samchain/econo-pairs-v1 huggingface dataset:
My talk today is to update you on the recent economic and financial developments, and to share with you our assessment of the prospect for next year, including the challenge for policy. Let me begin first with the global economy. Recent economic data, especially of the last few months, point to a picture of greater stabilization and more consistent signs of recovery in the global economy. The severity of the early economic contractions has eased while the levels of economic activities are gaining traction on a worldwide basis. In most major economies, final demand is showing signs of strengthening along with improvements in consumer confidence and business sentiment. More importantly, although the financial system in the advanced economies has not returned to normalcy, financial conditions have improved markedly with lower market volatility, reduced risk premia, and the unfreezing of interbank and other short-term funding markets. These positive developments have led to a view that the worst of the global crisis is now behind us, and forecasts of economic growth have been revised upwards for this year and next year. On the financial front, reflecting these recent developments, appetite for risky assets has returned, leading to a resurgence of capital flows to emerging markets and strong rallies in equity markets especially in Asia. And for economies that the prospects for recovery look most certain, policy interest rates have started to increase to return policy accommodation to a more normal level, as is the case of Australia and Norway.

Against this background of uncertainty and shocks, and in order to reap all the benefits of the fantastic process of economic and financial globalisation, we are still facing two main challenges: First, we observe persistent financial instability of which the ICT and equity bubble is a striking example. What are the factors behind such developments and which avenues should we explore in order to mitigate financial instability? Second, we had to cope with repeated financial crises in emerging market economies since the early 80s. Our challenge is how to prevent such crises and, if they occur, how to ensure that effective and predictable methods for crisis resolution are available, and enforced. In my view, the new international financial architecture (understood broadly) should provide appropriate policy responses to both types of challenges. Of course, they are interlinked in many ways. For the sake of clarity, I will address these two types of issues separately. •  First, I would like to show that some by-products of financial integration may have had adverse effects on the stability and efficiency of the financial systems;  •  I will then try to put into perspective recent crises in emerging market economies. *  1. Some by-products of financial integration may have had adverse effects on the stability of mature financial systems  1.1.
This is an important function because modern electronic payment systems have the potential to serve as channels of contagion by transmitting the payment difficulties of one, or a few, large financial intermediaries to others in the system. In 2002 a Retail Gross Settlement System based on the Bank for International Settlements’ ten core principles2 was introduced in Malta through which inter-bank domestic payment orders are now transmitted, cleared and settled with greater efficiency than previously. The Bank has also issued a number of directives which seek to provide participating banks with an adequate degree of protection against legal and systemic risks associated with participation in such systems. Other directives seek to ensure that the rights of banks’ clients to adequate information concerning retail payments are upheld by the intermediaries rendering payment services. In this way, credibility in the integrity of the infrastructure used for the settlement of payments is preserved at both wholesale and retail level. The Bank’s role in financial stability has more recently been enhanced by membership of the European System of Central Banks (ESCB) from May 2004. It has started to participate in the ESCB  1  The 1967 Act referred to the Bank’s role in promoting a sound financial structure and to foster an orderly capital market in Malta.

