samchain/econo-pairs-v1 huggingface dataset:
Karolina Ekholm: Some lessons from the financial crisis for monetary policy Speech by Ms Karolina Ekholm, Deputy Governor of the Sveriges Riksbank, at a meeting, Stockholm, 4 December 2009. *  *  *  One question that has been much debated over the past year is to what extent monetary policy has contributed to the financial crisis, which we have not quite seen the end of yet. Another – partly related – question is to what extent the policy conducted by central banks in the future should try to counteract potential bubbles 1 building up so that we can ultimately avoid a new dramatic financial crisis with substantial consequences for the real economy. These are the questions I intend to focus on today. One conclusion that can be drawn in the light of the deepest recession in the world economy since the Second World War is that it is important to try to counteract, in various ways, bubbles building up that will then risk causing substantial problems in the real economy when they burst. How this should be done, and who should bear the main responsibility for this task, are difficult questions to which there are at present no exact answers. The responsibility for a balanced development of the economy does not rest solely with the central banks; it also lies with the financial supervisory authorities and the legislators.

The decline in commodity prices, above all crude oil, will curb inflation further over the short term. We continue to assume that global economic growth will gradually firm over the course of next year. The considerable fall in oil prices should be a contributory factor. However, the  BIS central bankers’ speeches  1  prospects for individual countries vary widely. For the US, we are expecting that growth will remain robust over the next few quarters, leading to better utilisation of economic capacity. For the euro area, by contrast, we have revised the growth forecast downwards once more, and the outlook for this region remains very subdued. The picture for the emerging economies is mixed. China will continue to be a driver of the global economy, although it is likely to see a gradual weakening of growth. For India, growth prospects are picking up again. The outlook for Brazil and Russia, by contrast, remains muted. Overall, the global economic outlook is still very uncertain and dominated by downside risks – the most important of which are the continuing difficult conditions in the euro area and a possible escalation in geopolitical tensions. Swiss economic outlook I will now look at economic developments in Switzerland. Following a weak second quarter, real GDP growth was unexpectedly favourable in the third. On the demand side, the increase was supported predominantly by goods exports, with manufacturing the main beneficiary of the strong export demand.
Creditors have no incentive to accept realistic write-downs, preferring instead to reschedule loans and reflect them as performing loans in their books. So supply of fresh credit remains weak. After the crisis some Asian countries have passed new bankruptcy laws, and even established new courts to administer them. But enforcement continues to be difficult. As Acting Governor of Bank Indonesia Anwar Nasution said, in explaining the slow pace of corporate restructuring (this was when he was the Senior Deputy Governor): “it will take a while, partly because we have a very rotten legal and accounting system … the most important thing is that we have very weak bankruptcy procedures.”3 The social values of each country underpin the formal structure of laws and institutions. A relationship-based approach towards doing business is part of the culture of most Asian societies. Few Asian societies have the “contract-based” commercial culture of the West, particularly the US, with its robust emphasis on legal and impersonal obligations. Few have made a practice of separating the ownership of firms from their management. In some countries, there are close ties between the state, the banks and industry, e.g. the state-owned enterprises in China, and the chaebols in Korea. All over the region, family-based firms and conglomerates are the norm, especially in banking. Companies in the same group would do business with one another, maintaining trust on the basis of family ties and shared ownership.

