samchain/econo-pairs-v1 huggingface dataset:
David Clementi: The entrepreneurial economy - a collaborative approach  Speech by Mr David Clementi, Deputy Governor of the Bank of England, at the ICAEW Conference, held in London, on 9 May 2000. *  *  *  Ladies and Gentlemen, I am delighted to have the opportunity to address you at the end of - what I am sure has been - a thought-provoking day. For the Bank, this conference has a two-fold importance. First, it has, we hope, helped to promote discussion and, more important, action to strengthen entrepreneurial activity in the UK economy. But secondly, we are delighted to have this opportunity to work closely with the ICAEW, especially given the important role of your President as Chairman of our Non-Executive Directors. The Bank’s interest A good place to start my remarks might be to ask why the Bank of England, as a central bank, is interested in this subject. In fact the Bank has for many years taken a broad interest in the efficient functioning of UK industry, and especially in the provision of finance to industry. This falls within the third of the Bank’s three core purposes. The first of our core purposes is to promote monetary stability in the United Kingdom. A huge number of column inches in the press and elsewhere are now devoted to watching our conduct of monetary policy, as the MPC seeks to meet the Government’s Inflation Target of 2½%.

However, regarding loans for housing, policy tools such as Loanto-Value or Debt-Service-to-Income (LTV or DSTI) ratios, need to be part of the macroprudential toolkit in order to effectively reign on or, at least, influence real estate asset prices, as these are among the most important drivers of the financial cycle. The announced revision of the CRDIV/CRR should provide an opportunity for the extension of the available instruments, as LTVs and DSTIs are not included in the current EU regulation. Clearly, measures addressing the credit supply side by banks – such as increased capital requirements, counter-cyclical capital buffers or dynamic provisioning – can be easy to activate but have proven to be of modest effectiveness. Furthermore, as non-banks play an increasingly important role in the provision of credit, measures targeting only the banks could just result in shadow-banks taking a considerable size of the mortgage business and fuelling a boom in house-prices. Fourth, stress tests of the banking and financial system must have a macroprudential dimension. Such comprehensive assessments need to be embedded in a macro-financial environment. They entail an assessment of the position of a specific economy in the financial cycle since, for example, the adequate level of capital requirements cannot be dissociated from a country’s position on the cycle. Fifth, macroprudential policy is complementary to monetary policy and should share the same status as a policy area. Central banks must have responsibilities in both policy areas even if they are not involved in microprudential supervision. Several reasons justify this set-up.
The use of data with superior software will enable financial services to be unbundled and increasingly custom-made for individual consumers. Data will enable increased transparency and better assessment of credit worthiness as well as reduction of risks, thus extending financing to previously underserved segments of society. The third observation is that finance may display ‘winner takes all’ characteristics over the long term. This characteristic is apparent in Silicon Valley and the digital economy in general. Market leaders such as Google and Facebook control over two-thirds of the market. This is due to ‘network effects’, where a service becomes more valuable when it has more users. What is also worrying is the value that the market attach to these network effects. We have seen staggering valuations of tech-startups, the so called “unicorn companies”, that sometimes have not even realised any meaningful profits. However, their large user base and ability to scale up quickly have resulted in frenzied valuations. It is as if the world has forgotten the dot-com bubble crash of the early 2000s. For financial regulators, a winner takes all outcome is not ideal. It is associated with concentration risks and “too-big-to-fail” issues. Concentration of risks and dependence on too few service providers never ends well. The only consolation I can think of is that “network effects” in the digital economy are not as durable as those found in traditional sectors such as railway networks and power grids.

