samchain/econo-pairs-v1 huggingface dataset:
David Ramsden: Challenge, convene, collaborate and create Speech by Sir David Ramsden, Deputy Governor for Markets, Banking and Resolution of the Bank of England, at the Leveraging on Sukuk for Sustainable Finance G20 presidency event, Bali, 14 November 2022. *** It is an honour to be representing the Bank of England on this panel and I welcome the focus of today's Indonesia G20 event on leveraging sukuk for sustainable finance. It is a privilege to be here to discuss these important topics in service of our shared commitment to broadening the reach of finance and tackling climate change. I would also like to thank Bank Indonesia and the Islamic Development Bank for convening this event and the Government of Indonesia for their organisation of the G20 presidency. These are very challenging times for the G20 economies; during the Indonesian Presidency the world has been hit by a series of adverse shocks. Some of the immediate consequences, such as inflation and weakening global growth while serious we intend to be short-lived. At the same time energy and food security have emerged as fundamental challenges which go well beyond economies, while the evidence and adverse experience of climate change become more and more apparent, requiring solutions over the course of many years to avert climate catastrophe. The risks we face in the future will be determined by the actions we take today.

Participant deposits in the ALF are backed by a fund of high quality securities – sukuk –  3/5  BIS - Central bankers' speeches  complemented as needed by cash deposits at the Bank. The return from these instruments, net of hedging and operating costs, may be paid to depositors in lieu of interest. Deposits held with the ALF help enable participant banks to meet regulatory requirements to hold a buffer of high quality liquid assets to meet obligations as they fall due. Using our convening power as a central bank we collaborated with and learnt a lot from numerous institutions in the Islamic finance sphere from around the world, whose experience and input was essential in helping us create the facility. Since launching the ALF in December 2021 we have seen strong usage of the facility and received, and continue to receive, positive feedback on its design. We are pleased with progress in meeting the challenge. First from the perspective of fairness, but also in the support that it gives to the real economy, be that through lending to businesses, or as the focus of today's event, supporting sustainable investment. The approach we took in developing the ALF can be extended to efforts beyond the world of central banking.
On the other hand, micro and macro prudential regulatory tools, such as caps on credit growth or capital requirements have direct consequences on the cost and availability of credit, with the corresponding impact on investment, consumption, employment, and output, and the transmission channels of monetary policy. However, the links between macro and financial stability as goals, as well as in the cross impact of their main tools, do not mean that they can be dealt with using a single type of instruments. While, as highlighted above, interest rate movements affect credit and asset prices, they are not the most appropriate for addressing financial stability concerns. For instance, raising the interest rate could in principle tame stock- or house-price growth in a closed economy, helping to prevent the formation of bubbles or bursting them at an early stage, before they threaten financial stability. But even if it were possible to identify a bubble from a fundamental-driven asset price increase, controlling asset price growth may require substantial increases in the interest rate, which will reduce credit supply and the prices of other assets that may or may not be part of the bubble, having negative consequences on output and inflation. In other words, the impact of such policy would be felt across the board in financial markets, on top of the detrimental impact it would have in the real economy by unnecessarily depressing output, employment and real investment.

