samchain/econo-pairs-v1 huggingface dataset:
Today I will elaborate only on two of them, which I consider important from my own experience. They are: a) rent-seeking behavior, and b) lack of broad political support for reforms (which I partly discussed before). a)  Rent-seeking  If private returns on predation are larger than private returns on production, this will send “wrong” incentives to people and society will not develop in the desired direction. Therefore we have to make every effort to “get the incentives right”. This is not an easy exercise. Socialism and, sometimes even more, early transition, have created vested interests and it is understandable that every socio-economic 4  In no way am I trying to imply that the main cause of the banking crisis is inadequate supervision and regulation. But, they can certainly deepen banking problems. BIS Review 43/2000  6  group will fight either to preserve their status quo or try to “grab” even more. The problem is especially exacerbated if the prevailing mentality in a society as a whole is the “take it” and not “make it” philosophy. Every change is a redistribution, redistribution of power and relative wealth. Transition by definition is a change. People on average resist change. I have called this the Newtonian Law of Transition, namely: “Every action creates a reaction.” (Škreb, 1998). This resistance to reform (changes) is probably “time-dependent” and positively correlated with the time spent in transition. In the early stages reforms are more general (macroeconomic stabilization) and there is much more support for them.

We also recognize the fact that the global business community of Islamic finance needs to grow in order for the broader global community to benefit from its value proposition, as only then can its growth potential be fully harnessed. With this in mind, Malaysia actively engages the global community to develop Islamic finance together by sharing our experience and providing the technical know-how on the industry. Deriving strength from our progress and achievement on the domestic front, Malaysia offers a workable model of development which can be deployed not only in other traditional Muslim countries, but also in other centres seeking to work together in developing a specific segment of the market. Indeed Islamic finance has now entered a new phase of development, where participants and businesses have become more internationalized. Another priority in facilitating global integration of the Islamic financial system which is high on our agenda is in ensuring Malaysia’s continued active and meaningful role in contributing to the development of supporting international Islamic financial infrastructure. Since Malaysia’s involvement in the pioneering group of countries that led to the formation of the Islamic Financial Services Board (IFSB), the international prudential standard-setting body which Malaysia has the honour of hosting, we have continued to support the important work of the IFSB including through our active participation in its various projects.
In this regard, the ECB’s recent moves to reduce its main refinancing rate to 0.05%, its deposit facility rate to –0.2%, and to commence large-scale asset purchases are both timely and welcome. In an environment of low rates everywhere, even Bank Rate of ½% might look high-yielding. And the fear of a bad outcome abroad could trigger safe-haven capital flows into the UK that push the value of sterling higher, making exporting more challenging, with knock-on implications for wages and prices here. That would come against the backdrop of a 5 ½ per cent sterling appreciation on a tradeweighted basis in the last year (Chart 9), which has extended the currency’s appreciation to around 17 per cent since its trough two years ago. These moves are reinforcing the disinflationary impulse from abroad, which could take a while to pass through to the sterling prices in the shops.14 5. Getting back to target in the UK  All of this puts a premium on generating the domestic inflation necessary to return inflation to the target. We are on track to do that. The UK economy is performing well. UK growth is solid, unemployment is coming down, and jobs have risen by 600,000 in the past year. Wage growth is showing signs of picking up, rising to 3% for the economy as a whole at the end of last year, and to 3.3% in the private sector.15 Average hours worked continue to recover on a strong upward trend.

