samchain/econo-pairs-v1 huggingface dataset:
This discussion highlights that current account surplus countries can forego, at least temporarily, the required adjustment by accumulating international reserves instead. The sustainability of these imbalances, and the extent to which they have contributed to the recent global financial crisis, is still under discussion. BIS Review 65/2010  1  The question of the reserve asset has often been at the center of the debate. But as Mark Carney has recently argued, the adjustment mechanism may be more important than the choice of reserve assets. If adjustment were rapid, symmetric, and global, and if adjustment costs were fairly distributed amongst countries, we probably would not need to gather here today. Unfortunately, this is not the world we live in now. Historically, exchange rate flexibility has often been the answer. While it is not a silver bullet, it remains true that adjustment through the exchange rate is usually faster, and in the end less costly than adjustment through prices and wages. At the same time, of course, discontent with what is often perceived as excessive exchange rate volatility has been an important source of dissatisfaction with the present international monetary system. What constitutes excessive exchange rate volatility, and whether domestic policies or the international monetary system are at the root of it, is a matter of legitimate debate. III.

My role today as the opening speaker is a privileged one. Like a university professor during exams, I can ask questions. Unlike a good professor, I am certainly not in possession of all the answers. I am confident, however, that the exceptional group of people assembled here will make a positive contribution to this difficult and complex debate. II. The problem  Arguably, much of the debate surrounding the international monetary system boils down to the following question: how sustainable is an international monetary regime, in which one national currency serves as the international reserve asset? Over the past few decades, this question has been examined under different perspectives. A first perspective was the so-called “Triffin dilemma”, discussed in the context of the Bretton Woods fixed exchange rate regime. This discussion highlighted that increasing indebtedness of the reserve-issuing country would in time undermine the very confidence that forms the basis for the reserve asset status. A second perspective refers to the alleged “exorbitant privilege” of the reserve-issuing country. It highlights the asymmetry in the adjustment to shocks, as the reserve-issuing country has the privilege of not being under much pressure to adjust to current account deficits, at least over the short and medium term. It is worth noting that part of Keynes’ goal in setting up the IMF was to try to create symmetry between the need to adjust for both deficit and surplus countries. More recently, the question appeared under the perspective of global imbalances.
These reforms, in turn, would contribute to progress in fiscal consolidation, as they would enhance the perception of the sustainability of public finances and would reduce the degree of sacrifice implicit in the necessary fiscal austerity that must be maintained in the coming years. There are several fields in which the Spanish economy requires an overhaul of its structures, to make them more consistent with our membership of a monetary area and with a highly competitive and globalised world economy. Two such fields are the labour market and the financial system, on which I shall elaborate in detail later on in my address. Correcting the inefficiencies weighing down on the functioning of our labour market is of paramount importance since, as the market is currently structured, the obstacles to gaining competitiveness and generating sustainable employment are patently clear. In particular, these shortcomings have meant that the adjustment of the economy in the recent crisis has fallen disproportionately on employment as a result, among other reasons, of the scant sensitivity of collective bargaining to the specific situation of firms. The extent of these rigidities is not merely cyclical; their effects are largely permanent as they force firms and workers out of the market, causing lasting damage to productive capacity and human capital. Last week the government approved a series of measures aimed at correcting these inefficiencies, specifically at reducing duality in hiring and at reinforcing companies’ internal flexibility.