As policymakers, we need to take in how far-reaching those ripples are going to be. Monetary Policy The adjustments to monetary policy we made this year were designed to balance maintaining a strong U.S. economy with slowing global growth, and provide insurance against ongoing and potential future risks. And that’s what they’ve done. The economy is in a good place, and monetary policy is as well. My forecast is for moderate GDP growth, the labor market remaining strong, and inflation moving back to our symmetric 2 percent target. Of course, things can change. Data dependency remains our motto, and if there were a material change to this outlook, we would adjust monetary 3/4  BIS central bankers' speeches  policy in support of our goals of maximum employment and price stability. Conclusion I’ll conclude with this. John Donne’s words are perhaps more relevant in 2019 than they were in 1624. No man is an island, and no economy can insulate itself—for better or worse—from the fortunes of its neighbors. At the same time, all economies are having a common experience as a result of longer-term structural changes. Shifts in demographics and productivity growth point clearly in the direction of low neutral interest rates and slowing growth. We’re seeing the reality of these changes in the form of sluggish inflation and interest rates much lower than in previous decades. Central banks and policymakers around the world need to prepare for economies that are more connected than ever before. I’ll now take your questions.
1  Nout Wellink, ‘The Role of National Central Banks within the Europeans System of Central Banks: The Example of De Nederlandsche Bank’, 30th Economics Conference, Oesterreichische Nationalbank, June 13 – 14, 2002. 2  BIS Review 46/2002  This would not, however, represent much of a change because already today the Bank has only limited autonomy in the conduct of monetary policy. As far as the transition to the euro is concerned, therefore, the path that Malta should follow seems fairly straightforward, given the starting point of the existing exchange rate regime. Today, the basket consists of the euro, the US dollar and sterling, with weights of around 52%, 26% and 22%, respectively. There is no fluctuation band. The peg is backed by official external reserves, which have comfortably exceeded the monetary base over the years and are equivalent to a fifth of broad money. The first step would be to increase the weight of the euro in the currency basket at the expense of either or both of the other component currencies. If the United Kingdom were to join EMU, this would automatically raise the proportion of the euro in the currency basket, making Maltese entry into ERM II that much easier. On accession, the timing for joining ERM II, as well as technical questions relating to the entry level and the fluctuation band will be up for discussion. If the Maltese lira were to join ERM II with the normal fluctuation band of ±15%, this would inject more flexibility into the system.

First, the effects of the pandemic have significantly increased demand for certain categories of spending, especially for durable goods and housing. This increase in demand is occurring while supply in these sectors is being adversely affected by the pandemic. The case study for this dynamic is the automobile sector. The combination of high demand and supply shortages has led to historically low inventories. Customers are lining up to buy cars but are finding the dealer lots empty. It's a seller's market, and prices have soared. New car prices are up nearly 15 percent since the start of the pandemic, and used car prices have skyrocketed, rising more than 50 percent. Another prominent example is housing. With remote work policies in place, many people have relocated-buying larger homes in the South, in the suburbs, and in more affordable cities. This shift has caused demand for housing in some regions to far outstrip supply, while new housing construction has been held back by shortages in labor and materials. The imbalance between demand and supply has led to bidding wars. Homes have sailed off the market at record prices, with many purchased sight unseen. This combination of high demand and crimped supply has also resulted in rapid increases in rents, especially for apartments coming onto the market. The second major imbalance is in the labor market, where overall demand far exceeds existing supply.
Further, a new Guide to Banking Supervision has been drafted, setting down the procedures all SSM members are to follow. The SSM has been defined as an integrated system of bank surveillance, which will combine the leadership of the ECB with the active participation of national supervisory authorities. In any event, arrangements are in place to ensure that the assumption of these new functions by the ECB will not clash with its monetary policy responsibilities. As of June 2014, total euro area bank assets amounted to € trillion. Given the very high number of credit institutions (some 3,500) established in the euro area, the SSM regulation draws a distinction between “significant” institutions, which will be supervised directly by the ECB, and “less significant” institutions, which will remain the responsibility of national authorities and which the ECB will indirectly supervise. Finally, a list of 120 significant institutions has been drawn up, 15 of which are Spanish (14 once a merger currently under way has been completed), accounting for just over 90% of the assets of deposit institutions in Spain. BIS central bankers’ speeches  5  The 120 “significant” institutions represent 80–85% of total euro area bank assets; the Spanish banks that will be directly supervised by the SSM account for 14% of the total assets of these 120 significant institutions.

