samchain/econo-pairs-v1 huggingface dataset:
W A Wijewardena: Services sector growth – an unstable growth component or a sustainable wealth creator? The case of Sri Lanka Text of the Professor Sirisena Tilakaratna Memorial Lecture - 2006 by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, at the Center for Banking Studies, Rajagiriya, 15 December 2006. The views expressed in this paper are those of the author and should in no way be construed as those of the Central Bank of Sri Lanka. *  *  *  I consider it a unique honour to be invited to deliver the Professor Sirisena Tilakaratna Memorial Lecture 2006. Four eminent authorities did the honour of delivering the same during the last four years. All of them were either his colleagues or his seniors. Against this background, a student of Professor Sirisena Tilakaratna being invited to do the honours this year is a departure from the past tradition. It is in this context that I consider it a unique honour bestowed on me. Professor Sirisena Tilakaratna comes from the same place as I do. He was schooled in one of the leading schools of the day, namely, Taxila Central College at Horana. He belongs to the rare category of students who did their studies in English medium, but equally fluent in Sinhala as well. Because of my relationship with him, I used to visit his house very often as a kid.

Broad diversification of the GPFG’s investments is in line with Markowitz’s theory. The GPFG’s investment strategy contributes to an acceptable risk-return profile for the fund. At the same time, with ownership shares in 9000 companies, the GPFG is also broadly exposed 4/6  BIS central bankers' speeches  to conditions and events with dimensions other than the effect on financial risk, related to how a company deals with a specific incident or more fundamental aspects of its operation. A global listed company that is criticised for its activities will almost without exception include the GPFG as one of its shareholders. Questions will sometimes be asked about why the fund is invested in the company and what action is being taken to follow up the fund’s investment. If questions are often raised about whether the GPFG is being managed in what is considered a responsible manner, support for the investment strategy may be affected. This could in turn increase the risk that we will not achieve our primary objective of enabling current and future generations to benefit from Norway’s petroleum wealth. The number of questions related to individual investments cannot be reduced by diversification. On the contrary, the number will increase with the breadth of the GPFG’s investments. The portfolio contains a large number of companies that could run into difficulties. A possible way of managing this type of risk is to exclude companies from the portfolio.
This conclusion has been reinforced in the recent publication of the Senior Supervisors Group (SSG) in which the PRA participates (Senior Supervisors Group (2015)). The SSG has concluded that “key supervisory concerns centre on whether the risks associated with algorithmic trading have outpaced control improvements. The extent to which algorithmic trading activity, including HFT, is adequately captured in banks’ risk management frameworks, and whether standard risk management tools are effective for monitoring the risks associated with this activity, are areas of inquiry that all supervisors need to explore”. As supervisors of almost all of the world’s major trading banks – through their operations in London – we can provide some helpful assessment of these events. We have observed that the balance between aggregate buy and sell orders submitted to banks’ electronic trading systems can shift instantaneously, and sometimes violently, upon this type of occurrence. 4  BIS central bankers’ speeches  The impact is often exacerbated by the simultaneous reduction in order book depth on organised multilateral electronic trading venues. The electronic trading contribution was more evident on 15 January, as a foreign currency market event than the 15 October (a bond market event), reflecting the different patterns of trading in these markets. On the 15 January, the ability of banks’ e-trading systems to hedge positions consistently through automatic risk management broke down as the necessary reference prices became discontinuous and unreliable.

