samchain/econo-pairs-v1 huggingface dataset:
Gent Sejko: Bank - business relationships: common economic challenges in face of global Covid-19 pandemic Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Discussion Forum on ''Bank business relationships: common economic challenges in face of global Covid-19 pandemic”, Tirana, 13 May 2020. * * *  Dear representatives of business community in Albania, Dear banking system executives, First, I would like to thank you for your participation in this round table, held to discuss on the way and optimum instruments to face the common challenges ahead. This meeting is being organised under extraordinary circumstances. The outbreak of Covid-19 pandemic and the prudential measures adopted to confine it, drove to a rapid drop of the demand for goods and services, in the domestic and foreign markets, and to a considerable contraction of output. The challenges we are facing are serious, in terms of both size and complexity. The Albanian economy is expected to undergo a strong drop of the economic activity during 2020, in those levels never being experienced during the last two decades. It will be accompanied by an increase of unemployment, fall of revenue, and financial difficulties to firms and households. In the microeconomic view, the fall of revenue, reduction of liquidity and worsening of solvency will test the financial stability of firms. In the macroeconomic view, the increase of private and public debt will test the stability of economic equilibriums of Albania.

It accounts for around 25% of banks’ balance sheets and has a comparable share to GDP, while the bank – business relationships’ flow is present also in the field of other financial products and in the payment services. For this reason, your reaction against the shock should be decisive, courageous and visionary, as well as based on the spirit of collaboration and common long-term interests. Allow me to be more concrete in detailing the vision of the Bank of Albania on the challenges ahead. The first challenge is the facing of health emergency. The business and banking sector should 2/4  BIS central bankers' speeches  be clear that human capital is the most precious asset for every company. For this reason, any necessary measure to guarantee the health of the employees should not be considered as an expense, but as a strategic investment for the future of the firm. The second challenge is the revision of the business model and the increase of operational flexibility. One of the lessons of this crisis is that each of us can make more to adopt the information technology, to shift part of the business on line, and to increase the operational flexibility and efficiency. Putting into practice these lessons is particularly useful in case of the prolongation of the pandemic. The third challenge is maintaining liquidity and solvency of firms.
The most outstanding development of the past several months has been the attenuation of some of the  BIS central bankers’ speeches  1  inflationary risks then identified. International commodity prices ceased to increase and the propagation of specific price shocks has been limited. This and monetary policy decisions have collaborated to ease fears of a further inflationary acceleration that we felt in March. Accordingly, private inflation expectations show a decline in the last two months, although some remain above the target (figure 2). First-quarter data showed a fast expansion of domestic output and demand, exceeding March’s expectations. Partial indicators for the second quarter reflect an economy that continues to grow strongly but shows some recent moderation. Worth noting is the strong dynamism of private consumption and, to a lesser extent, the machinery and equipment component of investment. Consumption evolves in line with fundamentals, particularly the increase in household income, given that both employment and wages continue on the rise. Financial conditions are still favorable. The baseline scenario assumes that GDP will grow this year between 6 percent and 7 percent. This range is higher than foreseen in March, consistently with the upward bias then identified. This higher growth forecast is based on actual first-quarter figures that exceeded estimates. For the rest of the year, the pace of expansion of demand will moderate as forecast in March. In particular, the speed of growth in the GDP of sectors other than natural resources will quickly approach the trend rate, which is still estimated at five percent.