Lower oil prices will also boost UK domestic demand directly as households spend their windfall. Our forecast conservatively assumes that they save 40 pence in every pound of that amount. On balance, there is likely upside risk to growth and inflation from this assumption. Oil isn’t the only reason why inflation is low globally. Measures of inflation that strip out volatile factors – so-called “core” inflation – have been trending down as well (Chart 6). Core inflation rates in the euro area, the US and the UK have declined by between ¾ and 1 percentage points since 2012. Core inflation in the UK, currently around 1.4%, is likely to decline further in the coming months, reflecting sterling’s past strength and muted domestic cost growth. The weakness in core inflation across the globe reflects the shortfall of global demand below global supply (Chart 7).10 In some major economies there are additional disinflationary forces. For example, in the euro area, a series of necessary internal devaluations are weighing on wages and prices. In China, a rebalancing of investment and consumption risks generating further disinflation. The producer price inflation rate has been negative for 35 months in a row, reflecting longstanding overcapacity in industries such as concrete and steel, while the more recent weakness in the property market could further increase excess capacity in related sectors. All this suggests a persistent period of low inflation globally is a possibility, and as I mentioned a few moments ago, could itself create a self-fulfilling fear of a bad outcome.
03.06.2019  A framework for the CCyB Opening address at the Second Financial Stability Conference (Banco de España /CEMFI) Pablo Hernández de Cos Governor  Ladies and gentlemen, good afternoon. It is a pleasure for me to welcome you to the Banco de España to participate in the Second Financial Stability Conference. As in the first edition, this event has been jointly organised by the Banco de España and the Centro de Estudios Monetarios y Financieros (CEMFI). So allow me to start by expressing my gratitude to the organisers, in particular Rafael Repullo, director of CEMFI, and to all the members of the scientific committee, responsible for promoting the conference and selecting the papers included in the programme. Let me also thank the keynote speakers, Agustín Carstens and Lars Peter Hansen, for their willingness to attend. And also the rest of the speakers, the discussants and, of course, the participants in the panel. It was difficult for the scientific committee to select the eleven papers that will be presented in these two days from the more than one hundred submissions received. In the end, in my view, a good balance has been reached in the programme. It combines excellent academic papers that will provide interesting insights into theoretical and empirical developments related to financial stability with policy issues on the most practical aspects of the organisation and governance structures of macroprudential policy.

Financial liberalization is now leading to banking internationalization where surplus funds flow crossborder to finance deficit units, i.e., international intermediation. In this background, it is now realized by Regulations that the high mobility of capital flows creates enormous risks to internationalized banks and to international systems, if the individual fund management systems of such banks are not sound. This requires Regulators to place even greater weight upon the efficacy of the governance systems since the failure of such institutions could be catastrophic to the well being of the entire global financial systems. In addition, the ill effects of money laundering, financing of illegal activities, and the financing of terrorism through the banking system are further risks that are faced by banks due to this growing internationalization. These too, need to be addressed by stakeholders who are involved in the development of the evolving systems. To deal with these challenges, Regulators now have to close ranks internationally as well, and attempt to harmonize prudential requirements to monitor risks of international financial conglomerates, and in this regard, we all must be somewhat relieved that the Basel capital accord has provided a clear framework for us to apply on the subject. As we all know, the Basel code of Corporate Governance for banks and financial institutions covers 8 principles. These are: •  Principle 1: Board members should be qualified for their positions, have a clear understanding of their role in Corporate Governance and be able to exercise sound judgment about the affairs of the bank.
Since banks are highly leveraged institutions, they also face different types of risks which other businesses do not normally face. These risks are numerous and usually range from operational risks to fraud risks to liquidity risks to reputation risks and so on. These risks, unless properly managed, are often fatal to a bank. It is, therefore, necessary that a bank should be adequately prepared to successfully mitigate or avoid these risks. The failure to do so will lead the bank to closure of business. A bank which operates well by any standard may soon find itself boggled with a serious liquidity issue arising from some external shock. If it is unable to raise funds quickly to meet liquidity, it will face a general bank-run forcing it to plead for assistance from other banks, authorities etc. The recent liquidity crunch due to the sub-prime issue is a case in point. It had been reported that one such bank that had faced this liquidity crunch severely had boasted of itself in August that it was indeed a well-run robust bank. To its much embarrassment, just one month later, it had to swallow its pride when it had to plead with authorities for assistance. This points to the fact that the internal auditor has to develop risk assessment and mitigation systems in a bank and take effective measures to give advance warning in the event of an impending risk crisis.

