samchain/econo-pairs-v1 huggingface dataset:
Mohammed Laksaci: Impact of the oil price decline on the Algerian banking system Keynote address by Mr Mohammed Laksaci, Governor of the Bank of Algeria, at a meeting with bank executives, Algiers, 26 April 2016. *  *  *  I would first like to point out that in terms of external shocks, the Algerian economy, which is closely linked to hydrocarbon sector resources, has particularly suffered from the shock inherent to the sharp and sustained fall in world oil prices. It is therefore from this perspective that I start my presentation. I shall talk first of the macroeconomic implications of this external shock, before outlining its impacts from the perspective of financial stability, in light of the new challenges for the banking system in the financing of non-hydrocarbon growth. 1. Macro-economic stance  Economic and financial performance during 2001-2008, particularly the significantly improved external financial position and a substantial accumulation of budget savings, enabled the Algerian economy to demonstrate resilience in the face of the severe external shock in 2009 inherent to the intensification of the international economic and financial crisis. Following the strengthening of the external financial position over 2010-2013, Algeria continued to preserve monetary and financial stability during 2014, in a context of persistent fiscal deficit and a return to a balance of payments deficit. The impact of the oil price decline on the Algerian economy can be examined through the main recent economic and financial developments.

Notwithstanding some more encouraging recent signs, there is still a possibility that continuing imbalance between domestic and external demand will need additional sedation or that it will eventually precipitate a sharp fall in the dollar and US asset prices. But the dollar has come off its recent peak and some of the exuberance may now have gone from equity prices - including some of the froth from the “new economy” sector, so the risks of sharp correction may be less than they were. Elsewhere, in Japan, after a long convalescence, there may now at last be some better prospect of a gradual but self-sustaining recovery in private sector demand. And there has been more substantial evidence in recent months of strengthening domestic demand and output growth across the Eurozone. That fully justified the European Central Bank’s gradual shift away from its earlier accommodating monetary policy stance; it may also have contributed to the beginnings of a recovery of the euro exchange rate towards a more comprehensible level. We are certainly not yet out of the woods - there is a long way to go before anyone can feel confident that we are in fact in sight of a more sustainable balance between the major industrial economies. But I am more hopeful that we are now at least moving in the right direction. And that is encouraging news for the UK. On a macro-economic overview, our own economy remains in pretty good shape.
Mexico has revamped labor laws, the education system and its telecommunications system, financial and energy sectors – including a plan to open up its oil and gas sector to private investment. The timing is good. The implementation of these new laws will coincide with a strengthening U.S. economic recovery. You know far more about these structural reforms than I do. I cannot pretend to speak with any authority on the detailed economic implications of these reforms, but I do want to offer some perspective from Texas. Last year’s passage of the historic energy reform should, if carefully and deliberately implemented, increase oil and gas production and reverse the nineyear trend of declining output that is currently depressing Mexico exports, industrial production and GDP and adversely impacting government revenues. The Eagle Ford shale oil boom in south central Texas exemplifies the regulatory differences between our two regions that the reform aspires to relinquish. The gap is very telling. As activity has accelerated dramatically north of the border, there is no corresponding drilling or production in northern Mexico despite the contiguous geology. And it’s not because Eagle Ford required the deep pockets of the huge energy corporations. Rather, it is largely independent operators who have developed the vast majority of Eagle Ford projects. The result: sharply rising oil production in the Eagle Ford, from nothing four years ago to more than 1.3 million barrels per day currently. The shale oil boom in Texas has had far-reaching effects on the state.

On my flight home from Zurich, I read about a bank with compliance failures; however, I have to say that as a whole, the Mexican banking system is quite healthy. Bank profits rose in 2013 and Mexican banks are well-capitalized, with an aggregate capital ratio of 16 percent as of year-end 2013. While four small banks failed year-end stress tests by the Comision Nacional Bancaria y de Valores (CNBV) and were asked to boost capital and diversify their portfolios, it was also the first year the regulator fully implemented the stringent Basel III capital rules. The share of nonperforming loans rose slightly; among commercial loans, this was partly due to changes in the accounting methodology, so it cannot fully be attributed to deteriorating credit quality. I am convinced that the biggest problem facing Mexico is not too much credit, but too little. That’s why the recently implemented financial reform is so important; that’s why its core objective is to boost credit. Another advantage that Mexico has is plentiful foreign exchange reserves, about $ billion, and a $ billion standing line of credit with the IMF. Mexico has been amassing more foreign exchange reserves as other emerging market nations have seen them dwindle. While excess liquidity from the U.S. has found its way to all emerging markets, there is a palpable investor commitment to Mexico that sets it apart from the rest. At over $ billion, 2013 was a record year for foreign direct investment in Mexico.
In this paper, we have tried to set out some of the thinking behind the Bank’s approach to collateral. It is driven by a combination of monetary and financial stability policy objectives and the need to protect the Bank’s own balance sheet. To do that, we look through current market conditions to assess the value of collateral and firm behaviour under stressed conditions. We also try to understand the incentives that we create for our counterparties in good times and bad, so as to avoid moral hazard and market distortions. The changes that have been made should mean that in future, the Bank of England is more effective both in providing liquidity insurance to the banking system and in mitigating its own risks. 8  BIS central bankers’ speeches

