samchain/econo-pairs-v1 huggingface dataset:
William C Dudley: The role of the Federal Reserve – lessons from financial crises Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Annual Meeting of the Virginia Association of Economists, Virginia Military Institute, Lexington, Virginia, 31 March 2016. *  *  *  Kenneth Garbade, Jack Gutt, Joyce Hansen, Michael Held and Joseph Tracy assisted in preparing these remarks. It is a great pleasure to have the opportunity to speak here today as part of the Virginia Association of Economists annual meeting at Virginia Military Institute and Washington and Lee University. This is an appropriate setting for the topic I will be addressing – the role of the Federal Reserve as the central bank of the United States. When the Federal Reserve Act was enacted in 1913, H. Parker Willis, who had been a professor at Washington and Lee University, played a critical role. He worked closely with Representative Carter Glass of Virginia in crafting the legislative proposal that established the Federal Reserve, and Willis became the first Secretary of the Federal Reserve Board in 1914. Of course, I’m tackling this subject today not just because H. Parker Willis was a professor here in Lexington. Instead, I’m addressing this issue because of the ongoing debate about the role of the Federal Reserve and its structure and governance. My purpose is to demystify the nation’s central bank and to respond to some of the critiques that we continue to face.

12 The extraordinary interventions that were undertaken using our emergency powers under Section 13(3) of the Federal Reserve Act were warranted and within our authority. However, I suspect that the scale and scope of these interventions went considerably further than envisioned by the public and Congress prior to the crisis. In response, Congress narrowed the scope of Section 13(3) with the Dodd-Frank Act. In particular, Dodd-Frank limits the Federal Reserve’s authority to extend credit through facilities with broad-based eligibility, and constrains the Federal Reserve’s authority to extend credit to a single company. The Dodd-Frank Act also modified the governance that would apply to any future intervention in an effort to increase public accountability. In addition, the Dodd-Frank Act addressed the broader issue exposed by the crisis – that some large financial institutions had become “too-big-to-fail” (TBTF). To end TBTF, Title II of the Dodd-Frank Act established a process to ensure that any financial firm could be resolved without threatening the viability of the financial system and without putting taxpayer funds at risk. 13 In addition, financial intermediaries designated as systemically important by the Financial Stability Oversight Council are subject to tougher prudential standards and enhanced supervision by the Federal Reserve. The intent behind these measures is to reduce the likelihood of a failure of a large financial firm, and the consequence of such a failure for the financial system, should one occur.
11  All speeches are available online at www.bankofengland.co.uk/speeches  11  And I hope you will respond to my call to arms for your research to aid the development of that guide, because we are a very long way from the last word. We are not even at the first words of the last chapter. How to: macropru, is at best reaching the last words of its first chapter. I look forward to helping to write the rest together. Thank you. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  References Bahaj, S., Bridges, J., Malherbe, F. and C. O’Neill (2016): “What determines how banks respond to changes in capital requirements?”, Bank of England Staff Working Paper 593. http://www.bankofengland.co.uk/research/Documents/workingpapers/2016/swp593.pdf Bahaj, S. and A. Foulis (2016): “Macroprudential policy under uncertainty”, Bank of England Staff Working Paper 584. http://www.bankofengland.co.uk/research/Pages/workingpapers/2016/swp584.aspx Bank of England (2015a): “Record of the Financial Policy Committee Meetings 25 and 30 November”, 19-21, 9 December. http://www.bankofengland.co.uk/publications/Documents/records/fpc/pdf/2015/record1512.pdf Bank of England (2014): Financial Stability Report (June). http://www.bankofengland.co.uk/publications/Documents/fsr/2014/fsrfull1406.pdf Bank of England (2015b): Financial Stability Report (December). http://www.bankofengland.co.uk/publications/Documents/fsr/2015/dec.pdf Bank of England (2016): Financial Stability Report (November). http://www.bankofengland.co.uk/publications/Pages/fsr/2016/nov.aspx Baranova Y., Chen L. and N. Vause (2015): “Has corporate bond market liquidity fallen?”, Bank Underground. https://bankunderground.co.uk/2015/08/27/has-corporate-bond-market-liquidity-fallen/ Bardoscia, M., Brinley Codd, A., and J. Hill (forthcoming): “Solvency contagion through interbank exposures: modelling and mitigating systemic risk”, Bank of England Staff Working Paper BCBS (2010), ‘An assessment of the long-term economic impact of stronger capital and liquidity requirements’, August.

