samchain/econo-pairs-v1 huggingface dataset:
Thomas Jordan: Macroprudential instruments and balance sheet risks Introductory remarks by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 16 December 2010. *  *  *  In my following remarks, I will address two issues in depth. I will start by detailing the set of instruments which the Swiss National Bank (SNB) should have at its disposal for the prevention of financial crises. I will then take a look at the risks on our balance sheet. Macroprudential instruments at the SNB More than three years have passed since the outbreak of the international financial crisis. The crisis made two things very clear. First, the capital and liquidity buffers in the financial system were far too low. Second, systemic risks had been grossly underestimated prior to the crisis or had not even been identified. Almost nobody suspected that the risks were so closely interlinked, nor that problems in a small segment of the US mortgage market could rock the global financial system and the world economy. In order to make the financial system more resilient, one thing that needs to be done is to strengthen the capital and liquidity buffers. Significant progress has already been made in this regard with the approval of Basel III and the new “too big to fail” (TBTF) regulations. These measures should help ease the problems in connection with the TBTF issue significantly. But there will be other crises in the future, too.

While the city has had a number of ups and downs since the early 1990s, in tandem with the United States, the general trend has been upwards. The city withstood a terror attack, financial crisis and natural disaster. Following the attack on the World Trade Center in 2001, there was uncertainty over whether this would be a permanent setback for the city. However, the city rebuilt and recovered and Lower Manhattan has evolved into a vibrant commercial, cultural and residential area. Gateway Plaza is still there, but the Battery Park City neighborhood today is now fully developed and well-established. There are even several grocery stores! The city weathered the recent financial crisis and the Great Recession far better than many would have anticipated. Although employment in the securities industry has stagnated after the decline due to the Great Recession, the city has found new sources of dynamism, including 3/5  BIS central bankers' speeches  rapid growth in the technology sector and the further development of tourism. The number of technology workers in New York City has doubled to about 125,000 in the past decade. That sector is now is nearly as big as the securities industry. And New York City had 56 million visitors last year, nearly double the total of 25 years earlier. In 2011, an important milestone was reached: payroll employment surpassed its previous alltime peak, from 1969, and it has grown strongly since then. Crime rates have fallen significantly across the city since 1990, and real estate values have surged.
The  tightening  of monetary policy in response to improved economic conditions may impact the growth of major advanced economies. The US Federal Reserve and the Bank of England have progressively raised interest rates; meanwhile, the European Central Bank has started phasing out its bond-buying programme (QE). The impact of monetary policy normalisation on financial markets should be closely monitored. The overall market sentiment is optimistic, but signs of possible repricing in financial markets are emerging. Market volatility has increased since the beginning of the year and price corrections were observed, most significantly in equity markets. Valuations remain stretched in equity, bond and certain real estate markets creating a high risk of asset repricing. Recent tensions in emerging markets, especially Turkey and Argentina, initiated some flight to safety mainly towards US investments. In the near future, the threat to global trade created by protectionist tensions, and growing political uncertainties, also in Europe following the developments in Italy and a significant probability of a hard Brexit may weigh negatively on the global environment. In addition, the European insurance sector has been facing an unprecedented and challenging low interest rate environment for the past four years. The downward trend in bond yields had a direct impact on the return on investments, especially for life insurers 2  who hold a substantial portion of their investments in bond securities.