But anyway, had Lehman been salvaged, one cannot be sure that other systemically important institutions would not have followed. Would a 750 billion dollar package been approved without the collapse of Lehman? If Lehman had been thrown the lifeboat, would such a large package have been necessary? There will be plenty time to discuss this and other issues. However, there is a very straightforward conclusion, which is that policymakers should have been aware of the magnitude and consequences of the downfall of a major financial institution. This is at the core of this conference: evaluating systemic risks in a very complex world. Such a complexity offers big benefits, but also poses enormous challenges in regulation, monitoring and risk assessment. In the future, it will also be necessary to discuss what to do about weak institutions. As has happened in Chile in the past and is now happening in developed economies, in my opinion the balance is tilted towards allocating the losses to shareholders and executives, intervening institutions to ensure good use of public funds and preserving financial discipline. In the past few years we have accumulated a lot of experience, which permits us to be certain that asset price drops and credit market difficulties can impose a large burden on the economy if ignored. Investors have lost confidence in the ability of certain firms to meet their obligations, complicating access to the capital market and short-term financing, and thus accelerating the fall in those firms’ stock prices.
Some disconnection between the valuation process – which should remain anchored on market prices – and income and profit recognition will have to be introduced, if only to account for risks which are there but have not yet materialized. Dynamic provisioning is one technique for doing so, when risks are closely related to the economic cycle. Valuation reserves may also be used when complexity or illiquidity creates additional risk linked to valuation. Provided those adjustments are rule based and made in a fully transparent process, they would not reduce the quantity or quality of information available to investors as to the real health of financial institutions. Another avenue for research would be for the regulatory system to "force" the pricing of risk in all its dimensions. There is a clear analogy with tax theory: internalizing the risk eliminates market failures. This approach would be best implemented to liquidity risk linked to maturity transformation. Quantitative liquidity ratios are currently considered in a number of juridictions to be imposed on financial institutions. However, they may not protect the system against an aggregate liquidity shock, when, by definition, the demand for liquidity becomes infinite and any buffer proves insufficient. Pricing liquidity ex ante in the system would reduce the probability of such a shock and create incentives against relying too much on maturity transformation. Admittedly, the conceptual challenges in quantifying, for instance, liquidity risk, are enormous. But we live in a world of second best, and even very approximate measures would do better than nothing at all. Thank you.

Also, valuation gains and losses may encourage risk taking or trigger sharp pull-backs. Should procyclicality be avoided? Not necessarily: •  Financial stability is not an end by itself. It only helps if it is conducive to better macro economic performance. Volatility may be driven by fundamentals. Sharp movements in asset prices may help the financial system to serve as a cushion, an "absorber" for exogenous economic shocks. This is welfare improving since it avoids, or mitigates, adjustment in more rigid goods or labor markets. •  By the same token, not all procyclicality is bad. It all depends on the causal link: is the financial system the origin or the amplifier of destabilizing dynamics? Or does it simply react to cyclical evolutions in the real economy? We should only be concerned by "intrinsic procyclicality", which is created inside and by the financial system. 4  It should be noted that there no consensus on whether accounting rules matter. According to one view, accounting is "neutral" and procyclicality in financial variables faithfully reflect an exogenous reality. An opposite view would state that accounting creates incentives, influences behaviour and, therefore, accounting rules have a significant impact on the dynamics of financial systems. The views presented here are my own. 5  See Adrian and Shin (2007). 6  See Adrian and Shin (2008).
22  The most affected sectors include some whose margins would be hardest hit, such as wholesale and retail trade and repair of motor vehicles, land transport, fishing and agriculture. The degree of financial vulnerability is also expected to rise by more than the average in some sectors in which the impact on sectoral margins is comparatively smaller, such as basic metals manufacturing, or publishing, cinema, television and radio. This is largely because some of the firms in such sectors were already hovering around the thresholds determining vulnerable status before the shock. 15  The results show that the greater adverse impact of these scenarios on the sector’s solvency would take the form of a worsening of the credit quality of loans to the private sector, leading to greater impairment losses on business in Spain and less capacity to generate net income from foreign business. Moreover, the simulated interest rate hike entails a slight reduction in the value of the bond holdings on banks’ balance sheets. At the same time, higher interest rates push up net interest income, by improving the net interest margin on loans to the private sector and making investing in debt securities more profitable, whereas the cost of deposits responds more moderately. Overall, the adverse scenario would have a negative impact of 1.8 pp on the aggregate CET1 ratio of Spanish banks as a whole, while the impact under the severe scenario would be as high as 3 pp.

