samchain/econo-pairs-v1 huggingface dataset:
“Global Imbalances: Is the World Economy Really at Risk?” Dexia SA. 2  Bartolini, Leonardo and Amartya Lahiri. 2006. Twin Deficits, Twenty Years Later, Federal Reserve Bank of New York Current Issues in Economics and Finance, 12, no. 7 (October). BIS Review 41/2010  3  estate assets induced entrepreneurs to produce more of those assets. In the housing market, this increase in prices was helped along by the relaxation of loan underwriting standards, which made it easier to obtain a mortgage and become a homeowner. Credit growth was the strongest among households with relatively low credit scores (Chart 5). The homeownership rate rose after being relatively stagnant for two decades (Chart 6). The increased availability of credit to lower income borrowers and the sharp rise in housing values contributed to the rise of consumption as a share of GDP and the decline of the personal saving rate 3 (Chart 7). Now, with the aid of hindsight, it is clear that we built too many houses, invested in too much commercial real estate and overvalued both significantly. The market overshot for several reasons. First, there was rampant speculative behavior. The longer these asset prices continued to rise, the stronger the belief became that they would keep rising in the future. Second, the rise in prices reinforced the initial relaxation of underwriting standards. During the period of rising prices, defaults and loan losses were very low. A homeowner who had difficulty servicing the debt could typically sell the home for a profit and pay off the loan.

Or, put somewhat differently, on an ex post (i.e., realized) basis, saving must equal investment. Investment in this case means current spending on new physical, human and intangible capital. This insight is the conceptual basis for national income accounting and the gross domestic product (GDP) statistics that we follow so carefully. Even so, economists have been debating the implications of Say’s Law since it was first expounded. Classical economists argued that this ex post balance would occur in a way that kept the economy quite stable at full employment. If there were shocks to saving or investment spending that pushed the economy away from full employment, prices and wages  BIS Review 41/2010  1  would adjust quickly, providing the market signals needed to bring about the reallocation of resources required to restore full employment. The global depression of the 1930s raised serious questions about this classical theory. Although saving must equal investment on an ex post basis, the two can diverge ex ante, potentially sharply. For example, when ex ante (i.e., desired) saving exceeds ex ante (desired) investment spending, inventories rise above desired levels. If prices of the products in question do not fall sufficiently rapidly so that this unwanted build-up of inventories is sold quickly, then production and employment must fall. Perhaps most famously, Keynes, in The General Theory of Employment, Interest and Money, argued that there are institutional rigidities that inhibit price and wage flexibility.
But, as I hope my lecture this evening has made clear, distorted incentives, information failings, collective action problems and network effects have played a large part in recent events. Our standard analytic toolkit should get us a long way in understanding what has happened. And that is one step on the road to avoiding a repeat. Third, we need to pay more heed to the lessons of history. Financial booms and busts have occurred with some regularity ever since the Tulip Mania of 1636-7. Yet we tend to treat them as pathologies that happen at other times or in other places. Their frequency suggests that we would be better advised to think of them as a central feature of capitalist economies that our models should aspire to explain. Fourth, we need to put credit back into macroeconomics in a meaningful way. Financial intermediaries are conspicuous by their absence in the workhorse New Keynesian/New Classical DSGE model. The focus is on intrinsic dynamics resulting from inter-temporal decision-making in the face of a variety of adjustment costs and impediments to price adjustment; there are no financial frictions to speak of. That such a framework has developed is unsurprising in the light of the Great Inflation and its subsequent Great Moderation. But the fact that financial intermediation plays a negligible role in Mike Woodford's magisterial stateof-the-art opus, Interest and Prices, speaks volumes. Some authors have sought to introduce financial frictions into the standard framework 12 .