It also highlights which channels are explicitly included in the stress tests and which are not, and are consequently priorities for future work. Third, sensitivity analysis can easily be carried out to assess the impact of altering behavioural assumptions – for example, what would happen if write-off rates on corporate exposures were higher than expected? Fourth, the results can be compared to “bottom-up” stress tests calculated by individual firms, which have developed rapidly in recent years, but which may be less focussed on capturing macroeconomic and financial sector feedbacks. 8 The traditional approach to stress testing, nonetheless, suffers from some major limitations. Most strikingly, the current treatment of key financial system interactions and feedback effects is often rudimentary. Given that such effects are crucial in assessing the vulnerability to contagion and system-wide stress, that is a significant drawback. Take the illustrative severe stress scenarios published in the Bank of England Financial Stability Report and shown above in Chart B as a guide. These scenarios are constructed from risk transmission maps for each scenario based on the stylised model in Chart C. In practice, however, there are important gaps, as can be seen from Table 1, where the channels which have been explicitly quantified in the stress scenarios are shown.
Second, as recently laid out by Governor Tarullo,2 a problem in one firm can spread via the domino effect created by chains of counterparty credit exposures; forced asset sales; or contagion due to the reality or perception of common problems. 2  2  Daniel K Tarullo, “Regulating Systemic Risk”, March 2011. BIS central bankers’ speeches  And, to be clear, this is not just a vulnerability of firms. Markets too can suffer a self-fulfilling evaporation of liquidity. A central element of the recent crisis was, indeed, the drying up of liquidity in the ABS markets and the money markets. As liquidity premia soared, many asset values collapsed, and the net worth of many traders and banks was eroded. This was a vicious circle, because the liquidity of many financial markets depends on short-term traders being ready and able to trade, since end-buyers and sellers will not always want to transact at the same time. Those traders often depend, in turn, on maintaining access to financing from banks. Everyone has been reminded, therefore, that the liquidity of markets and the well-being of leveraged, maturity-mismatched firms are inextricably intertwined. Our capital markets and much of the “plumbing” of the financial system – notably the payments system – rely on confidence in the integrity of the assets being traded, in the robustness of counterparties, in the reliability of infrastructure. Crises nearly always involve that confidence sliding away. So, although financial systems look solid most of the time, they can in fact prove brittle.

And last, but not least, the leverage ratio could also play an additional role in mitigating bank’s and supervisor’s model risk and measurement error, providing a backstop to riskbased capital measures. Indeed, it could also play a role by itself by constraining leverage in the banking system. But a really crucial challenge is good calibration. Furthermore, there are difficult questions to be addressed regarding impact assessments: What is the meaning of “significant” when referring to the increase of the capital requirements? What is the best approach to capture outlier banks which are making savings through the use of aggressive modelling techniques? Is the impact going to be measured by categories of banks with similar profiles and business models? In this sense, in order to ensure that the analysis is based on the best quality data, the engagement of the industry is crucial, both through sharing its views by responding to consultation processes, and also by contributing with the best quality data to the quantitative impact study being conducted by the Basel Committee. To conclude, it is essential that the final design of the whole framework is consistent and that any potential interactions between different measures are properly evaluated. To conclude, I will say that it will be possible to design a framework that keeps the incentives for sound risk management and that eliminates unwarranted differences in risk weighted assets among banks, while avoiding any significant increase in the capital requirements for the global banking system. Thank you very much for your attention.
47 Looking ahead, however, ideas are being developed to lower some of the frictions from which innovative structured credit instruments in particular have suffered during recent months. Removal of these frictions will, in some cases, necessitate recognition of additional  8  12  Report of the Financial Stability Forum on enhancing market and institutional resilience, 7 April 2008; Ratings in structured finance: what went wrong and what can be done to address shortcoming, CGFS Paper 32, July 2008  BIS Review 93/2008  costs, for example in the screening of information and in the provision and cost of liquidity, that were severely underplayed in the earlier boom in financial markets. Recognition of these costs will, however, strengthen the resilience of the financial system and underpin the durability of the manifold benefits from financial innovation. BIS Review 93/2008  13