The banks will have to divest all control of non-financial activities, and remove all cross-shareholdings. This will help ensure that all transactions with nonfinancial entities remain at arms length, that the interests of the bank are not confused with the other interests of the controlling shareholder, and that management attention stays focussed on the increasingly complex business of banking. If this programme works, we hope a few Singapore banks will grow to become strong regional players. Of course, success cannot be guaranteed. If the local banks lose too much ground, some of our anchor players may end up marginalised, or being taken over. Still we have resolved to proceed, knowing that doing nothing would certainly lead us into more difficulty. The local banks are strengthening themselves to compete in an open domestic market, and internationally. We have encouraged them to merge and consolidate with one another, or at least to form alliances and consolidate some of their back-end operations, so as to derive economies of scale. But the industry trends may be such that even this is not enough for them to hold their own against the large global banks. After all, even Deutsche Bank was not too big to feel the need for a merger partner. Local banks which want to be more than niche players may then need to contemplate not just foreign acquisitions, but cross-border partnerships with partners as large as or larger than themselves. The smaller European countries are wrestling with the same issue.
One of the priorities defined in this regard is to invest in education and human resources’ training, while taking account of the changes occurring in the job markets due to technological innovations. The challenge is huge, considering the now strong need for a digital skilled labor. Many countries, more particularly emerging and developing ones, are now faced with the additional issue, besides having to meet their needs, of dealing with the "brain drain" phenomenon, which seems to record an upsurge in recent years. Against this backdrop, strengthening regional and international cooperation, with a view to pooling efforts and exchanging experiences, will essentially avoid worsening the digital divide between these countries and advanced ones. That being said, the actual benefit of those policies and the efforts required depends on the responsiveness of the population, the economic and financial 7  operators as well as of the politicians, to the adoption of digital technologies. After all, it is an issue of a real change of culture. It is true that during last years, initiatives have increased, reflecting a raising awareness about the challenges posed by this revolution. Several countries have developed cross-cutting or sectoral strategies to promote the development of digital technologies and their use. By way of illustration, I will first give the example of my country which has set up a digital development strategy, and created an agency dedicated to this area.

Fintech is transforming the relation with customers, the means of payment, as well as the modes of financing and transfers. On this particular last point, the potential gains are enormous for developing countries receiving large flows of their nationals abroad. In 2018, according to the World Bank, these transfers may have totaled 689 billion dollars, more than three-quarters of which were intended to developing countries. Traditional business models of banks are now challenged by the new financing methods, thus putting more pressure on their profitability and pushing them, in some cases, to greater risk-taking, which would eventually impact financial stability. 5  In emerging and developing countries, with internet and mobile telecommunications  penetration,  Fintech  now  offers  tremendous  opportunities to strengthen financial inclusion and economic and social development. According to a statement issued last November by the United Nations Secretary General, within a period of six years, 1.2 billion people have accessed financial services through technology. In a report issued in 2016, the Mckinsey Institute estimated the potential of Fintech in emerging economies by 2025 to an additional 6 percent of GDP, i.e. 3.7 trillion Dollars, and 95 million new jobs. The same report also revealed that two billion people and 200 million of very small, small and medium enterprises in emerging countries do not have access to credit, while those who have are still facing high costs.
In that commentary Exter first outlines the case for the new central bank being “non-political” and having “a considerable amount of independence” - essentially on the grounds that central banking “puts the government into the business life of a country at especially critical points, namely banking and other credit activities, capital markets, foreign exchange markets and the supply of currency”, and that it “embraces problems which are of an unusually technical nature”! But Exter goes on to recognise that “there are many important problems of monetary policy, especially those relating to fiscal policy, on which a central bank must necessarily work in close harmony with the government”. Noting that many governments had learned to value the sort of independent and objective, detached, advice that central banks are able to give, Exter nevertheless acknowledges that “on matters of vital interest to the state it would be impossible for a central bank to adopt a policy contrary to the policy of the Government of the day”. His killer argument is that no central banker can help but be “acutely conscious of the fact that, since no Parliament can bind its successors, their independence is limited by the ultimate power of the Government to change the law”.

At the opposite extreme it sometimes seems that the only alternative is for the central bank to be simply another arm of government, subservient to finance ministers and their officials. Now I don’t know how many of you would recognise yourselves under either of these extreme categorisations. I guess not very many. I have to confess that - however attractive this definition of independence might appear as a central banking career option - if this really were the choice to be made, then, as a citizen of a democratic society I would have to choose the non-independent alternative. But, of course, the real debate is much more subtle and extends across a much narrower part of the spectrum between these polar extremes. The real debate is in fact well described by John Exter, the Federal Reserve Board official, who advised on the establishment of the Central Bank of Ceylon, as it then was, and stayed on to become its first Governor. In his Report - published in November 1949 - Exter presented a draft bill accompanied by a commentary. It is still well worth reading.
A Bank of Zambia review of interest rates determination in 2003, nonetheless, showed that the key determinants of commercial banks’ interest rates, particularly the lending rate, were the yield rates on Government securities, level of statutory reserve requirements, inflation, weak policy credibility and high default risks on loans obtained. To enhance the role of the market in the determination of exchange rates, the Interbank Foreign Exchange Market (IFEM) trading system was introduced in July 2003. The entrenchment of the IFEM trading system has been characterised by increased interbank foreign exchange liquidity flows, particularly from mineral exporters. The financial sector reforms were aimed at improving the efficiency and intermediation of the banking system and also at enhancing competition amongst the players. The reforms entailed opening up entry of participants into the banking sector. With the liberalisation of the financial sector, several bank and non-bank financial institutions were established. The financial sector has expanded remarkably over time and the services provided have been improved. •  The number of commercial banks has more than doubled to 13 from 4 banks prior to 1990. Currently, the banking system is made up of the Bank of Zambia, which is the central bank, and 13 commercial banks, with a branch network of 159 as at end-December 2005 compared to 123 in 1990. •  Commercial banks have improved the range of products offered to customers, in line with global innovations. These include Automated Teller Machines (ATMs), foreign exchange accounts, Visa, mortgages, and leasing services.