They are our investment returns from past economic restructuring and reforms that were put in place, and they are the qualities that we need to preserve and to further expand upon by continuing with economic restructuring and reform. I probably have used up my allotted time. I hope the talk has been useful, and again I want to thank the Rotary Club of Bangkok South for the invitation. Thank you.
In Africa, we have seen successful waqf projects such as the construction of a commercial complex for Islamic studies in Sudan. Waqf, properly structured and with the right governance could create wealth and economic opportunities. Helping to kick start a Market. Another idea to explore is for the AfDB, sovereigns including central bank, and pension funds to set up sukuk funds to give out funding mandate to support and kick-start domestic and regional sukuk investment in Africa. In Malaysia, our Employees Provident Fund and Central Bank of Malaysia have created its mandate to external portfolio managers to include international Shariah compliant equities and sukuk. This strategy has further stimulated growth of Islamic fund management industry. Perhaps these ideas can be adapted to suit the operational environment in Africa. These ideas that I outlined above have been tested and implemented. I believe the same can be considered by new and emerging Islamic finance jurisdictions. Conclusion Let me conclude that the journey in Islamic finance is a rewarding experience. For this journey, we have to bear in mind that It takes serious efforts. We need to be patient and organized. With determination and perseverance, the result will surely follow. We need to work in unison. Respect diversity. Amplify on the collective agreements. Seek solutions for differences. In time we should come to an understanding. We have to ensure, always, that Islamic Finance must remains competitive. It must make sense. The maths must be right. Exciting opportunities exist for new and emerging jurisdictions in Islamic finance.

The essential raison d'être of banking is that an economically advancing society needs effective intermediation between savers and borrowers, and mechanisms for making payments efficiently. As already noted, the initial basic intermediary function of providing deposits and loans expanded subsequently into the organisation of alternative channels of intermediation such as bonds and equities (these activities may be conducted in some jurisdictions outside the narrowly defined banking sector, but the distinction is not material in the present context). Although it is human nature for savers to complain that the returns are inadequate, and borrowers that costs are extortionate, in the marketoriented economies competition in financial intermediation has mostly been quite intense, and most of us would probably agree that this has worked to the increasing benefit of customers on both sides of the balance sheet. Meanwhile, the provision of payment services has developed markedly at both the wholesale and retail levels. Banks are at the centre of this activity, typically supported by the central bank as ultimate provider of liquidity. In fact, whereas many other types of institution may nowadays be involved in lending money or providing avenues for savings, banks themselves remain firmly at the core of the payments system. A sound and efficient payments system is acknowledged to be a prerequisite if an economy is to realise fully its potential.
Brad Delong has speculated that, just as “peak horse” was reached in the early part of the 20th century, perhaps “peak human” could be reached during this century (Delong (2014)). In the words of Marc Andresen, in future there could be two types of worker – those who own the robots and those who work for them. If these visions were to be realised, however futuristic this sounds, the labour market patterns of the past three centuries would shift to warp speed. If the option of skilling-up is no longer available, this increases the risk of large scale un- or under-employment. The wage premium for those occupying skilled positions could explode, further widening wage differentials. And labour’s share of the pie could fall even more dramatically than in the past. On this view, the tree could become hollowed-out to the point that it may no longer be able to support itself. This too may sound like science fiction. Yet in a survey of almost 2,000 (admittedly selfselecting) technologists and economists in 2014, the Pew Research Center found that almost half thought AI and robots would cause a significant and persistent displacement of labour in future (Pew Research Center (2014)). Maybe Ricardo and the Luddites had a point after all, albeit two hundred years too early. Public policy implications If one of these scenarios were to play out, its implications for the economy and society, for industries and individuals, would be massive.