Conclusion The recent crisis put front and center the rising economic power of emerging countries. It has also demonstrated the vulnerabilities within the global system, especially across financial markets. Financial stability becomes a major concern for policy makers, which has the potential to reshape the monetary policy framework of central banks. Significant steps have been undertaken, but significant progress is still needed to tackle global imbalances. That involves not only revisiting economic policies, but also economic and institutional infrastructure that shapes them. As the quest for a new global order continues both in theoretical and practical levels; the predictability, balance and sustainability of the new global order will depend on the cooperative and coordinated efforts to establish a well-represented infrastructure. Thank you for your attention. BIS central bankers’ speeches  5
Executive Board members cannot inter alia be married to a member of parliament and external members cannot receive remuneration from or sit on the board or supervisory council of financial institutions, securities firms or collective investment undertakings. Nor are they permitted to buy or sell fixed income or foreign exchange products when they are in possession of information concerning conditions that may influence prices, unless the information is available to the public. In addition, the general impartiality provisions under Section 6 of the Public Administration Act apply. 29  For a discussion of the relationship between conclusion-based and premise-based decisions, see Carl Andreas Claussen og Øistein Røisland (2010): “A quantitative discursive dilemma”, Social Choice and Welfare, vol. 35, no. 1. BIS Review 147/2010  7  be adjusted upwards. The third member believes that developments have been as expected and concludes that the key rate should remain unchanged. In a conclusion-based decision, the majority would vote to increase the key rate. Two out of three members came to this conclusion. But a premise-based conclusion would in this case have produced a different outcome. Two out of the three members believed that inflation and economic pressures were as expected. A premise-based decision would thus leave the key rate unchanged. Many will favour the premise-based approach because it gives weight to the underlying basis for the decisions we make. 30 Research has also shown that it is better to discuss and vote on the grounds for any disagreements than to go directly to the conclusion.

When we embark into this journey during the early 1980s there was no precedent to follow. We did not wait until we were 100% sure or until we were sure we could tackle all the possible issues that might arise. Some might say that this is a “trial and error” method. But history has taught us that many break through ideas and solutions originated from this approach. The willingness to try new things and the ability to move on should an idea doesn’t work is an important attribute. It pays over the long run. The willingness to use existing resources that had served the financial system well is another contributing factor. Malaysia has already in place an efficient custodian, payment and settlement system, the principal dealership system, the real time gross settlement system and the process of tendering of government securities. All this has a proven track record of being effective and efficient. We avoid “reinventing the wheel” because it is costly, time consuming and risky if we create an entirely new approach. We adopt and adapt with the existing system so long it does not contravene any shariah principle or requirement. Willingness of shariah scholars to practice ijtihad is another contributing factor. The courage to set a precedent and the resolve to agree to a new concept never done before.
The euro and the financial markets The creation of the euro has accelerated the development and integration of the capital markets in Europe, which, in recent years, have also been fostered by financial liberalisation and technological innovation. This also contributes to high growth, as more efficient financial markets help in allocating funds to their best use. In effect, the single currency has removed the exchange risk between the countries of the euro area. It is facilitating the standardisation of debt instruments and their management on a larger scale. This integrative effect of the euro has been most evident in the money market, by virtue of, in particular, the establishment of TARGET, the large-value payment system. This integration has shown itself in, for example, the rapid adoption by the market of reference rates for the euro area, such as the EONIA overnight rate or the EURIBOR for maturities of less than one year. Above all, we have seen a total convergence in short-term interest rates within the euro area. In bond markets, the integration of markets remains incomplete, owing, for instance, to national differences in respect of taxation, accounting and supervisory regulations and payment and settlement systems. Nevertheless, the integration of bond markets is progressing. We have seen European bond indices become standardised. The differences in rates between sovereign issues within the euro area fell substantially in 1998. Furthermore, 1999 was characterised by a spectacular growth in euro bonds issued by private non-financial firms. These issues increased by almost 300% in 1999, as compared with 1998.