Caleb M Fundanga: Banking in Zambia and the Kwacha appreciation Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the German Ambassador’s working lunch, Lusaka, 7 June 2006. *  *  *  •  Your Excellency, the Germany Ambassador to Zambia, Dr. Ireen Hinrichsen;  •  Representatives of German Banks in South Africa;  •  The German Business Community;  •  Representatives of Local Banks;  •  Distinguished Ladies and Gentlemen. On behalf of the Zambian people and indeed on my own behalf, it gives me great pleasure to welcome our German visitors to Zambia. I am deeply humbled to be invited for this business luncheon hosted by Your Excellency. This interaction, Distinguished Ladies and Gentlemen, is very important to foster and enhance mutual co-operation between our two great nations. Your Excellency, with your permission, I will begin my address by discussing banking in Zambia and then proceed to give some highlights on the recent economic developments in the country. Distinguished Ladies and Gentlemen, in the early 1990s, Zambia embarked on economic liberalisation, of which reforming the financial sector was a major part. Specific measures which were undertaken included, among others, the removal of all restrictions on interest rates and elimination of controls on foreign exchange rates. Interest and exchange rates are now market determined, principally based on demand and supply.
In the absence of pressure on internal and external stability, monetary policy has become more accommodative. The Monetary Policy Committee cut its policy interest rate in total by 175 basis points since the beginning of this year. The aim is to stimulate domestic demand to offset moderating export growth in light of the slower US economy and baht appreciation. Nevertheless, exports would still remain an important driver of growth for next year. And, the latest economic forecast projects the Thai economic growth to lie between 4.5-6.0 per cent in 2008, while core inflation is expected to stay comfortably around 1.0-2.0 percent. Ladies and Gentlemen, Now allow me to turn to the second part of my talk. This relates to strengthening the Thai economy’s resiliency going forward. While the global economy is expected to record a higher growth rate in 2008 than in 2007, notwithstanding the slower US expansion, the risks on financial stability have not declined. Even though the latest US monetary policy easing could have a far-reaching impact insofar as it impacts the prospects of the global economic growth, I fear that the US policy has not helped much in terms of lessening financial volatilities that may likely mount as the global imbalance unwinds, and with it the impending correction of the US dollar. Ironically, during this adjustment period, small open emerging markets, Thailand included, have to manage the swings that will occur in their capital accounts.

