samchain/econo-pairs-v1 huggingface dataset:
By 2006 planning for Basel II will in fact have taken 8 years! Finally, an issue with which you are I expect all familiar - the EU Financial Services Action Plan. I would like to echo the views expressed recently by Callum McCarthy, in his speech to the European Policy Forum. The FSAP is an important initiative aimed to create a single market, and it promises many benefits. But the implementation of such changes over a short period of time raises some concerns; and while considerable progress has been made in addressing the 42 Directives under the FSAP umbrella there is still much to be done. Over the next few years we need to implement fourteen significant EU legislative measures, including for example the International Accounting Standards Regulation - the importance of which I highlighted earlier, as well as the new capital adequacy regime. We need to achieve so much so quickly, that there is a danger that people will take their eye off the ball. This is relevant not just to the authorities but also the firms and institutions who need to introduce new systems and new procedures. All this needs to take place in parallel in the course of the normal business day. And in doing so we need to ensure that the changes which are being introduced to enhance the EU financial sector do not themselves threaten the stability of that system. I have this morning traversed a broad territory. Firstly, what is financial stability?

That is in line with the intention in our advice from 2017 and will contribute to reducing the exposure of the state’s wealth to oil price risk. 1/2  BIS central bankers' speeches  The report to the Storting on the Government Pension Fund provides for among other things the possibility of investing in unlisted renewable energy infrastructure within the environmental mandates. As we have indicated previously, Norges Bank will approach investment opportunities and build expertise gradually. Investments in unlisted infrastructure will be a topic for the Executive Board’s work on the new strategy plan to apply from 2020. On 10 April 2015, the Central Bank Law Commission was appointed. Precisely four years later, the Government put forth a proposal on a new central bank act. At that time, the Storting had already endorsed retaining Norges Bank as the operational manager of the GPFG. For Norges Bank, the proposal on a new central bank act entails a number of changes, such as increasing the capacity of Norges Bank’s Executive Board in the area of capital management. Norges Bank has already made considerable strides in adapting the internal organisation to the changes ensuing from the new central bank act. The main exposures that are decisive for the GPFG’s long-term performance are decided by the Ministry of Finance and anchored in the Storting. This year’s report to the Storting on the GPFG includes several measures to further develop the investment strategy. But the objective remains firm: The highest possible return at an acceptable risk.
Ranee Jayamaha: Basel II – a roadmap for Sri Lankan banking system with international comparisons Opening remarks by Dr Ranee Jayamaha, Deputy Governor of the Central Bank of Sri Lanka, at an event of lecture series, organized by the Association of Professional Bankers, Colombo, 18 December 2006. *  *  *  Mr. Theagarajah, Mr. Ajantha Madurapperuma, officials of the Association of Professional Bankers, distinguished participants, ladies and gentlemen. Thank you for the invitation to deliver the opening speech on “Basel II – a Roadmap for Sri Lankan Banking System with International Comparisons”. Let me deviate a bit from the topic and first deal with the flexible approach the Central Bank of Sri Lanka (CBSL) has adopted in moving forward for full compliance of Basel II in the next few years. I will then set out some of the key implementation issues which need to be addressed not only by us but also by the Basel Committee and all host/home supervisors. For international comparison, I will provide a brief a summary of how some of the other countries have fared in implementing Basel II from 2008 onwards. Mr Samarasiri, Director, Bank Supervision will outline a broad roadmap in implementing Basel II. The Basel Committee on Banking Supervision has released the document, “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” in June 2004 which is well known as Basel II. Since then, the bankers and the regulators all over the world have been occupied with the adoption of the revised Framework.