However, they are beyond the scope of my speech today. When the productivity comparison is made between Turkey and the new EU member states, it is seen that the average gross value added per employee was 10.9 in Turkey for the year 2004, while the same figure was 4.1 for Bulgaria, 4.2 for Romania, 10.9 for Poland, 11.5 for Hungary and 11.7 for the Czech Republic.12 Turkey is not lagging behind these countries. It also has to be taken into consideration that some of these countries figures reflect their positions after accession. But, Turkey has just started the negotiations. Most probably, with the reinforcements of the structural reforms during the accession process, Turkey will be even better off in terms of productivity when the date of accession comes.13 In fact in the last four years, as I mentioned before, the cumulative increase in labour productivity has been 35 percent in Turkey. And it is expected that in the upcoming period, increases in total factor productivity will be one of the most important contributors to our growth potential. As a consequence of the envisaged huge productivity increase and according to the baseline scenario on the EU accession process, the Turkish State Planning Organization (SPO) estimates that by the year 2015, the Turkish economy would grow by 82 percent on a sustainable path. This implies an average growth rate of 6.2 percent.14 The other items in the decomposed income per capita equation are employment, dependency ratio and participation rate which are closely related to a country’s demographic factors.
The methodology document provides specific criteria for evaluating and implementing each Core Principle. One set of criteria focuses on issues deemed essential for the minimum implementation of the Core Principles; the other focuses on those issues deemed to represent “best practice”. The IMF and the World Bank currently use the new methodology to assess the banking sectors in individual countries. It should be stressed that the most important efforts to implement the Core Principles are occurring in individual countries and, with this in mind, I am pleased to say that approximately 120 countries including many here in Asia - have now endorsed the Core Principles. Without the support and backing of national authorities to follow through with the implementation of these principles, our broader efforts simply cannot be effective. In this connection, the Basel Committee has long recognized the need for effective training of participants in the global supervision community, and over the years has sponsored numerous programs which have been beneficial in allowing supervisors from different countries to share experiences and exchange ideas for improved practices. In 1998, the Basel Committee, along with the Bank for International Settlements, jointly established the Financial Stability Institute, which conducts leadership training of supervisors in emerging market countries and facilitates technical assistance. This May, the Basel Committee plans to bring together supervisors from emerging market countries and representatives from the IMF and World Bank to discuss the lessons learned from this initiative.

Mr. Singer said that the weak-koruna policy has persuaded Czechs that the central bank won’t allow consumer prices to fall, and removed the risk of a slide into a prolonged period of deflation. Central bankers aren’t worried so much about falling prices as about the threat that consumers and businesses will come to expect prices to continue to fall and will postpones their purchases, weakening economic growth and pushing prices down further. “We were afraid of this problem of postponed consumption and investment,” Mr. Singer said. “But people have realized the central bank is not going to allow a deflationary slide.”  BIS central bankers’ speeches  1  Mr. Singer said that retail sales are picking up, driven by higher auto sales, an indication that consumers aren’t postponing purchases in the expectation goods will be cheaper in the future. He cited a decline in the savings rate as another indication that the risk of deflation has been lessened. The central-bank chief said that while food prices may rise at a slower pace in response to a good harvest, he was not worried about that development because people can’t postpone food purchases. Measured according to an EU standard, the annual rate of inflation in the Czech Republic picked up to 0.7% in August from 0.6% in July, and Mr. Singer said he is confident it will rise to the 2.0% midpoint of the central bank’s target range next year, assuming the eurozone follows a “baseline scenario” of a return to modest growth.
Such testing is becoming an increasingly integral part of the risk management process within banks and, for that matter, the supervisory process. For example, if you have a good understanding of the extent to which your asset quality might be affected by an economic downturn, or how the value of your holdings of securities might be affected by changes in interest rates, this is valuable information in helping you manage your risks. So this is a technique that can be very useful indeed, and which I am sure many banks will want to explore further. All this talk of greater use of modelling and of quantitative techniques raises, of course, the question of whether there is sufficient availability within Hong Kong of the necessary expertise and skills. This, I would suggest, offers many opportunities - not the least, I would add, for our hosts and sponsors today, as both the academic fraternity and specialist service providers can potentially play an important role here. I hope that these thoughts on Basel II have been of interest, and possibly have brought out some aspects that may not have been picked up on before. From what I have said it should be clear, at the very least, that Basel II is not some abstract regulatory compliance issue of no real value to the banking industry.