2/5  BIS central bankers' speeches  However, the evolution of finance must also be managed appropriately to avoid displacement and exclusion. This would include underserved groups and segments that are currently deemed too ‘risky’ by traditional risk metrics. Advancements of any sort always come with trade-offs. For one, with the rapid progress of genetic sciences, it is only a matter of time before chronic diseases such as cancer and diabetes can be predicted even before birth, thereby potentially denying affected individuals of insurance coverage. Automation and artificial intelligence may also result in the displacement of certain segments of the workforce or some segments of society being denied medical protection. Finance, when used properly is an enabling tool. But if abused, it can be a destructive tool with devastating consequences. Finance without ethical considerations will magnify the negative aspects and lead to lasting consequences as the global financial crisis demonstrated. Technological progress would mean excesses can be magnified even further, spreading the risks to a wider segment of the society. Regulators, therefore, stand at the nexus between magnifying the benefits of access to finance and managing the excesses of finance. There are moral and ethical considerations that regulators and policymakers will have to confront as we go forward. Four possible future scenarios Let us conceptualise these themes into four scenarios, an approach that could provide a peek into what is in store, as we visualise the future. The first scenario is “Tech-Savvy Incumbents” a.
In the case of private consumption, there is also a reduction in durable goods consumption due to the peso depreciation and slower growth in real wages associated to the upward revision to the inflation forecast. As for investment, there is the downward correction of the survey from the Capital Goods Corporation on investment plans for 2015. Thus, measured in real terms, gross fixed capital formation should be 23.7 percent of GDP this year. In this projection, gross national savings rises to 21.5 percent of GDP in 2015, reflecting an increase in private saving in the past few quarters. This greater national saving has driven a further reduction in the current account. Accordingly, we estimate that this year it will be near 0 percent of GDP (table 1). On the external front, this projection assumes that our trading partners will grow more in the two-year period 2015–2016 than in previous years. The terms of trade should improve, helped by the drop in oil prices, whose impact will partly outdo the downward adjustment of the copper price. The baseline scenario assumes that copper will trade at an average of 280 dollar cents per pound in 2015–2016. In the same period, Brent oil should average 62 dollars per barrel and WTI oil, 55 dollars per barrel (table 2). Another element contributing to domestic output and demand resuming greater growth is that monetary policy continues to add significant boost to the economy, helping to keep mediumand long-term interest rates at or near record lows (figure 8).

Last but not least, our free floating exchange rate system has permitted the exchange rate to depreciate nearly 11 percent in real terms with respect to its trough of 2013, helping adjust the current account and favoring the competitiveness of our export sector. The saying goes that what is obvious is not talked about, and what is not talked about is forgotten. So I have thought relevant, especially in this environment that at times becomes overwhelmingly pessimistic, to stress how well equipped our economy is to deal with adverse situations. I think that the comparison with other economies of the continent, which have also suffered the brunt of the fall in the prices of our commodities, is revealing: most of them have high current account deficits and several show fiscal situations that are worrying to say the least. In many of them, high levels of dollarization or currency mismatches in the financial sector, restrict the room for exchange rate adjustment and force authorities to use less efficient instruments to achieve their goals. Chile’s reality is different: our economy’s adjustment occurred sooner than in other countries and it did so rapidly and deeply. This situation allows us to look into this and the coming years with some peace of mind. In this context, and as we projected in December, output growth has tended to stabilize around 2.5 percent annually, which is low, but in line with our baseline scenario should increase gradually through the year.
This was not an isolated incident and sadly, many more companies could fall victim to cyber-attacks. Last month, a report by cyber security consultancy CGI Group and Oxford Economics estimated that severe cyber-attacks have cost shareholders losses exceeding £ billionsince 2013 as a result of falling share prices. And this does not even include the damage from lost consumer confidence which is not easily rebuilt. These cases of cyber-attacks serve as a wake-up call to risk managers, as lagging behind in the latest technology is no longer an option. Missing the boat can bring dire consequences, not only tobusinesses but also to the overall safety and soundness of the socio-economic and financial system. Recognising this, technology risk has been one of the top priorities of Bank Negara. Allow me to share some of the Bank’s efforts thus far: a. In March this year, Bank Negara began testing current institutional capabilities in managing cyber threats. Malaysian banks were required to participate in the National Cyber Drill exercise, and the results showed that the millions invested on modern security countermeasures have paid off, with our banks remaining resilient. Notwithstanding this however, the key message is that we must be vigilant. We must be alert. We must be prepared. b. A key tool in identifying IT security vulnerabilities is the practice of penetration testing or “pen-testing”, where a simulated attack is carried out on IT systems by “ethical hackers”.