The 75 basis point cut in the ECB main policy rate implemented in late 2011 has been accompanied by little reaction or even an increase of lending rates in countries under stress, whereas there has been a complete pass-through in euro area countries considered by the markets as financially solid (see slide 9). Self-fulfilling equilibria driven by break-up fears The third, and most recent, dimension of the debt crisis has taken the form of investor fears of a break-up of the currency union. Whereas exchange rate risk across euro area countries should have disappeared permanently with the creation of the single currency in 1999, there have been signs, especially over the summer, that investors have started pricing in redenomination risk. Investors require a compensation for the risk that the euro might not remain the irreversible currency of the euro area – at least in its current composition. Although it is difficult to disentangle redenomination premia from other sources of risks – and it requires econometric analysis – the inversion of the slope of the term structure of sovereign bond spreads 5 observed in early summer 2012, for instance, for Spain and Italy was consistent with expectations of imminent break-up risks. Market fears of a high probability of not paying back in full, or of equivalently to repaying in a different, lower-valued currency, command high spreads.
So all this discussion about potential growth, productivity going forward, all that is important to see where this slack in our economies is going, and to take, then, monetary policy decisions. Slack in the economy seems to be the buzzword also here in Sintra. Listening to the President’s speech, of course slack is super-important to determine whether we can look through a period of low inflation, so where do we stand here now? Can we look through it, or is it still worrisome, where we stand when it comes to inflation? Constâncio: It’s very difficult for any central bank to have a very firm view on the slack. All central banks struggle to interpret where exactly is the situation, and in central banks we use many variables to try to gauge what is this slack, this difference that is in the economy. What we can say now is that what we observe is that domestic factors of inflation, starting with wage costs and then also price decisions, are not responding the way we would expect in view of what are the more common estimates of this slack. So we have to ask ourselves – are these measures of the economy correct? Should we look to other variables?

Now let me touch briefly on risk management in Turkey’s banking sector. From the risk management standpoint, we are well supplied with well-developed methods for managing risk and supervising the risks that we do accept. As to the financial standing of Turkey’s banking sector, Turkish banks have achieved a level of financial and institutional development not to be underestimated. But besides these strengths, there are various threats to the well-being of the Turkish banking sector which should be mentioned. Turkish banks, are mostly exposed to credit risk, liquidity risk, interest rate risk, and foreign exchange risk. This is true even when there is no global crisis or macroeconomic risks stemming from political uncertainty. I should mention that all these different kinds of risk have been thoroughly monitored by the supervisory authorities, who put preventive measures in place before the effects of any problems that were found could threaten financial stability. Under this regulatory system, the banks must submit annual, quarterly, BIS Review 41/1999  4  and even daily financial data to the Central Bank and the Treasury. And besides frequent financial evaluations of banks by off-site examiners, on-site examinations are conducted to verify the accuracy and reliability of the data reported and clarify any special issues found during off-site examinations. Let me conclude my remarks by underlining once again how important it is to assess, manage, and reduce financial risks to ensure a sound financial system.
I find this neither upsetting nor surprising. If regulation is to be effective, we must expect it to impact on behaviour and restrict action. This will solicit complaints. If it doesn’t, regulation would, by definition, be superfluous. 4. From Basel I to Basel II  For all these reasons, I strongly support bank capital regulation that puts a meaningful limit on banks’ leverage. But what is the best way to restrict leverage? In an ideal world, we would, of course, also want to take into account the riskiness of banks’ assets. 12 As you know, banks can increase their risk not only by increasing their leverage but also by increasing the riskiness of their assets. To compensate for differences in banks’ assets, we would ideally require banks with riskier assets to hold more capital. The Basel Committee on Banking Supervision has embraced precisely such a risk-weighted approach. More risk, more capital. If we lived in an ideal world, this simple principle would work well. By “ideal”, I mean a world in which risks can be observed by everybody and assessed precisely. What has become abundantly clear in recent months is that we do not live in an ideal world. Banks and the risks they incur are far from transparent. In fact, banks exist because of asymmetries of information. 13 A core function of banks is to “produce information”. For instance, banks screen potential borrowers. Furthermore, banks monitor ongoing lending relationships.