The real point is whether, given the bank’s particular circumstances, the risk management practices they adopt are adequate. And that, primarily, is a matter for the bank’s management to determine, although we will of course, given our statutory responsibilities, also have an interest in this. I stress these points for three particular reasons. First, because I don’t want anyone to think that we are against banks taking risk. We’re not. That’s the business they’re in. We simply want to make sure they recognise and manage the risk effectively. Second, because I want to make clear that we are not hell bent on driving banks to invest in unnecessarily sophisticated risk management systems. What’s appropriate will clearly vary from bank to bank, depending on the nature and scale of their business and the risks they run. Third, because I want to be perfectly clear that Basel II is not some underhand means of making life difficult for smaller banks by raising the hurdle too high in terms of what they need to spend on risk management and on regulatory compliance. Indeed, on the contrary, the whole thing is carefully designed so as to accommodate banks of all shapes and sizes. So, how will Basel II change banking in Hong Kong? The answer, I would suggest, is that we won’t see any dramatic changes overnight, but we will over time see some re-focusing of how the risks within banks are addressed, both by banks themselves and by the supervisors.
Experience suggests that the increase in demand, initially at least, often exceeds the upward shift in potential growth. As a result, unutilised capacity is brought into production, unemployment falls and resource utilisation rises. So all in all, the demand effect tends to drive inflation up. The direct damper on inflation is a consequence of higher productivity growth leading to lower unit labour costs and thereby lower costs for production. Profits therefore rise initially but competitive pressure on prices leads in time to lower inflation. This effect presupposes that it takes time for wages to adjust to the higher productivity growth, which is not uncommon. These two effects on the rate of inflation accordingly work in opposite directions. An upward effect on inflation from the rising demand is countered by the dampening effect. For an inflation targeting monetary policy, the problem in principle should amount to striking a balance between these two effects. As I shall soon be discussing, however, things are not quite as simple as that. But first I want to point out that in the longer run — when both the demand effect and the dampening effect have dropped out — the interest rate will unquestionably rise because a higher level of potential growth pulls the equilibrium real interest rate up to maintain the balance between saving and investment. 3.2  Two alternatives for monetary policy  Behind this seemingly straightforward and fairly simple discussion there are, as we shall soon see, major challenges for monetary policy and pitfalls for economic development in general.

The review shows that the Riksbank’s rule of action works well as long as the structural changes concern price effects in connection with deregulations. In a period of accelerating productivity growth, on the other hand, the choices for monetary policy can be more complicated. While higher productivity growth is positive as such because it implies higher real incomes and a long-term improvement in living standards, during the adjustment process it can entail a number of risks. What looks like a good circle initially can lead later on to unduly strong and self-generating euphoria. It is, of course, difficult to tell under which circumstances the good circle will turn into a less favourable development. In practice it is presumably a matter of very difficult assessments. But the risk is probably greater if monetary policy aims too strongly and for too long at stimulating demand in order to  BIS Review 30/2001  5  keep inflation close to the target, instead of accepting a temporarily lower rate and doing its best to bring the development of demand into line with potential growth. In a way it could be said that such a reaction pattern implies that the central bank pays more attention to asset prices than in the normal case. It is important to note, however, that this is done in a situation where unduly rising asset prices are one of several signs that imbalances are building up in the 3 economy .
While college is generally a good investment, it has become increasingly expensive over the last several decades to attend a four-year program, as costs have risen considerably faster than wages—especially wages for all but the very top of the income distribution. This means that college has become increasingly unaffordable for those families who need it most, if we are to increase social and economic mobility. Of course, one result of the increasing unaffordability of college education is that fewer people get a college degree, which could help account for the 4/7  BIS central bankers' speeches  slowdown in the growth rate of the college-educated workforce that I discussed earlier. However, recent research by my colleagues at the New York Fed shows that young Americans have mostly adjusted to rising tuition and fees not by foregoing college education, but rather by amassing more debt. Over the past few decades, funding for higher education has shifted from state and local sources to students and their families. While the federal student loan program has helped ease that transition, the result has been that more students are leaving college with significantly higher amounts of debt. In fact, student loan debt has grown 170 percent over the last decade and now totals over $ trillion.16 To be clear, I don’t want to downplay the importance of student loans. When accompanied by college completion, they allow students to make what generally turns out to be a very worthwhile investment. I personally benefited from student loans while at Berkeley.

