samchain/econo-pairs-v1 huggingface dataset:
Today’s discussion aims to contribute towards a deeper awareness and understanding of the risks and emerging issues in mortgage financing. We hope that this, in turn will be useful to the boards and senior management of financial institutions in framing your own approaches to managing risks in this area. Tremendous growth prospects exist in the mortgage market in Malaysia. Over the last 5 years, mortgage financing experienced a strong and sustained average annual growth of more than 9%. Such loans now constitute a significant 27% of the total industry loan books. With emerging signs of an early and stronger recovery in the domestic economy, renewed optimism can be expected for more robust growth in the domestic mortgage market. The demand for housing will also receive additional support from continuous efforts by the government to promote home ownership and investments. For example, the new scheme to be launched this year for EPF contributors to fund the purchase of higher value or additional houses is expected to increase consumer purchasing power for homes in the coming years. The growing stream of new entrants in the labour market has also enhanced prospects for an expanded market among first time home buyers. At present, the overall mortgage financing portfolio in Malaysia remains sound, with gross non-performing loan on a declining trend since 2000. However, while mortgage financing has continued to be a profitable business for most banks, competition has intensified considerably, with lending yields falling dramatically over the last decade.

But, eventually, the potential investors and creditors have to believe that: -  the political and security shocks in the region and inside the country are behind us,  -  the economy accelerates its growth, which over the recent years is not below 4% real GDP growth,  -  we preserve high macro-economic stability that implies exceptionally disciplined monetary and fiscal policies, which in turn result in low inflation, stable exchange rate and foreign exchange market, sustainable trade and current account deficits and strictly controlled public debt and that these policies for maintaining macro-economic stability will be further conducted, as a prerequisite for good business,  -  the price stability policy will be further implemented,  -  the growth will accelerate registering rates higher than before,  -  serious structural reforms are underway under the leadership of the government in cooperation with the World Bank and the IMF. The tax policy has undergone reforms by reducing the tax burden. The administration has undergone reforms for increasing its capacity. Additional reforms in the financial sector and improvement of the financial market operations have been underway. There are reforms in the cadastre. The conditions for foreign direct investments have been improving. The process of economy deregulation has been underway. The judiciary reforms have improved the efficiency in the contract execution. The ownership rights have been protected. The bank soundness and safety have been strengthening. The depositors feel that and repay with over 20% deposit growth over the last several years.
Conclusion The persistently high current account surplus in Switzerland is not a reflection of an overly weak Swiss franc. Rather, this surplus can be explained by three factors. First, statistical distortions mean that Switzerland’s current account surplus tends to be overstated. A considerable percentage of multinational companies in Switzerland are held in free float by foreign investors. If these companies reinvest their profits, they are entirely attributed to Switzerland, even though a large proportion actually belongs to the foreign investors. The higher nominal interest rates abroad inflate the current account surplus in Switzerland. The reported balance is too high because the nominal appreciation of the Swiss franc is not taken into account. Overall, these statistical distortions have the effect that Switzerland’s net international investment position does not steadily increase despite persistent current account surpluses. Second, there are structural reasons for the current account surplus or savings surplus in Switzerland. These include, in particular, the rapidly ageing population. If the statistical distortions are factored out of Switzerland’s current account balance, it shows a savings surplus, which in light of the demographic developments and a well-financed pension system is entirely justified. Third, the size and development of the current account balance in Switzerland are driven by two industries whose net exports are relatively insensitive to exchange rate fluctuations and whose importance for the current account is considerably larger than it is for the economy as a whole.