More recently in April, the Bank published the Code of Conduct for the Malaysian Wholesale Financial Markets to promote high standards of conduct and transparency in the domestic wholesale financial markets. The code is a binding obligation and it sets out the Bank’s 3/5  BIS central bankers' speeches  expectations for market participants to adhere to professional and ethical standards of conduct. The Bank views this standard as critical and timely in light of the incidences of ringgit-rate fixing misconduct and also involvement in the opaque NDF market. Another important aspect of preserving the integrity in the industry is by maintaining strict membership requirements for all participants. As an industry riding on trust as the main vehicle for business, the financial sector cannot afford to be tainted by the actions of a few bad apples. Any unscrupulous behaviour exhibited by a player should not be tolerated and be weeded out immediately from the industry. To protect the financial ecosystem, each organisation has the responsibility to investigate any misconduct and record the outcomes to allow other institutions in the market to make informed decisions on the ability of a person to serve with professionalism and integrity. In this regard, the Bank is currently pursuing an initiative that will mandate the sharing of employment references with future employers to mitigate the problem of ‘rolling bad apples’ within the Malaysian financial industry.
The great majority of euro area citizens are attached to it: 70% according to the latest Eurobarometer Survey2. And contrary to certain claims, our monetary policy is not some Latin flight of fancy. It is very much in line with the German values that I fully share: independence, respect of the Treaties, price stability and a long-term approach. Monetary policy is decided collectively by the Governing Council, and we take the task entrusted to us of ensuring price stability very seriously. This means making sure that inflation is neither too high nor too low: our target is below, but close to 2% over the medium term. Our monetary policy has enabled us to prevent the mortal danger of deflation that has been threatening the euro area in recent times. Today, inflation is rising again in the euro area, as we had announced: we have moved from a fall of 0.2% in April 2016 to a rise of 1/3  BIS central bankers' speeches  2% last month, due somewhat exceptionally to energy prices. Beyond these short-term fluctuations, inflation is expected to stand at 1.7% in 2017, 1.6% in 2018 and 1.7% in 2019. Second asset: we share a large single market that belongs collectively to the Member States of the European Union. This is a major step forward for European trade. It is no coincidence that single market access is at the centre of the Brexit debate.

But that is not the end of the matter, as investors need to do something with the proceeds from their asset sales. They could just sit on the proceeds, but it is more likely that in due course they will buy other assets, including those that offer a higher return. So, in the course of time, the whole range of equity and bond prices are driven up, lowering the cost of finance to companies and increasing its availability. Our purchases of corporate assets are intended to have the additional effect of improving the functioning of those markets. By standing ready to buy commercial paper and corporate bonds, we hope to improve their liquidity, lowering the spread above safe assets of equivalent maturity, and with it the cost of finance to business. 2  BIS Review 62/2009  There are signs that these measures are having a beneficial impact too. Spreads on commercial paper eligible for purchase have fallen by around ½ percentage point and the size of the market has increased by around 10%. Similarly, average spreads on sterling investment grade corporate bonds for industrial companies have declined by some 60 basis points and gross issuance of bonds by UK companies has been strong. These developments may reflect a range of influences, but feedback from market participants suggests that our purchases have indeed played a helpful role. In addition to these channels, the banks, finding themselves flush with extra reserves, may choose to lend them on, providing a further kick by boosting the supply of credit.
Question 2: Inflation, policy, and the economic recovery A second key question involves the concerns about Fed actions stoking inflation. This question is not a distinct and separate issue from the one we just discussed – the strength of the recovery. In fact they are crucially related. If housing-related growth is not going to boost the recovery this time around, we may need policy – particularly monetary policy – to continue playing a stimulative role. But it is important to look at possible costs of stimulative policy, as well as benefits. If inflation were to become a problem that would certainly fall in the costs column. But if analysis  2  Figures 8 and 9 are based on data from McDash Analytics LLC, a subsidiary of Lender Processing Services, Inc. The McDash data contain loan-level data from mortgage servicers, and cover more than half of all outstanding mortgages in the United States. The number of servicers contributing to the McDash dataset is growing over time, so the decline in purchase loans depicted in Figure 8 probably understates the true decline in lending to a small extent. The 2010 distributions reflect data through November 2010. 3  The share of subprime loans in the McDash data is generally smaller than the true subprime share of U.S. mortgages. To create Figure 9, subprime loans in the McDash data were "upweighted," so that the adjusted 12 subprime share matches the true subprime share in a benchmark year (2006).