Fortunately, this has not happened so far in reality. The economic cycle experienced by Portugal in recent years has, nonetheless, been a challenging experience. I do not want to suggest that the materialisation of such, or even more severe, financial stability challenges linked to euro adoption is the most likely future scenario for the acceding countries. There may be many country-specific characteristics influencing the balance of risks in a favourable way. For example, countries that have operated currency board regimes for many years have got used to living without their own monetary policies and with low interest rates ahead of euro area accession. The acceding countries have in general made substantial progress with nominal convergence by now. It is also important to stress that the future development of the financial systems in acceding countries may be strongly influenced by the large presence of foreign capital in both their financial and corporate sectors. I also do not mean to say that the challenges of euro adoption outweigh the benefits in terms of financial stability. First, the challenges are linked to scenarios which may have rather low probability and are at this stage being discussed only as part of prudential analyses. Second, the actual comparison of the benefits and challenges may differ from one acceding country to another. For instance, countries with currency boards or other fixed exchange rates are likely to face more serious currency mismatches in their financial sectors and economies, as hard peg regimes discourage hedging against exchange rate fluctuations.
Before you ask, we are of course trying to rectify this, trying to get banking down to 55% of total credit by the year 2010, and in the last three years, somehow we have got the debt market which was before then nonexistent to be double the size of the stock market. But it takes life times and generations to change people’s habits and the nature of the country. The world monetary system could in fact be monitored quite easily if the superpowers of the world would only wish it to be done. It sends forces to keep peace in other countries, so it could quite just as well impose a system , a world monetary system that would significantly reduce this kind of crisis. But the only crisis which might have affected the superpowers were the LTCM crisis of the 1998 and the Asian crisis of 1997 and it soon became apparent that the suffering could mainly be kept to the poor nationsand so it looks as though nothing good is going to happen in the international arena. Let me end my statement therefore by saying that before coming here I looked at the list of speakers and participants and was truly impressed by the diversity and excellence. I have therefore tried to put some interesting thoughts in the area of national central banking for your perusal. All of us here wish for peace and prosperity in the world.

Various adjustments to this set-up might reduce some partial imbalances, but if the cause of the problem is not tackled head on, the effects of such adjustments will be short-lived and it will only be a matter of time before the whole system comes crashing down. Now let’s move forward in time some 20 years, to the split of the Czechoslovak currency following the dissolution of Czechoslovakia in 1993. For many years, fiscal transfers had masked the significantly inferior performance of Slovak economy relative to its Czech neighbour to the west. This performance gap was further widened by the closing-off of the Slovak armament industry from the federal centre at the beginning of the 1990s. After the country split in two, the stated goal of keeping a common currency came under market pressures as Czech and Slovak entities transferred their deposits to Czech banks and capital flowed out of both countries. As a result, this goal was abandoned in less than two months and an independent Czech crown – or koruna – was introduced. I should add that the CNB had its plan B and had been running preparations for the currency split since the second half of 1992. Consequently, after it had decided to act, it was able to act fast. So, what lessons can we learn from this event? The lack of political will to preserve the federal Czechoslovak state had quickly recognisable consequences for the common currency.
This implies that central banks (or whoever is responsible for systemic stability) must either have the regulatory tools at their disposal, or must have the adequate channels to convey these risks to the institutions that do have regulatory discretion. In Chile, for example, although there is a separate bank Superintendency (SBIF), the Central Bank has regulatory authority over several aspects that relate to systemic financial stability. For banks, these relate with the authorization to use derivatives, regulation regarding market and liquidity risk, and others. In other areas, the Central Bank also has a say in “systemic” regulation such as overall limits for Pension Funds. This scheme accommodates recent policy concerns, since it avoids the conflict of interests that arises from mixing the micro supervisor with the monetary authority, while preserving an institution that provides a broad look at the stability of the financial system. This being said, however, there is a need to continue strengthening coordination instances with other regulators. In this sense I think that the establishment of a Financial Stability Committee, very much in line with the one established here in the United States, is a promising avenue to take. “Basel III” and the Chilean banking system When discussing financial stability these days one cannot help thinking of the recent agreements of the Basel Committee on Banking Regulation, which are a positive step forward in strengthening the banking system. However, I would like to highlight that many emerging market economies already fulfill most of the requirements agreed upon for early 2019.