Distinguished Guests, Let me first talk about the growth momentum and economic stability. In spite of the political transition over the past year, the Thai economy is expected to turn in a satisfactory growth rate in the range of 4-5 percent in 2007. This year, the main growth driver has continued to be exports. Domestic demand has however been affected by dampened consumer and investor confidence, linked primarily to political uncertainty. In July, private consumption remained close to the level recorded in the first half of the year. I am hopeful that once the general election date is scheduled and the cloud of political uncertainty has lifted, consumer confidence would rebound. Investment has shown signs of improvement during the second quarter of this year. There also appears to be a pent-up appetite for investment in view of the continued high capacity utilization of 75 percent as of July. Moreover, investment promotion applications to the Board of Investment have also pointed to a pick-up in investment once the investment climate becomes more favourable. I also expect investment to play a stronger role as growth driver, in line with the consumption recovery. This will be a welcomed development to promote a more balanced economy. The slower domestic demand has also been mirrored by moderate growth of private credits. Nevertheless, the banking system is strong, with the BIS ratio of 15 percent at end-July 2007, while net NPL amounted to 4.4 percent of total loans.
Such implications are determined by: (1)  local financial system features and inherent risks;  (2)  political and macroeconomic developments;  (3)  approach to reforms’ implementation;  In terms of financial system features, compared to advance economies, in CESEE the financial system is generally characterized by: –  more reliance in retail (longer-term) funding and more “buy to hold” business model  –  wider use of foreign currency in retail transactions;  –  less complex financial system, good level of capitalization and simpler approach to risk management;  –  serving as “host” to foreign financial institutions (usually from EU advanced economies)  –  higher reliance in banking to finance the public and private needs;  –  evolving regulatory framework of the financial system;  In terms of political and macroeconomic developments, CESEEs are generally characterized by: –  efforts to develop the financial system and integrate more the local economy in the regional and world one (in Europe, the process is driven by the process of European Integration);  –  stronger macroeconomic developments, which have seen improvement in the inflation due to more effective monetary policy, better use of economic resources and better fiscal management;  However, in terms of approach to international financial regulatory reforms implementation, given their features, CESEE will have to consider that: –  staying “out” is not an option;  –  less financial integration is not an option  and, given the complexity of reforms, preparations should progress quickly, although the pace of change should be carefully weighted and prioritized with local market features.

4  BIS central bankers’ speeches  Glossary CESEE – Countries of Eastern and South-East Europe; SSM – Single Supervisory Mechanism (EU) ESRB – European Systemic Risk Board (EU) FSOC – Financial Supervision Oversight Council (USA) ECB – European Central Bank EBA – European Banking Authority FSB – Financial Stability Board PRA – Prudential Regulatory Authority (UK) FPC – Financial Policy Committee; BRRD – Banking Recovery and Resolution Directive (EU)  BIS central bankers’ speeches  5
Monetary policy was sometimes overly loose, also in regard to the regulatory and supervisory framework in place. 2. Regulation and supervision trail behind the markets at intervals. Markets always find a way to innovate because of the ongoing competition among economic agents to meet real needs. Innovations enhance the efficiency whereby such needs are met and that is why the innovation process will never cease. Even if confronted with administrative barriers, markets will still identify solutions to meet demand. A clear example in this respect was the NBR's attempt at slowing down the frantic pace of forex-denominated loans. We resorted to administrative barriers, yet their efficiency was subdued and we realised that side effects outweighed benefits. Hence we removed those barriers relatively quickly. The innovation process can be so dynamic and sophisticated that market regulators or supervisors may lag behind. A statement in the G20 London Summit Communiqué of 2 April is particularly relevant in this respect: "Regulators and supervisors must (...) support competition and dynamism, and keep pace with innovation in the marketplace". One of my advisors said this is a recognition of the fact that the current financial crisis is not due to market failure, but rather to regulatory and supervisory institutions' inability to adapt to market realities. I would like to add that it is, at the same time, a guideline on how to keep the pace with market innovations.

And they have overcome both technical and juridical barriers so as to operate on a global basis. You cannot label them in the historical categories: - are they banks? Are they securities firms? Are they insurers? Of course you can categorise them by their historical roots. The large so-called broker-dealers such as Morgan Stanley and Goldman Sachs come from the securities side. The big banks - Citigroup and HSBC - come from the banking side. But today they are all involved in convergent thought processes and operations, even if their precise legal structures, and in many cases regulatory arrangements, may differ. They are all involved in considering in real time whether they are comfortable with the  4  BIS Review 5/2004  balance sheet of assets and liabilities that they have. And they all are involved in risk transfer techniques to adjust to a desired proprietary outcome. Their scope is multifunctional and multinational. This enables them to maximise opportunities for return. But it can also create challenges for the markets, and for the authorities. With global firms if there should be a failure, then who will oversee its resolution, and will there be any safety net to counter what could be significant economic and social costs globally? Which set of taxpayers in which countries will be prepared to share the burden to support such LCFIs? This highlights a real tension in the globalised world. The markets have globalised, and so have the firms. But, to a large measure, the oversight apparatus remains nationally based.