tends to pick up. In Sweden, we have had a number of years with a combination of low productivity and low expectations of inflation and wages, which partly explains the low wage demands up to now. Even if Sweden has had a strong employment trend in recent years, technological innovations and international competition will entail a transformation in which jobs will disappear and need to be replaced by new ones. These forces, in combination with long-term stagnation in the euro area after the financial crisis, are also leading to employees becoming more cautious with their demands. 3 It is feasible that the upheaval these forces cause at workplaces may also make it difficult for individuals to assess whether they risk becoming unemployed and, if so, what their position might be on the labour market. Low wage expectations are a global phenomenon and can contribute towards those already in employment becoming less interested in looking for a better-paid job.
In parallel, investors have become more reluctant to invest in the banking sector when profit expectations are low, making it difficult for banks to raise new funds. Banks’ soundness therefore tends to be more correlated to economic fluctuations than in the past, contributing to the amplification of the credit cycle. •  Accounting regulations so far may also contribute to amplifying credit cycles to some extent. In most financial centres, current provisioning behaviour does not allow banks to take a forward-looking view of their risks, as accounting and tax rules only accept loan-loss provisions for impaired loans. Such a regulatory environment may amplify the credit cycle, contributing to low provisioning and over-lending during upswings and paving the way to sharp corrections during downswings. Using full fair value accounting for loan portfolios might further amplify credit cycles by increasing the volatility of banks’ earnings. •  Prudential rules may also have been unable so far to always prevent these developments. Current capital adequacy rules are not risk-sensitive; as a result, credit  2  BIS Review 41/2001  deterioration does not require additional regulatory capital unless loan losses erode the capital base under minimum requirements. As most banks – particularly large ones – have capital far beyond the prudential minimum requirements, they can bear a reduction of their capital base without being compelled to restrict their credit granting. Therefore, capital ratio is not pro-cyclical as such.

The traditional answer provided by economic theory to this type of market failure is none other than “Pigouvian taxes” which equalise marginal private and social costs and cause emissions to be reduced to their socially optimal level.4 However, as we all know there is a big gap between theory and practice and, moreover, the “devil is in the detail”. This is true not only of the most technical matters, but also of the political ones. Deciding, for example, how to use the revenues raised is of crucial importance to the success of the transition to a more sustainable economy. This is so both from an economic perspective, promoting technological innovation and the adoption of clean technologies, and also from a social perspective, compensating the losers in the transition process. I will be referring to this issue later on. In my opinion, fiscal policy should play a leading role in the management of climate change, to deter the most environmentally damaging activities and to stimulate the investment needed to develop cleaner technologies and, also, to alleviate the social costs of the transition. This is the thrust of various initiatives currently under discussion. For example, those that seek to reconsider or supplement the EU emissions trading system (EU ETS) so that the price of carbon approaches that consistent with the Paris agreements. And, likewise, those designed to reduce environmentally harmful subsidies (EHS). At the same time, we should not forget the truly global dimension of the climate change challenge.
This is critical so that the DFIs could fulfill their roles without continuously drawing resources from the government and the public sector. It is indeed heartening to note that many DFIs have been successful in balancing the challenge to fulfill developmental roles, while ensuring that their operations are financially sustainable. For instance, the  2/5  Development Bank of Japan, which is focusing on the provision of supplement long-term funding to qualified infrastructure projects, has shown favourable financial performance with a return on equity of 6.5% in 2004. Similarly, the Business Development Bank of Canada, a leading SME development bank in the country, has also recorded encouraging performance with an average return on equity of 7.1% in the past five years. The experiences of these DFIs have proven that despite the specific mandates to finance development activities, business operations of DFIs can be financially sustainable. These success stories essentially share several key factors, including a high focus on their mandates; dynamic leadership and proper accountability within the DFIs; continuous development of human resource capability; intensive use of information technology to improve efficiency; and last, but not least, the adoption of sound and prudent financial principles as well as best practices in their operations. At the same time, given their relatively limited access to funds, it is recognised that financial support from the Government is important to enable the DFIs to play their role on a sustainable basis. This, however, does not mean that DFIs should solely rely on government funding.

In carrying out the regulatory and supervisory function, the Central Bank's focus is primarily to promote the development of sound and robust DFIs capable of performing their mandated roles effectively. Seven DFIs are currently placed under the purview of the Act. Recognising the unique characteristics of each DFI, regulations and policies have largely been tailored-made to suit the different roles and functions of each DFI with the view of facilitating and strengthening their operations. In general, the DFIs are required to ensure that their operations and activities are in line with their mandated roles, underpinned by good corporate governance and best practices. They are required t o operate with transparency, especially with regard to information disclosure on their corporate performance, in order to enhance credibility and to harness greater confidence from the public that they serve as well as from the Government. Strategies formulated have also been focussed on enhancing the clarity in the roles and functions of the DFIs, with a view of minimising the overlapping of functions and increasing DFIs' effectiveness in serving the targeted sectors. This has led to a number of initiatives to realign and enhance the strategic focus through the restructuring of selected DFIs. One is the merger of the EXIM Bank and MECIB to enhance their synergy in export promotion. The  4/5  other important initiative is the rationalisation of Bank Pembangunan and Bank Industri, which will result in the establishment of an SME Bank.
First, we were concerned that the Swiss franc might be in for a roller-coaster ride. In the past, whenever the dollar was under attack, international investors turned their attention to the German mark and the Swiss franc. Their status as safe-haven currencies meant that at times of turbulences on foreign exchange markets they would move well beyond what economic fundamentals could justify. In fact, the Swiss franc often exhibited a tendency to appreciate even more than the German mark, a phenomenon that was often attributed to the relative narrowness of the Swiss financial markets. Now with the German mark gone, wouldn’t all attention focus on the Swiss franc? Would it not mean that in any dollar crisis the franc would have to bear even more of the adjustment than in the past? Even worse, what would happen if the euro itself were under attack? The last thing we needed was for the franc to become the first currency in the line of fire, or something like the lightening rod of the international monetary system. A second fear that we had was that it would become very difficult in the future to conduct an independent monetary policy. Switzerland, together with Liechtenstein, would now be totally surrounded by a single monetary zone. As you know, Switzerland is a small open economy, and I emphasize both the words small and open. Indeed, we are widely open. Nearly half of our national income is generated abroad, and the European Union is by far our largest foreign partner.

About two thirds of our exports head in that direction, and we are one of the best customers of the EU. We are also very small, meaning that although we have no significant impact on the rest of Europe, we are very exposed to foreign shocks, whether they are real or monetary in nature. Our activity is highly correlated with that of the eurozone. Under these conditions, would the SNB still be in a position to conduct an independent monetary policy? Would it be realistic to expect the SNB to follow a course that deviated from the one set by the European Central Bank, or would the SNB be obliged to shadow the actions of the ECB? The question of an independent monetary policy is not just a matter of safeguarding the interest and the prestige of our job as Swiss central bankers. The stakes are much higher. For one thing, even if Swiss activity and economic conditions more generally are highly correlated with Europe, the correlation is not perfect. Our economy, although offering many similarities to the German and French economies, also has its specificities. Thus, Switzerland is very well supplied with physical and human capital. As a consequence, the return on capital is relatively low and wages are relatively high, particularly so for unskilled workers. We thus tend to specialize in capital-intensive and high-value-added activities. External shocks tend to impact on us in a way that is not exactly the same  BIS Review 35/2004  1  as for the rest of Europe.