samchain/econo-pairs-v1 huggingface dataset:
V.  Conclusion  This morning, I have shared some of my views on the need for risk management and supervision to evolve together and to reinforce each other. All of us recognise that both areas must keep pace with changes in accounting practices, and I think you would agree that the work we have to undertake in all three areas - risk management, supervision, and accounting - is quite demanding. To develop new ways of thinking about risk and about the techniques for measuring it, we will require hard research and significant resources. We must gather and pour over large amounts of data to sharpen our understanding of various risks and their relationships to each other. We must dedicate our talent, staff, and indeed funds to undertake this work. I would argue that is equally demanding to develop a supervisory structure that capitalises on and further encourages those advances, especially when we are trying to implement a shared framework across many jurisdictions. But the benefits are many. On a microeconomic level, the virtuous circle I have described should help individual firms to improve the quality of their controls in the short run and strengthen their competitiveness in the long run. Yet supervisors are especially motivated by the benefits we expect at the macro level. We believe that, when all financial institutions have the right incentives to pursue profits responsibly, the financial services sector becomes better managed, more resilient, and better able to serve as a source for sustainable growth for the economy.

I should add that the International Association of Insurance Supervisors (IAIS), a fellow association of supervisors in the insurance area, is now discussing a supervisory framework that would apply to all insurance regulatory systems globally. Evolution in risk management and the reform of financial supervision should complement and reinforce each other, and the progress in each area will be influenced by the work underway globally to revise accounting guidelines. The Geneva Association has taken a great interest in this topic, so I will conclude my remarks with some brief thoughts from my perspective on the convergence of accounting standards, advances in risk management, and supervision. II. Trends across financial services sector  Allow me to begin with an overview of recent trends in risk management. Last year, a body representing major financial supervisory agencies conducted a study of 31 banks, securities firms, and insurance companies in 12 jurisdictions. This body - called the “Joint Forum” - consists of expert supervisors from member agencies of the Basel Committee, the International Organisation of  BIS Review 32/2004  1  Securities Commissioners (IOSCO), and the IAIS. The Joint Forum seeks to identify best practices and develop guidance for activities across the financial services sector. In its report, which was published in August 2003, the Joint Forum identified two important and recent trends among large, complex firms engaged in banking, securities, or insurance, or in some mix of these activities. a.
Another potential for the transition to an innovation-based economy is “The green economy”, where the convergence capacity of the existing producing processes in other processes releasing less carbon may be considered as an opportunity for the further development of our region. Regarding the future, the report assesses positively the reforms undertaken by the Albanian authorities. The macroeconomic environment is assessed as stable and prospects show the positive growth pace will be maintained. Trade, construction, transport and industry, as well as the narrowing of the deficit in the external sector of economy contributed most to the economic growth in 2017. At the same time, the financial system activity continued to reflect considerable improvement and showed good resilience to operational risks. The indicators of financial result, capitalisation and liquidity evidence the considerable improvement of credit quality and show the importance to continue the implementation of the measures undertaken by the Bank of Albania. 2/3  BIS central bankers' speeches  Also, the Report evidences that the projects and investments in infrastructure have contributed to economic integration of Albania with regional countries, providing a positive effect on higher productivity and more opportunities. We assess that TAP investment will provide positive effects on the energy infrastructure and will contribute to higher productivity through lower costs and covering the needs for energy capacities, thus reducing one of the structural weaknesses of the Albanian economy (the reliable supply with energy).

