samchain/econo-pairs-v1 huggingface dataset:
Stefan Ingves: Introduction on monetary policy Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Riksdag's Committee on Finance, Stockholm, 26 February 2008. *  *  *  I would like to begin in roughly the same way as I did when I was last here – by saying a few words about the objective and basic purpose of monetary policy. It is in the light of this that we make our interest rate decisions. And our actions should be assessed against this background. Our most recent economic assessment and the material for assessing monetary policy are also what we are here to discuss today. We must always bear in mind that the basis for monetary policy is the price stability objective which the Swedish people, through the Riksdag, have delegated to the Riksbank. And this is actually not merely an objective, it is also a means. By keeping inflation low and stable, monetary policy shall help to create the best possible conditions for good and sustainable economic development. To do this in the best possible manner we must constantly learn from what is happening and try to become better at what we do. Part of this process involves, of course, examining, assessing and discussing monetary policy in a constructive manner. Here the Riksdag Committee on Finance plays an important role, both in examining and in developing the examination process. The Committee has recently taken several good initiatives.

The signs of improvement in the sector are not free from risks. In a setting characterised by low economic growth, sluggish activity and relatively low interest rates, banking sector margins will continue to be subject to downward pressures. Foreseeably, moreover, doubtful assets will continue to increase in the short run, although their impact in terms of provisions will be less than in the recent past. Against this background, banks must persevere in their efforts to improve efficiency and contain operating costs. In particular, it is essential that banks subject to restructuring and recapitalisation plans strictly comply with the requirements established in those plans. Conclusions The difficulties the Spanish economy has been facing call for efforts to be made by all. The Budget you are to discuss is pivotal to the continuation of these efforts and to an exit from the crisis. The analysis I have attempted to convey seeks to show that these efforts are beginning to bear fruit in the gradual strengthening of the recovery. I believe if we manage to maintain the policy of expenditure control, structural reforms and the reinforcement of our financial system, the year 2014 may mark the start of the recovery in activity and employment. Thank you for your attention. BIS central bankers’ speeches  7
Recoil from the crisis To some extent, the rapid Swedish recovery is a recoil from the drastic fall in demand during the crisis. An important part of the fall in world trade was due to the postponement of purchases of investment goods and durable consumer goods – goods that comprise a large part of Swedish exports. The global economic recession therefore had a strong impact on the Swedish economy, which is very dependent on exports. World trade has now recovered, mainly through the rapid growth in emerging economies in, for instance, Asia. Growth has also been good in the Nordic countries. The upturn in our exports is to a great extent driven by demand for the goods that were previously postponed. In the same way as Swedish exports fell as markets shrank, they are now rising as the markets are growing again (Figure 1). Good public finances… But to a large part the good developments concern what I just tried to convey: That we actually acquitted ourselves fairly well this time. This includes the good public finances. Since the end of the 1990s our national debt has shown a declining trend. There has not been any corresponding decline in, for instance, the Eurozone and the United States (Figure 2), where the national debt moreover began to increase substantially during the financial crisis. In many areas it is thus necessary to tighten fiscal policy, but this does not apply to Sweden.

2001 20  Government financial balance 15  Current account  10  5  0  -5 Iceland  US  Denmark  Sweden  Finland  Norway  Source: OECD SG 240802  Another prominent feature is that, except for Iceland, the Nordic countries have a twin surplus in the public sector and on the current account. This implies a net outflow of capital from the region. The facts I have mentioned may lead outsiders to regard the Nordic region as one group, made up of similar economies. However, there are also some striking differences. Nordic countries – institutional differences EU-membership  Monetary policy regime  Sweden  Yes  Inflation target of 2 per cent (+/- 1 percentage points)  Denmark  Yes  ERM II  Finland  Yes  Member of EMU  Iceland  No (EEA-agreement)  Inflation target of 2½ per cent  Norway  No (EEA-agreement)  Inflation target of 2½ per cent  SG 240802  2  BIS Review 70/2002  We differ in our relations to the EU and with respect to monetary policy regimes. Sweden, Denmark and Finland are members of the EU. Finland is also a member of EMU. The Danish krone is linked to the euro through a fixed exchange rate, while Sweden, Iceland and Norway have inflation targets and a floating exchange rate. Our financial markets differ in size and structure. Bonds outstanding, March 2002.
In fact overall GDP growth in the year to the fourth quarter of 2001, at 1.9%, was by some margin, the highest among the G7 countries, and the rate of UK unemployment is currently the lowest, on a comparable basis, in the G7. And interest rates are the lowest they've been in this country in a generation. Of course we'd all have been much happier with better balanced growth. Stimulating domestic demand to offset the external weakness - the only option available to us - was very much a second best option, and not without its own risks, but it was better than doing nothing at all. That would have meant a much sharper slowdown, and probably recession, in the economy as a whole. And, given what was happening on the inflation front, it would have meant a quite unnecessary loss of overall output - and income and employment. In effect we took the view that unbalanced growth was better than no growth. The question now, of course, is where do we go from here. 2  BIS Review 10/2002  There have recently been encouraging, but tentative, signs that the worst of the global slowdown may now be behind us, and that the US and Eurozone economies are now beginning to bottom out and are likely to pick up as we go through this year, perhaps to around trend. And the euro, which has, as I say, been puzzlingly weak since soon after its introduction 3 years ago, still seems likely to strengthen eventually.