The good news is that governments are now establishing the policy frameworks, and the private sector is beginning to allocate capital accordingly. Our efforts will help smooth the transition prompted by these actions. With better information and risk management as the foundations, a virtuous circle is being built with better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers and a smooth transition to a low carbon economy. Financing the transition to a low carbon economy is a major opportunity for investors and creditors. It implies a sweeping technological revolution, including investments in long-term infrastructure at roughly quadruple the current rate. As this event testifies, climate finance and risk management is moving into the mainstream. There has been a transition in thinking. And this is now beginning to be translated into action, and the NGFS will play an important role in this. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9
But the remits recognise that circumstances are possible “in which attempts [by the MPC] to keep inflation at the inflation target could exacerbate the development of imbalances that the FPC may judge to represent a potential risk to financial stability”. In such a case, the MPC “may wish to allow inflation to deviate from the target temporarily, consistent with its need to have regard to the policy actions of the FPC.” In the event of such a judgement by the FPC, the MPC will have to weigh the appropriate monetary policy response within the context of its inflation target and its secondary objective to support the Government’s economic policy objective to achieve strong, sustainable, balanced growth. In effect, the MPC’s loss function could be modified to include proximate indicators of financial stability (that are considered by the FPC): 𝐿𝑜𝑠𝑠𝑡 ≡ (𝜋𝑡 − 𝜋 ∗ )2 + 𝜆(𝑦𝑡 − 𝑦𝑡∗ )2 + 𝟏𝐹𝑃𝐶 𝛽(𝒔𝑡 − 𝒔∗𝑡 )2 where 𝒔𝑡 is a vector of financial stability indicators, 𝒔∗𝑡 are the levels judged consistent with stability, and whose differences are given a weights of 𝛽. The indicator variable 𝟏𝐹𝑃𝐶 takes a value of one if the FPC judges there to be potential risks to financial stability, and is zero otherwise.

In times of uncertainty investors often prefer to buy safe assets and sell those that are higher risk, even if the latter have a higher return. So when the situation becomes uncertain the demand for government securities with a short duration, such as treasury bills, usually increases. At the same time the demand for less liquid securities considered to have a higher risk declines. As an example, in the United States they have been selling off mortgage bonds, as these have been regarded as particularly high-risk investments as a result of the US mortgage crisis. But even in Sweden there has been a strong demand for treasury bills with a short duration, at the same time as the supply of mortgage bonds has increased. This has occurred despite the Swedish mortgage bonds having a very high credit rating. Normally these have an interest rate just marginally higher than the rate for treasury bonds with a corresponding duration. However, recently the interest rate differentials between these securities have been much higher. Measures to improve the functioning of the markets The Swedish National Debt Office and the Riksbank have maintained a regular dialogue regarding the money and bond markets and the need to counteract the effects of the US financial crisis.
Following discussion at FSB, that gap in the analysis is now being addressed by the IOSCO leadership. Post-trade infrastructure: CCPs as risk managers The other big area of reform is, of course, around central counterparties. Clearing more OTC products; being more resilient; revisiting criteria for access to CCPs, and so on. You don’t need me to rehearse all of that for you. But I would note that this is not just about derivatives markets. LCH’s move to clear repos in Spanish government bonds helped that market stay open during some dark days. And I do want to make one very important general point about the role of CCPs and their management. CCPs simplify the complex web of counterparty exposures through multilateral netting – precisely what the US authorities contemplated trying to achieve ad hoc towards the end of a weekend when Lehman was unravelling. They act as a central market authority for valuing positions and setting minimum margin levels. Having centralised risk upon themselves, they redistribute it to their clearing members through a clear waterfall. They are, in effect, systemic risk managers. They absolutely must think of themselves as that. Their job is not just to deliver ever greater operational and capital efficiency for their clearing members. Too many senior executives at CCPs I have met over the past decade or so have seemed to fall into that trap – a trap encouraged by some being for-profit organisations.

In other words, the financial sector as a time-transforming sector is especially sensitive to the movement of real rates and to discrepancies between the actual real rate and the natural rate. To make all this even more complicated, try to imagine that the equilibrium or natural real rate of interest is not constant, but is itself moving in one direction. Then, as a central banker, you have to go down even more than you thought conceivable. This is exactly what we believe has been happening in the developed world for quite some time now (Chart 2). Here are some famous estimates made by John Williams at the San Francisco Fed, but you can find similar estimates elsewhere. Chart 2: Real equilibrium rates in the developed world have been falling steadily (Holston et al., 2016)  Why is that? Nobody knows for sure. But I tend to explain it using a famous quote from the French poet Paul Valéry – “The future is not what it used to be”. Probably due to factors such as demography, we are tending to look differently at the future. We have a different “discount factor”, if you will, which is leading us on average to prefer future consumption to current consumption (on average, of course, not individually). This basically changes everything for monetary policy, which is a policy based on the relationship between real interest rates and demand.