samchain/econo-pairs-v1 huggingface dataset:
Kevin Stiroh: Misconduct risk, culture and supervision Remarks by Mr Kevin Stiroh, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the Culture Roundtable Session with Business Schools and Financial Services Industry, Federal Reserve Bank of New York, New York City, 7 December 2017. * * * Good morning everyone. Thank you for joining us at the New York Fed today and for your ongoing participation in the important discussion around culture and ethics in the financial services sector. This workshop and discussion are a critical part of our ongoing collective efforts on promoting financial industry culture reform. Business schools serve as a major supply source of the talent pool for mid-level management positions in the industry. This relationship makes aligning business education curricula and pedagogy with demands around improving industry culture a mutually beneficial strategy. While your conversation today has focused on the role of academia and industry, I want to take this opportunity to share with you how I’ve been thinking about the role of bank supervisors in the culture reform dialogue. I am the head of the Supervision Group of New York Fed, but my perspective and approach are influenced by my background and training as an economist. You’ll hear me talk about frictions and market failures; about production processes and intangible capital; and the conceptual rationale for a role for the official sector. There are, of course, multiple ways to consider the relationship between culture and bank supervision.

We are also particularly pleased to have with us, His Lordship the Chief Justice who has graced this occasion and by doing so has unambiguously displayed the commitment of Sri Lanka’s judiciary to this massive effort. Our effort against money laundering and terrorist financing cannot be made by one or two persons only, or by one or two agencies only. It has to be a co-ordinated and concentrated effort that needs the support of a wide range of people, both nationally and internationally. In that context, Sri Lanka’s commitment is clear to everyone, and we are particularly pleased to have you with us, the Honourable Chief Justice. My dear friends, the fight against terrorism cannot only be on the military field or battle ground. In my view, the fight has to be on four different fronts simultaneously. Although it is vitally important, one cannot defeat terrorism by a military effort only. To successfully deal with terrorism, we need a diplomatic offensive also. Diplomatically, we need to ensure that cohesive steps are taken so that, together, countries can meet this challenge. At the same time, the fight has to be on the international media front as well. Therefore, a media campaign in all parts of the world against terrorism is also very important. That is something that the world has clearly recognized today, and internationally, we see a greater coordination in the media in dealing with terrorism. The other important front in this war against terror is the stopping of financing for terrorism.
In most emerging market economies, the mandate of the Central Bank is generally broader beyond monetary and financial stability to include development of the financial system to ensure effective and efficient functioning of the financial system, financial inclusion to maintain balanced growth and more recently preserving the environment to secure sustainability of our progress and development Special role of Central Banks in emerging economies Allow me to focus on the special role of Central Banks in emerging economies. Central Banks in most emerging economies are frequently called upon to have a role in the development of the financial system. A well-developed and robust financial system constitutes an essential foundation for sustainable economic growth as it enhances the efficiency of financial  2  BIS central bankers’ speeches  intermediation, contributing towards lower transaction costs and increased competitiveness. Many Central Banks have drawn up masterplans and blueprints for this purpose. The key building blocks are the strengthening of financial infrastructure, such as the payments and settlement system, the development of money and bond markets and in the implementation of financial reforms involving the deregulation and greater market orientation and liberalisation resulting in greater integration with the global financial system. Central Banks in many emerging economies are also tasked with promoting financial inclusion. Greater financial inclusion is a key component for an economy towards achieving a more balanced growth and thereby increasing the prospect for a more sustainable growth. What are the factors that have allowed Central Banks in the emerging economies to perform these roles?