This will be further accentuated by the current trends whereby financial intermediaries outsource activities both on a domestic and cross-border level, while the introduction of the European Union Directive on the European Single Company Statute, the so called Societas Europea, will present new regulatory and financial stability challenges on a regional level. The implications of international developments for Malta These observations are particularly relevant for Malta. First, whereas the size and complexity of financial intermediaries, and that of corporate entities to which they are exposed, has grown disproportionately relative to the resources available to regulators and liquidity providers across the globe, this divergence is magnified further in a small jurisdiction such as ours. Second, because the characteristics of the Maltese economy make it vulnerable to developments abroad, the financial sector is especially exposed to changes in the perceptions of foreign investors about the sustainability of prevailing economic policies and the capacity of the financial sector to absorb external shocks. 4  BIS Review 50/2004  Given the ease with which funds can now move in and out of the country, moreover, and the scope for disparity between the size of the economy and that of foreign institutional investors, the need to maintain confidence in the domestic financial sector assumes particular importance. This risk is further accentuated by the fact that while most sectors of the economy operate in a competitive environment, in many sectors business remains concentrated among a small set of market players. The financial sector is no exception in this regard.
The combination of this war chest and coordinated G7 central bank action helped ensure markets functioned normally as the financial system absorbed a result that had been assigned a 10% probability hours before. And it meant we could credibly and immediately demonstrate to the public that we were well prepared. We are buttressing the system via substantially higher bank capital. The capital of major UK banks has tripled and the requirements for the most systemic global banks have increased ten-fold. Tier 1 is now at 16.5%. Capital that would have been adequate for banks to withstand any of the 20 largest historic banking crises – and in the judgment of the Bank’s Financial Policy Committee, a Cliff Edge Brexit – and still lend to the real economy. 22 23  Kouzes, J and Posner, B (2010) ibid 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  By using multiple stress tests, we are spending less time trying to predict what could go wrong and more time being ready for the worst that could happen when things do. And we are burying. The cornerstone of an anti-fragile financial system is literally planning for failure. Remember: plan beats no plan. That means resolution plans for banks; Crisis Management Groups for 30 GSIBs; and having banks building sufficient internal resources to recapitalise themselves if something goes wrong. Large UK banks have already built their Total Loss Absorbing Capital to 25% of Risk Weighted Assets.

A plan provides the necessary clarity of mind by focusing efforts and uniting people around a common goal. Even a strategy that is half-baked but gets you out of immediate danger is better than waiting for the perfect answer and being annihilated. Part of the plan to end the financial panic had to include reducing uncertainty over objectives. Some fretted that actions to save a crumbling system would encourage reckless behaviour in the future. Ben Bernanke was clear that invoking moral hazard in the middle of the U.S. financial crisis was misguided and dangerous. 20  Using the power of narrative, he challenged the arguments of the ‘moral hazard  fundamentalists’ in his oft cited and simple hypothetical example: do you let the man who smoked in bed die in the burning house to teach him a lesson? Or do you save him, stop the risk of surrounding houses catching fire and then reprimand him for reckless behaviour? 21  4. Humility The final essential leadership quality is humility. Recall what I said about this speech being a target-rich environment? Good leaders combine personal humility, self-knowledge and the ability to learn. That means admitting mistakes, seeking and accepting feedback and sharing the lessons you have learned. When leaders become over confident (or turn to writing books), they stop learning.
In that case, unemployment is likely to fall faster as demand grows, meaning that unemployment will reach the 7% threshold sooner. Then it will be appropriate to tighten policy sooner in this case, as potential output will be lower. The only case where the linkage of policy to unemployment is potentially problematic is where there is scope for productivity to increase as demand recovers, but for some reason firms take on extra labour before the increase in productivity takes place. But this seems rather unlikely to me. In any case, it is important to realise that the 7% threshold does not constitute a trigger for the MPC to raise Bank Rate. Rather it represents a prompt for the Committee to undertake a  1  See Bell, D N F and Blanchflower, D G (2013) ‘Underemployment in the UK revisited’, National Institute Economic Review, No. 224. BIS central bankers’ speeches  3  broad assessment of the prospects for demand, supply and inflation. If it appears that there is still a substantial degree of slack in the economy which can be absorbed without threatening the achievement of the 2% inflation target in the medium term, then there will be scope to maintain the existing stance of monetary policy longer, perhaps re-setting the unemployment threshold to a new lower level at the same time.