This is why the Basel Committee has devoted so much effort to developing the so-called Basel II capital framework, which was released in June 2004. The new capital framework is built on three mutually reinforcing pillars. The first pillar aligns minimum capital requirements more closely with banks’ actual underlying risks. The menu-based approach means that qualifying banks may also rely partly on their own measures of those risks, which will help to create economic incentives to improve those measures. In concept the first pillar is similar to the existing “Basel I” capital framework in that it provides a measure of capital relative to risk. What is new are the second and third pillars. The second pillar – supervisory review – allows supervisors to evaluate a bank’s assessment of its own risks and determine whether that assessment seems reasonable. It is not enough for a bank or its supervisors to rely on the calculation of minimum capital under the first pillar. Supervisors should provide an extra set of eyes to verify that the bank understands its risk profile and is sufficiently capitalised against its risks. BIS Review 45/2006  1  The third pillar – market discipline – ensures that the market provides yet another set of eyes. The third pillar is intended to strengthen incentives for prudent risk management. Greater transparency in banks’ financial reporting should allow marketplace participants to better reward well-managed banks and penalise poorly-managed ones.
Research must be designed like an increasing spiral, where the newly gained knowledge in philosophy, economic history, empiric research and application of mathematic and statistical models must return to the starting point to confront the set of all new and old problems, prove the generality of its application, and evaluate the set of potential externalities. As I mentioned at the beginning, this is the 100th jubilee of Albania’s independence and our annual conference this year focused on the development of monetary policy during the last  2  BIS central bankers’ speeches  100 years and paid particular attention to the impact that domestic and international political and economic events have had on the nature of the central bank and its monetary policy. Addressing the mixture of historic and economic developments, the large variety of monetary regimes, abrupt swings in economic, politic and philosophy systems, and modern economics was amazingly refreshing, interesting, and thought-provoking. It certainly deserves more attention. Our traditional approach to research has largely contributed to our understanding of monetary and financial stability issues and models with a large set of parameters, forecasts and shock analysis. It has enriched the envelope of models and methodologies that are available in the process of policy design and implementation and has increased our confidence. However, it is time to go deeper in the understanding the fundamental of economic behaviour as an individual and social phenomenon. This understanding requires, among others, proficient research in economic history and economic behaviour and economic welfare.

It takes many forms, and should extend across all areas of central banking. Few of the materials that will be discussed today and tomorrow illustrate this initiative very well. I hope there will be more similar examples in future workshops. The presentations and discussions today and tomorrow address a wide range of issues, reflecting the nature of problems that our economies are facing. I understand from the programme that our guests’ focus of research is similar to the one at the Bank of Albania. During the past year, we have focused on financial stability and monetary policy, trade integration and trade relations, and the modelling of stochastic economic process. But above all, the crisis, its implications, the channels of transmission, and policy response have become the focus of empiric and theoretic research in the central banks and academia during the last 4 years. The results of this research and analysis have taken central banks and their monetary and regulatory policies beyond what was considered sacred limits of monetary policy. However, this has not proven very helpful for the economy. It is now five years since the crisis began and the more authorities deal with short-term problems of growth and unemployment, the more they reveal long-term imbalances and structural problems of national and global scale. In the meantime, we still cannot fully define, understand and model the economy in its true stochastic form.
I will come back to this point later… To focus on the matter I was invited to speak about, I would like to address several issues: •  first, the links between the current overhaul of financial regulation and Islamic finance;  •  second, the role Islamic finance could play in France;  •  the third, the relationship between Islamic finance and financial stability;  •  Finally, I would like to mention the conditions Islamic banks need to meet to ensure that their establishment in France is consistent with the smooth functioning of the banking system. ♦♦♦  The current crisis has illustrated the rapid contagion effect fostered by financial globalisation. However, it is important to emphasise that financial globalisation is not in itself the cause of the crisis, which has rather revealed failures in financial regulation. Indeed, the crisis has highlighted the need to better assess and prevent risks in the financial system as a whole, in addition to simply monitoring the risks of each individual institution. It has also shown that some features of the regulatory regime have had an amplifying effect on the economic cycle instead of mitigating it. That is why the G20 has launched an ambitious agenda to reform financial regulation, covering four main areas: the strengthening of prudential standards, the redefinition of the scope of regulation, the revision of accounting standards and the strengthening of risk management.

