samchain/econo-pairs-v1 huggingface dataset:
Obviously this will depend on the availability of telephone lines and personal computers. There is also the crucial issue of public acceptance of the new technology. Such issues mean that a wholesale shift to electronic banking will not happen overnight. However, banks would be unwise to ignore the longer-term opportunities as well as the threats. If the new delivery mechanisms do develop, this will result in increased competition including from new entrants as barriers to entry are reduced. The potential for foreign banks to provide cross-border banking services, such as private banking, through the internet will also increase. In other words, foreign banks may no longer need to be physically located in a particular country in order to tap its market. This will pose interesting challenges to regulators as well as the banks. The response to the challenges 23. What then should be the response of banks to these challenges? Despite the diversity of banking systems around the Asian region, I think it is possible to draw some broad conclusions. 24. The key point is, I think, for banks to realize that, even if they are stateowned, they are ultimately responsible for their own destiny. The Commercial Banking Law of the People’s Republic of China sums up the point well in its Article 4.

Rapid growth in lending such as we have witnessed in a number of Asian economies can be a warning sign because it tends to be associated with a lowering of credit standards as banks lend to customers whose creditworthiness is more marginal. Moreover, much of this lending may find its way into the property market and stock market, adding to the upward pressure on asset prices arising from the inflows themselves. Reversal of inflows or a slowing down of the economy, as in Thailand, thus exposes the banks to both credit risk and market risk as asset prices fall. 15. With large capital inflows, banks may also find themselves incurring substantial net foreign currency liabilities. They will thus additionally be exposed to substantial foreign exchange risks if the domestic currency weakens. Financial liberalization and increased competition 16. Associated with, and leading to the global integration of financial markets is the trend of financial liberalization and increased competition. The trend has increasingly freed banks from direct controls on interest rates and on their permitted business activities in many Asian economies. We can see this in banking systems as far apart as those in China where the process of commercialization of the banking sector is now underway and in Japan which is planning its own version of Big Bang in the next few years. This new freedom can bring increased opportunities for the banks and can be a powerful incentive to increased efficiency in 4  International Capital Markets, IMF 1996.
If he were to summarize this talk he might suggest a title like “Knowing Your Destination is a Good Start in Getting Where You Are Going” or some other derivation of what I believe is his actual quote: “You’ve got to be very careful if you don’t know where you are going because you might not get there.” When setting monetary policy, it is very important to have a clear idea of where you want the economy to go. And fortunately, there is now much more transparency about the Federal Open Market Committee’s (FOMC’s) expected destination, because the FOMC releases its long-term projections for inflation and unemployment. Unfortunately, however, actually reaching our desired destination will prove challenging and involve choices, as I will discuss this evening. At our January meeting, the central tendency of the FOMC members’ long-run projections for unemployment was 5.0 to 5.2 per cent, and for inflation (measured by the personal consumption expenditures price index or PCE) was 1.7 to 2.0 per cent. At present, both unemployment and inflation diverge significantly from these longer-term goals, with the March unemployment rate at 9.7 per cent, and core PCE inflation over the past year at 1.3 per cent. In such circumstances, one might think that the current path of monetary policy would be particularly straightforward. Unfortunately, just knowing your destination doesn’t get you there. To reach your destination you need to know how you want to get there.

While financial markets have improved significantly, real estate problems, bank closures, and significant non-performing loans on the books of many banks continue to provide financial headwinds to the recovery. And clearly – as the headlines of the past week have highlighted – financial problems abroad still have the potential to result in slower U.S. exports, and may hold potential further problems for global financial institutions. In sum, my view is that with inflation expectations stable, core PCE inflation rates declining, and significant excess capacity in the economy, accommodative monetary policy remains appropriate. Thank you. 6  See for example the remarks by Chairman Ben Bernanke at the National Commission on Fiscal Responsibility and Reform on April 27, available at http://www.federalreserve.gov/newsevents/speech/bernanke20100427a.htm. BIS Review 62/2010  5
As a result of large exposure to subprime mortgages, partially as a result of an acquisition of a large California thrift, investors became concerned about the solvency of Wachovia. A loss of confidence in Wachovia led depositors, funders, and investors – those on the liability side of the bank’s balance sheet – to withdraw, pressuring the institution to sell itself. After a short bidding war between Wells Fargo and Citigroup, Wells Fargo prevailed and acquired Wachovia at the end of 2008. Washington Mutual or “WaMu” was the largest savings and loan holding company in the United States, with assets over $ billion. WaMu had grown rapidly, with a large exposure to residential real estate and a large concentration of both variable rate and subprime mortgages. Large depositors became concerned about the solvency of WaMu in September 2008 and began rapidly withdrawing funds. The institution failed later that month (on September 25) and was acquired by JP Morgan Chase. 3  Given time constraints, my remarks do not delve into the role of stress tests in macroprudential supervision. In my view, stress tests benefit macroprudential supervision in that (a) they embed an explicit link to macroeconomic scenarios and (b) they focus on the ability of the financial system as a whole to provide intermediation services to the real economy rather than just on the solvency of individual institutions. 2  BIS central bankers’ speeches  Figure 1 provides the capital ratios reported in the last financial filing for both Wachovia and Washington Mutual.