The countries of the euro-area periphery have also made progress in restoring competitiveness and rebalancing the composition of demand, though there is still quite a way to go. Member states are working towards the creation of a functional banking union, which has the potential to break the link between sovereigns and banks. And in preparation for becoming the euro-area banking supervisor, the ECB is planning a rigorous review of the quality of banks’ assets, to be followed by a set of stress tests and, if necessary, recapitalisation. Provided these carry credibility with the market, this could do much to restore confidence in the euro-area banking system. But while some headwinds are abating, others remain. The need to restore the public finances to sustainability means that fiscal consolidation will continue for some years yet. And, for some households, the past accumulation of debt may weigh on spending. Finally, even though the cloud of uncertainty may be lifting, businesses are likely to remain cautious about increasing their investment spending until it is clear that the recovery in demand will be sustained. So the pace of the recovery is likely to remain fairly modest by historical standards. That will mean that it is likely to be some time before the economic slack that built up during the recession has been brought back into use. I will say a little more about that later.
We also managed to transfer the prime mortgage assets over the weekend, also to Nationwide. This was an achievement, because necessarily the due diligence process is more complex for assets than deposit liabilities. The worse quality assets – mainly commercial property loans and bought-in mortgages – were placed into a building society special administration procedure (the building society version of a BAP). But the social housing loan book (for which Dunfermline was the second largest provider in Scotland) and some associated deposits were taken into a bridge bank owned and run by the Bank of England. We ran the bridge bank for three months while a sale process took place. Dunfermline was therefore a case where we managed to use three of our tools in one go – the transfer powers, BAP and a bridge bank. To give you an idea of the pressure under which resolutions are done, the Dunfermline weekend involved an M&A process, the completion of around 50 legal agreements including a three-way transitional services agreement, setting up a new bridge bank, and putting in place communications to depositors and other stakeholders in order to ensure that branches and call centres etc opened for business as usual on Monday morning. And, there is a very human dimension to all of this. My own colleagues, our advisors and our colleagues in the other authorities have to work under great stress to get a successful resolution in place.

It also included an important mechanism to ensure business continuity, whereby a bank could be broken up over a weekend and this would not cause chaos in the bank’s operations because a clear agreement was reached over the weekend for the continuing supply of services by the rump to Santander in order to make sure that it was business as usual on Monday morning for the transferred business. The new regime The BSPA contained broad powers, on the basis that it was temporary. Thus in February this year the new Banking Act came into force and created a permanent and more wide ranging special resolution regime or SRR for deposit takers incorporated in the UK. It is therefore a big and very welcome step forward. 2  BIS Review 157/2009  The SRR has five objectives: to maintain financial stability; to protect confidence in the banking sector; to protect depositors in banks; to protect public funds; and to avoid interfering with property rights in contravention of the European Convention on Human Rights. These five objectives are not ranked in order of importance; rather, in each resolution case, a judgment needs to be made on how to balance these objectives taking into account the particular circumstances of the case. The SRR provides a number of tools to deal with a bank.
In some cases, new guidelines are altogether needed for regulating new products and innovations such as mobile banking, internet banking and Islamic banking. The need for quick and appropriate responses to market developments and innovations while important also need to be balanced by a well designed regulatory framework that ensures the maintenance of a stable and sound financial system. Chairperson, the stability and soundness of the financial system is in turn, heavily dependent on the adequacy of capital. It is essential for the right balance to be struck between the need for banks to hold adequate capital to absorb losses and the need to ensure that capital requirements do not unduly constrain from lending to the real economy. It is also important that banks are not so highly leveraged relative to common equity as to create incentives for excessive risk taking. The required capital ratios should therefore be viewed in the context of the high quality capital – Core Tier 1 and Tier II definitions and should exclude subordinated debt as providing relevant support. Distinguished delegates, Basel II provides a pragmatic approach to determining overall capital levels. It introduced a new approach to the definition of relative capital requirements to be held against specific asset categories. The challenge in this approach is in deciding what an optimal level of capital is especially in light of massive scale of economic losses now being suffered as a result of the banking system collapse.