The road ahead may not always be smooth as financial globalization has yet to unveil its full impact on the global economy and emerging markets. But this should not prevent us together from having a pleasant journey towards the more prosperous future. 4  BIS Review 107/2007
Real disposable income in the United States, for example, has risen roughly 4% a year over the past two years. In addition, there has been considerable vigor in household demand. Indeed, the question is whether household demand is growing too quickly. In constant dollar terms, consumer spending grew more than 5% in 1999, the fastest rate since the mid-1980s. Housing has also been surprisingly strong, due to the best affordability conditions in a generation. In fact, the home ownership rate reached a record 67% in the second half of 1999. A number of commentators have expressed concerns that the United States cannot sustain these current measures of prosperity. To support their view, they point to the declines in recent years in personal saving rates. 1  BIS Review 29/2000  However, these declines in personal saving rates may be misleading in that they may be due in some respects to technical measurement issues, such as the exclusion of realized capital gains from the income and saving data. More relevant is the fact that household credit quality has not deteriorated over the past several years. On the contrary, it appears to be improving. Delinquency rates on mortgages and consumer installment debt have been falling, as have the number of new bankruptcies reported. Driving these positive trends, to be sure, has been strong growth in employment and income. At the same time, I cannot suggest that the Phillips curve - which holds that there is a predictable trade-off between achieving price stability and employment gains - is dead.

The Capital Conservation Buffer (CCoB) was introduced to ensure that banks have an additional layer of usable capital that could be drawn down when losses are incurred (Chart 2).8 It is established above the regulatory minimum as a fixed, common amount across firms. When a firm dips into its CCoB, it incurs a far less significant regulatory consequence than breach of the minimum: automatic restrictions on distributions, including dividends and share buybacks, are imposed and a capital restoration plan must be submitted to its supervisors. The Countercyclical Capital Buffer (CCyB) is a time-varying capital requirement determined by domestic authorities. It is built up during periods where the authorities think that system-wide risk-taking is elevated and may threaten banking stability. Some authorities, including the FPC, set a non-zero resting rate of the CCyB in normal times – those are times where risks are neither elevated nor subdued – being conscious that it takes time for banks to build up capital buffers. During stress, authorities can reduce the CCyB to support banks in maintaining their supply of credit or other critical financial services to the economy.9 Management buffers are amounts that firms keep above regulatory buffers and are entirely under the discretion of their management. 8 The Capital Conservation buffer is extended by buffers based on a firm’s global or domestic systemic importance, and  by the Countercyclical Capital buffer when it is non-zero. 9 In this speech I am concentrating on the CCyB and the CCoB, but there are other buffers too.
I think it’ll be awhile before it gets to Fed presidents. But I know… President Dudley: Well, there are some people in Washington that would like to make us conduct monetary policy by a rule. Maureen O’Hara: And there you go, a robot can do it. President Dudley: We don’t think that’s such a good idea, by the way. Maureen O’Hara It’s an interesting challenging, and particularly here I saw some numbers the other day that the high school graduation rate in New York state is somewhere in the 70 percentage points. And again, as you think about the technology creating winners and losers, you know, obviously we’re in education, all of us are committed to education, you know. Is that kind of crucial to the technology solution? What do we do with the people who don’t? President Dudley: Well, I think – I mean look, I think education is absolutely essential. Giving people the skills they need to sort of navigate in the 21st century economy. And the second thing we need to do a better job is actually retraining people so that the only education you get shouldn’t just be when you’re 18 to 22 years old or 25 years old. We need to have a better system where people can sort of retool themselves. I think a third thing we can do is a better job of matching the skills that people get in universities to the business needs.