If the increase in petroleum revenues is used domestically, this would correspond to almost all the annual growth in the mainland economy in a normal year. If the private sector of the economy is also expanding, and the economy is already close to its capacity limit, this policy would swiftly lead to strong pressures on economic resources. This would result in a rise in wages and prices. This policy would also lead to unstable conditions in the foreign exchange market. When oil prices then fell again and central government expenditure dropped, the economy would experience a very strong contraction. The Government Petroleum Fund was established in 1990 with a view to safeguarding long-term considerations in the use of petroleum revenues. The idea behind the Petroleum Fund is that the cash flow from an increase in the oil price should accrue to the Fund and be invested abroad and that the increase in the oil price should not affect the wider budget. Thus, rather than affecting the domestic economy, the increase in the cash flow would be invested abroad through the Petroleum Fund. Similarly, a fall in the oil price would not affect the domestic economy, but would result in lower accumulation of foreign assets. By building up the Fund, the aim of ensuring that several generations will enjoy the benefits of our petroleum wealth is also taken into account. In March 2001, the fiscal guideline and new guidelines for monetary policy were introduced.
The labour market is on the way to adjusting to low inflation. And the risks of deflation should diminish when monetary policy targets inflation symmetrically. 2. What is the appropriate measure of inflation? The Riksbank has chosen the consumer price index (CPI) as monetary policy’s target variable. But all indicators of inflation, including the CPI, have drawbacks. These have to be weighed against the advantages. The CPI has the advantage of being an established indicator of inflation among economic agents and familiar to people in general. It is also a comparatively broad price index. Being familiar and intelligible made the CPI particularly suitable for the process of establishing the new inflation targeting policy and stabilising inflation expectations. Partly in view of the krona’s depreciation and the risk of inflationary impulses from import prices, the Riksbank decided in 1993 that the target would not apply until 1995. This avoided a situation in which meeting the new target might have required a sharp monetary tightening that could have led to an unnecessarily large drop in output and higher unemployment. That shows that right from the start the Riksbank realised there could be reasons for temporary deviations from the target. A drawback with the CPI is that besides containing information about underlying or trend inflation, it catches transitory price movements that are sometimes difficult or almost impossible to influence. During the years with the inflation target, various transitory factors have affected the CPI.

To develop a more complete view of the impact of financial market developments on bank balance sheets, financing conditions and money and credit growth, further analysis will be required. The ECB’s Governing Council stands ready to counter upside risks to price stability, in line with its mandate. Against this background, on 6 December 2007 we decided to leave the key ECB interest rates unchanged. The Governing Council will monitor very closely all developments. In particular, as I said on behalf of the Governing Council after our last meeting, for the recent increase in inflation to remain temporary, it is essential that the price and wage-setting behaviour remains unaffected by current inflation rates, so as to avoid the emergence of second-round effects. By acting in a firm and timely manner on the basis of its assessment, the Governing Council will ensure that such second-round effects and risks to price stability over the medium term do not materialise. To firmly anchor inflation expectations in line with price stability is even more important at times of financial market volatility and increased uncertainty. In this respect, the Governing Council has decided to continue to pay great attention to financial market developments. Liquidity operations Ladies and gentlemen, once the Governing Council has defined the monetary policy stance necessary for maintaining price stability in the medium term, in line with its mandate as defined by the Treaty, the ECB has the responsibility to also ensure the smooth functioning of the segment of the money market that we influence.
Various monetary policy regimes As long as capital markets have been in existence, the interest rate has had the key role of creating equilibrium within and between the various markets. The interest rate’s role as a monetary policy instrument used to influence inflation, however, is a more recent phenomenon. The gold standard was introduced in Norway as the basis of the Norwegian monetary system by the Act of 4 July 1873 relating to the Monetary System. Norway’s monetary system was largely based on the gold standard until its international collapse in 1929, when the Norwegian krone was pegged to the pound sterling. Up to the mid-1980s, the focus of monetary policy was, first, to stabilise the exchange rate by means of interventions and regulation of international capital movements. Second, credit developments were governed by regulations on borrowing. The interest rate was primarily used to provide cheap credit for some sectors. Many other countries have followed a similar path of development. Many of the changes in international monetary policy over the past 25 år can be viewed as a response to the problems of stagflation in the 1970s and to financial innovations and deregulation of financial markets in the 1980s. In many countries, the authorities have increasingly focused on price stability as the long-term objective of monetary policy, with the interest rate as the most important policy instrument.

