samchain/econo-pairs-v1 huggingface dataset:
Vahur Kraft: Safeguarding financial stability – key issues for the central bank Speech by Mr Vahur Kraft, Governor of the Bank of Estonia, at the conference on the Challenges for the Unified Financial Supervision in the New Millennium, Tallinn, Estonia, 2 July 2001. *  *  *  Good afternoon, ladies and gentlemen. After the most interesting presentation by Minister Kallas, it is my pleasure to address this distinguished audience on more general issues. Departing slightly from the pre-announced agenda, I will discuss the key challenges to maintain financial stability from the central bank's point of view. I. Why is the central bank interested in financial stability? The question "why is financial stability so important for the central bank" does not need to be discussed here in detail. Monetary transmission can not be efficient if weak financial system distorts interest rate signals by increasing margins or if the financial markets have ceased to function as some participants do not trust other players. The causality can run also in other direction. Over the past decade, we have once and again witnessed how weak financial systems have directly caused the currency crisis that resulted in capital flight, devaluation and deep recessions. The latter is particularly relevant for fixed exchange rate systems. And finally, central banks are interested in financial stability because often the central banks would have to take the leading role in crisis resolution, by providing emergency assistance and working out restructuring plans. These concerns are very familiar to Bank of Estonia.

Finally, there is perhaps no need to say that over the past decade, we have indeed applied all these scenarios on our financial institutions in very real circumstances. VI. Regulations: pro or counter cyclical? Finally, let me briefly touch upon the regulatory issues. Bank of Estonia is responsible for regulating the banking system in Estonia. The detailed description of Estonian banking regulations goes far beyond the scope of my speech, but I would just like to say that one advantage of being a transition economy was the possibility to draw the legislation from the scratch. That has facilitated very much the compliance with good practices and de facto full adoption of the EU acquis. What is a real regulatory challenge for central bank in our case is the question of to what extent regulatory measures should be taken into account in broader financial policy context. Arguments can be made for changing the regulations in accordance with the business cycle, especially as it seems that in modern world financial systems have become more pro-cyclical than before. In that case, early tightening may pre-empt the possibly devastating effects of asset price volatility and loan losses once the economy starts to cool down. That might be even more relevant if credit growth is high in the early stage of the cycle. This approach has particular appeal for policy makers under the currency board as the active use of monetary measures is excluded and reserve requirements are essentially the only available monetary tool.
The existing market demand within Hong Kong for a US dollar clearing system is a persuasive enough argument for its introduction: the potential demand for such a system, and the strategic impetus that it would give to our development as a leading financial centre, is considerable. In the near term, Hong Kong’s US Dollar Clearing System will provide the necessary infrastructure to support the Stock Exchange’s launch of the Growth Enterprise Market (GEM), which will allow listed shares to be denominated and settled in US dollars. In the longer term, the system will provide a range of opportunities for further developing our stock and debt markets into major world markets. A local US dollar clearing system will bring with it the advantages of speed, convenience and efficiency: it will, for example, allow US dollar cheques to be settled within two days, instead of the current two weeks. In addition to these obvious advantages, it will also carry the benefit of safety, in the form of reduced settlement risk. By enabling, within Hong Kong, delivery versus payment (DvP) for US dollar-denominated securities, and payment versus payment (PvP) for foreign exchange  1  BIS Review 22/2000  transactions between US dollars and Hong Kong dollars, the system will eliminate the settlement risk that arises when a transaction is spread across different time zones. Greater safety at the level of individual transactions will be complemented by the contribution the system will make to monetary stability.