To sum up: the Spanish banking industry has proved resilient to the economic crisis triggered by the pandemic, maintaining the supply of credit to the private sector and an adequate solvency level. It has also been able to swiftly recover its profitability. The banking sector in the new macro-financial climate Despite these favourable circumstances, the recent macro-financial deterioration I described earlier calls for a prudent approach on the part of banks and for close monitoring of the risks associated with the Ukrainian conflict. Indeed, as noted above, these factors have led to a downward revision to the economic outlook published by the Banco de España for 2022 and 2023, as well as a significant upward revision to our inflation projections for 2022. Against this backdrop, our latest Financial Stability Report, published in May, included some simulation exercises on the impact of a potential rise in interest rates or energy prices on the economic and financial situation of Spanish firms, households and general government. I will now turn to the results of these exercises, updated to include the latest developments and market expectations of interest rate hikes. Thus, in the case of businesses, an interest rate hike could drive up the percentage of firms under financial pressure. Specifically, within corporate bank financing, short-term and variable-rate loans predominate, and changes in interest rates therefore pass through relatively swiftly.
Further repo-rate cuts in April and July GDP continued to fall dramatically during the first quarter of the year, in Sweden as well as abroad, and the GDP forecast for 2009 was revised further downwards compared to the Riksbank’s assessment in February. The Riksbank also assessed that CPI inflation would fall very rapidly during 2009, which was largely due to the rapid interest rate cuts implemented at the end of 2008 and start of 2009. At the monetary policy meeting on 20 April, the repo rate was cut by 0.5 percentage points to 0.5 per cent. The repo rate was expected to remain at a low level until the beginning of 2011 (see Figure 1). In July, the assessment was that the decline in economic activity during 2009 would be slightly deeper than the assessment made by the Riksbank in April. The Riksbank’s assessment was that the repo rate and the repo-rate path needed to be even lower. The repo rate was cut by 0.25 percentage points to 0.25 per cent at the monetary policy meeting on 1 July. The repo rate was expected to remain at this low level until the autumn of 2010 (see Figure 1). The Riksbank also assessed that the cut did not represent a threat to the functioning of the financial markets. Furthermore, the Riksbank deemed that, following the cut to 0.25 per cent, the repo rate had in practice reached its lower bound.

It is a question of choosing a repo-rate path so that the forecast for inflation and resource utilisation entails the best possible stabilisation of inflation and resource utilisation. As the forecasts play such a central role in the monetary policy decisions, it is of course important that the Riksbank employs good forecasting methods and uses all the relevant information available when the forecasts are produced so that they are as accurate as possible. An important step in the assessment of monetary policy is therefore to investigate whether the forecasts are reasonably accurate. One way to do this is to compare the Riksbank’s forecasts with those of other forecasters. The Riksbank makes such comparisons every year. Another component of the assessment of monetary policy is to analyse how predictable monetary policy is and what impact it has on market rates. Monetary policy mainly acts by influencing expectations regarding interest rates, inflation and the real economy in the future. Expectations regarding the repo rate in the years immediately ahead affect interest rates with  2  BIS Review 32/2010  longer maturities, and therefore inflation and the real economy, more than the repo rate in the period up to the next monetary policy decision. The predictability of monetary policy can be measured in terms of how well the market predicts the next repo-rate path. How effectively monetary policy steers market expectations and market rates can be measured in terms of how closely the market expectations regarding future repo rates correspond to the repo-rate path after it is published.
But with food and energy prices rising, some observers think the Fed should shift its stance to less accommodation – slowing economic growth now to ensure we don’t have undesirably high inflation in the future – even though current measures of core inflation (that is, inflation omitting volatile food and energy prices) remain low by historical standards. As the recovery continues – albeit slowly – several events have occurred that further complicate the outlook for inflation and real economic activity. Political upheaval in the Middle East has contributed to sharply higher oil prices. Severe weather has reduced harvests from Russia to Australia, causing higher prices for many agricultural products. And Japan’s tragic earthquake and tsunami caused not only terrible loss of life, but also disruption to a supply chain that is increasingly global. So today I would like to discuss how monetary policy should react when the economy is buffeted by a series of these so-called “supply shocks.” I’d like to just highlight my major points before getting into the data and analysis that underpin my perspective. First, I want to explain that while I will be making distinctions in this talk between so-called “core” and overall or total measures of inflation, we at the Federal Reserve look at all prices, including food and energy prices, when developing U.S. monetary policy. While we often use core measures as a guide to where overall inflation is most likely to go, our goal is to stabilize overall inflation. Allow me to preview one of my conclusions.