The pattern of risks differed somewhat from earlier periods with problems. Instead of the familiar difficulties with the banks’ loan portfolios, in large measure it was a matter of risks that certain highly leveraged players would generate problems through large positions in the repo market, for example. A drastic example—LTCM  5  BIS Review 23/1999  The problems in the U.S. hedge fund Long Term Capital Management can be seen as a drastic example of how systemic risks can arise if the banks’ counterparty risks and concentration risks become unduly large. A single player, seemingly far removed from the payment system, threatened to generate a systemic crisis in the U.S. financial system, with the risks of contagion that this might involve. LTCM, which had been operating since 1994, based its strategy on the use of statistical and mathematical models to identify temporary price differentials between similar financial market assets. This involved speculating, for example, in narrowing interest rate spreads in the U.S. bond market. In simple terms, a limited capital input was used to combine forward purchases of U.S. corporate bonds with forward sales of U.S. federal bonds. The combination of countervailing positions meant that the outcome would not be affected by the general development of interest rates. It was only the relative paths of the two asset categories that mattered—a narrowing interest rate spread would result in a profit. Similarly, the fund took large countervailing positions between different asset markets as well as between markets in different geographical regions.
But there is still considerable scope for its development: •  Islamic finance presently forms less than 1% the global financial industry. •  For a large number of countries, even in jurisdictions with substantial Muslim populations, Islamic finance currently constitutes less than 5% of their financial sector. 1  •  And despite a record level of sukuk issuance in 2012, the industry as a whole is still largely concentrated on the banking sector. 2 There is much ahead in the journey to develop Islamic capital markets and the takaful (Islamic insurance) industry. I believe the next 10–15 years offer significant opportunities for the growth and diversification of Islamic finance. Let me highlight the reasons to be optimistic about its prospects:  1  Based on surveys of the Islamic Financial Services Board (IFSB)’s members. 2  The Islamic Finance Mar 2012 report by the UK Islamic Finance Secretariat, a private sector industry body, estimated that the banking sector accounted for 93% of the global Islamic finance industry, with capital markets at 5% and Takaful at 2%. BIS central bankers’ speeches  1  •  First, Islamic financial institutions have in the main escaped significant damage in the global financial crisis. They are well-placed to grow, at a time when many of the global banks, especially the European banks, are deleveraging or focusing on consolidating their balance sheets. •  Second, Islamic finance has much potential to diversify into new growth areas such as trade and infrastructure financing in Asia and the emerging markets.

Tharman Shanmugaratnam: Opportunities facing Islamic finance and challenges in managing capital flows in Asia Outline of special address by Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore, at the 8th World Islamic Economic Forum, Johor Bahru, Malaysia, 4 December 2012. *  *  *  The Prime Minister of Malaysia, His Excellency Dato’ Sri Najib Tun Razak The President of Comoros, His Excellency Ikililou Dhoinine The President of the Islamic Development Bank, His Excellency Ahmad Mohamed Ali Chairman of the World Islamic Economic Forum Foundation Tun Musa Hitam Ministers and distinguished guests Ladies and gentlemen Introduction It is my pleasure to be here today and have the opportunity to share some thoughts. Let me first congratulate the WIEF on the progress it has made in establishing itself as a leading international forum for economic leaders and opinion shapers from a broad range of countries to discuss issues of interest in Islamic Finance and related themes in global finance. The theme of the Forum, “Changing Trends, New Opportunities” is particularly relevant. Allow me to first offer a brief perspective on opportunities facing Islamic finance. I will then go on to talk about the challenges we face in Asia in managing capital flows in the aftermath of the Global Financial Crisis. Islamic finance: opportunities for growth The Islamic finance industry is estimated to have grown by some 19% per year since 2006 – to record nearly $ trillion of total shariah compliant assets in 2012.
GDP Quarterly percentage changes translated to annual rate, seasonally-adjusted data 7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0  -1  -1  -2  -2 00  01  02  03  04  05  06  07  08  09  10  11  Note: Broken line is the Riksbank’s forecast. Sources: Statistics Sweden and the Riksbank  12  BIS Review 154/2008  Figure 9. Employed 1000s, seasonally-adjusted data 4700  4700 Sysselsatta 16-64 år  4600  4600  Sysselsatta 15-74 år  4500  4500  4400  4400  4300  4300  4200  4200  4100  4100 00  01  02  03  04  05  06  07  08  09  10  11  Note: The squares are the Riksbank’s forecasts, 15-74 age group. The outcomes are quarterly data and the forecasts are annual averages. Sources: Statistics Sweden and the Riksbank  Figure 10.

of  product  assessment  forms  without  It is very difficult to help in cases like these. Helping Singaporeans invest wisely is a major thrust of our financial education efforts. The lessons are simple.   High returns come with high risks.   Do not put money into investments you do not understand.   Do not put all your eggs in the same basket; diversify your investments:.   Keep your investments simple and for the long-term. Bringing financial education to the community If people can manage their finances well, it will help to minimise many other social problems. Community organisations like SINDA and the media have been playing an important role in bringing financial education to the community and encouraging prudent financial habits among the community. Individual members of the community have also contributed to making financial education more accessible to the public. Ponnaana Ethirkaalam (“Golden Future”), written by MP Sellvem and Jaafar Ghany, is a shining example of such an initiative.   The book explains key concepts in personal financial management in easy-tounderstand Tamil. BIS central bankers’ speeches  3    But more interestingly, it provides useful financial advice relating to each of the key milestones in our lives: buying a home, starting a family, funding children’s education, looking after aged parents, planning for retirement. In fact, the book starts with the premise of life as a journey that requires careful financial planning. And such planning is based on the values of patience and prudence.