The intention is that it should encompass not only the best, internationally agreed, principles of payment system design but also state-of-the-art technology. Leveraging on the technology used for the existing Hong Kong dollar RTGS system, this US Dollar Clearing System will offer a range of advanced and sophisticated clearing functions. These will include linkage with the Hong Kong dollar payment system to provide real time PvP settlement for US dollar-Hong Kong dollar transactions, as well as linkages with the stock and debt securities clearing houses to provide DvP settlement. For the general public, the System will enable banks to offer US dollar cheque deposit accounts, which means that US dollar payments can be discharged through the writing of a cheque in US dollars drawn upon a bank in Hong Kong. The various features of the system will be introduced in phases. All being well, we hope to see real-time interbank payments and PvP for US dollar-Hong Kong dollar foreign exchange transactions introduced by the third quarter of this year and US dollar paper cheque clearing and a linkage with the HKMA’s Central Moneymarkets Unit completed by the end of the year. People have asked whether we propose to introduce clearing in other foreign currencies once the US dollar system is established. In principle this would be possible. In practice there needs to be a business case. The HKMA is certainly ready to respond if there appears to be market demand for similar clearing systems for other major currencies.
If the production gap is completely closed and equal to zero - i.e. actual and potential production coincide - the inflation rate should be 2 per cent as long as a credible policy is pursued and no other shocks occur. Figure 1 illustrates in principle possible future developments. An important insight in this context is that changes in the steering interest rate are significant for production and employment in the short term, but not in the long term. If prices and wages do not adapt immediately - i.e. there are nominal lags - changes in nominal quantities, including the Riksbank's repo rate, will entail changes in relative prices and real wages. These real price changes affect the economy's real aggregated demand and thereby both production and employment. If, for instance, wage agreements are signed for longer periods of time, while companies' pricing is more flexible, lowering the steering interest rate can have real economy effects in the short term, because companies' price increases will lead to lower real wages and higher profits and thereby increased production and employment. In the longer term, when new wage agreements are signed wage formation will take into account the higher price increases and be adapted to avoid changes in real wages. By changing the steering interest rate, the Riksbank can affect the actual, short-term production level but not the potential, long-term level. The latter is determined, as I said earlier, by factors such as  BIS Review 16/2003  1  technological developments, labour supply, etc.

Moreover, its effects will be reinforced by tighter financial conditions and possible negative spill-overs to growth in the UK’s major trading partners. In sum, the material slowing in growth that the MPC had identified as a risk associated with the referendum now looks likely to be our central forecast. Using reports from our nationwide network of agents, private survey evidence, and hard data, in the coming weeks we will estimate the extent of the deceleration as we formulate our August projections. 3. Policies in an uncertain world  When uncertainty is high, policymakers should have three objectives. First, conduct a sober, objective assessment of the outlook and the risks to it. Second, develop and communicate a plan to reduce those risks and to seize new opportunities. And third, do no harm, by  BIS central bankers’ speeches  9  minimising any possible confusion about the commitment to core macroeconomic policy frameworks themselves. In Tim Geithner’s famous dictum, “plan beats no plan.” And in my experience, a plan that is clearly articulated and transparently executed is best of all. A plan for the UK’s current challenges would include a comprehensive strategy for engaging with the EU and the rest of the world – including clarifying the UK’s future trading arrangements, calibrating its openness to migration, ensuring the continuity of capital flows, and confirming the appropriate regulatory framework for the UK financial system. The impact of concrete progress towards these objectives would be amplified by an overarching, positive and animating narrative for growth in a post-Brexit world.
On the contrary, and since the very construction of the Euro was based on continuity with the most credible national currencies, it was foreseeable that interest rate convergence inside the future Euro area would take place progressively on the basis of a merge of different yield curves of the various currencies with the benchmark yield curve corresponding to the most performing and credible ones, as it effectively happened. - The recent nay votes from France and the Netherlands to ratifying the EU constitution rattled Europeans concerns for the future. Some observers immediately conjectured that the single currency was directly responsible for the muted economic performance of the euro area and publicly questioned its durability; however, the track record of the Single monetary policy, after only 6 years of implementation, has been really impressive: the inception of the euro has been associated with an increased macroeconomic and price stability within the euro zone, despite an unusual sequence of unfavourable events, adverse supply shocks and periods of global financial turbulences. The point I would like to set out today is that a high degree of credibility, transparency and predictability of the Eurosystem’s monetary policy is a key condition for its efficiency. I will provide you with an overview of the Eurosystem monetary policy strategy (part 1) and then will assess its main achievements (part 2).