At the other end of product spectrum, equal, if not more, emphasis needs to be given by the industry in extending coverage to low-income individuals via microtakaful. There is little doubt that the ability and commitment of takaful industry to deliver such value proposition that allows for the benefits of growth and development to be experienced across all communities will resonate strongly with the values espoused by takaful. This in turn could go a long way towards elevating the importance of takaful in the eyes of the public and further widening the industry’s growth prospect. With this aim in mind, it is critical for industry players to leverage on the readily available channels to reach to the masses and employ agents and bancatakaful to the fullest to maximise its potential. The third dimension of growth which is integral to the nation’s high income agenda relates to the opportunities to be harnessed under the initiative to consolidate Malaysia’s position as an international Islamic financial centre (MIFC). As industry is well aware, the MIFC initiative seeks to enhance the international dimension of Malaysia’s Islamic finance. The prospect is most compelling for the takaful industry. Malaysia is already at the forefront in the development of takaful, particularly family takaful, compared to other market.
These meetings help me get a more complete picture of economic conditions on the Island and a fuller understanding of the major issues and concerns. This is the third time we have visited Puerto Rico in the past five years. Yesterday, I met with Governor-elect Rosselló to discuss the transition into his new role and the key challenges for his upcoming term. I also spent time with members of El Colaboratorio, a shared workspace organized by the Foundation for Puerto Rico. I attended a roundtable discussion with local businesses and spoke with former and current members of several of the New York Fed’s advisory councils. Earlier this morning, I met with the heads of a number of financial institutions and the University of Puerto Rico’s interim president, Celeste Freytes. Following this visit, I will meet with the leadership from Parallel18, an economic development initiative that attracts early-stage, highpotential startups to Puerto Rico. Finally, I will join the leadership of the Boys and Girls Clubs of Puerto Rico for a discussion on the organization’s initiatives and a site visit to one of the clubs to learn about workforce development programs and youth services. As we all know, the Commonwealth of Puerto Rico has been through a very rough 10 years. The economy has been in a long slump that could easily be called a depression. Residents have endured a terrible drought, periodic blackouts and a fiscal crisis. I don’t need to elaborate on all of the struggles Puerto Rico continues to face.

A last important theme addressed the sense that the Committee may have adopted an overly conservative approach to some aspects of the framework, resulting in much higher capital charges than banks feel are necessary. These concerns are important, as a key goal for the  2  BIS Review 42/2003  New Accord is to align capital more closely to risk. This means that where the original Accord treats exposures too harshly relative to the degree of risk that they entail, we expect to reduce the capital requirements. But where the risk is greater, and where the existing rules fail to assign adequate capital, it should not be surprising that supervisors will raise capital requirements. Respondents attribute what they view as excessive levels of conservatism to different sections of the New Accord, including, for example, the calibration of capital requirements to both expected and unexpected losses. The treatment of credit losses is an issue which has attracted a lot of comments and which is, indeed, very important. As you will probably be aware, the present proposals to calibrate on the basis of expected and unexpected losses represented a compromise in the face of cross-country differences in accounting practices and supervisory authority regarding provisioning. But the Committee will look into this important issue again, and I am optimistic that we can find a way to improve the present proposal.
The result has been an improved acknowledgment and provisioning for NPLs, while bank capitalisation has also increased – the banks participating in the Comprehensive Assessment had built up additional capital of over € billion between the onset of the crisis and the Assessment. In terms of repairing the banking sector, the new Bank Recovery and Resolution Directive provides a harmonised EU framework for resolution with a requirement of bail-in. And the new Single Resolution Mechanism ensures that decisions on resolution are made consistently across the euro area, with resolution financing given at the union level and then recouped from the banking sector. This is a vital step to make resolution more effective, while it should also go some way towards severing the link between banks and their sovereigns by shifting the financial burden onto the private sector, or in the interim, onto the union. But there is more still to be done. For the bank-sovereign nexus to be truly broken it is clear that Banking Union needs to be completed. That means moving towards genuine risk-sharing over deposit guarantee schemes, coupled with genuine risk reduction on banks’ balance sheets. European institutions need to be strengthened in other areas, too, notably those governing fiscal policies. To my mind this must entail moving from a framework of decentralised rules to more effective central institutions; it hardly helps credibility when we take years drafting new rules only to break them at the first test.