As Joseph Stiglitz put it, “Whenever there are “externalities”– where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated – markets will not work well.” 8 In the real world of banking, potential market failures are particularly relevant. An important market failure stems from the fact that banks enjoy the benefits of a safety net. Many countries have explicit deposit insurance schemes, which limit depositors’ losses. Moreover, in almost every country there is some degree of implicit government protection for large banks. In the current crisis, government protection has become manifest and explicit in the form of the recent G7 and G20 communiqués. Most notably, in October the G7 finance ministers and central bank governors declared unambiguously that they “agree to take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.” 9 In other words, governments imply that large banks are simply “too big to fail”. Clearly, there are benefits to banks having safety nets. But there are also serious costs. It is a fact that the presence of insurance leads to less careful behaviour, otherwise known as moral hazard. If you rent a fully insured car, you will likely exercise less care driving it. 4  See the October 2008 issue of the IMF‘s Global Financial Stability Report, entitled ”Financial Stress and Deleveraging“. 5  Declaration of the Summit on Financial Markets and the World Economy, G20, 15 November 2008.
Muhammad bin Ibrahim: Takaful industry at crossroads - a critical examination Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Takaful Annual Dinner and Awards 2018 "Takaful industry at crossroads: A critical examination", Kuala Lumpur, 23 March 2018. * * * Just last year, I addressed the insurance industry. The day after, the newspaper headlines screamed “insurance models broken”. And so, I was more than a little surprised to receive an invitation to speak. I could not resist it, and so I accepted. This evening, I promise to be no less critical of the takaful industry. But take this well, as the path to success begins with a critical examination of where we are today. We need to work as a collective. And also bear in mind that the takaful’s industry success is also our success. Let us start by reviewing the industry’s progress. Indeed, it has come a long way since its birth over thirty years ago. Its 1% market share in 1990 is now around 15%. Net contributions have grown 9% annually since 2010. These are achievements that we all should be proud of. However, before we celebrate, let us consider three issues. First, can the industry sustain the growth momentum as we move into the 21st century world of technology and innovation. We have set ourselves an objective but we are far away from meeting the target. The objective of 25% family takaful penetration by 2020 is admittedly, ambitious but achievable.

In view of the expected increase in demand for bank financing for a number of economic projects in the economic sectors, and the different financing methods, as well as the great development in the field of modern technology, banks will be required to develop methods for risk management and should be aware of the new risks included in these methods. So, qualifications capable of managing such risk to minimum level should be developed. It is also important to continue to comply with international standards in the area of supervision and accounting. The ability to measure and manage risks will require continued awareness of the dynamic nature of banking business in the context of changing markets with renewed risks which require development of outstanding skills, application of secure technology and following an advanced approach in risk assessment. 4. It is expected that banks will face increased demand for the provision of advanced banking services and products to meet the requirements of the era. Therefore, work should focus on creativeness and innovation so that banks can cater to future needs of the different types of their customers. High levels of baking services should be maintained. There should also be expansion in the number of branches, ATMs, telephone banking and other channels. I wish to conclude with the observation that the Saudi economy is currently undergoing a phase of accelerated growth in the various sectors and activities unprecedented in the preceding decades.
Andrew Bailey: The evolution of insurance regulation – a shifting scope and new frontiers Speech by Mr Andrew Bailey, Executive Director and Member of the Financial Policy Committee, Bank of England; Managing Director of the Prudential Business Unit, Financial Services Authority, at the Nicholas Barbon Lecture, London, 6 February 2013. *  *  *  Thank you for inviting me to give this Nicholas Barbon Lecture. And, thank you for giving me the opportunity to remind myself of the career of Nicholas Barbon – I say “remind myself” because a long time ago I was an economic historian. Barbon is certainly one of the founders – if not the founder – of the insurance industry in London in the late seventeenth century. He was first a builder, indeed, he wrote a tract called “an apology for the builder” in which he defended new construction in London on the grounds that cities created employment and wealth. Barbon was probably the leading builder of the time and he offered an integrated service because he pioneered house insurance. Indeed there are observations that Barbon’s business was to build, insure, and re-build your house when it fell down. These days you would be in FSA enforcement if you tried that one. But Barbon was also one of the early economic theorists in a period at the end of the seventeenth century when economic theory flourished, before it went into abeyance until Adam Smith and David Hume came onto the scene.

Loss of confidence in a bank sets in when depositors fear that this may not happen. An asset management contract is quite different because the promise is at its simplest to return the proceeds of the investment strategy, which may be more or less than the amount invested. It is cruel to remember the Woody Allen jibe at this point that a stockbroker is someone who invests your money until it is all gone. Economists might call the deposit and asset management contract “corner solutions” in that they have a robust definition and lie at opposite ends of a range. If so, With Profits falls in between, and it is in this ground that issues can arise. The proposition was essentially to offer investors a blended exposure to cash, bond, property and equity return with some degree of smoothing of overall returns, essentially at management’s discretion, to reduce market timing risk. The marketing tended to make much of these products’ potential to earn above cash returns without the volatility of pure equity exposure; and this in turn conditioned policy holders’ expectations, a fact first acknowledged explicitly in the UK’s prudential solvency regime for insurers in 1967 (bear in mind that this was not the original prudential regime, which was introduced in 1870).