GROUNDED LIKE EARTH – TRUSTED SUSTAINABILITY DATA (PROJECT GREENPRINT) The fifth desired outcome is trusted sustainability data. Good data is foundational to driving the green and transition finance agenda. Financial institutions and corporates need good data on their customers' and suppliers' carbon footprints and compliance with their respective transition targets. They also need good data on the climate-related risks their physical assets are vulnerable to. Quality data is key in the fight against greenwashing and in enabling stakeholders to make well-informed ESG-investment decisions. But the ESG data acquisition process is often manual, tedious and costly. Access to good data sources is often fragmented, and data verification is at a nascent stage. FinTech can be a key enabler in addressing these data challenges. In fact, we need FinTech to do in the sustainability space what it is doing today in the inclusion space. We need Green FinTech. Just as Earth provides a firm, steady ground upon which we stand, we want to create a trusted data ecosystem that provides a firm foundation for sustainable finance. To build a Green FinTech data ecosystem, MAS has launched a collaborative effort with the financial industry called Project Greenprint. Project Greenprint seeks to build digital utilities that streamline the collection, access, and use of climate and sustainability data. It aims to help mobilise capital to sustainable projects, monitor the climate commitments made, and measure the impact associated with investments.
Smoothing out the bumps, surveys of activity and confidence, among both consumers and businesses, have scarcely budged. Although a little weaker than last year, those surveys continue to point to solid, around-trend, growth. What has clearly changed recently is the composition of UK growth. Consumer spending has slowed, perhaps sharply, while there are signs business investment is picking up (Chart 17). Surveys also suggest a strengthening outlook for exports. With their balance sheets strong, their cost of capital low and with demand for their products – particularly from overseas – buoyant, UK companies may be emerging from under the duvet, putting their balance sheets to work. If so, and even if aggregate growth is somewhat slower, this will make for better balanced and more resilient growth. None of this is to suggest that the risks of a Brexit break have disappeared. There are still enough straws in the wind to believe a sharper slowdown than expected is possible, with consumers’ spending on houses, cars and household goods all having slowed sharply. And it might not take much of a squeeze on consumer demand to induce companies to return to their duvets. But there has been no consistent evidence, so far at least, of this discontinuity risk having increased significantly during this year. As for nominal pressures, there have been some signs of a stirring. Consumer price inflation, at 2.9% in May, exceeded market expectations, as did measures of core inflation.

Those data and risks have, in my view, altered materially over the past nine months or so, for a number of reasons. First, the world outlook is materially brighter than it has been for some time, perhaps at any time since the global financial crisis. This year’s Spring Meetings of the IMF saw the first upgrade of world growth forecasts for six years. As forecast errors tend to be serially correlated – forecasters’ models tend to smooth out the bumps and miss turning points - it is possible further upgrades to world growth could lie ahead. One reason to believe stronger world growth may prove resilient is that it appears to have a broader base than in the recent past, both compositionally and regionally. At a compositional level, there are early-stage signs that global growth may be rebalancing away from consumption and towards investment. Since the crisis, global business investment has been structurally weak, growing around 2 percentage points below its pre-crisis average. Meanwhile, growth in world trade has undershot world growth for the past 2 years, after a 5-year period in which the opposite was true. There are now signs those patterns are reversing. Investment in the US, the euro area and China appears to be picking up. So too is world trade. Global supply chains appear to be widening and deepening, with global trade and capital goods orders rising (Chart 13). It is possible greater optimism about world demand may be encouraging businesses to put their fortress balance sheets to work.