Institutions are again central to explaining the difference. While the US operates in a consolidated union – with a federal Treasury acting as the counterpart of the central bank – the euro area comprises 19 sovereign governments with separate national budget constraints, making sovereigns more vulnerable to a loss of market confidence. This is particularly valid amid a nobail-out clause for member states without any debt-restructuring mechanism below the federal level. Accordingly, national fiscal policies have to be sound ex ante to build fiscal buffers, as is the case for states in the US. Yet fiscal rules were only weakly enforced before the crisis, permitting public debt levels at the national level that were too high for a monetary union that is not complemented by a fiscal union. That said, even countries with low starting debt levels – such as Ireland and Spain – ended up embroiled in the bank-sovereign loop, showing that the institutional framework was incomplete in other ways, too. In terms of sovereign risk, there was no fiscal backstop of sufficient capacity for sovereigns until the European Stability Mechanism was established in late 2011, leaving the euro area vulnerable to contagion. Likewise, there remains no mechanism for sovereign debt restructuring. And in terms of bank risk, there was no backstop on the European level as one might expect for a European banking sector. Still, it would be too simple to lay the challenges faced by monetary policy solely on the European supranational institutional framework; national characteristics were in many ways inadequate too.
7 For the Treasury market, see Michael Fleming and Francisco Ruela, Treasury Market Liquidity during the COVID-  19 Crisis, Federal Reserve Bank of New York Liberty Street Economics, April 17, 2020. For MBS, see Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song, MBS Market Dysfunctions in the Time of COVID-19, Federal Reserve Bank of New York Liberty Street Economics, July 17, 2020; and Jiakai Chen, Haoyang Liu, David Rubio, Asani Sarkar, and Zhaogang Song. Cash-Forward Arbitrage and Dealer Capital in MBS Markets: COVID-19 and Beyond, Federal Reserve Bank of New York Staff Reports, no. 933, revised September 2020. 8 For the various New York Fed Open Market Desk statements on the expansion of repo operations during March  2020, see Repo and Reverse Repo Operations. FOMC statements regarding asset purchases at this time include: Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, March 15, 2020; Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC Statement, March 23, 2020; and Board of Governors of the Federal Reserve System, Federal Reserve Announces Extensive New Measures to Support the Economy, March 23, 2020. The improvement in Treasury market functioning following these actions is discussed in Michael Fleming, Treasury Market Liquidity and the Federal Reserve during the COVID-19 Pandemic, Federal Reserve Bank of New York Liberty Street Economics, May 29, 2020.

There are a number of tasks ahead, however, as regards the implementation of rules such as the Basel III capital adequacy rules and special prudential rules that are to be adopted before the capital controls are lifted, so as to address foreign exchange risk and volatile capital movements more effectively. An effective financial system is an important ingredient of economic progress. It is therefore important to ensure that the regulatory framework does not impede the system’s effectiveness unduly. Regulatory provisions may not go further than is needed to safeguard against actual risk. This is why accurate risk analysis is so important. For this reason, among others, the Bank has emphasised working effectively with financial institutions on drafting rules. The capital controls and their removal remain the most important risk to financial stability in Iceland. The Bank has presented an in-depth analysis of the problem we face, and updated figures related to it will be included in the upcoming issue of Financial Stability. The big  4  BIS central bankers’ speeches  picture has changed little in the recent term, however. Iceland is facing a balance of payments crisis and this is the main reason for the capital controls. It means that borrowers other than the sovereign and the Central Bank have limited access to foreign capital markets. At the same time, the foreseeable current account surplus over the next several years will not be large enough to cover contractual foreign debt repayments, other things being equal.
Substantial investments were required and foreign capital was crucial to the company’s establishment. Moreover, it may be worth noting that the kinship between Norway and Sweden was important in this context. Kristian Birkeland and Sam Eyde, together with the Swede Marcus Wallenberg, are considered as the founders of Hydro. Trade between Norway and Sweden was considerable, with a fairly high degree of labour flows between the two. In the 1800s, a law was enacted providing for a common market for trade in goods, but in 1888 Sweden adopted a more protectionist stance. In 1897, Sweden rescined this law, which led to a severe setback for Norwegian exports. Close ties between Norway and Sweden have thus been important. They also favour regional development, particularly for regions far from national centres but closer to the economic hub in the neighbouring country. Monetary policy does not give any particular weight to regional considerations. But a monetary policy that safeguards monetary values in the long term and seeks to stabilise economic developments in the short and medium term will also contribute to promoting regional development. Long-term economic developments Consumer prices and economic growth in Norway and Sweden moved on a fairly similar path during the years around the dissolution of the union and up to the beginning of the 1970s. There are several reasons for this. First, we have been part of and been influenced by the same international business cycles.

