samchain/econo-pairs-v1 huggingface dataset:
Timothy F Geithner: Further investments to strengthen the financial system Remarks by Mr Timothy F Geithner, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Economic Club of Washington, Washington, 9 February 2005. *  *  *  Good evening. I am honored to be here. It’s good to be back in Washington and to have a chance to talk with such a distinguished group. Much of our nation’s financial history and the history of our central bank is a story of contest for influence and over ideas between political leaders in Washington and the financial center of New York. I think it is important that ideas shuttle back and forth between our cities, and I am pleased to have a chance to share a few tonight. My overall argument this evening is this. We face a delicate balance between genuinely positive near-term economic conditions, and some fundamental challenges. If we are to increase the likelihood of continued strong growth in living standards, we should use this time of relative prosperity to address the imbalances that hang over our economy. Even with good policy choices, and with considerable luck, these imbalances will take time to unwind. During this time we face some risk of a more volatile and less benign overall financial environment. This makes it important that we continue to invest in making our financial system stronger and more resilient. Markets now reflect a fairly positive view about overall economic prospects.

And even if it were possible, I do not consider the Tobin tax to be a good method of reducing speculation and excessive risk taking on the financial markets. On the contrary, there could be an increase in risk taking when the possibilities for insuring oneself against financial fluctuations become too expensive and the banks' opportunities for distributing risks are reduced. Instead, I see the international work already being carried out into producing norms for various areas as a better means of promoting stability and reducing risks. To summarise, the credit and foreign exchange markets play an important role in society by mediating payments and savings, both nationally and internationally. The best way to prevent excessive risk taking is not to tax transactions, but to ensure that more countries pursue fiscal and monetary policy aimed towards stability, with a suitable exchange rate regime, and follow the international regulations and norms that promote stability. These norms must be continuously adapted to developments on the financial markets and in the rest of the economy, in order to limit the risks in the financial sector. BIS Review 27/2001  3
While it is too early to draw definitive conclusions from the current episode, it is nevertheless apparent that progress needs to be made by credit institutions, for example in the management of credit risk, market risk, liquidity risk, the risks associated with certain activities such as asset management and risks linked to the valuation methods used for some financial instruments. Regarding credit risk: –  It is important to check that banks’ internal rating systems, along with the estimation of the different risk parameters they use, are updated in order to reflect the increase in default risk and losses in the wake of the current turmoil. It is indeed vital that these systems do not lead to risk being underestimated. This update appears all the more necessary at the present time given that in the case of real estate loan portfolios, estimates of risk parameters have perhaps not been sufficiently rigorously tailored by all banks to the specific features of some risky forms of credit such as US subprime mortgages. The same thing may have happened in other countries.

It is rare to find another institution with such an experience. Preservation of global financial stability proved to be an issue of utmost importance to both the growth and the fight against poverty. Basel II has been definitively transforming into Basel III. There is a lot of work to be done to promote the micro-prudent and the macro-prudent frameworks. World Bank’s contribution through its participation in FSB and other international bodies and its cooperation with countries which use its financial and technical assistance is indispensable. I will finish my address with quoting the leaders of the Group of Twenty from the meeting in London, 2009: “We start from the belief that prosperity is indivisible; that growth to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world, too; and must reflect the interest not just of today’s population, but of future generations, too.” Thank you for your attention and I wish you a fruitful discussion and a pleasant stay in Skopje. BIS Review 32/2010  3
Moreover, the aforementioned absorption capacity for losses arising through NPLs is strengthened when the positive effect of credit moratoria and of the Government-approved programme of guarantees for firms is taken into consideration. In the case of temporary moratoria set in place both by the authorities and 17  by banks themselves, these should help enable those households most affected by the crisis to face this critical period with greater peace of mind. At the same time, they provide for containment of NPLs in the short run and, foreseeably, also in subsequent phases, provided that a portion of these more vulnerable households can gradually regain their habitual levels of income. Three clarifications are, in any event, called for regarding the general situation of the financial sector and the potential impact of the crisis on it. First, the figures for the 2020 decline in GDP reflected in the macroeconomic scenarios I have outlined would entail the biggest economic contraction in Spain for a single year in recent history. They also exceed the assumptions of any stress test performed on the banking sector in the past. This will give rise to an increase in the NPL ratio, albeit on what is still an uncertain scale. On Banco de España estimates, a 1 pp decline in GDP has, on historical averages, given rise to a 0.7 pp increase in the NPL ratio. That said, the scale of the decline in output projected at present is very high, which might give rise to a proportionately greater effect.