In 2016, Switzerland’s foreign assets were almost seven times its GDP, while its foreign liabilities were more than five times its GDP. By international standards, Switzerland continues to rank well above the average in terms of its integration with the global economy, not only in relation to trade in goods and services but also in relation to portfolio and direct investment. As we saw earlier, the current account balance corresponds to the difference between savings and domestic investment. In the international perspective, it is often argued that countries with current account surpluses invest too little or save too much. Where does Switzerland fit in here? Chart 3 shows average saving and investment rates during the period 2010–2015 in various groups of countries and in Switzerland. Saving rates are depicted in red, investment rates in blue. As the chart shows, while Switzerland invests relatively heavily by international standards, it also saves far more than other countries. At 24%, Switzerland’s investment rate exceeds the average for both the advanced economies and the OECD countries; and, at 36%, our saving rate is among the very highest. Switzerland’s high investment rate shows that the current account surplus is far more a function of a comparatively high saving rate than of low domestic investment. Global current account balances Let me now give you an overview of the chronological and geographical development of global current account surpluses and deficits.
Chart: Financial stress arises The red lines in the panel again show a scenario where the central bank does take into account the possible effect of monetary policy on financial stress. When financial turbulence occurs, the economic setback is less pronounced and less prolonged than if the central bank had not taken this risk into account in monetary policy, as illustrated by the blue lines. The benefit gained from keeping the interest rate somewhat higher in the short term is in this case a more stable path for inflation and output over time. This framework is highly stylised. In the actual implementation of monetary policy we are faced with a number of difficulties. First, developments in debt and house prices depend on a number of factors in addition to the interest rate. Second, both the costs and the benefits of leaning against the wind are uncertain. What we do know, however, is that the economic consequences of a financial crisis are so serious that an insurance premium is worth paying. Let me now return to the Norwegian economy and to the trade-offs in recent interest rate setting in Norway. As I said earlier, the key policy rate in Norway has in recent years been kept slightly higher than implied by medium-term outlook for inflation and output, in order to mitigate the risk of a build-up of financial imbalances. However, through last autumn, oil prices fell sharply and the growth outlook for the Norwegian economy weakened.

Likewise, a  4  Winje, H. and L.T. Turtveit (2014): “Norwegian banks’ adjustment to higher capital requirements”, Norges Bank Staff Memo 14/2014. BIS central bankers’ speeches  3  pronounced economic downturn with increased bank losses can be addressed by lowering both the key policy rate and the capital buffer. In other situations, it may be appropriate to reduce the key policy rate while at the same time raising the level of the capital buffer. If, for instance, there are prospects that inflation will become too low at the same time as debt and house prices are rising rapidly, the key policy rate will be reduced, in line with its primary task of maintaining a nominal anchor for the economy. Unwarranted negative effects on financial stability of lower interest rates could in this case be counteracted by raising the level of the countercyclical buffer. Macroprudential policy and stricter banking regulation help to reduce systemic risk, but we cannot act on the assumption that tighter regulation alone will suffice to prevent future crises. Monetary policy, on the other hand, has well-documented effects on house prices and debt. Thus, monetary policy deliberations at Norges Bank give weight to mitigating the risk of a build-up of financial imbalances. By taking financial stability considerations into account, we seek better, more stable outcomes for inflation and output in the longer run. A simple analytical framework can serve to illustrate this point. Chart: Framework Consider a central bank with a flexible inflation targeting regime.
Payments: A platform for innovation Speech given by Victoria Cleland, Executive Director; Banking, Payments & Innovation  SIBOS, London Tuesday 24 September 2019  With thanks to Sara Ward and Emma Playford. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  It is a great pleasure to be speaking today at the ‘UK payments infrastructure – renewing for growth’ event at Sibos. This year’s event is exciting for two reasons. First, it’s National Inclusion week here in the U.K.1 And, it’s a great coincidence that SIBOS has fallen during this week: at the heart of its agenda are discussions around how change and diversification in payments could lead to a more inclusive financial system. Second, this is the first Sibos conference to be held in London – and it is certainly an exciting time for so many global payments experts and innovators to be here. London has a long history at the heart of the global financial system. It continues to build on this expertise and is one of the leading fintech hubs in the world. It is home to an incredible pool of the world’s best and brightest talent, with 44,000 people already working in fintech, more than in Silicon Valley or New York.2 Investment into the UK’s fintech sector continues to grow and reached a record level of $ in the first half of 2019, which was nearly 85% of the 2018 total.3 And we can see that the UK fintech sector is maturing, evidenced by the size of increased investments.