Closer to the region, a recent report by the Asian Development Bank (ADB) highlighted that South East Asian countries require funding worth USD3.1 trillion for climate-adjusted infrastructure in the region by 20301. In Malaysia, among other means, green financing is being rolled out through schemes such as the Green Technology Financing Scheme (GTFS). Some institutions are allocating capital and steering financial flows towards more low-carbon, climate resilient activities. However, considerable funding gaps remain. Public finance will likely be inadequate for this task and there is inevitably a need to draw in private capital. The renewable energy sector for example, requires a total of RM33.5 billion of funding by 20252, based on the projections provided by the Sustainable Energy Development Authority (SEDA) Malaysia. There is no ready panacea to the funding issues that we face. We need to understand the root cause to come up with possible solutions. In my view, one of the most critical issues is the mismatch in funding demand and supply; and information asymmetry. We need to find a way to bridge the language and information gap between scientists, government and financiers. What science says about climate effects, what climate action the Government is prioritising, what industries are providing and investing in – are quite incongruent at this point. While there is now a stronger demand for green financing, it is not matched by the supply side, due to information gaps between financiers and green promoters.
As is well known, the exchange rate for the króna plummeted in 2000 and 2001, and for quite some time was substantially below a level reconcilable with long-term equilibrium. This occurred at a time when the price of key exports was very high, making the years 2000 and 2001 especially favourable for the export sector and in fact also for import competing sectors. Enterprises in these sectors now understandably feel the effects of the rise in the exchange rate. It is not to be expected, however, that the same conditions will again arise in these sectors as prevailed, for example, during 2001 and in the early part of 2002. In this connection it could be mentioned that, based on the predictions on performance made by financial enterprises, the contribution margin in fisheries companies will be fairly good this year, although not as good as in 2001 and 2002, which were quite exceptional. In the February issue of its Monetary Bulletin, the Central Bank published an analysis of the proposed 1 major construction projects in East Iceland and possible responses for economic management. The article concludes that unless economic counter-measures are taken, the projects will create overheating in the economy, inflation and instability. Although their scope will be considerable, the projects are not so large that economic stability cannot be preserved and inflation contained by means of appropriate responses in economic management.

Management of the gold and FX reserves shall also help to safeguard the Riksbank’s financial independence, which means rates of return must be healthy. The Riksbank has decided to consider how much the assets contribute to the FX reserves’ overall climate footprint.32 This follows the view of the NGFS on climate risks as a source of financial risk. In our most recent analysis of the FX reserves’ composition, the greenhouse gas intensity of the assets was, for the first time, a factor in the calculations together with rates of return and risk. Chart 3 shows how greenhouse gas emissions vary in different countries. The Riksbank has elected to only invest in Australian states and Canadian provinces with the same or lower greenhouse gas intensities than the respective country as a whole. For this reason, bonds issued by certain Australian states and Canadian provinces were sold off in 2019, see Chart 4. 30  This is the market valuation as of 31 December 2019, see the Riksbank (2020). See Mauderer (2020) for a discussion of this. 32 See also Flodén (2019) for a discussion of this. 31  13 [18]  Chart 3. Emissions of greenhouse gases in different countries. Emissions as a share of GDP 0,5  0,5 In the foreign exchange reserves  0,4  Potential holdings  0,4  0,3  0,3  0,2  0,2  0,1  0,1  0  0  Note.
Covered bonds are secured primarily by a preferential claim on a pool of residential or commercial mortgage loans. They are protected from potential bail-in under the new crisis resolution regime and are subject to special supervisory monitoring. The European Commission has determined that covered bonds may be included as level 1 qualifying assets in fulfilling banks’ liquidity coverage ratio requirements. Covered bonds also receive favourable treatment both under Solvency 2 and in the regulation of large exposures. In addition, the European Central Bank’s Asset purchase programmes have supported market liquidity. Covered bonds have a long history of strong performance in general and they have survived and developed during shifting market conditions. The safety of covered bonds supports high and stable ratings. It also drives demand and market depth, confirming their position as liquid assets. Large falls in house prices may present a key risk for the covered bonds market, given the dominance of residential mortgages as collateral. At Norges Bank, we have looked at this risk and we have so far concluded that Norwegian covered bonds are quite robust against a potential decline in house prices. In the 2015 Financial Stability Report, Norges Bank estimated that a 40% fall in house prices would reduce the eligible cover pool by around 20%. In such an extreme scenario, refinancing costs may rise for covered bonds. However, the rise in costs would probably be somewhat limited compared with the rise in refinancing costs for unsecured funding.