As Mark Twain almost said, labour market history, if not repeating itself, has certainly rhymed. This should come as no surprise. As in the mid-19th century, this is a time of huge change in the jobs market. Rarely a day passes without concerns about job prospects in some of the UK’s most iconic industries, from steel to oil and gas to cars. And rarely a week passes without evidence of jobs and industries being fundamentally reshaped by globalisation and technology, be it the digital economy, the sharing economy or even the Second Machine Age. There is no shortage of explanations for these searing developments. They are part cyclical, as the global economy continues to recover from a financial crisis which is likely to be the most costly since the Great Depression. But these changes are also in part structural given tectonic shifts in demography, inequality and technology, to name but three. None of these challenges is of course entirely new either. My own interest in economics was spawned in the early 1980s by just such a challenge. At that time, more than 3 million people were unemployed in the UK, or almost 12% of the working population. In Yorkshire, where I grew up, the unemployment rate peaked at close to 13%, hit by a double whammy of deep recession and a contraction in steel, textiles and coal-mining. Unemployment at that stage was not for me a statistic. Nor was it the bloodless theorising I would go on to study at university.
Five years since the countries in this region emerged from the financial crisis we have seen financial stability restored and the financial systems significantly strengthened. Despite the more challenging environment in the more recent period, the financial systems in this region have demonstrated resilience. While this is a positive development, challenges remain. In view of the increasingly more difficult environment these efforts to strengthen the financial systems need to continue. Today, I would like to focus my remarks on the background against which these efforts are being undertaken. In particular, I will focus on the emerging changes that are taking place in our region that are likely to be important in sustaining the growth prospects for this region. In the context of these changes, I will touch on the important role that the banking sector has in contributing to the growth and development process. Ladies and gentlemen, The region is highly integrated with the world economy in terms of the high volume of trade and investment flows between the region and the rest of the world. While this has contributed significantly to the strong growth in the region, it has also brought with it increased vulnerabilities arising from shifts in demand and reversals in investment flows. Indeed, developments in the advanced economies arising from the bursting of the technology bubble, the unprecedented declines in the stock markets, uncertainties arising from international geopolitical tensions all had implications on this region.

Previous prudent fiscal policies have allowed an expansionary stance to support the growth while low inflation and excess capacity has allowed for the monetary stimulus. Third, favourable demographic factors The Asian region accounts for more than half of the world’s population and continues to grow at a relatively high and stable rate. Of importance is that the region has a relatively young demographic structure with rising education, which augurs well for securing a large and dynamic labour force going into the future. These favourable demographic prospects of the region increase the potential for creating a consumer group with high purchasing power, thus providing an increased potential for growth in domestic demand. 2  BIS Review 43/2003  Four, rising middle-income consumers Rising income and urban migration in Asia has produced a large and vibrant middle-income group, creating a pivotal change in the pattern of consumption to deliver the positive benefits in domestic demand growth. The cumulative effects of policies that have been implemented previously have resulted in increasing income and living standards and established the foundations to accentuate the transformation of domestic demand in the region. China’s domestic market with a population of more than 1.2 billion, is already the world’s largest market for mobile phones and is poised to be the world’s largest market for personal computers. By 2005, it is estimated that 15% of China’s population would consist of about 200 million middle-income consumers equipped with a high propensity to consume.
Another necessary principle, as I have argued elsewhere, 10 implies that “there should be a clear organizational separation  10  Constâncio, V. (2012) “Towards a European Banking Union” Lecture held at the start of the academic year of the Duisenberg School of Finance, Amsterdam, 7 September 2012, available at http://www.ecb.int/press/ key/date/2012/html/sp120907.en.html. 6  BIS central bankers’ speeches  between monetary policy and supervision. This can be realized at all organisational layers, from the analytical and informational level to the decision-making level”. The Commission´s proposal includes the creation of a Supervisory Board in the ECB composed basically by the Heads of Supervision of the participant countries and that Board will be the vital component of the Single Supervisory Mechanism (SSM). This can also open the door to the participation of countries that are not members of the euro as they could have equal treatment in the Supervisory Board. But supervision is only one leg of a genuine financial union. It also requires an effective tool to deal with bank failures without triggering financial instability, without long squabbles about burden-sharing, and without dragging sovereigns into a deadly embrace with their domestic banks. In the view of the Four Presidents, this requires elevating resolution responsibilities to European level, and putting them in the hands of an independent European Resolution Authority (ERA). There are three main reasons for this. First, an ERA would ensure more effective decision-making when cross-border banks run into difficulties.