The banking market in Hong Kong is of course a very international one, with a total of 182 licensed banks, 151 of which are incorporated outside Hong Kong. 81 of the largest 100 banks in the world are licensed in Hong Kong. Collectively they provide a wide range of banking and other financial services, not just for Hong Kong but for the region as a whole. The banking sector of Hong Kong is reputed to be amongst the most efficient and profitable in the world. 9. Hong Kong’s debt market, which has developed quite rapidly in the past eight years, is also playing a significant role in the region. Financial intermediation through the debt market is still relatively underdeveloped in the region, but the prospects are good. As the very substantial savings of the region is increasingly institutionalized through the establishment of provident funds and pension funds, the demand for debt securities would grow, perhaps much faster than that for banking and equity instruments. At the same time, the huge investments envisaged for the development of the physical infrastructure in the region will require much debt financing, thus increasing the supply of debt securities. With the first class infrastructure in our newly developed debt market, Hong Kong is in a very favourable position to take advantage of these good prospects. 10. Hong Kong’s equity market is of course one of the largest and most liquid in the world, and, notwithstanding recent volatility, is the favourite market for institutional investors and for those wishing to raise funds.
However good the policies may be, if the capacities of the institutions implementing these policies are not matching the rigour of the policies, the policies will not be able to deliver what expected of them. If I am to repeat myself once more, in the light of the structural transformation in the Turkish economy during the last five years, I can easily say that Turkey is a clear example of the view that governments need to assume a leading role in changing and reforming the existing institutions and in setting up 10 brand new ones . In this respect, newly established independent authorities charged with regulating markets from competition to public procurement and to energy matters might be cited as good examples. However it goes without saying that the most prominent institutional change that took place is the amendment of the Law of the Central Bank of Turkey, which made it independent. The manifestations of the independence of the Central Bank in the form of greater transparency and accountability together with the inflation-targeting regime contributed to the implementation of a rulebased monetary policy. After the thirty-year period of high inflation, we have experienced single-digit inflation rates. An independent central bank has constituted and will continue to constitute a corner stone for the structural transformation towards good governance and good institutions in Turkey.

There are also other challenges, technical in nature, against the importance of economic governance, 9 such as causality problems and what is called the missing variable threats . However, in the view of our experience in the Turkish economy during the last couple of years, these counter arguments do not provide evidences strong enough to challenge the importance of good governance for economic and social prosperity. Distinguished guests, Until recently, Turkey had displayed disappointing performance in good governance principles compared to other emerging economies. In 2000, according to the World Bank’s calculations, Turkey ranked 134 among 193 countries in governance indicators. The thirty-years of high and chronic inflation, the macroeconomic instability and the subsequent crises, the delays in structural reforms, and the poor capability of institutions to deliver prudent policies and to initiate structural breakdown have all been the main determinants of this poor governance structure. 5  United Nations, Economic and Social Commission for Asia and the Pacific. “What is Good Governance”  6  Brouwer, G. (December 2003). “Macroeconomics and Governance”, Treasury Working Paper. 2003-4. 7  Australian Economic and Financial Management Initiative. “Economic Governance”. 8  AusAID, (April, 2003). “Economic Governance and the Asian Crisis”. Quality Assurance Series. 9  Avellaneda, S. D. (May 2006). “Good Governance, Institutions and Economic Development”  2  BIS Review 35/2007  However, after 2001, Turkey has launched one of the largest structural changes in its economy and put significant efforts into implementing good governance principles and searching for a new institutional matrix.
The first function is to provide a precautionary backstop: to reduce the risk of a financial panic beginning in the first place by ensuring that collateral can always be financed.18 The first function is important because it makes it less likely that investors will back away from firms because they think others perceive an elevated risk of insolvency, even if they themselves do not share this view. Thus, a lender of last resort facility can reduce the risk of financial instability due to coordination problems even if the lender of last resort is not utilized.19 In contrast, an emergency facility is unlikely to be as effective. There will be uncertainty around whether it will be deployed, whether it will arrive in time, and how broad it will be. The second function of a lender of last resort is to prevent the fire sale of assets by firms facing a sudden loss of funding from spreading contagion across the system and disrupting the provision of credit to the economy. This is particularly important during a financial panic, when the demand for liquidity increases sharply. Only the central bank has the ability to meet this increased demand under any potential circumstances. We have banking activity – maturity transformation – taking place today outside commercial banks.