in the EU, the US and Japan. Capital markets outside these areas are small. However, changes are also being made in monetary policy regimes in a number of emerging markets. One important tendency is that fewer countries operate an exchange rate policy regime where they are free to change the conversion rate to other currencies on their own initiative, so-called “crawling pegs”. A number of emerging markets have chosen inflation targeting instead: for example Israel, Chile, Brazil, Colombia, Korea, Thailand, Mexico og South Africa. Other countries, such as China, Hong Kong and the Baltic States, have chosen to continue to use a fixed exchange rate system. The operational target of monetary policy in Norway as defined by the Government is inflation of close to 2.5 per cent over time. The inflation target provides economic agents with an anchor for their decisions concerning saving, investment, budgets and wages. The inflation target is also a vehicle for allowing monetary policy to stabilise developments in output and employment. This objective is also expressed in the Regulation on Monetary Policy. High demand for goods and services and labour shortages normally point to higher inflation. When interest rates are increased, demand falls and inflation is kept at bay. When demand is low and unemployment rises, inflation will tend to slow. BIS Review 46/2003  5  Interest rates will then be reduced. This orientation of monetary policy will normally also contribute to stabilising output and employment. The impact of monetary policy occurs with a lag.
The inflation level is currently affected by the actual ruble depreciation and the imposed import restrictions but, according to our estimates, these factors will contribute to inflation increase only till late 2015 Q1, afterwards, the inflation will start declining. By late 2015, inflation will fall to 8%. Inflation is forecast to slow down to the target of 4% by late 2017. These dynamics are largely connected with the increased inflation expectations. In this regard, the Bank of Russia intends to conduct its monetary policy to prevent further aggravation of inflation and inflation expectations. As I have mentioned, under the baseline forecast the current account surplus will amount to $ billion in 2015 which is below the possible capital outflow we estimate to reach up to $ billion next year. Next year the volume of external debt payments will also approximate to $ billion, of which banking sector debt payments will amount to $ billion, including interest payments. Non-financial sector debt payments are estimated to be $ billion, including interest payments. We have made special calculations based on the reporting data received from banks and the survey of 40 largest companies. According to our estimates based on these data, more than 10% of these payments refer to intergroup transactions. Another 20% can be refunded in the international markets. At least 15% can be redeemed through the partial use of cushion of liquid foreign exchange assets accumulated by banks and state-owned companies.

The guideline for fiscal policy implies that the central government budget deficit shall be equivalent over time to the expected real return on the Government Petroleum Fund. The new guidelines for economic policy received broad support in the Storting. The guideline specifying that only the real return on the Petroleum Fund is to be used means that the capital in the Fund is not depleted. The capital in the Petroleum Fund will increase as long as there is a positive cash flow (to the central government) from petroleum activities. When the conversion from petroleum assets to financial wealth has been completed, the objective will still be to restrict withdrawals so that the real value of the Fund’s capital is maintained - in principle, indefinitely. The guideline thereby provides a long-term anchor for fiscal policy. The guideline provides a stable framework that contributes to curbing fluctuations in the Norwegian economy that are caused by converting petroleum assets into investment at home and abroad. The guideline has been adhered to in the past two years. As mentioned, the largest conversion of our national wealth in the next thirty years will be from oil as recoverable reserves to oil as financial wealth. The question might, of course, be raised as to whether an alternative option would be to keep our wealth in the form of oil and extract what we needed. Whether this would be profitable or not depends on oil price developments compared with the return on financial assets.
The result of this is the volatility in the exchange rate of the Kwacha against major foreign currencies. In the last quarter of 2008, the Kwacha depreciated by 26.9% to trade at an average of K4,394.76/US $ (BoZ mid-rate) from an average of K3,462.00/US $ in the third quarter. It should also be noted that the depreciation of the Kwacha against major currencies partly contributed to higher inflation, particularly as Zambia remains dependent on imports for a wide variety of consumer goods as well as inputs for domestic production. Further, this unfavourable development had a strong role in shaping inflation expectations. In Q4, 2008 BoZ made net sales of foreign exchange to the market of US $ million, whilst in Q1, 2009 BoZ made net sales of US $ million, in a continued effort to minimize exchange rate volatility. This meant utilizing international reserves to calm the foreign exchange market. Tourism sector contracted Apart from mining and related companies that were affected by the effects of the global recession, tourism was also negatively impacted. The number of foreign tourists visiting Zambia declined owing to financial problems and the credit crunch in their countries of origin. Availability of credit Perhaps the most challenging effect of the global financial crisis, especially for developing countries like Zambia, was its impact on private sector investment. Between 2006 and 2008 credit to the private sector grew strongly (at an average of 45.6% per annum), largely driven by the expansion of consumer credit and the strong growth in the domestic economy.