First question would be, what do you think of this type of proposal? And second, if this were implemented, what do you forecast the impact to be? 11 / 13  BIS central bankers' speeches  President Dudley: Well, there’s been a lot of discussion in Washington about this border tax adjustment. If you were starting with a corporate tax code from scratch, it would be, I think, quite attractive in a lot of ways because it basically eliminates a lot of the incentives to engage in games of transfer pricing. It reduces a lot of the incentives to book your intellectual property abroad. So, it actually has a lot of attractive features. I think the challenge is that it’s very different than the current tax regime, and so there really would be some pretty significant adjustment costs and frictions of moving from the current regime to that new regime. And so, I think the question is really going to be: do people think those adjustment costs are a price worth paying for what I would agree is probably a better corporate tax regime. Certainly, a much better tax regime than the one we have today. But you know, there’s going to be a lot of people that are going to be worried about how that adjustment is going to affect their particular industry. If you’re an importer, you’re going to be worried that your price of imports is going to go up.
In practice, however, the professional conduct of individuals – as well as the organisation and culture of insurance firms – has always mattered, particularly in earlier periods when reputation was the only means by which policyholders could assess the safety and soundness of insurers. The failure of Equitable Life in 2000 – driven by an over-extension on the part of the company in offering guaranteed annuity rates on their products with insufficient reserves to pay out – reinforced the importance of a sound regulatory and supervisory framework and, once again, the case was reform was alive. But perhaps the single largest factor in determining the nature of state involvement in the insurance sector towards the end of the 20th century was the UK’s membership of the  19  Clayton (1971). 20  Fratianni, and Spinelli (2006). 21  Thoyts (2010). 22  Ibid. 23  Ibid. BIS central bankers’ speeches  7  European Economic Community. Not only did it require the UK to enact a package of European directives (colloquially known as Solvency I), but it has had a significant impact on the British state’s involvement in the affairs of insurance companies ever since. Whilst Solvency I allowed the state to introduce further UK-specific initiatives for the insurance sector – such as the Individual Capital Adequacy Standards (ICAS) regime – insurers and regulators alike are now bound by European-wide maximum-harmonising requirements, most notably of course through the recent implementation of Solvency II. Conclusion What can we learn from this?

But there are risks to this scenario. They are twofold. First, that strong global growth continues to generate upward pressure on the prices of commodities and tradable goods more generally. And, second, that the period of elevated inflation causes medium-term inflation expectations to drift up, leading to higher rates of increase of both wages and prices. Measures of near-term household inflations have moved up in line with the MPC’s own assessment of near-term inflation, but the rise in longer-term measures has been considerably more muted. And measures derived from inflation swaps suggest that the expectations of financial market participants five years ahead have remained stable. But given the unexpected strength of inflation in recent months, this risk has probably increased of late. So we shall be watching these indicators, and their impact on wages and prices, like proverbial hawks. What are the implications of all this for monetary policy? The recovery has so far turned out to be broadly in line with that expected a year ago, but the outlook for growth remains highly uncertain. Though inflation has been running well above target and is likely to continue to do so for a while yet, beyond the end of next year it should fall back to near the Committee’s 2% target. In the light of that outlook, I believe we have made appropriate use of the “constrained discretion” granted to us in the Chancellor’s remit, looking through the temporarily elevated inflation to the medium term in order to avoid unnecessary volatility in output.
And the continuing efforts of the banking sector also represent challenges of their own: banks filed over 68,000 or 90% of the suspicious transaction reports (STRs) with the JFIU in a year. And that is just the STRs: we all know what that means in terms of the massive amount of data that banks are monitoring, screening and analysing on an ongoing basis. 5. The more difficult part of the answer to my question therefore means looking forward and requires vision and – dare I say it – aspiration – because we know that FATF evaluations represent a snap shot. There are always new and emerging risks, to which the HKMA and banks have stayed vigilant and agile; criminals are also exploiting new technology and innovations to create terrible harm to consumers and the integrity of the financial system. Banks that play a frontline role in combating that harm, not only by applying preventive measures when on-boarding customers, but increasingly through the value of information they are able to extract and feed into the AML/CFT eco-system and the close cooperation with the LEAs and the HKMA in converting STRs and intelligence into actions like arrests and asset recovery. 6. This is the challenge we face so we’ve taken a step back from the FATF evaluation report and asked ourselves some potent questions: is our system working as well as we would like it to be? Are the supervisory tools and techniques we have been using for years still fit-forpurpose? 7.