Would an insurance-type payment be appropriate for firms that enjoyed lender of last resort access but did not have insured deposits? How would the Fed’s role, as the lender of last resort, be coordinated with the oversight responsibilities of the primary regulators? Conclusion Which path to go down – limit wholesale funding or backstop it more broadly – would depend in large part on the social value of the capital markets-based activities presently being  18  A lender of last resort finances with an appropriate haircut. 19  This was demonstrated recently by the European Central Bank’s Outright Monetary Transactions program  20  Several of the largest broker-dealers adopted bank holding company status in recent years, but Section 23A rules restrict the capacity of their banking subsidiaries to channel liquidity to their broker-dealer operations. BIS central bankers’ speeches  9  financed in unstable short-term wholesale markets and the utility of short-term wholesale funding for lenders. Of course, the choice might not be as black and white as this. Some activities undertaken by securities firms or other nonbank entities presumably are much more socially useful than others. In this case, legislators might deem that certain classes of securities firms should be granted access to a lender of last resort facility, but restricted in the scope of their permitted activities to those that do clearly create social value. The sheer size of banking functions undertaken outside commercial banking entities – even now, after the crisis – suggests that this issue must not be ignored.
1 Today, many advanced countries and emerging economies have adopted a flexible exchange rate regime. 2 By this I understand a regime in which the exchange rate is basically left to fluctuate in response to market pressures. True, the central bank can, and in some circumstances will intervene to mitigate extreme exchange rate fluctuations. But the main objective of the central bank is domestic price stability, not exchange rate stabilisation. This is the system that Switzerland has chosen to pursue. It has served us well. Exchange rate flexibility allows national budgetary and monetary polices to diverge from one country to another. It confers monetary authorities more room to adapt policies to domestic economic realities. A different strategy has been followed by many European countries. Abandoning their domestic currencies, these countries have fully insulated themselves from intra-zone exchange rate fluctuations by adopting the hardest possible peg, which is a monetary union. Monetary policy is the responsibility of a supranational institution, the ECB. Towards the rest of the world, the euro is allowed to float, and the necessary adjustment of prices in member countries, rather than taking place via movements in the exchange rates, is expected to occur by means of changes in wages and product prices in an increasingly integrated economic area. Thus the Bretton Woods system has been replaced by an order of sorts, in which there are two extreme choices which increasingly dominate national strategies. At the one extreme, countries have opted to let their currencies float and be determined by market forces.

Global companies may see their chains of supply disrupted by strikes in far away lands. We have no control over these events and no possible way to guess where the next catastrophe – natural or manmade – will occur. Let me return to global finance. I have said before that the world today is less likely to witness the recurrent crises that afflicted so many countries in the 1980s and 1990s. I am convinced that this is the case. By choosing a flexible exchange regime, they have chosen a more resilient system, and many of them are pursuing sensible macroeconomic policies that should help them navigate turbulent waters more safely than in the past. But I am also convinced that not all countries are equally well prepared to cope with free capital mobility. For those countries with weak institutions and underdeveloped financial sectors, globalisation means more rather than less vulnerability. International financial integration may look like a blessing when foreign capital flows in, but it will look like a curse when foreign investors head for the door. The present monetary order is more resilient than the previous regime of fixed exchange rates, but crises can still occur, and if they occur they are more likely to be extensive and spread rapidly. And globalisation, of course, goes far beyond financial integration. Global companies are located all over the world. They have to deal with different legal frameworks, with different business cycles, with different political realities.
Benoît Cœuré, a member of the ECB’s Executive Board, provided an overall view when pointing out, in November 2018, that the Central, Eastern and South-Eastern economies were characterised by an uneven level of convergence and that the smaller ones (from Slovenia to the Baltic states) joined the euro area irrespective of their progress in this area. Larger economies were in no hurry to adopt the euro, but rather focused in the first place on correcting some structural issues as long as the economic policy framework still enjoyed a certain flexibility. Let me now tell you how we addressed these issues in my country. Romania chose rather to take the middle way in approaching euro adoption, envisaging a real convergence level of at least 70–75 percent prior to entering the euro area, as a lower level would cause us to be severely affected by asymmetric shocks and therefore be unable to synchronise our business cycle with that of other euro area economies. As for the Maastricht criteria, from July 2015 to November 2017, Romania fulfilled all the convergence criteria in the Treaty (yet without participating in the Exchange Rate Mechanism). The fact that, at this moment, the reference values for the longterm interest rate and inflation are no longer complied with is a warning that efforts should be undertaken to attain nominal convergence in a lasting manner, not accidentally or temporarily. This is feasible only when the two types of convergence reinforce each other.