It shows that the policy stance is also underpinned by the information stemming from our monetary pillar: - From 2001 to 2003, the annual growth of M3 was well above its reference value. However, an indepth analysis of M3’s components and of its main counterparts showed that the dynamics of M3 was mainly due to extraordinary portfolio shifts into M3, in a context of heightened economic, financial and geopolitical uncertainty. This implied low medium-term risks for price stability, as captured by the monetary indicators presented in figures 4 and 5, and allowed the Eurosystem to enter an easing cycle. 6  BIS Review 4/2006  - The situation has changed since the second half of 2004 as reflected by the monetary indicators: first, broad money aggregates accelerated in parallel with increasing demand for loans to the private sector; second, this acceleration was mainly driven by the most liquid components of M3, pointing to a significant impact of low interest rates on monetary dynamics. Furthermore, the growth of borrowing, especially mortgage loans, remained very robust, fuelling a sharp increase of housing prices across the euro area. In such a situation, the risks revealed by the monetary analysis to price stability over the medium-term were strongly revised upward. 4. Predictability and frequency of policy actions Contrary to some preconceptions, most monetary policy decisions have been perfectly anticipated by the markets.
Ladies and Gentlemen, as we strive to achieve the Vision of becoming a middle income country by the year 2030, we shall no doubt be confronted with such and many more similar challenges both economically and politically. To be well prepared for such trying times ahead, we need to groom our best talents to assume leadership positions in all sectors of the economy. To achieve this vital task of nurturing our future leaders, the Government is trying its level best to provide education to all Zambians. The Government has done well thus far and should be implored to continue doing so. BIS Review 160/2008  1  However, providing education for the benefit of all citizens is never an easy task due to other budgetary pressures exerted by other competing sectors like Health, Agriculture, and Community Development etc. If we are to achieve education for the majority of our people, we need concerted efforts from all stakeholders including private institutions and charitable organisations like the Masomo Education Foundation. Mr President, I am informed that the objective of the Foundation is to educate young Zambians at local colleges. I am particularly pleased that the Foundation is utilizing local educational institutions. This should be commended as it demonstrates the confidence you have in the calibre of our learned colleagues at these institutions.

Unfortunately, Member State's implementation record of Internal Market legislation is worsening and the number of Internal Market infringements remains stubbornly high in some European countries. Let me also briefly mention labour mobility. Labour mobility is an essential element of the Internal Market and an important factor of adjustment mechanism in a context of monetary union. Evidence however suggests that, overall, cross-border labour mobility is still low in the euro area. And we still have formal barriers to labour mobility across the euro area. This is in clear contrast to the situation in the United States 10 . All in all, increasing product market competition and labour mobility – at the EU and national level, would enable more efficient production structures associated with a more competitive price setting. Following the principle of “an open market economy with free competition” is pivotal to fostering long-term economic growth. Let me now focus more specifically on the financial sectors. Financial integration is indeed of key importance for the ECB, given the relevance for the conduct of the single monetary policy. The process of European financial integration is gradually taking place and considerable progress has been made for instance in capital markets and wholesale banking. However, the retail banking sector appears not yet to have reached its potential, and competition seems insufficient in this area leaving European consumers unable to take full advantage of the benefits of the EMU and the Single Market 11 .
Therefore, we need to keep on building our institutional capacity and research skills and I believe that today’s conference, as a continuation of our previous conferences, will additionally contribute to this goal, not only for us, but also for the participating central banks and other institutions. I look forward to yet another successful conference, interesting discussions and useful policy messages! Thank you for the attention! 2  BIS central bankers’ speeches

The market is a strict master and serves painful punishment for mistakes or ill-thought initiatives. BIS Review 51/2002  3
By the 2018 G20 Summit in Argentina, the FSB will report whether any additional financial resources are required to resolve safely CCPs. The financial system is fairer The system is fairer because of reforms that are ending the era of “too big to fail” banks and addressing the root causes of a torrent of misconduct. A decade ago, large complex banks operated in a “heads I win tails you lose” bubble. They privatised profits in the run-up to the crisis before socialising the losses when the music stopped. The loss of confidence in private finance that crystallised in the autumn of 2008 could only be arrested by public support over the following year that totalled $ trillion in bail-outs, government guarantees of bank liabilities and special central bank liquidity schemes. 9  To bring back the discipline of the market and end reliance on public funds, FSB members have agreed standards to ensure that major banks can fail safely in future. 7  Such collective investment vehicles with run risk now account for almost two-thirds of identified shadow banking up from about 40% prior to the crisis. 8 Work on liquidity mismatches in open-ended funds is scheduled to be completed by end-2017 and development of consistent leverage measures by the end-2018. The FSB has now completed its work under the Shadow Banking Roadmap. It has not identified new shadow banking risks that require additional regulatory action at global level.