Jon Nicolaisen: Covered bonds and their impact on investors, banks and the real economy Remarks by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at the European Covered Bond Council (ECBC) Plenary Meeting, Oslo, 6 April 2017. * * * Accompanying slides Good morning and thank you for inviting me. Today, I will briefly discuss three issues that I believe will be central to further market development. First, the role of covered bonds in asset markets in general; second, the impact of covered bonds on the balance sheet of banks; and, third, the potential impact on the allocation of capital between households and enterprises. The market for covered bonds is perhaps especially interesting for us, given the strong growth of covered bonds in Norway over the last 10 years. Chart 1 Covered bonds outstanding Covered bonds remain a key funding tool for residential mortgage loans in many European countries. They have confirmed their position as a resilient source of funding also under stressed market conditions. This has been particularly evident in the Nordic region. Role in asset markets Covered bonds provide investors with a liquid and safe asset. The small premium above government bonds indicates that these securities are considered almost as safe as triple-A sovereign debt. Relative to senior bonds, covered bonds now appear more attractive than before the financial crisis. Chart 2 Covered bond spreads The fundamental characteristics of covered bonds support this pricing.
Yet growth in new investment has been falling, and in the past year or so has turned negative. To me this suggests that even the rise in the profitability we’ve seen has not been enough to compensate for the increase in the risk premium that’s been occurring in the background. And if you take seriously the crude estimates we’ve just been through, you might expect that to have had a significant effect on productivity growth. A brief summary Let me try and sum up. Business investment fell in every quarter last year and surveys suggest the underlying trend is still negative. This is remarkable at a time when profits are high, when the economy’s not been in recession and when employment has been growing strongly. A plausible explanation is that rising uncertainty has acted like an extra hurdle on the required rate of return for new capital projects, deterring expansion in productive capacity and encouraging firms to meet new demand with labour instead. The economics tells us that, because such spending is costly to reverse, perceived downside risks to future profits can act as a powerful disincentive to  12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12  new investment projects. If something’s easier to get into than out of, you naturally worry about what might subsequently go wrong. Those perceptions may have been worsening for some time. The evidence suggests that we’ve been living with a high risk premium on new investment for several years.

The blue line is a measure of the cost of finance for risky investments: it’s the profits of UK-quoted companies relative to their market value (debt as well as equity). The graph shows that, despite a protracted and significant decline in risk-free interest rates, firms have had to generate significantly more profits than in the past to raise a given amount of finance. The spread between the two lines is a measure of the risk premium on new investments, and it’s gone up significantly in the past few years, including since the EU referendum in 2016. Chart 11 carries a similar message. Here the orange line is a similar measure of that spread, between the rate of profit for private-sector firms11 and the yield on gilts. The blue line is the rate of growth of their investment spending. 10  In the simplified way that macro-economists sometimes use to describe the supply side of the economy, using a so-called “production function”, the elasticity of productivity with respect to the cost of capital – the proportionate response of the first to the second – is the product of two numbers: the share of national income going to capital (as opposed to labour), and something called the “elasticity of substitution” between the two inputs. In the data, the first is around one third; empirical estimates for UK put the second at around one half. Multiply the two and you get a figure of around one sixth. 11 The two charts use slightly different measures of profitability.
Figure 4  Activity and demand indicators (index, third quarter 2019 =100; seasonally-adjusted series) 140  Domestic demand  160  GDP 120  Non-mining GDP  140  Private consumption Durable goods Non-durable goods Services  160  140  120  120  100  100  80  80  GFCF Construction & works M&E  100  80  60  60  60 15 16 17 18 19 20 21 22  15 16 17 18 19 20 21 22  Source: Central Bank of Chile. 12  15 16 17 18 19 20 21 22  Figure 5 Labor Market Employment IMCE and Online Job Posting Index  Unemployment rate  (diffusion index, January 2015=100; moving quarterly average)  (percent)  Employment IMCE (*) Online job postings index (right axis)  100  150  15  80  120  12  60  90  9  40  60  6  20  30  3  0  0  0 18  19  20  21  22  18  19  20  21  22  (*) Averaged employment indicators in trade, manufacturing, and construction. Sources: Central Bank of Chile, National Statistics Institute (INE), and ICARE/Universidad Adolfo Ibáñez .