Fiscal policy has no room left for expansion due to the size of their debt, and monetary policy is already in the lowest possible interest rates. The emerging world – Chile included – faces a different challenge: how to prevent our economies from expanding above trend. Luckily, as an outcome of our own actions, we have the policy tools to deal with this scenario. At the same time, in case of a further deterioration of the global economy, we have a sufficiently flexible monetary policy to mitigate its effects on our domestic economy and preserve the necessary equilibriums for sustainable improvement in the welfare of the population. Our task consists, then, in properly managing the policies and safeguard said equilibriums. Therefore, and taking into account the risk balance we face, the most advisable thing to do is to continue withdrawing the monetary impulse. The timing of these changes will be analyzed at each meeting, including pauses to assess the effects on the economy of adjustments already made. Accordingly, as it has done in the past, the Board will adopt every necessary measure to deal with events that reshape the macroeconomic scenario and inflation prospects. Inflation is an  6  BIS central bankers’ speeches  evil that hits hardest the people with less income. Despite reduced risks of a significant increase in inflation, we must remain on the watch for pressures incubating that might obstruct the convergence of inflation to the target and that, ultimately, impose higher costs to the society as a whole.
I have highlighted this example because it provides a stark illustration of two critical shortcomings in our current regulatory system. The first is the fact that a large, systemically important institution like AIG was able to slip through the cracks in our regulatory structure and put our entire system at risk. The second is the lack of an effective resolution regime for large bank holding companies and nonbank financial institutions. Absent such a regime, a commitment to support a failing firm inevitably results in the loss of leverage in negotiating with counterparties and creditors. Turning now to another difficult issue, it is deeply offensive to Americans, including me, and runs counter to basic notions of justice and fairness, that some of the very same individuals and financial firms that precipitated this crisis have also benefited so directly from the response to the crisis. This has occurred at the same time that many Americans have lost  4  AIG was supervised by the Office of Thrift Supervision (OTS) and state insurance commissioners. Bear Stearns and Lehman Brothers were supervised by the Securities Exchange Commission (SEC), Fannie Mae and Freddie Mac were supervised by the Office of Federal Housing Enterprise Oversight (OFHEO), and Washington Mutual and Indy Mac were supervised by the OTS. The Fed's involvement with many of these firms came only through its lender of last resort role. BIS Review 161/2009  5  their jobs and hard-earned savings. The public outrage this situation has produced is understandable.

Norges Bank built up foreign exchange reserves while banks financed household and corporate saving deficits, partly by raising loans abroad. With the decline in oil prices, confidence in the Norwegian economy faltered, capital flowed out of the country and out of banks’ balance sheets. Norges Bank had to step in as lender to the banks. The developments that followed the decline in oil prices in 1986 will not be repeated. In 1986, confidence in the Norwegian economy faltered while inflation was high and rising. Monetary policy measures had to be applied – through a resolute fixed exchange rate regime from summer 1986 – to restore confidence in the national and international value of the Norwegian krone, i.e. to reduce inflation. The Norwegian economy is on a much stronger footing now than it was in 1986. None the less, fluctuations in household saving and corporate saving and investment could pose challenges for both monetary policy and our banks. The outlook ahead The past 15 years have been a golden era for the Norwegian economy. It must also have been a privilege to be in a position to engage in banking activities in Norway in this period. Selling loans has been easy, there have been virtually no losses, and deposits and borrowing have been stable. Banks have in addition been particularly adept at making use of new technologies and being more cost-effective. The combination has led to favourable results. Lending growth will probably have to be reduced and losses may rise.
Basel III has incorporated the so-called “capital buffer for the most significant (or systemic) institutions”, applicable to institutions exceeding certain size, complexity and interconnectedness thresholds; and, moreover, the “countercyclical capital buffer”, which requires an increase in capital at times of credit expansion in order to reinforce bank solvency when the risks associated with such credit materialise. After all these changes, what would be left for post-crisis reform? Fundamentally, the completion of the review of the risk-based capital framework being undertaken by the Basel Committee. In terms of the essentials, Basel is reviewing the way the denominator of the capital ratio, Risk-Weighted Assets (RWAs), is calculated, i.e. the way in which the risks for which capital is required are measured. The aim of this review is to strike a better balance between simplicity, comparability and risk-sensitivity. BIS central bankers’ speeches  3  From now to the end of 2016, the date set for the finalisation of the post-crisis reforms, what are still to be decided are the reforms of the standardised approaches for measuring credit and operational risk; the use of internal models for these two risk categories: the possibility of establishing an additional surcharge based on the leverage ratio for global systemic institutions; and the design of the so-called “capital floors” in the calculation of RWAs. With regard to the standardised approaches, I shall focus on that applied to measuring credit risk, as this aspect is one of the most important, as it is of course for credit cooperatives.