Nothing is lasting without institutions.” The ECB is, in my opinion, a remarkable illustration of the lucidity of the conceptual founder of the Community: the institutional construction is solid and has proved to be remarkably effective in attaining its goals. This ten-year period has been short compared with the duration of the deepening of the European Union, which is an historic endeavour. But this relatively short period of time has been rich in successes. These accomplishments call for celebration, for reflection and also for continuous efforts as regards the future. In the first place, celebration. My predecessor, our dear Wim Duisenberg, in his speech to celebrate the establishment of the ESCB ten years ago, referred to “the road we have to travel in the future to make the euro a success, which means to make it a stable currency”. What can we say now, after ten years? I can sum it up in five sentences. Since day one, the single currency has fully inherited the degree of credibility and confidence that was the privilege of the most credible national currencies before the euro. The credibility was such that the medium and long-term market rates of the euro were at the same low level as those experienced by the most reliable national currencies before. In spite of a series of global shocks resulting from the prices of oil and commodities, yearly inflation since 1 January 1999 has been 2.1% on average.
In this respect, PSD2 has paid special attention to the risks involved in carrying out electronic payment operations in general and, in particular, to those conducted remotely, the aim being to provide users with an environment of maximum safety when they opt to perform these operations. By way of illustration, PSD2 urges that measures be adopted that reduce the incidence of fraud and that ensure the continuity of payment services with a view to shoring up users’ ultimate confidence. Such measures include most notably the obligation to periodically assess the effectiveness of specific risk control and mitigation measures and the duty to notify the authorities of the serious security incidents that arise. Furthermore, PSD2 provides for the general application of strong customer authentication mechanisms, whether in payment or consultation operations. I refer here to the promotion of practices such as the sending of a single-use code through a mobile phone in order to be able to complete an on-line purchase transaction. While it is true that some of these measures are nothing new for many current payment services providers, their systematisation and level of granularity do indeed have a deep-seated impact in that they make it necessary for adjustments to be made to pre-existing uses.

In particular, their application should not entail a shift of the riskiest activities to the shadow banking system. In sum, before introducing new structural measures, their costs and benefits should be evaluated from a global perspective, bearing in mind progress in other areas of regulatory reform, especially those concerning new resolution frameworks and the treatment of systemic banks. In any event, it seems reasonable to observe the principle that regulation should impose stricter requirements on the riskiest activities. A clear distinction should be drawn between banks whose trading volume is relatively small and geared chiefly to providing services to their customers, and those other banks with a more marked risk profile. Strengthening of and convergence in accounting standards The last issue I wished to address concerns accounting rules. In April 2009, the G20 called on the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) to adopt measures to strengthen and more closely align their respective standards. As a result, the treatment of business combinations and the consolidation of financial statements have been reviewed, with particular emphasis on the specific features of special-purpose vehicles. Work has also been done on defining fair value and on the criteria to be taken into account in its determination. However, accounting standards-setters have not yet reached agreement on the treatment of impaired financial assets (through credit risk provisions, as they are traditionally called).
Similarly, it reached a turning point in mid-2022, when the other indicators were still rising. That said, the PCCI is based on a complex statistical methodology and the signal provided by its recent changes remains to be confirmed. Along the same lines, indicators that focus on “momentum” and on quarterly rather than annual changes can provide useful additional information in the current phase. At this stage, there are no clear and convergent signs in all of these indicators that would allow us to assert that underlying inflation has indeed reached a turning point. Lastly, we are closely monitoring the changes in wages, which are notably crucial for services inflation. Nominal wage growth is still accelerating across the euro area, although has so far remained below price growth; however, this is not leading to a wage-price spiral beyond what is included in our projections. The inflation expectations of households and businesses As I mentioned in the first part of my speech, market expectations have clearly improved, admittedly against a backdrop of falling energy prices. However, the inflation expectations of economic agents (households and businesses), particularly over the medium term, are also essential as they are the ones that determine the path of prices and wages. These expectations, which traditionally change more slowly than those of the markets, are giving more mixed signals.

BIS Review 103/2006  3
At this time, we have mostly completed Basel II’s key guidelines with only a few remaining issues. This includes finalizing Pillar 1 – namely, Minimum Capital Adequacy Return Form, and the Recognition of External Credit Assessment Institutions and the Mapping Process Under the Standardized Approach (SA). On the commercial bank’s side, our assessment shows that the preparation for Basel II implementation is on track. In terms of capital impact, based on end of June data for 2006, our quantitative impact study shows that the BIS ratio for the whole industry is expected to decline approximately by 1.5 percentage point. This means Basel II implementation will not have a major impact on the Thai banking industry. At this time, while most of our banks have decided on using the SA for calculating minimum capital, they are fully aware of the need to improve the database to support a more advanced risk management process. Reflecting this, larger banks are in the process of developing advanced internal rating systems to be fully compliant with Basel II advanced approaches in the near future. By the end of this year, banks in Thailand will also begin parallel calculations of the required capital under Basel II. And we, at the BOT, are keeping a close watch on this progress with keen interest. Regarding the implementation of IFRS, I have to say the readiness amongst Thai commercial banks and foreign bank branches do vary a great deal.