We are conducting industry engagement to inform our decision and would welcome input from interested parties. And the most significant moment is when we replace the core RTGS service, planned for 2023. Additional functionality will be delivered in 2024, to further drive innovation and change. For example we will introduce read/write APIs and are exploring the ability to synchronise the settlement of a payment in sterling central bank money to be coordinated with the transfer of one or more assets. The Programme is expected to close in 2025. It will be an exciting few years! ISO 20022  One way in which RTGS Renewal can promote resilience and efficiency is through greater interoperability across payment systems. Could, for example, CHAPS be used as a contingency mechanism in the event of a retail payment system outage? Key to this is the introduction of a new payment messaging standard for UK payments, ISO 20022: the emerging global standard. Following a consultation in 2018,8 the Bank and Pay.UK will introduce a Common Credit Message across CHAPS, Bacs and FPS which will bring greater message harmonisation for the UK’s main interbank payment systems. The Bank is also engaging with other High Value Payment System operators to ensure the standard is compatible with the emerging international consensus. This is an exciting and important initiative which will bring significant and long term benefits for a wide range of firms.
This leads in turn to a rise in redundancies, something we have unfortunately seen in these last few weeks. Banks then become uncertain as to whether companies can pay back their loans. When uncertainty arises about the financial strength of companies, interest rates go up and it becomes more difficult for the financial system to mediate credit from lender to borrower. Investors, those who normally want to invest money to increase their returns, back away. When they do so, the functioning of other markets increasingly deteriorates. The Riksbank acts as a safeguard so that the system does not run out of money It is now a question of trying to shorten the period of risk aversion and credit shortage as it can exacerbate and prolong the downturn in the economy. As the Riksbank functions as the banks’ bank and supplies them with money which they then pass on to others in society, the Riksbank’s task is to supply money to the financial system. This reduces the risk of money shortages and sharply rising interest rates exacerbating the situation. By guaranteeing ample access to Swedish kronor that keeps down interest rates, the Riksbank helps to ensure that consumption and investment do not fall as much as they otherwise would have done. In this perspective, the Riksbank’s task is key in order to mitigate the effects on jobs and companies. And we take this task extremely seriously because “it is no game”, as one business leader put it in our survey.

In addition, banks are being offered the opportunity to borrow an unlimited amount of money each week against collateral at three months’ maturity at an interest rate of 0.20 percentage points above the repo rate, which is at zero per cent. In addition to this, the Executive Board has decided that the Riksbank will extend its purchases of securities by up to SEK 300 billion up until December. The Riksbank normally buys government bonds. In these exceptional circumstances, however, it is important to ensure that all major markets continue to function. For this reason, the Riksbank has now also begun to purchase mortgage bonds and will purchase municipal bonds. In the last few days, corporate bonds and commercial paper issued by Swedish non-financial corporations have also been included in the asset-buying programme. These bond purchases increase the access to credit in the economy in general and future purchases of corporate bonds and commercial paper will provide additional support to Swedish companies in particular. Just like the Riksbank’s previous purchases of government bonds, the new purchases will also help to keep monetary policy expansionary and to stimulate activity in the economy. Given the global nature of the crisis, it is also important to ensure that there is access to US dollars (USD) in the Swedish financial system. To strengthen access to one of the most important currencies for Swedish companies, the Riksbank has announced that we will lend up to USD 60 billion.
At the end of the day, what matters is the cost of borrowing for households and firms, which does not stem directly from risk-free interest rate structures, but goes through the filters of the capital market and the banking system. Pass-through from monetary policy to market interest rates As I indicated the latest monetary policy measures were clearly transmitted to the banking system’s borrowing rates, thanks to the complementary measures adopted by the Board at its last meeting (figure 3). Last March, we stated that the aggressive reductions to the MPR implemented by the Board in January and February had begun passing through to the cost of borrowing faced by households and firms, affirming that such transmission could be reasonably expected to continue. This diagnosis still holds, particularly after what we have seen since our last meeting and especially in consumer and commercial loans (figure 4). We estimate that,  2  BIS Review 105/2009  without the 425 basis point’s reduction of the MPR that began in March, consumer lending rates would be between 400 and 500 basis points above their current levels. Short-term commercial credit rates, at 30 to 89 days, would be between 350 and 450 basis points above their current figures. Long-term mortgage loans would be some 25 to 30 basis points higher. We believe that the reduced funding costs of financial institutions will continue to be passed on to the cost of credit with the usual lags. We expect the banking industry to actively cooperate in this process.