Caleb M Fundanga: The global economic crisis – Zambia’s strategy to maintain stability Remarks by Mr Caleb M Fundanga, Governor of the Bank of Zambia, at the 4th Eastern and Southern African Management Institute (ESAMI) Summer School Event, Arusha, 29–30 November 2009. * I. *  *  Introduction  It is a great honour and privilege to be invited by ESAMI to discuss Zambia’s experiences in the global economic crisis and the strategies that have been chosen to deal with its effects and to bring economic recovery. In discussing this topic, I will begin by highlighting the effects of the crisis on the Zambian economy. I will also highlight the strategies used to maintain stability, indicate the current state of the economy, the challenges and then conclude. II. Origins of the crisis  As you may already be aware, the beginning of the global economic crisis has been traced to the collapse of the sub-prime mortgage market which started between 2002 and 2006. This was when lending to the household sector in the United States of America (USA) was growing at a rate far beyond that of the broader economy (i.e. growth in GDP). The rising delinquencies in the subprime mortgage market triggered turbulences in the subprime mortgage-backed securities market leading to a financial crisis in October 2008, first, in the USA, and which later quickly spread to financial institutions in Europe.
Jaime Caruana: Consequences of Basel II for SMEs Address by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, to the European Parliament Workshop on the "Consequences of Basel II for SMEs", Brussels, 10 July 2003. *  *  *  Introduction Good afternoon. I would like to thank the European Parliament for organising this important workshop on the New Basel Accord and its implications for small- and medium-sized enterprises in Europe, and for inviting me to participate. I’m privileged to join you as the new chairman of the Basel Committee on Banking Supervision, and I welcome this opportunity to offer our views. As you know, the Basel Committee was founded almost thirty years ago to help promote safety and soundness in the banking sectors. We believe that, when banks are adequately capitalised and wellmanaged, they are better able to promote growth by providing credit to consumers and businesses alike. But more broadly, when banking systems worldwide are adequately capitalised and wellmanaged, the international financial system becomes more stable, better able to promote sustainable growth, and more resilient during periods of distress. Of course, simply providing credit does not guarantee growth. Indeed, how credit is applied matters greatly to the development of an economy. And in every economy, small businesses have long been the true engines of economic growth. Small and medium-sized enterprises traditionally produce much, or even most, of the technological innovations in business and industry.

The capital savings are even more dramatic for SME loans that qualify for retail treatment: participating banks from Basel Committee member countries reported that their capital requirements on SME exposures qualifying for retail treatment would decline by an average of 12-13% under the standardised approach and up to 31% under the IRB approach. Similar conclusions can be drawn for those European banks participating in this study. Actually, EU banks in general reduce their capital charges for loans to SMEs compared to the current rules, and this decline is slightly stronger than the average of all banks providing data. I should note that QIS 3 did not fully recognise the risk-mitigating effects of collateral and guarantees, so we expect that, in some cases, banks may experience even larger “savings” when the New Accord comes into force. Other studies concur. For example, researchers at my home institution, the Bank of Spain, combed through a database covering almost every loan made by a Spanish bank to evaluate the potential effects of the New Accord on SME lending. Their findings, which, if you are interested, I can share in written form with you, agree that the New Accord will not create tougher capital requirements for loans to Spanish SMEs and may, indeed, reduce them. We are extremely pleased now to have tangible evidence that the New Accord will not create burdens for banks that lend to SMEs.
Except for a few interludes, they have partied along for decades using the people’s money as though life were an endless summer, storing nothing to draw upon for the blustery fall and the bleak winter that inevitably follow. Now a fiscal reckoning is upon us. The gig is up. Congress can no longer carry on as before, oblivious to the deleterious effect of spending our, and the successor generations’, money with unfunded abandon. Tongue firmly in cheek, Carol Reed might have reminded us that there are alternative versions of this fable. In 1924, Somerset Maugham wrote a version about two brothers: one an ant-like hard worker and the other a grasshopper wastrel. In the end, the grasshopper marries a rich widow who dies and leaves him a fortune.2 Case closed! In Things Change, a film released by Columbia Pictures in 1988, the character played by Don Ameche recites a version in which the grasshopper, fed up with all this moralizing about the virtues of hard work and saving for a rainy day, just up and eats the ant. I think we can safely assume that neither of these scenarios will occur. No one is going to bail out the government at the last minute. The ants that are the hard-working taxpayers are, if anything, poised to chew up and spit out improvident politicians should they fail to put an end to fiscal profligacy.

From that, we’ll see that a systems perspective can explain why our attempts at control sometimes fail and what we can do about it.7 A key insight from systems thinking is that controls are part of a system. Controls interact with other controls and with the production process. One implication of connectedness is that changes to any part of the system can spillover and affect other parts. Controls that work well separately may not work well together. That’s one reason why controls created in isolation and added incrementally can create unexpected results. It’s a weakness of control systems that have grown through an ad-hoc approach of “see a problem, add a control.” Let’s walk through a scenario where controls don’t behave as expected or intended. On Sunday, you run a business resumption exercise to test the ability of your primary data center to fail over to your backup data center. The test appears to be a success, and you have some useful lessons learned to make the failover process run better next time. But, when you come to work on Monday morning, something is wrong. It turns out the test corrupted customer account data. Your call center is overwhelmed with questions and complaints, because your billing system sent a blast email with overdue payment notices to all of your customers. In a simple world, controls solve problems, they don’t create them. In the real world, the control and production systems are linked, so the failed execution of a control can, in and of itself, disrupt operations.