This occurred because the fiscal policy during the pre-crisis boom had been strongly procyclical, so that the economic advance of over 9 percent in 2008 was followed by sharp falls in the next two years: –5.5 percent in 2009 and –3.9 percent in 2010. The lesson learned here  is that there is no viable alternative to a predictable and coherent mix of economic policies and structural reforms. Let me stress that this mix should remain in place even when facing the challenges of election years, and there are several election rounds in Romania in 2019 and 2020. The fourth lesson could deal with the issue of whether joining the euro area ensures faster growth or not. I attended the celebrations marking the 10th anniversary of euro adoption in Slovenia and Slovakia. While in the latter country euro area membership is considered a success story, in Slovenia it is viewed as a necessary, yet painful, step. During my conversation with a Slovenian expert, I argued that the difficulties faced after euro adoption were the consequence of not cleaning up banks’ balance sheets before euro area entry. He replied that the people were not interested in these details, as what they cared about most was the standard of living, which declined after the euro changeover.
José De Gregorio: Macroeconomics, policymaking and the crisis Keynote speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the Bank of Finland and Bank of Italy Conference on Challenges of the Global Crisis to Macroeconomic Theory and International Finance, in honour of Pentti Kouri, Helsinki, 11 June 2010. *  *  *  I am grateful for useful discussions and comments from Mariana García and Pablo García. It is an honor to participate in this tribute to Pentti Kouri. I did not have the pleasure to be close to him, but I not only know well who he was and his work, but we also share some things in common. We both study at MIT and did international finance. We were very close to Rudi Dornbusch. There is a group of economists from all over the world, Chile and Finland for example, which had the privilege to work close to him, as students or as colleagues, and to enjoy his unconditional friendship and intellectual influence. In this conference there are a few of this fortunate group. Kouri and Dornbusch had pathbreaking work explaining exchange rate fluctuations as movements of asset prices. Kouri’s papers were always an important reference in our course’s work. By the time I was student, late 80s, reading Kouri’s papers, he was a successful investor living in Connecticut. I remember a couple of times when Rudi told me that he would visit this great friend, economist and successful investor to get some funds for the department.

Instead, the proper way to act is to strengthen the financial system and macroeconomic policies, in order to minimize their probability of occurrence and their consequences, and to set up a proper crisis-management strategy once they hit. As in the case of natural disasters, or accidents, the fact that crises will continue to happen does not mean that we must allow no regulation of economic activities (such as building codes, or driving standards). Countries with better building codes are better at facing earthquakes. In the case of financial crises, it is reasonable to improve regulatory mechanisms, particularly to allow financial innovation while keeping vulnerability at bay. Meanwhile, it is necessary to continue devoting efforts to the detection of early alerts, although unambiguous indicators are impossible to find. But there are symptoms of fragility, very common in emerging economies. High and persistent current-account deficits, misaligned exchange rates, currency mismatches in the financial and corporate sectors, excessive increases in the prices of assets and credit, all signal a potential problem, although they do not necessarily result in a crisis. Therefore, a look at the indicators is not enough; it is important to put them together to detect fragilities. This is precisely what we try to do in our financial stability reports, which allow us to gain an overall vision of vulnerabilities, although, once again, it does not provide a final verdict. Final remarks The world has gone through the worst crisis since the Great Depression.
The challenge to the banking system and businesses, but also to the Bank of Albania, still remains the public encouragement to use them. So, to put this into practice, I shall stimulate the banking system to become more active, that is banks should provide to the households and businesses clear and ready products, quick and efficient services. Given the latest developments in the banking system and the increasing number of the branches as well as the increasing banking services, I advocate the banking system will be more attractive in 2005. I consider the optimistic signals of the previous year will be followed by more vigorous operations of the banking system related to the business of electronic card payments. In this spirit I would say that banking system solutions properly consist in issuing a unified card. Evidently, steps to be taken in this direction will be more complex, and naturally some of them imply inter-institutional cooperation. Bank of Albania is already paving the way toward wider use of cards in Albania. Credit cards service shall not only contribute to cash reduction in the economy, but also provide a positive impact on the reduction of informal economy. However, I deem as important encouraging and  BIS Review 6/2005  1  stimulating the banking system in order the service level be uniformly present all over the Albanian territory where banks conduct their activity.

Only in this manner electronic payment advantages and all other facilities will be equal to you and to all the public in general throughout the territory of the Republic of Albania. I believe, in the spirit of this reasoning, we shall establish real opportunities for a harmonised geographical progress, providing a concrete contribution to the growth of country’s welfare. 2  BIS Review 6/2005