A full normalization of credit demand and supply conditions will have to wait until the dust settles in the international financial scenario, to allow more clarity about global and domestic growth prospects. These risk factors have a direct incidence on credit risk premiums implicit in banking operations. We can see that the monetary policy action has more than offset the increase in risk premiums, resulting in a significant drop in credit costs, thus mitigating the effects that the global crisis has had on our economy. One important aspect of the access to credit, aside from its cost, draws from the effect of the environment of uncertainty and economic weakness on the credit approval conditions and credit demand. In these dimensions, we have recently seen signs of stabilization. Internationally, the various indicators of uncertainty and risk in global financial markets, while remain relatively high, have continued to fall. Domestically, the evidence at hand from the Banking Credit Survey for the second quarter of this year reveals that, on average, banking institutions have already stopped tightening their lending standards and perceive early signs of a recovery of the demand for credit. This is particularly evident in the mortgage segment, suggesting that the levels of the long-term interest rates on these loans are not necessarily holding back the demand for housing credit (figure 5).
This generates further underestimation of institutional risks. Consider again those 90th percentile VaR measures for UK banks. But instead of looking at unconditional VaR, consider now conditional VaRs (CoVaRs) – that is to say, VaRs conditional on other institutions in the network simultaneously facing stress. 8 As Chart 12 shows, this raises the median risk facing UK banks by around 40%; and for some banks, risk estimates almost  4  Gell-Mann (1994). 5  Morris and Shin (2008). 6  See, for example, Brunnermeier, Crockett, Goodhart, Persaud and Shin (2009) and NYU Stern School of Business (2008). 7  For example, a survey of stress-testing by the CGFS in 2005 found that only a small minority of firms considered the effects of multiple shocks on their balance sheet. 8  Following the methodology of Adrian and Brunnermeier (2008). BIS Review 18/2009  5  double. For a financial firm leveraged 20+ times, those risk revisions could be the difference between success and failure. Network risk externalities of this type impose formidable informational demands on banks. For example, understanding the full consequences of Lehman’s failure would have required information on the entire topology of the financial network. This is unrealistic even for the authorities, much less an individual firm. Absent that knowledge, the financial system was seized by network uncertainty. If this informational failure is not easily rectified by the actions of individual firms, there is a case for the authorities attempting to provide that missing informational public good, however difficult that might be in practice.

In future, the Bank aims to be able to offer through the FSR some greater clarity to financial firms about the sorts of vulnerability scenario it thinks they could use as one (and only one) input to their stress-testing machinery. This might include both solvency and liquidity-type scenarios. As the FSA have proposed, banks should also test to destruction their balance sheets through “reverse” stress tests, in order to identify potential areas of balance sheet weakness. •  Second, regular evaluation of common stress scenarios. Having banks conduct regular evaluations of their positions relative to a set of common scenarios (provided by the authorities) would be an improvement on current practices in several respects. First, it would allow some degree of benchmarking of results across institutions; second, it would allow a degree of benchmarking, and hence peer review, of models; and third, it would hopefully help in ensuring stress-testing exercises form an input to management decisions and are not an annual regulatory ritual. Comparing these bottom-up exercises with top-down evaluations conducted by the authorities – the like of which have appeared in recent Bank FSRs – can also help in benchmarking results and models. •  Third, an assessment of the second-round effects of stress. The results of these common stress evaluations should be the starting point, not the end point. These common stress tests need to be made dynamic, so that the second and subsequent round interactions, and their consequences for system-wide risk, can be evaluated.
The same applies to the FX income stream facing foreign investors, and then there are risks such as the possible introduction of capital controls, which will not count as defaults as long as debt is serviced on time in the domestic currency of the sovereign without discrimination between domestic and foreign investors. Although it is important to bear all this in mind, it is nothing new. Furthermore, it does not constitute a major problem for the functioning of capital markets as long as the default probabilities of sovereigns seen to be providing so-called risk-free assets are perceived to be so low at the relevant maturities that they can largely be ignored. The question we are faced with is whether this is still the case and what the future will bring in this regard, given that both the market and the rating agencies perceive an increase in sovereign risk. The jury is still out, but my current prediction is that, in the foreseeable future, the supply of risk-free assets according to this definition will be very significantly greater than zero. Advanced countries with grade-A ratings are and will be issuing a lot of debt in the near term, and the high price that the best-perceived sovereign debt is carrying is a reflection of strong demand rather than weak supply. In spite of everything we have gone through, there has been no sovereign default of any advanced country apart from Greece since the interwar period.

There have been claims that Iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. The fact is that Iceland kept the domestic part of its banking system running throughout; otherwise, the consequences would have been dire. Some have claimed that the banks were nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time. Moreover, the investment-grade credit ratings from Moody’s and S&P were preserved throughout the crisis. This is why the sovereign has been able to tap international capital markets twice so far since the crisis struck. So the bottom line is that a sovereign default was avoided in spite of an almost unprecedented financial collapse and the worst economic recession since the interwar years. A key to that result was the ring-fencing of the sovereign from the collapse of the private banks. All debt service payments on sovereign debt, in both domestic and foreign currencies, have been made in full and on time.