Like so many aspects of culture and values, it’s not a project with a deadline, where we can say, “OK, we’re done now.” Instead, we need to be constantly reassessing our goals, refining what we do, and how we do it. We need to be vigilant, attuned to change, and open to new ideas. Because it’s one thing to create an open culture, but a much harder challenge to keep it that way. I’m reminded of a quote by Brené Brown, which I believe sums this up: “To not have the conversation because of discomfort is the definition of privilege…” When we step back, when the dialogue—however uncomfortable it may be—stops, or is never initiated in the first place, is when there’s a problem. It’s the conversations that aren’t spoken that erode trust, alienate people, and take us back. I’d like to conclude where I began. I spend a lot of time examining data, and it’s a source of constant disappointment and frustration that LGBT people, women, and people of color continue to have less economic opportunity than their straight, white, male counterparts. Creating equality of opportunity at the national level is a challenge the United States continues to struggle with. But it’s both the right thing to do and the only way we’ll reach our full economic potential. Creating a more diverse—and equally important—a more inclusive Federal Reserve is a key 2/3  BIS central bankers' speeches  priority. We have come a long way, but there’s no doubt we still have far to go.
It also goes quite some way towards accounting for the UK’s two productivity gaps. It is, arithmetically at least, the reason why the UK has a productivity gap with France and Germany. The positive effect of the UK’s larger upper tail of high-performing companies is being comfortably offset by the negative effects of its much longer, lower tail. The UK’s international productivity gap is, to a large degree, a long tail problem. This long tail long pre-dates the crisis and thus cannot by itself explain all of the UK’s poor productivity performance since the crisis. But as my colleague Patrick Schneider has shown, a striking feature of the past few years has been how previously high-performing companies have seen their productivity laid-low. 16  These are companies which, previously, were nestled just inside the technological frontier. The crisis has caused these companies to stand still, productivity-wise, while frontier companies have forged ahead. Companies previously gliding in the slipstream are now floundering in the wake of frontier firms. That has widened the distance between the best and the rest; it has lengthened the lower tail. And that lengthening helps explain the UK’s productivity slowdown over the past decade. There is an active debate underway, in academic and policy circles, about the forces shaping future productivity and growth. Often, this debate centres on whether the forces of secular innovation, brought about by the dawning of the Fourth Industrial Revolution, will win out over the forces of secular stagnation, arising from adverse trends in demography, inequality and the like.

Overall, Switzerland – a small open economy with a highly developed financial sector – is in a position to derive particularly significant benefits from the globalisation of financial markets. It is important to take advantage of these opportunities. Protectionism when foreigners acquire companies and excessive regulation of foreign investment should be avoided. Rather, the sale of Swiss companies below their real value can be avoided through innovation, flexibility and good management, and excessive risks of foreign investments can be limited through more personal responsibility on the part of investors. BIS Review 131/2007  1
Moving on to developing financial technologies Technology has an increasingly large impact on the financial sector. Russia is progressing in line with global trends. In some cases, we are even ahead of some of these trends: for example, Russian banks already offer cutting-edge mobile applications. According to Ernst & Young, the Russian market is currently in third place globally in terms of financial technology development. It would be foolish to miss out on the technological revolution. We have work ongoing in three areas. The first two (where we are highly engaged, which is hopefully evident to you) involve supporting fintech and preventing cybercrime in the financial sphere. The third involves the so-called regtech i.e. new regulatory and supervisory approaches for us to elaborate in order to provide adequate risk management of financial institutions that are becoming increasingly like technology companies. What is the Bank of Russia doing to support financial technologies? We have repeatedly talked about our principles of regulation and supervision over fintech – first you need observation then regulation in proportion to risks. We engage in constant dialogue with 9 / 11  BIS central bankers' speeches  the market and created Fintech, an association for financial technology development. The next step for us to accomplish in the coming years is to create a national fintech infrastructure i.e. the necessary elements that will be beneficial to and in demand by all market players and will ensure that players of all sizes have convenient access to the market.

I would now like to address the objectives that we are yet to complete. The most pressing problem is lending to business owners. The standard N25 restricting financing of one’s own projects was introduced this year but is still only applied in a preferential mode. Lending to owners is dangerous for two reasons. First, the bank will turn a blind eye to risks linked to its own company when issuing it a loan i.e. the risk of non-return. Second, our practice has shown that if the owner’s project really experiences difficulties the last place it returns money is the affiliated bank. These are not marketable loans but loans extended by unwritten rules. Banks cannot refinance or resell them. In the end, this is the cause of bankruptcy for many banks. It is one of the factors that led to the collapse of relatively large banks, whose licenses we revoked. We want the banking community to know that our intentions in this field are serious and we will continue to take a tighter stance. Therefore, I advise those whose business model is built on lending to owners to seriously consider finding alternatives. Yet another problem is the quality of banks’ capital. We need to be confident that our banks have real, not borrowed, capital. Therefore, as of this year we will be introducing tighter regulation on the quality of capital. When calculating a bank’s capital, we will not take funds from nontransparent sources into account. There is another whole host of problems associated with collateral.