It is nevertheless true that the implementation of Basel Pillar 2 on the basis of the regular supervisory review exercises has somewhat changed the situation. Pillar 2 allows specific requirements to be made of each bank on the basis of its risk profile so as to cover aspects not contained in Pillar 1 (minimum regulatory capital ratios). In that way the supervisor can regulate solvency requirements by adjusting them to each bank’s situation, thereby  BIS central bankers’ speeches  1  extending the supervisor’s discretion and reinforcing its role, while reducing commensurately the relative significance of the general solvency requirements set in the regulations. Likewise, the inclusion of stress tests as a supervisory tool extends the supervisor’s capacity to impose capital requirements or other constraints on banks when this is necessary to withstand adverse scenarios, even if such scenarios are rather unlikely. Once again, this tool broadens the weight of supervisory action. That said, in order to optimise the scope of supervision, supplementary instruments – that are not always available in accordance with the prudential regulations in force – are needed. For instance, not in all jurisdictions must the supervisor expressly authorise the eligibility of certain capital instruments, the acquisition of qualifying holdings in other financial institutions or dividend pay-outs charged to reserves. Above all, effective supervision should occasionally be based on discretionary actions rather than mere application of the instruments expressly provided for under the regulations.
This will bring about strengthening of a more wide spread and inclusive global financial integration. The greater diversification of risks also contributes towards promoting international financial stability. The transparent nature of Islamic financial contracts and the need for underlying economic transaction reinforces the stability of the Islamic financial system. Going forward, in the current liberalised and globalised environment, Islamic finance is at the threshold of a new dimension in strengthening financial interlinkages between nations across the globe. Just as the Old Silk Road in the 14th century offered a route that facilitated the trade in goods from the East to the West, we can now envisage the New Silk Road that facilitates financial flows across borders between the East and West. As regional financial integration intensifies, it will be a route that will facilitate this process. The previous trade linkages between the Middle East and Asian regions also has potential to strengthen, being the two of the fastest growing regions in the global economy. While the world trade has on the average expanded by 9 percent over the period 2002-2006, Asia's trade with the Middle East has increased on the average by 30 percent. In 2006 alone, mega transactions involving corporate acquisitions and real estate purchases from the Gulf to Asia, are estimated to total more than USD18 billion. Going forward, the value of such investments are expected to increase.

In addition, a Japanese consumer credit company based in Malaysia marked another significant milestone by issuing an Islamic commercial papers early this year. The changes that have occurred in the economic and financial environment in our region and the global environment have presented us with wide ranging new opportunities. The partnership between Malaysia and Japan thus not only needs to evolve not only in the trade in goods and direct investment but also needs to encompass growing financial ties. Islamic finance represents a vehicle that could further deepen our financial relationship and the regional integration process. In enhancing these new linkages and greater integration, it would contribute towards unlocking the new potential opportunities for our mutual prosperity. Thank you. 4  BIS Review 94/2007
In doing so, banks also suffer serious consequences from money laundering, which include: •  First, reputation risk - banks become vulnerable to reputation risk because they easily become a vehicle for or a victim of illegal activities perpetuated by their customers. Once banks are associated with such activities, their reputation in the market becomes tainted and they risk losing customers. For instance, in Zambia, the closure of one bank was as a result of allegations that the bank maintained accounts keeping proceeds of drug money. Banks therefore, need to protect themselves by continuously and vigilantly evaluating their customer base. The quest to mobilise deposits and improve liquidity must not be an overriding factor to accepting money from questionable sources. •  Second, legal risk - banks may become subject of lawsuits resulting from failure to observe ‘know your customer’ standards or from failure to practice due diligence in customer evaluation and acceptance. As a result of this, banks can suffer from criminal liabilities, supervisory fines and other penalties. •  Third, concentration risk - banks are expected to have information systems to identify credit concentrations and to set prudential limits to restrict exposures to single borrowers or groups of related borrowers. The challenge for banks therefore is to adopt vigorous programs for the detection of suspicious transactions, since failure to report such transactions under the new money laundering legislation may subject the bank to criminal sanctions.

To all the prize winners for 2006, I extend my sincere and heartfelt congratulations for well deserved awards. Please remember that it is not enough to only enjoy the glory of the moment, but also to take the responsibility to act as mentors to emergent writers. I believe that what the journalist fraternity needs is not individuals who excel alone, but a cadre of responsible reporters that leave an outstanding legacy. Let me also take this opportunity to thank ACCA, the sponsors of this event and prizes for their continuing support to economic, business and financial journalism. In conclusion, allow me to encourage our journalists to compete for international media awards as well. This will be the true barometer of where you stand as Zambian journalists because you will be judged against international best practice which is, in turn, the true barometer in global economy. As your patron, I wish you all the best in this and future endeavors that seek to raise the standards of journalism in the country. I thank you. 2  BIS Review 10/2007