Deposit insurance, like other forms of insurance, is there to deal with low probability events that have a major impact if they occur. To make an obvious analogy, you still take out fire insurance even if you do not expect your house to burn down. Hong Kong stands out as one of the few developed banking centres which does not have a DIS. There is of course no reason why we should follow the rest of the world just for the sake of it. But we should at least keep our safety net arrangements under regular review to ensure that they are still appropriate to changing market circumstances. This is what we did last year when we engaged an external consultant to consider whether the existing deposit protection arrangements in Hong Kong were sufficient, and if not how they should be changed. The conclusion was that an explicit and limited form of deposit insurance should be introduced. We subsequently undertook a public consultation on this proposition and on the detailed design features of the proposed scheme. This consultation generated a heated, albeit civilised, debate. Not surprisingly, some of the large banks vehemently opposed the scheme. Opinion in the community as a whole was however generally supportive.
This industry process formally began in January 2011, issued its requirements document in May 2011 and recommended a consortium led by the Depository Trust and Clearing Corporation (DTCC) as its preferred provider in July 2011. DTCC is currently running a private sector entity identification pilot project, starting with over the counter derivatives. Although this market is fairly concentrated, building the database still  24  Dodd-Frank Wall Street Reform and Consumer Protection Act (2010). 25  European Commission (2010). 26  G20 (2009). 27  Financial Stability Board (2010). 28  CPSS-IOSCO (2011). 29  Office of Financial Research (2010). BIS central bankers’ speeches  9  poses challenges. DTCC anticipates the database could contain over 1 million entities. This pilot will provide valuable experience when moving to a broader range of products and market participants. The FSB is constructing an LEI roadmap, harnessing the efforts of both official and private sectors. Its destination is a single, global LEI standard. As announced last week, significant progress is being made across five fronts: governance, operational model, scope and access, funding and implementation and phasing.30 The FSB will present its LEI recommendations to the next G20 summit in June 2012. Creating a PI for finance is altogether more complex. Finance is in the pre-barcode era for retail products or the pre-web era of the internet. But enough work has already been done to demonstrate that PIs are feasible.

Nevertheless, as it is concluded through the pages of our Annual Report, the Albanian economy was highly resilient against this shock. Our economy has: maintained the positive growth trend; recorded one of the lowest inflation rates across the region and Europe; further consolidated the indicators of fiscal stability and external position of the country. In addition, the Albanian economy has preserved the overall soundness of the private sector's financial balance sheets. In more concrete terms, the Albanian economy - despite facing more expensive imports and tighter financial conditions – expanded by 4.8% in 2022. Economic growth showed a good sectoral allocation and was underpinned by the increase in household consumption, business investments and in exports. On the other hand, the higher demand for goods and services in 2022 was reflected in notable improvements in labour market. Hence, employment grew by 4.2%, unemployment rate declined to the historically minimum level of 10.8%, while average wage in private rose by 12.2%. These developments supported the growth in the Albanian households' income, by  1/5  BIS - Central bankers' speeches  offsetting the increase in the cost of living for most of them. However, the observed shortages in the labour market are turning into an increasingly large obstacle to the expansion of activity and are fuelling domestic inflationary pressures. In line with these developments, consumer prices have risen sharply in 2022, recording an average inflation rate of 6.7%.
A distinct accounting regime for banks would be a radical departure from the past.10 But if we are to restore investor faith in banking sector balance sheets, nothing less than a radical rethink may be required. 10  Sharman (2011). BIS central bankers’ speeches  5  References Bernanke, B and Lown, C (1991), “The Credit Crunch”, Brookings Papers on Economic Activity, 1991:2, pages 205–39. Board of Governors of the Federal Reserve, “Banking and monetary statistics, 1914–1941”, page 283, available at http://fraser.stlouisfed.org/publications/bms/. Diamond, D (1984), “Financial Intermediation and Delegated Monitoring”, Review of Economic Studies, 51(3), pages 393–414. Epstein, L and Wang, T (1994), “Intertemporal Asset Pricing under Knightian Uncertainty”, Econometrica, 62(3), pages 283–322. Financial Services Authority (2011), “Proposed Regulatory Prudent Valuation Return”, Financial Services Authority, CP11/30, available at http://www.fsa.gov.uk/pubs/cp/ cp11_30.pdf. Giffords, B and Mainelli, M (2009), “The Road to Long Finance: A Systems View of the Credit Srunch”, Centre for the Study of Financial Innovation, Number 87. Haldane, A G (2010), “Fair Value in Foul Weather”, available at http://www.bankofengland. co.uk/publications/speeches/2010/speech427.pdf. Knight, F H (1921), “Risk, uncertainty and profit”, Hart, Schaffner and Marx Prize Essays, no. 31, Boston and New York, Houghton Mifflin. Laux, C (forthcoming), “Financial instruments, financial reporting, and financial stability”, Vienna University of Economics and Business. 6  BIS central bankers’ speeches  Lord Sharman of Redlynch (2011), “Going Concern and Liquidity Risks: Lessons for Companies and Auditors, Preliminary Report and Recommendations of the Panel of Inquiry”, available at http://www.frc.org.uk/images/uploaded/documents/The%20Sharman%20Report %20-%20final%200311111.pdf.