Stablecoins and other new forms of private non-bank money might be the next big thing. Or they might be a flash in the pan. I don’t have a bet here – I am a central banker not a venture capitalist. My job, as a central banker and regulator – in all of this – is to ensure that financial innovations, including new forms of digital money, do not impair the Bank of England’s ability to maintain monetary and financial stability. This shouldn’t be confused with preserving the status quo. Financial stability is n’t about protecting incumbent banks or other existing firms from competition. Instead financial stability seeks to ensure that people and businesses can rely on essential financial services – like the ability to make a payment or the ability to get a loan – in bad times as well as good. A regulatory framework Earlier this week, the Bank of England published a Discussion Paper that examines the implications of stablecoins for its financial and monetary stability mandate. In it we present an illustrative scenario to examine the implications of the emergence of stablecoins and other new forms of digital money. The discussion paper models what would happen if a large number of households and businesses moved their deposits from banks and into a stablecoin or Central Bank Digital Currency (CBDC). Contrary to some press headlines, even such a dramatic shift does not inherently constitute a financial stability risk as long as it happens in an orderly manner.
Zeti Akhtar Aziz: Developing skills for a constantly changing environment Governor's Acceptance Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, for her Honorary Degree of Doctor of Laws from the University of Nottingham, University of Nottingham, Malaysia Campus, Selangor, 21 January 2006. *  *  *  It is indeed my great honour to receive this honorary degree from the University of Nottingham, one of the premier universities in the United Kingdom . It is particularly special to receive this award at the University of Nottingham Malaysia campus, being amongst the first overseas campuses of world-class institutions of higher education that have established a presence in Malaysia. Malaysia and the United Kingdom have a history of close bilateral relations, reinforced by strong economic and financial linkages that span over a period of 200 years. This relationship is particularly evident in the field of education. The British are also known for being pioneers of strong cross-border higher education strategic alliances and partnerships. In Malaysia , we have seen such joint programmes between local and British institutions of higher education since the 1980s. Malaysia values this synergy and partnership with Britain and continuously looks forward to opportunities to further deepen this relationship on a wider range of areas for the mutual benefit of both countries. Significant new trends continue to shape both the global and our domestic economy. The modern world is experiencing continuous dramatic change.

It is now my pleasure to give the floor to Fritz Zurbrügg, who will present our financial stability assessment. BIS central bankers’ speeches  3
How to deal with the reality of the business cycle is an area where Europe -- with its tradition of social safety nets -- and the United States -- with its tradition of flexible work arrangements -- can perhaps learn something from each other. To date, neither of us seems yet to have found the optimal way to cope with the unavoidable reality of the business cycle to enable us to avoid both high unemployment rates and too skewed a distribution of income. My last general observation about the implications of EMU for the United States has to do with the dramatic changes in macroeconomic policies that will accompany the creation of monetary union in Europe. Naturally, the main change will concern monetary policy, and it is in this area that the similarities between Europe and the United States will ultimately be the greatest. The first similarity is that, with EMU, the formulation of monetary policy in both Europe and the United States will be highly centralized and the European central bank will enjoy, as the Federal Reserve does, a considerable degree of independence. These institutional features will reduce the scope for national governments to bend monetary policy to the needs of their country’s business cycle and will help keep the focus of the European central bank on the objective of price stability.

Thomas Jordan: Swiss banking centre – a great past and a successful future? Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Swiss International Finance Forum, Berne, 20 May 2014. *  *  *  The speaker would like to thank Till Ebner for his valuable support in preparing this speech. He is also indebted to Rita Kobel, Marco Huwiler, Peter Kuster and the SNB Language Services for their assistance. Introduction History has shown that important international banking centres can develop in small countries as well as large ones. Switzerland is an excellent case in point. During the course of the 20th century, the banking centre in this country became one of the world leaders in wealth management. With the associated creation of value and employment, the banking industry was transformed into a cornerstone of the Swiss economy. However, for some years now, the prominent international role of the Swiss banking centre has been subject to increasing criticism. Given this situation, Switzerland and its banks are confronted with a fundamental question: Can Switzerland, as a relatively small country, continue to provide a home to a banking centre whose importance is global in nature? In my view, this is possible as long as the following three prerequisites are fulfilled: The services offered by the banks, their crisis resilience and their reputations must all be considerably above average. It is up to the banks themselves, first and foremost, to fulfil these prerequisites.