Given the evidence of substantial excess capacity and a quite low core inflation rate, it is absolutely appropriate that monetary policy – and indeed fiscal policy – have been deployed in a way that encourages a more robust recovery. Going forward, it is my view that monetary policy must continue to focus on addressing both elements of the Fed’s mandate – price stability, and growth supporting a return to full employment in the medium term. Today I am going to focus on two questions that seem to be at the forefront of most discussions of the recovery. The first question is, what role will housing play in the recovery? As the most interestsensitive component of gross domestic product (GDP), housing has traditionally been an important sector of the economy for generating recovery. I will be highlighting the fact that, despite some improvement in factors fundamental to a housing recovery, I expect housing will not provide as much support to this recovery as it has in previous ones. My sense is that residential investment, consumer durables, and services related to housing will be less robust than is usual in many recoveries, thus playing a role in what I think will be only a gradual improvement in the economy and employment. To put it plainly, these housing-related headwinds are part of why I do not expect growth greater than 4 percent this year. And while 4 percent is not terrible, at that rate it will still take a very long time to get back to full employment.
Early outreach to customers whose finances are most vulnerable in the current circumstances whilst bearing in mind relevant FCA guidance12. Ensuring that customer support and collections arrangements are appropriately scaled so they can expand rapidly if need be. This is, of course, not an exhaustive or comprehensive list but simply highlights some of the good practices we are seeing amongst the firms we supervise. However, the message is clear: the outlook is highly uncertain; and we expect firms to be proactive in enhancing the way you manage the risks in your credit portfolios – rather than simply  11 UK Deposit Takers Supervision: 2023 priorities (bankofengland.co.uk) 12 FG23/2: Guidance for firms supporting existing mortgage borrowers impacted by rising living  costs | FCA  Bank of England  Page 5  relying on historic approaches. Doing so will enable you to continue to support your members in a sustainable way. As your supervisor, we have been increasing our own focus on credit risks. You will probably have seen this in your firm’s engagement with our supervisory teams; through the questions we are asking, the data we are collecting and the reviews we are conducting both with individual firms and thematically. And, of course, our Annual Cyclical Scenario stress test will enable us to assess the resilience of the largest UK deposit takers. The results of this will be published in July. We expect all other firms to use the PRA published scenario as a benchmark in their own stress testing processes.

However, I believe all of us who have experienced this environment have emerged with a very different lesson learnt. Indeed, we cannot overstate the extraordinary potential this setting offers to an institution such as ours which has always valued, and legitimately so, the soundness of its judgement. With that conviction, we should devote most of our efforts to forging closer insertion, collaboration and coordination-based links with our European partners with an essential aim in mind: to reinforce our weight and ability to influence decision-making. This is a challenge and it is also an opportunity, but it is above all a responsibility to support, from the vantage of the Banco de España, the project for European construction. The second objective has to do with our contribution to financial and macroeconomic stability. After an unprecedented financial crisis, the reputation of economic policymakers, of central banks in particular and, indeed, of the economics profession as a whole was enormously dented. 4/5  Testifying to this were the regulatory and institutional changes set in train to prevent similar situations from recurring. However, the real test, where we place our social prestige and credibility on the line, will involve us truly being able to identify risks and vulnerabilities in due time, being able to issue warnings about them and, within our remit, being able to act to mitigate them or to contribute decisively to other players acting when they must.
This will be primarily driven by a more active recovery of households’ consumption, which will be supported by growth in disposable income, retail lending, and a declining savings rate. Monetary conditions remain accommodative. Nominal interest rates are close to their record lows. Accommodative monetary conditions support high growth rates of lending to the economy. We forecast that corporate lending will expand by 8–12% this year. Mortgage lending will continue to increase fast at 16–20%. The rise in unsecured consumer lending which slowed down last year has accelerated. In March, seasonally adjusted monthly growth rates exceeded 15% in annualised terms. As the increase in unsecured consumer lending exceeds the growth of incomes, this entails excessive debt burden for borrowers. As before, we believe that such a situation involves significant risks. Therefore, in the near future, we will consider the issue of returning to pre-crisis risk buffers for new loans. Accommodative monetary policy has reduced interest rates not only on loans, but also on deposits. Moreover, elevated inflation is detrimental to households’ savings: deposit rates often do not exceed inflation. Inflation threatens both people’s current incomes and savings, especially in cash. The increase in the key rate will support rises in deposit rates, on the one hand, and slow down inflation and protect households’ funds from devaluation, on the other hand. 2/3  BIS central bankers' speeches  Now, I would like to speak on external conditions and the parameters of the balance of payments.

In a situation where these risks materialise, an increase in volatility in financial markets may speed up inflation, which we factor in when making our decisions. There are also disinflationary risks, yet the probability of their materialisation is lower and they are mostly associated with the fact that demand growth may turn out to be below our expectations. This group of risks may also include a faster reopening of borders, as a result of which demand may shift from domestic consumption to foreign travels. The risk of new coronavirus strains or lower paces of vaccination persists, which, in contrast, may reduce people’s mobility and limit consumption growth, especially in the services sector. If the situation develops not in line with our baseline scenario, we will be responding so as to bring inflation back close to its 4% target over the forecast horizon. Winding up, I would like to comment on the future path of the key rate. Today, we have first published the ranges of the average Bank of Russia key rate for a calendar year over the forecast horizon. According to our baseline forecast, this year the average key rate will generally equal 4.8–5.4% p.a., 5.3–6.3% p.a. next year, and 5–6% p.a. in 2023, which is in line with the range of the long-term neutral key rate. By publishing the path of the key rate, we increase the transparency of our communication, which will ultimately improve the efficiency of monetary policy. Thank you for your attention. 3/3  BIS central bankers' speeches