We continue to expect growth of 1.0–1.5% for the year 2013 as a whole. Consequently, we do not expect that the Swiss economy will return to full utilisation of production capacity in the near future. Monetary and financial conditions I will now turn to monetary and financial conditions. In recent weeks, volatility in financial markets has again increased. Since the last monetary policy assessment, however, the export-weighted external value of the Swiss franc has remained largely unchanged. Recent developments suggest that safe-haven considerations continue to play an important role in the demand for Swiss francs. Overall, the value of the Swiss franc remains high and should fall further over the next few quarters. The level of interest rates in Switzerland remained very low in the first quarter. On the secured Swiss franc money market, interest rates are in negative territory. Yields at issue for Confederation money market debt register claims also continue to be negative. By contrast, yields on ten-year Confederation bonds have risen slightly from the lows reached last December. Movements in long-term interest rates show that demand for secure investments  2  BIS central bankers’ speeches  reacts strongly to the international environment. My colleague, Fritz Zurbrügg, will talk about developments on financial markets in more detail afterwards. Banks’ sight deposits at the SNB have not increased any further since September 2012. However, growth in the M1, M2 and M3 monetary aggregates, which measure the amount of money held by households and companies, remained strong.
In particular, there were three episodes between the mid-1970s and early 1990s, when inflation rose very sharply, and at around the same time output contracted. While there are many in the room that don’t need reminding, I thought I would just give the younger members of the audience a reminder of just how desperate those times were (Chart 1). In 1975, RPI inflation peaked just shy of a staggering 27% while at the same time output fell. It was this era that entrenched the term “stagflation” in the minds of the public. Inflation fell back sharply over the subsequent year or so, only to rear its head again in 1979-80 – this time peaking at around 22%. Once again output contracted and unemployment rose sharply (Chart 2). A third and final bout of rising inflation and falling output occurred in the early 1990s, with the unemployment rate once again rising above 10%. On average, inflation in the 1970s was around 13% and 7.5% in the 1980s. The UK macroeconomic framework Why was it that output and inflation were so volatile then and why has economic performance improved so much in the past 10 years? These questions are vital as we face more uncertain times ahead and to ensure that we avoid repeating the mistakes of the past. I would point to three main factors. There have been changes to the structure of the UK economy that have made it more flexible and adaptable.

Summers, L (2013), speech at IMF Fourteenth Annual Research Conference in Honor of Stanley Fischer. Susskind, R and Susskind, D (2015), The Future of the Professions: How Technology Will Transform the Work of Human Experts, Oxford University Press. Swinney, P (2018), ‘The wrong tail’, Centre for Cities. Universities UK (2017), ‘Patterns and Trends In UK Higher Education’, Universities UK. Van Reenen, J, Bloom, N, Draca, M, Kretschmer, T, Sadun, R, Overman, H and Schankerman, M (2010), ‘The Economic Impact of ICT’, SMART N. 2007/0020. Willetts, D (2017), A University Education, Oxford University Press. 26  All speeches are available online at www.bankofengland.co.uk/speeches  26  Annex Chart 1: World GDP per head since 1000 AD 1990 International Dollars  7000 6000 5000 4000 3000 2000 1000 0  1000  1100  1200  1300  1400  1500  1600  1700  1800  1900  2000  Year Sources: De Long (1998). Chart 2: UK productivity, real wages and GDP per head Index, 1760 = 100 1800 1600 1400 1200 1000 800 600 400 200 0 1760  1810  1860  Productivity  1910 Real wages  1960  2010  GDP per head  Sources: Bank of England, ‘A millennium of macroeconomic data’, available online. Notes: Labour productivity per head uses GDP at factor cost. Real wages defined as nominal wage divided by GDP deflator at factor cost.
Since then, there has been a strong upturn in growth in the second half of last year. Available short-term indicators suggest that growth will also be strong in the first half of this year, in line with current forecasts. The positive outlook for euro area growth incorporated in current forecasts is supported by favourable conditions for growth from both the domestic and the external side. The growth in domestic demand has proved highly robust in the face of the slowdown which followed the Asian crises. The fact that confidence indicators are currently at or close to record highs is fuelling expectations that domestic demand growth will also be strong this year and next. Continued strong employment growth and increasing capacity utilisation, among other factors, should underpin the expansion of private consumption and investment. On the external side, there are now increasing signs that the upturn in growth in the global economy has been stronger, more rapid and more broadly based than was expected at the end of last year. Reflecting this favourable external environment, the growth in euro area exports should remain strong. 3  BIS Review 58/2000  There are, of course, some uncertainties surrounding euro area growth prospects. These come mainly from the external side. They are mostly linked to a possible pronounced slowdown in the US economy and the ensuing negative effects on the growth of the world economy. In the present context of strong growth, the outlook for inflation should be examined thoroughly.