It aims to address disruption in monetary policy transmission by tackling one of its root causes: unfounded fears about a break-up of the euro area. By providing a fully effective backstop against disaster scenarios, it sends a clear message to investors that their fears are baseless. This should restore confidence and help normalise the  7  See EU Commission (2012) “The ageing Report”, May. 8  See EU Commission (2012) Autumn Economic Forecasts, October. 9  Svensson, L, “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets,” European Economic Review 41 (1997) 1111–1146. BIS central bankers’ speeches  5  pass-through of interest rates. Indeed, the mere announcement of the programme approval by the ECB Governing Council led to substantial declines in yields and spreads of stressed countries whose net private capital outflows also decreased significantly since July. However, countries can only qualify for OMTs if they implement an ESM adjustment programme with strong conditionality. This ensures that they continue to improve their economic fundamentals while the ECB is active. In this way, we aim to set the right incentives for governments and create a framework where the positive effects of our actions are sustainable. Taken together, these measures will help unwind the euro area’s imbalances and stabilise the financial situation over the near term. Member States are correcting the excesses of the last decade in terms of weak public finances, unsustainable credit growth and competitiveness losses.
How can the persistent current account surplus, textbook economic theory and the SNB’s own assessment be reconciled? Is the surplus in Switzerland perhaps even the result of a monetary policy designed to deliberately push down the exchange rate in order to boost exports? 1 International debate about certain countries’ current account surpluses and unfair exchange rate policy has intensified in recent years. In this context, Switzerland has been on the US Treasury’s ‘monitoring list’ since 2016, although it is not designated a ‘currency manipulator’ in the associated report as it does not meet all the relevant criteria. However, Switzerland is being specially monitored. We are maintaining a constructive dialogue on this matter with the responsible government agencies in the US. Foreign authorities and international organisations recognise Switzerland’s special position, and appreciate the rationale for the SNB’s monetary policy measures. According to the latest External Sector Report of the International Monetary Fund (IMF) of July 2017, Switzerland’s current account is in line with macroeconomic conditions, and its monetary and fiscal policy is considered appropriate. Yet, international debate about current account surpluses and deficits has at times been heated and not always objective. Some observers have repeatedly denounced Switzerland for its persistent surplus. As criticism has focused on the SNB’s monetary policy, I am naturally keen to give you my analysis of the situation. Before we get into the details, let me outline the crux of my argument.

We do understand that it is rather difficult for small businesses to receive financing even in normal conditions, and in challenging times small and medium-sized enterprises are those who are affected the most. It is hard for small businesses to achieve favourable terms and protect their interests in the course of negotiations with banks. In addition, small, just as medium-sized enterprises are certainly on a budget and they need to have access to both loans and daily financial transactions. Normally, we closely monitor SME lending trends. This year, we also put a special focus on loan restructuring since it became highly requested when many companies really lost their revenues and customers. Not all companies had safety cushions; and even large corporates do not always have them. Moreover, it is rather hard for small and medium-sized businesses to maintain safety cushions for challenging times. I should stress that this period still differs from the 2014–2015 crisis, for instance. SME lending plummeted in 2014–2015, while this year the trend is generally positive. Of course, it may not fully offset all the hardships small and medium-sized enterprises have to face. Nonetheless, the loan portfolio has expanded by nearly 15%, specifically 14.7%, since the beginning of the year. The number of borrowers has increased by 63.6% since early 2020, to exceed 450,000 companies.
In other words the policy rate is normally adjusted so that inflation 1-2 years ahead, taking into account the balance of risks, is in line with the target. The Riksbank introduced the current regime of a floating exchange rate and inflation target in 1993, after a number of decades with a fixed exchange rate. The new regime has meant a new way of working whereby we attempt, with the aid of monetary policy, to adjust economic growth to what the inflation target allows. A common analogy is that the economy is like a car with certain characteristics that enable it to drive at certain speeds but not at others. In that case we in the Executive Board are the driver, using the policy rate to accelerate or slow down. If the car is going too fast, its tyres will start to overheat and we risk driving off the road, i.e. prices will rise and we have to raise the policy rate to slow down. Conversely, when the car is going too slowly we accelerate by lowering the policy rate. In reality the analogy with a car is somewhat misleading. First, it is difficult to know exactly the speed at which the economy is actually growing. The statistics that we use when forecasting economic growth contain errors, do not provide a comprehensive picture of the economic situation and furthermore are produced with a lag. Another problem is the difficulty in knowing exactly how long it takes before a rate adjustment has the desired effect.

Percent of global GDP. 1975 – 2017 70 60  70  Trade in goods Trade in services  60  50  50  40  40  30  30  20  20  10  10  0 1975  0 1980  1985  1990  1995  2000  2005  2010  2015  1) Trade is defined as the sum of exports and imports of goods and services. Source: World Bank  A more closely interwoven world economy has facilitated specialisation, innovation and better use of local comparative advantages. The room for exchanging ideas and knowledge has expanded. Increased competition and innovation have gone hand in hand. Efficient global trade is particularly advantageous for small open economies, like Norway. Norway has benefitted greatly from the opportunities afforded by trade with other countries. 3  It is almost impossible to imagine today’s welfare level without the specialisation brought about thanks to a world of open borders. Norway exports a limited range of goods and services to the world market (Chart 2). This allows Norway to finance imports of numerous finished goods, which are cheaper than if we had manufactured them at home. Labour is thereby freed up for use in education, health and other services. NORGES BANK ECONOMIC PERSPECTIVES 14 FEBRUARY 2019  Chart 2 Exchange of goods gives Norway opportunities. Trade in goods. In billions of NOK.