Good quality financial statements typically contain comparable and reliable information, which depends in turn on the accounting standards being used. In this respect, IFRS can help ensure that financial reporting is prepared under accepted principles that convey a true and fair view of the financial position. BIS Review 114/2007  1  For the banking sector, the most important accounting standard is the IAS 39 because it deals specifically with financial instruments. The standard assures that financial instruments are correctly recognized and measured in the financial statements, to reflect the true financial position and performance, as well as the related risk exposure. Under IAS 39, there is important change to the accounting for derivative transactions, in which banks need to markto-market and record all derivatives on their balance sheets, as well as classify them as held for trading, unless they are used as hedging instruments. Previously, all derivative transactions are kept off the balance sheet, and hence from the recognition of external stakeholders or even bank management. IAS 39, therefore, brings off-balance sheet items into the spotlight. Apart from IAS 39, commercial banks also need to comply with the accounting standards concerning financial instrument’s presentation (IAS 32) and disclosure (IFRS 7), which require banks to present their financial statements in an appropriate format, and to disclose information sufficiently regarding financial instruments and risk. Ladies and Gentlemen, The Bank of Thailand has taken a careful timing to implement both standards in Thailand.
Governor Nout Wellink, the Chairman of the Basel Committee on Banking Supervision, has recently said that the committee is currently considering measures to strengthen Basel II by supplementing it “with simple, transparent gross measures of risk”. 22 Last month, the German Council of Economic Experts advised the German government and parliament to introduce a leverage ratio as a robust supplement to Basel II. 23 Other countries may also find it worthwhile to consider introducing a leverage ratio, even if any formal international agreement should fail to materialise. In doing so they would not only enhance financial stability in their own banking systems, but would also contribute to a more stable international financial system. Finally, it is encouraging to note that a number of banks have made voluntary commitments not to exceed certain predefined leverage limits. Adding a leverage ratio to Basel II will reinforce banks’ capital and strengthen capital regulation. However, we must remain realistic. Introducing a leverage ratio doesn’t solve everything. A leverage ratio addresses excessive leverage in the banking system. It does not  22  Nout Wellink, “The Importance of Banking Supervision in Financial Stability”, speech given on 17 November 2008. 23  German Council of Economic Experts, “Mastering the Financial Crisis – Strengthening the Forces for Growth”, 12 November 2008. BIS Review 158/2008  7  address credit concentration, excessive maturity mismatch or undue reliance on asset market liquidity. Financial crises, let alone financial cycles will never be eliminated.

To the extent that a move to off-balance-sheet activities raises banks’ risk, Basel II will result in higher capital charges – and thereby reduce banks’ incentives and possibilities to arbitrage around a leverage ratio. More importantly, the Basel Committee is now in the process of improving the treatment of off-balance-sheet items under Basel II. Second, if we conclude that despite the ongoing reforms of Basel II, off-balance-sheet exposures continue to undermine adequate capital provisioning, the leverage ratio can easily be enhanced to include such exposures. In Canada, for instance, some off-balance-sheet items are added to banks’ total assets when calculating the leverage ratio. Alternatively, we could go further and consider defining a “managed leverage ratio” as proposed by Professor Joseph Mason of Louisiana State University, “which takes all the securitisations and puts them back on the balance sheet”. 21 •  Pro-cyclicality: There are valid concerns that a leverage ratio may amplify the financial cycle. First, the imposition of a leverage ratio in the middle of the current crisis would put additional de-leveraging pressure on banks. Second, in the long run it would make the availability of credit more volatile. Banks would be forced to cut down on lending in a downturn in order to comply with the leverage ratio requirements. Unfortunately, this so-called pro-cyclicality is inherent to all forms of capital regulation. The problem stems from the fact that in most cases, specific capital minima have to be respected throughout the cycle.