2) In recent months, as a prior step to the SSM taking over supervisory competences, an assessment has been made of significant institutions, the aim of which is to enhance transparency in respect of their position and to reinforce their solvency. The outcome of this exercise will help the SSM to assume its functions with accurate knowledge of the actual situation of the banks it will directly supervise. The exercise is now close to completion and its results will be made known before the end of this month. It comprises two phases: an asset quality review and a stress test, on which the Banco de España has been working intensely for several months in cooperation with the ECB. The first phase, namely the assessment of the quality of the assets associated with credit and market risk, consisted of verifying the accuracy of the figures and of reviewing asset and collateral values, along with the related provisions (with the collaboration of audit firms). On the basis of the results obtained, exposures have been classified as standard or nonperforming, based on the level of risk, with the ECB imposing painstaking quality control of the results of the review. A stress test is an analysis of credit institutions‘ capacity to absorb losses, evaluating their resilience in different scenarios. The exercise indicates how much capital might be needed were risks to materialise, and it helps highlight areas where supervisory action might be necessary.
Christian Noyer: The euro area: a collection of countries or a single economic entity? Speech by Mr Christian Noyer, Vice-President of the European Central Bank, at the American Chamber of Commerce in Germany, Stuttgart, 29 June 2001. *  *  *  Ladies and gentlemen, it is a great pleasure to be at the American Chamber of Commerce in Stuttgart. The question posed in the title of this speech can be addressed by noting that the euro area comprises those – currently twelve – Member States of the European Union which have adopted the euro as their single currency and thereby irrevocably transferred the responsibility for conducting monetary policy from the national level to a supra-national and independent institution, the European Central Bank (ECB). Consequently, as regards monetary policy, the euro area is, by construction, a single entity. This is also the case for many other fields of economic interaction. Most important is the Single Market, which ensures freedom of movement of persons and free trade in goods, services and capital across the whole European Union and therefore also in the euro area. The single currency completes the Single Market. The euro area is thus, to a very large extent, a single economic entity. Obviously, this answer does not imply that the euro area is also a single political entity. However, and most importantly, what is crucial is not whether the euro area is a single entity in each respect.

Reasons to be optimistic regarding the long-term prospects of the euro area Let me now explain why I am rather optimistic regarding the future development of the euro area economy. The euro area is already highly integrated in economic terms owing to the creation of the single currency and Single Market and further progress in this respect is ongoing. This is a good starting point for dynamic economic development. My optimism is grounded in particular on the transformation we have witnessed over the past years, following the remarkable decision in favour of the Single Market. The successful establishment of the euro and the ECB, which together with the Single Market, have created a new economic entity, is evidence of the ability of Europe to implement far-reaching reforms which are well-designed and underpinned by solid institutional structures. This creation of an entirely new economic entity is a substantial step forward. The euro will act as a catalyst for further reform in many areas. My optimism is further underpinned by the fact that the Treaty sets out a durable anchor to guide economic decisions and to reduce economic uncertainty substantially by entrusting an independent institution, the ECB, with a clear mandate of maintaining price stability.
Looking further ahead, in 2011 inflation rates should remain moderate overall, benefiting from low domestic price pressures. Inflation expectations over the medium to longer term continue to be firmly anchored in line with the Governing Council’s aim of keeping inflation rates below, but close to, 2% over the medium term. Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fiscal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators. Turning to the monetary analysis, the annual growth rate of M3 turned positive and was 0.2% in June 2010, after –0.1% in May. The annual growth rate of loans to the private sector increased slightly further but, at 0.3%, remained weak. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that inflationary pressures over the medium term are contained. Shorter-term developments in M3 and some of its components and counterparts have remained volatile, and this volatility may well persist. The previously strong impact of the interest rate constellation on monetary dynamics, while still affecting the pace of underlying money growth, appears to be gradually waning.

This implies a gradual reduction in the effect on actual M3 growth arising from the downward impact of the steep yield curve and the associated allocation of funds into longer-term deposits and securities outside M3. At the same time, the annual growth rate of M1 has continued to moderate, although it remained strong at 9.2% in June 2010. In part, this reflects somewhat higher opportunity costs of holding overnight deposits relative to other short-term deposits. The still weak annual growth rate of bank loans to the private sector continues to conceal countervailing developments, with increasingly positive growth in loans to households and stabilised negative annual growth in loans to non-financial corporations. A lagged response of loans to non-financial corporations to developments in economic activity is a normal feature of the business cycle. The data up to June indicate that, after expanding for a few months earlier in the year, the size of banks’ overall balance sheets has not increased further. The challenge remains for banks to expand the availability of credit to the non-financial sector when demand picks up. Where necessary, to address this challenge, banks should retain earnings, turn to the market to strengthen further their capital bases or take full advantage of government support measures for recapitalisation. In this respect, we welcome the EU-wide stress-testing exercise, which was prepared and conducted by the Committee of European Banking Supervisors (CEBS) and national supervisory authorities, in close cooperation with the ECB.
It would be better to reduce the level of the loan-to-value ceiling that Finansinspektionen recommends the banks to stay below, or to raise the banks’ risk weights for mortgages.16 Another alternative would be to reduce the tax deductions for interest payments somewhat. Unlike repo-rate increases, these measures are aimed directly at mortgages. These are of course measures that do not lie within the Riksbank’s mandate, but it is in everyone’s interest to ensure that the risks associated with the Swedish housing market are managed effectively. So why am I against using the repo rate to influence housing prices and household indebtedness? The main reason is that the costs – in the form of inflation below the target  15  For example, Borio and Drehmann (2009) present an indicator of financial crisis based on trend deviations for private loans as a percentage of GDP and property prices in the paper “Assessing the risk of banking crises – revisited”. The latter components are intended to capture the likelihood and magnitude of a fall in property prices. 16  Finansinspektionen has recently proposed a floor of 15 per cent for risk weights for mortgages. This floor could be raised if there seems to be a need to dampen the banks’ lending for housing purposes. 12  BIS central bankers’ speeches  and unemployment – appear to be high in relation to rather uncertain gains.