This past Friday we announced a plan of continued daily overnight repo operations through October 10, accompanied by three twoweek term repo operations that span the month end.1 The goal of these actions is the same as for recent open market operations: foster conditions in money markets to keep the federal funds rate within the target range. This episode reminds us all of the importance of having well- functioning markets and the vital role that the Federal Reserve plays in supplying liquidity to the system when markets are under stress. We were prepared for such an event, acted quickly and appropriately, and our actions were successful. Friday’s announcement on open market operations to address potential quarter-end funding pressures on interest rates followed this same approach: quickly diagnose the problem, develop the right action plan, and execute that plan. At the same time, it is equally important that we examine these recent market dynamics and their implications for the liquidity needs in relation to the overall amount of reserves held at the Federal Reserve. We will continue to monitor and analyze developments closely. As Federal Reserve Chair Powell stated in his most recent press conference, the FOMC will assess the implications for the appropriate level of reserves and time to resume organic growth of the Federal Reserve’s balance sheet consistent with the successful execution of the FOMC’s ample reserves framework.2 That’s enough on recent events for now. I’ll turn to another very important issue, reference rate reform.
3  BIS Review 44/2000  Financial stability leads to a secure payment system An important component of the Riksbank’s task of promoting a secure and efficient payment system is to monitor and evaluate developments in the bank system. Since the banks have a key role in provision of banknotes and payment services to the general public, it is important that their activities function well. A prerequisite for this is that financial stability is not threatened. Unlike many other countries, the Swedish central bank does not have the role of supervisory authority. Here instead there is a special authority, Finansinspektionen (the financial supervisory authority), that bears the responsibility of supervising the individual institutions while the Riksbank focuses its supervision on detecting systemic risks. The Riksbank has decided to act with the same openness and clarity as regards the responsibility for a secure efficient payment system that characterises the monetary policy decision-making process. An important component of this strategy is the production and publication of a report on financial stability a couple of times a year. This report goes systematically through the risk factors that could lead to major imbalances being created in the financial systems so that financial stability is threatened in a broad sense. Since the Swedish bank system is concentrated in four major banks which have large exposures to one another, problems in one bank can rapidly spread to the entire bank system.

The Riksbank in a democracy When Sweden became a member of the European Union and the Government signed the so-called Maastricht Treaty, this entailed, among other things, acceptance of the requirement that the Riksbank was to have an independent position in relation to the Government and the Riksdag. However, many regarded it as a controversial demand, not least in the Swedish trade union movement and within social democracy. It is hardly surprising that there were strong reactions in many places as an independent central bank is a quite new and unfamiliar element in Swedish public administration. It meant that the conduct of monetary policy should be delegated to an authority that was only restricted by legislation. This procedure can be most closely compared with the independent interpretation of laws by the courts. 1  BIS Review 44/2000  However, on closer inspection of the content of the new law and the practice established since then, it can probably be said that the reactions and concerns were exaggerated. Mention is often made in general discussion of, for instance, “the independence of the Riksbank”, which may call to mind an organisation that can carry out its policy wholly without control and parliamentary supervision. In fact, in my view, what is involved is rather more a sensible arrangement, where the objective of monetary policy, stable prices, has been established by law.
A tightening of monetary policy in Norway specifically aimed at curbing property prices and credit growth can result in a rising krone exchange rate, a weaker labour market and excessively low inflation. Should we seek to avert bubbles in the housing market even when medium-term inflation prospects are moderate? On this point, it is our judgement that a distinction must be made between giving greater weight to credit growth and house price inflation in the reaction function and defining house price inflation as an independent monetary policy objective. Socalled “leaning against the wind” would not require adjustments to Norges Bank’s approach, bearing in mind that our reaction function already gives weight to asset price movements and credit growth. 16 Should central banks also set explicit targets for asset prices? In our judgment the answer is no, but we should probably apply a fairly long horizon for achieving the target so that we seek to take account of any imbalances that might disturb activity and inflation further ahead. 16  See for example White,W.R. (2009): “Should Monetary Policy “Lean or Clean”?”, Working paper no.34, Federal Reserve Bank of Dallas. 16  BIS Review 131/2009  Household behaviour in the housing market is a considerable economy policy challenge. This is primarily because demand for housing and housing loans is heavily subsidised by the tax system and loan supply is marked by the near-absence of an equity capital requirement for providing housing loans.