Indeed, we have seen numerous individuals who have made significant efforts and contribution to make Islamic finance what it is today. In creating such an award which will be given once every two years, it is our fervent hope that the conferment of this award will be inspirational to such involvement and contribution to Islamic finance. Malaysia’s experience in Islamic finance officially began with the establishment of the Pilgrimage Fund or the Tabung Haji in 1969 as an Islamic savings institution. Then, the first Islamic bank was set up in 1983 and in the following year, the first Takaful operator was established. Today, we have a comprehensive Islamic financial system that operates in parallel with the conventional financial system. Following liberalisation initiatives in this decade, there has been an increased foreign presence in our Islamic financial system. In particular, there has been greater foreign participation in Malaysia’s Islamic financial markets. The diversity of market players has contributed to increased competitiveness of the Malaysian Islamic financial services industry. To ensure the sustainability of our Islamic financial system, it is also supported by a robust regulatory and supervisory regime, legal and Shariah framework, and payment and settlement systems. In this decade, greater focus was particularly given to the institutional arrangements to develop the sukuk market. The sukuk market now accounts for more than fifty percent of our bond market. The market has drawn the participation from a wide range of international corporations and multilateral agencies in raising funds and investing in the sukuk issuances out of Malaysia.
With regard to the hedge funds’ own activities, the concerns are based on three beliefs: •  Hedge funds’ activities are opaque. •  Hedge funds borrow substantially. •  Hedge funds are speculative and prone to herd behaviour. Let me comment on these points one by one. It is true that in most countries hedge funds’ activities are less than transparent (although not in Sweden). The authorities in many countries have little or no information about the funds’ activities or the persons active in them. This applies in particular to funds that are located off-shore, such as in Bermuda or the Cayman Islands. This creates not only a risk that risk concentrations build up, but also facilitate illegal activities. The number of cases where hedge funds are suspected of being involved in various forms of fraud has grown dramatically in the United States in recent years. My opinion on this point is clear: Hedge funds should of course be subjected to the same disclosure requirements as other financial institutions. The second source of concern concerns indebtedness. Unlike more regulated institutions, hedge funds can in principle have unlimited leverage. This may be worrying from a stability perspective. A high level of indebtedness naturally increases both the probability of and the effects of a failure. The debt/equity ratio varies, but the fact is that most hedge funds are not heavily leveraged. To get a rough idea of the indebtedness of a fund one may simply divide the fund’s market value by its equity.

In Sweden, hedge funds are obliged to register with Finansinspektionen, the Swedish Financial Supervisory Authority, and to regularly report any measures that describe the risks in the fund, such as value-at-risk measures or measures of liquidity risk and indebtedness. The main rule is that the fund’s resources, as in the case of securities funds, should be invested according to the principle regarding risk diversification. Given this, it has not been considered necessary to set a minimum requirement for investment. Previously, Swedish hedge funds were obliged to report all of their holdings to Finansinspektionen, but this was not considered particularly meaningful. There are two main arguments for regulating hedge funds’ operations. The first is based on protecting the consumers from funds that take excessive risks. Amaranth’s gigantic losses affected several pension funds, for instance. However, in my opinion, this type of argument is rather strange. If one wants to protect pension savers’ investments, one should limit the pension funds’ investment opportunities, not the hedge funds’ operations. The second argument is linked to financial stability and the increasing role played by hedge funds. If a large number of funds were to fail and at the same time be highly indebted, there is a risk that the financial markets would be affected. However, this scarcely constitutes a reason for limiting the hedge funds’ investment freedom or for introducing some form of capital adequacy requirement.
With this strict definition in mind, I will make four main observations. An asymmetric world First, the current world is highly asymmetric. Two major currencies – the US dollar and the Euro – account for most of the foreign exchange reserves. One of them, the dollar, clearly dominates in financial markets and payment systems. This asymmetry has many well-known and self-reinforcing consequences. US monetary policy has significant effects well beyond the US economy. Those monetary spillovers may be especially important when unconventional monetary policies are implemented. They cast new doubts on the insulating properties of floating exchange rates. BIS central bankers’ speeches  1  They create new incentives, for many emerging economies, to manage their exchange rate and, for that purpose, accumulate dollar-denominated foreign exchange reserves. As a consequence, most, but not all, of the official liquidity provided through multilateral mechanisms is denominated in dollars. The rise of the euro The major innovation of the last decade has been the rise of the euro. It offers some interesting insights and lessons. Most economic models and historical examples suggest that the appearance of new world currencies would trigger huge portfolio adjustments and create major turbulences. Economists also hypothesized that, in a multicurrency world, portfolio shifts would create permanent exchange rate instability. None of this has happened. In fact, the euro has neither stabilized nor disrupted the international monetary system. Exchange rates have moved significantly but, most of the time, in an orderly fashion and have followed low periodicity cycles.

BIS Review 124/2007  1