Domestic assets may be purchased by foreign investors generating net portfolio inflows, which would raise domestic money growth. It is also true, however, that money and credit growth could trigger international portfolio flows. Specifically, two mechanisms can be identified through which liquidity affects international portfolio flows. First, strong money and credit growth in one country may induce capital outflows to foreign asset markets, thereby exerting upward pressure on prices for financial and real assets abroad. Second: At the same time, ample liquidity conditions in the domestic economy may fuel strong economic growth and be accompanied by higher asset prices, thereby inducing foreign capital inflows. The current magnitude of the stock of global liquidity and global savings is such that the asset prices and money growth of large economic areas, including the euro area, can be affected by them. In the same vein, large net capital inflows, as well as their sudden reversals, may also have important real consequences for large economies as they can systematically influence domestic monetary developments with potential implications for monetary policy. Evidence from the euro area shows that international portfolio flows have played an increasingly important role as a driving force for monetary dynamics. As you are aware, the ECB’s monetary policy strategy attributes a prominent role to the analysis of monetary aggregates and their counterparts in the assessment of risks to price stability over the medium to longer term.
I could provide you with numerous other examples of items being scrutinised by the beady-eyed horizon-scanners within the PRA and wider Bank. Sometimes these occur beyond our shores and we don’t have a direct interest, for instance if large banks in other jurisdictions were found to be to window-dressing by hauling in exposures very briefly in order to secure a lower rating for GSIB capital charges which are set 2  See Supervisory Statement: https://www.bankofengland.co.uk/prudential-regulation/publication/2013/credit-risk-mitigation-ss 5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  on an end-of-period basis. Or I could point to the number of risk-transfer trades within banking that our teams have to reject because they are pushing the boundaries of what is prudent. But I prefer to leave you with one of my own favourites, which our team has christened “missing leverage”. I have long held the view that the capital regime which existed in the UK before the financial crisis was a dangerous one because it did not include a leverage requirement. In other words, the only metric we used was based on risk-weighted capital requirements, which: first, can be subject to incentive and analytical weaknesses where modelled and political weaknesses where set by legislators; second, unless perfectly calibrated by regulators can incentivise the wrong behaviour by firms, such as writing deep out-of-the-money options; and third, can allow banks to become very highly leveraged which is risky even if their asset quality is high.

And it works by setting clear limits on the role of governments themselves. This is of course a caricature. But it is certainly true that the 1990s were a period of considerable reform and innovation in central banks across the world; many new central banks were established and many established central banks were given greater independence from their governments, often in exchange for a clear commitment to meet specific targets for inflation. From the time when we left the Exchange Rate Mechanism in 1992, the UK has led this wave of change. Looking back, the adoption of formal inflation targets in 1992 marks a decisive break with the past. The other key date is 1997, when the Bank of England was granted operational independence; the institutional framework then put in place entrenched and enhanced the credibility of inflation targeting, and has been widely admired. Moreover, in the UK, as in many other inflation targeting countries, a  1  I would like to thank Jens Larsen for research support and Luca Benati, Melissa Davey, John Power and Sally Srinivasan, whose work I have drawn on extensively. I have also benefited from comments from many colleagues at the Bank, especially Peter Andrews, Charlie Bean, James Proudman and John Keyworth. The views expressed here are mine, and do not necessarily reflect those of the Bank of England or the Monetary Policy Committee.