In my opinion, however, this could have been counteracted by a more expansionary monetary policy. Today I intend to describe the factors that in my view indicate that aggregate demand has been too low in recent years, and to explain why, as I see it, monetary policy and fiscal policy have not been used to a greater extent to counteract low demand. My explanation is by and large that the possibility to use monetary policy and fiscal policy to stabilise aggregate demand has been limited by concerns about financial stability. Even though Sweden has coped well with the financial crisis, I believe that it has left decision-makers with the feeling that they have just had a near-death experience. Financial stability has therefore come to seem far more important that standard business cycle stabilisation. This prioritisation may well be reasonable. However, I believe that it is important to the Swedish economy that we have an effective policy for business cycle stabilisation at the same time as we conduct a policy to promote financial stability. I will discuss how this should be done towards the end of my speech. Low aggregate demand since the financial crisis When Sweden was hit by a collapse in the demand for Swedish export products at the end of 2008, GDP fell heavily. However, it did not take long for GDP to rise again and in 2010 growth figures reached almost record levels.
The development of information technology and growth of IT related investments have probably been promoted by the stable economic environment and been an important driving force behind the unparalleled upswing. It is not then possible to see any clear signs in the Swedish economy that we are on our way into a development similar to the American. At the same time, there are similarities, both with regard to the reorientation of the macroeconomic policy and to the penetration of computers and information technology in Swedish society. An important difference between USA and Sweden is that use of resources in the American economy has been high for many years while the Swedish economy was in a downturn for practically the whole of the 1990s. Investment usually increases only after a long period of high capacity use. The focus on stable prices and budget consolidation also started later in Sweden than in the USA. A very benevolent interpretation could be that we are moving in the same direction as the USA but with some time lag. The USA also waited for a long time for the productive effects of many computers introduced everywhere in the economy. The conclusion that can be drawn now is that it is anyway still not possible to base monetary policy on a real acceleration of potential growth. Is consumption affected by increase in wealth?

In general terms, the CCyB would be activated and increased by authorities whenever aggregate credit growth was judged to be excessive and associated with a build-up of system-wide risk. The buffer can be reduced during a downturn to help ensure that banks maintain the flow of credit in the economy. Considering that this is a new macroprudential tool, the evidence of implementations is still limited. Notwithstanding that, the number of countries that have developed a policy framework is increasing and the number of jurisdictions that have set a positive buffer level increased significantly over recent years. Until now, around forty countries have been using the CCyB, with heterogeneous effects depending on their local conditions and vulnerabilities. Furthermore, during the Covid-19 crisis, many countries released their countercyclical capital buffers, marking the first time that the CCyB was used widely in a downturn. Among them we can mention France, Germany, Sweden, Switzerland and United Kingdom (BIS, October 2022). These countries lowered the CCyB either completely or partially. Recent reports from the Basel Committee are also focused on providing empirical evidence regarding buffer usability and cyclicality of the framework. So far, the evidence gathered suggests that although the countercyclical capital buffer may be less effective to contain the build- up phase of the credit cycle. However, it may help to strengthen  1/3  BIS - Central bankers' speeches  banks' solvency and mitigate the risk that banks' lending standards amplify an economic downturn as well as all the spillovers implied.