Source: QRTs, PRA analysis  10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10  Chart 5: The impact of MA on the base balance sheet. Source: PRA analysis, Solvency II Regulations  Chart 6: Credit Spread on Investment Grade Corporate Bonds. Source: Bloomberg data, PRA analysis  11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  Chart 7: Decomposition of Bond Spread. Source: PRA analysis, Solvency II Regulations  Chart 8: FS Components: Non-Financial CQS 3 (BBB-rated). Source: PRA analysis, YE20  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  Chart 9: FS – Credit Quality Step 2 (A-rated). Source: PRA analysis, YE20  Chart 10: Illustrative A-rated 10 year financial bond. Source: Bloomberg data, PRA analysis  13  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  13  Chart 11: 2020YE FS as % spread - Illustrative A-rated 10 year financial bond. Source: Bloomberg data, PRA analysis using YE20 FS  14  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  14
But there is still time for this operational work to be done and it will be important businesses prioritise that in the weeks ahead to minimise disruption to their businesses and the economy. I am confident UK companies will rise to this challenge, as they have to the challenge of Covid. Let me say a final word on monetary policy. The MPC has already taken extraordinary monetary policy action in the face of the Covid crisis, reducing Bank Rate by 65 basis points and expanding QE by a further £ billion. Through its forward guidance, the MPC has made clear that it will not tighten monetary policy until there is clear evidence of progress being made towards reducing unemployment and returning inflation to target on a sustainable basis. The MPC has also made clear that it stands ready to take whatever further action is needed to support the economy and return inflation sustainably to target, should that prove necessary. Alongside public health and fiscal measures, this forms part of the on-going economy-wide insurance policy put in place during the Covid 12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  crisis. That insurance policy should be a source of confidence and comfort for companies and households with understandable concerns about their businesses and jobs. At its meeting earlier this month, MPC decided no further monetary policy action was needed to achieve its statutory objectives.

In other words, consumption has fully recovered more than a year earlier than the Bank expected as recently as August. Large-ticket purchases, such as cars and houses, are also back to around pre-Covid levels. Against a backdrop of more than 40,000 Covid-related deaths, an extra 1 million people unemployed and perhaps a quarter of the workforce having faced a cut in their incomes, the speed and scale of this recovery in consumption is, I think, fairly remarkable. It suggests considerable resilience on the part of consumers in the face of adversity. It also indicates considerable flexibility in both how and on what they spend. On the how, UK consumers have (perhaps unsurprisingly) switched from the High Street online to meet their spending needs. Online spending has jumped from 20% to almost 27% of overall spending during the course of this year, peaking at a third of all spending in May. It seems probable some of this switch online will endure into the future. Online habits tend to persist. On the what, there have been notable switches in expenditure patterns in the face of new working and socialising patterns (Table 1). According to data from Visa, on average this year spending on hotels and accommodation is down by over 40% and on travel by over 35%. By contrast, spending on households goods is up 8% and food spending is up by over 25%. Home production and home consumption has surged to counterbalance the effects of reduced time and money spent away from the home.
The result of this review, the new “Basel II” framework, will, like its predecessor, be applied not only in the thirteen countries which are members of the Committee, but in many other countries of the world, including the 25 countries of the European Union – in fact, in probably more than 100 countries in total. And Basel II is much more than a capital requirements regime. It is a major shift in regulatory philosophy. First, although it still sets minimum capital requirements, these are based on a menu of approaches with built-in economic incentives to encourage banks to develop and use more sophisticated risk measurement and management systems which can be recognised for supervisory purposes. Second, banks are encouraged to conduct their own assessments of their overall risk profile in order to determine whether they need additional capital buffers and/or other risk mitigants. Supervisors will evaluate these assessments and both parties will engage in dialogue on the basis of their findings. Thirdly, the new regime sets out requirements for increased transparency and disclosure by institutions to the markets. This is intended to leverage the ability of markets to provide discipline to banks to ensure that they are not holding unrealistically low levels of capital. In sum, Basel II will have wide-ranging effects, both on banks and on supervisors, across many countries. Many aspects of the supervisory process which are currently subject to different requirements in different countries will be captured within a common international framework for the first time.

While national supervisory authorities are free to decide on the technical transmission specifications to implement the new reporting frameworks, CEBS considers that XBRL can be a helpful tool in constructing a harmonised European reporting mechanism, and is therefore developing an XBRL platform which will be available free of charge to national authorities and supervised institutions. XBRL taxonomies are being developed for both frameworks. Of course, we all recognise that it is not cheap to develop these technologies. But I do believe that the benefits will greatly outweigh the costs in the medium to longer term, and I would encourage every effort to be made to harness those benefits. Conclusions Let me finalise my intervention by briefly recapitulating the five elements that I believe are important for progress: First, convergence of the underlying regulation that affects financial institutions and markets. Second, convergence of reporting requirements on the basis of this more harmonised regulation. Third, increased use of internal information, generated for business purposes, for external reporting purposes. Fourth, increased feedback and information to the reporting institutions. And finally, the use of new technologies. I think the examples I have given from the banking perspective show that we are already making some good progress, although there is of course more that could, and should, be done. In closing, I would like to thank you for your attention and wish you a productive and enjoyable time here in Madrid. BIS Review 47/2006  5