Many governments are as yet insufficiently prepared for this problem, inasmuch as they are still highly indebted and are not pursuing the structural reform of public transfer systems with sufficient vigour. The assessment that much has been achieved, but that, at the same time, much remains to be done, also holds true in the case of general economic policies. The structural reform of labour and product markets remains the key to achieving significant reductions in unemployment. There is by now broad 5  BIS Review 58/2000  consensus on the fact that the larger part of the still very high level of unemployment in the euro area is of a structural nature. Only flexible labour markets will prevent bottlenecks from emerging and triggering upward pressures on prices at a relatively early stage of the current economic upswing. Looking at the regulatory reform process across the euro area, a good deal of deregulation and liberalisation of previously sheltered sectors have taken place in recent years. There remains significant scope for further action along these lines. In regulated industries, a low level of competition is often accompanied by a high level of public ownership. Privatisation and regulatory reform should thus be seen as mutually reinforcing measures. The favourable impact of such measures in terms of lower price increases has become clear in the case of the telecommunications and energy sectors. This should be encouragement enough to step up efforts in other sectors.
By 2008, the ranks of “accomptants” had swelled, with numbers of recognised accountants in the UK totalling over 275,000. Yet the issues today have loud echoes of 1938. Through the 1990s, the main international accounting standard-setters extended the boundaries of fair value. In the US, this was given impetus by the Federal Deposit Insurance Corporation Improvement Act (FDICIA) in 1991. Widespread use of mark to market was a key ingredient of the prompt corrective action approach embodied in FDICIA. From 1992, it became a requirement among US companies to disclose the fair value of all financial instruments in the notes to their accounts. Towards the end of the 1990s, this move was formalised with financial instruments (derivatives, equity and debt) being included explicitly in the accounts at fair value. In the US, this followed adoption of Statement of  5  United States Securities and Exchange Commission (2008). 6  FDIC (1997). 7  In a letter to Richard Breeden, Chairman of the Securities and Exchange Commission, which refers back to the 1930s experience, then-Chairman Alan Greenspan notes “that market value accounting raises a substantial number of significant issues that need to be resolved before considering the implementation of such an approach in whole or in part for banking organizations”. Alan Greenspan, “Letter to Hon. Richard C. Breeden,” Federal Reserve, November 1, 1990. 8  Simonsen and Hempel (op. cit.). BIS Review 28/2010  3  Financial Accounting Standard 133 (SFAS 133) in June 1998.

26 Cryptocurrencies have been banned in Bangladesh, Bolivia, Ecuador and Morocco. 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  In this spirit, the EU and the US are requiring crypto exchanges to meet the same anti-money laundering and counter the financing of terrorism standards as other financial institutions. 27  Conduct and market regulators are considering how to classify crypto-assets, in order to secure market integrity and determine the appropriate type and level of investor protections. In my view, holding cryptoasset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach. And as the SEC and FCA have argued forcefully, so-called initial coin offerings will not be allowed to use semantics to avoid securities laws designed to protect retail investors in particular. Prudential regulators, like the Bank’s PRC, are in the process of clarifying how the existing regulatory requirements – including for capital – which institutions at the core of the financial system must meet, apply to any future crypto-asset activity undertaken and exposures acquired. Recently in the US, the regulated exchanges CME and CBOE have started to offer Bitcoin futures. Having derivatives traded and cleared on exchanges could, in time, raise standards in them and mean that regulators have better information about how the underlying markets function. The discussions at the FSB and the G20 will be valuable given the diversity of possible approaches and the decentralised and cross-border nature of crypto-assets.
Today, I will speak about how we are working closely with the industry to ensure that our financial sector remains purposeful for the economy – - financing the growth of local and Asian companies; and - creating good jobs for the Singapore workforce. FINANCING GROWTH OF LOCAL AND ASIAN COMPANIES MAS has been working with the industry to deepen the financing ecosystem for regional and local companies in three ways. First, we are working to strengthen the venture capital and private equity financing ecosystem to serve Asian growth companies. The next-generation Asian growth companies, with their new ideas and models, have injected vibrancy to our corporate landscape. Venture capital and private equity (VC/PE) play an important role in supporting the growth of such companies and stimulating innovation. We have a small but thriving VC/PE industry. VC/PE assets under management has grown at a compound annual growth rate of 28% over the past 5 years. But we need to do more – given the growing numbers of Asian growth companies and their tendency to stay private for longer and not go the IPO route. We are simplifying the regulatory framework for VC managers. We are working with the industry to foster a deeper and more comprehensive ecosystem for venture capital and private equity.

Governments and parliaments, as guardians of the public’s trust, have the necessary legitimacy to set the 1  Mark Carney (2015), Breaking the tragedy of the horizon – climate change and financial stability, speech at Lloyd’s of London, London. Available at: https://www.bis.org/review/r151009a.pdf. 2  Real Instituto Elcano (2019), Los españoles ante el cambio climático. Apoyo ciudadano a los elementos, instrumentos y procesos de una Ley de Cambio Climático y Transición Energética. Available at: http://www.realinstitutoelcano.org/wps/wcm/connect/1c5a8ff2-2533-44bf-b2d6-a0c8053b231a/Informe-Espanolesante-cambio-climatico-sept-2019.pdf?MOD=AJPERES&CACHEID=1c5a8ff2-2533-44bf-b2d6-a0c8053b231a. 3 Real Instituto Elcano (2019), Los españoles ante el cambio climático. Apoyo ciudadano a los elementos, instrumentos y procesos de una Ley de Cambio Climático y Transición Energética. Available at: http://www.realinstitutoelcano.org/wps/wcm/connect/1c5a8ff2-2533-44bf-b2d6-a0c8053b231a/Informe-Espanolesante-cambio-climatico-sept-2019.pdf?MOD=AJPERES&CACHEID=1c5a8ff2-2533-44bf-b2d6-a0c8053b231a. 1  path for this transformation process. And, moreover, they have the most appropriate instruments to make it happen. Specifically, within the ambit of public policy, fiscal policy can and should play a leading role in the management of the transition to a more sustainable economy. Indeed, from the standpoint of economic theory, the origin of the problems associated with climate change is clear: economic agents pursue their activity taking into account only their private benefit or cost, while ignoring the social cost (in this case, environmental) that they generate. As a result, the emission into the atmosphere of greenhouse gases exceeds the socially optimal level. This is what is known in the economic system as a negative externality which needs to be internalised.
This was particularly so in the final stretch of the lockdown-easing process when trips between provinces in different regions and the arrival of foreign tourists from the Schengen area were once again permitted. However, it is worth noting the role that voluntary limitations on movement probably continue to play. These mean that movement is still some way off full normalisation, especially as regards international movements, which are so important for a country such as Spain where, as you know, the significance of tourism within the productive structure is so high. In late June, the volume of air traffic was still 65% down on the previous year. The recovery has been more patent in the mobility indicators, which tend mainly to reflect national movements (such as motorway traffic), or the indicators constructed with mobile telephony data, which include trips to workplaces, retail establishments or leisure centres, with yearon-year reductions of around 15% in all instances. This path of partial recovery in mobility has been reflected in the high-frequency indicators of economic activity, whose year-on-year declines have progressively eased. By way of example, the fall in electricity consumption by firms is expected to have eased between the opening weeks in April and the final weeks in June by close to 20 pp, to around - 10%.

For this response to be effective, it must be accompanied by national economic policy responses befitting the European action and the challenges we face. This response calls for the following: to maintain the support of fiscal policy to the economy, on a temporary basis, focusing on the groups of firms, sectors and individuals most affected and with a design that allows for the structural adjustments needed; to convert the European funds into a fiscal impulse that accompanies and steers the recovery effort of our productive system; to urgently implement an ambitious, comprehensive, lasting and assessable strategy of reforms that tackles the structural challenges of our economy; and, finally, to design a medium-term fiscal consolidation programme, for gradual implementation once the economic crisis caused by the pandemic is behind us, that ensures the sustainability of our public finances and enables fiscal buffers to be built up for use in future recessionary episodes. The future well-being of our country depends on an economic policy strategy that combines these principles. Thus, as I have stressed on other occasions, there should in my opinion be a high degree of consensus among the various political, economic and social agents regarding the guiding principles of this strategy, so that the foundations on which our growth rests are predictable and lasting. Thank you. 12