So we can provide that real leading edge. Our people are all over the world. Wherever you go, if you look at expatriates, Sri Lankans in any country, anywhere in the world – I have been to the Caribbean, places like Barbados, even there you find Sri Lankans. And they are doing very well in their professional endeavours. So we have to reach out to this diaspora, as I call it, and ensure that they also come and help us but already within the country, we have a sufficient pool of people who really can lead the charge, not just in-terms of raising Sri Lanka’s profile but also attracting foreign investment and other resources which will help this country provide leadership in this region in the decades ahead. So remember that it is a great challenge for all of us, this institution is going to be at the epicenter of this country’s efforts to develop itself. President Maithripala Sirisena who visited us, a few weeks ago, made it very clear that his main objective is to see that people’s incomes increase. That is his objective. He has spelt out his objective. How do we achieve that? That is where we have to sit now and brainstorm. To me the key challenge is how to raise productivity. Productivity is very important, output per capita. This is the key element that we have to utilize.
In fact, one of the most visible consequences of financial fragmentation was the strong sensitivity of funding costs to the borrowing agents’ nationality and not just to their creditworthiness. Thus, drawing all the strands together, I think it is reasonable to conclude that the unsustainable accumulation of debt over the previous expansion paved the way for the subsequent credit contraction seen during the crisis. In my view, this contraction reflects primarily the sizable and unavoidable downward adjustment in the demand for credit. However, a number of frictions related to the supply of credit, such as those discussed earlier, have also played a relevant role. 3. Recent developments in bank credit and its determinants  Let me now turn to the recent developments in bank credit. The latest data show that the stock of credit to the private sector in Spain continues to fall, but the rate of decline has tended to slow gradually since the second half of 2013, in parallel with the recovery in GDP. This slow pace of recovery of the credit cycle is consistent with historical regularities during previous similar episodes. In fact, there is a well-established branch in the economics literature that has coined this phenomenon “creditless recoveries”, and there are abundant studies showing that these episodes are not exceptional either in emerging or in advanced economies, especially in the aftermath of a recession accompanied by a banking crisis.

To give you some figures, non-financial corporation debt ratios grew rapidly during the last expansion up to close to 120% of GDP in mid-2010, clearly above the average values in the euro area, which stood at around 80% of GDP at that time. Similarly, the household debt-to-GDP ratio rose up to almost 85% in the same period, 20 pp above euro area levels. BIS central bankers’ speeches  1  2.2. Supply-side frictions  Turning now to the supply side, there exist some frictions that tend to exacerbate the negative pressure on credit exerted by the contractionary demand factors. One significant friction in this regard is the existence of asymmetric information between lenders and borrowers, a circumstance that limits the ability of the lenders to assess correctly the actual level of risk posed by a given borrower or a project. This friction normally intensifies during periods of crisis and, for reasons well known, is comparatively more relevant in the case of small and medium-sized firms as opposed to large companies. The comparative disadvantage of small firms in accessing financing relative to their larger competitors has, in fact, been one of the most pervasive features of the recent crisis, despite the mitigating impact provided by the special facilities activated by many of the public institutions represented here today. Another factor that significantly restrained credit supply conditions until recently was the financial fragmentation of the euro area that emerged as a result of the tensions in the European sovereign debt markets.
In my view, transmission of monetary policy in this cycle is not weaker but slower, for three reasons: The starting point: the balance sheet of corporates as well as of households was very strong after the exceptional Covid support; Fixed rate mortgages have significantly increased in share, and are now predominant in many jurisdictions. It's nevertheless good news for financial stability; The higher proportion of services in the economy, which are less directly sensitive to interest rates. Non-housing services now represent 49% of Core HICP basket in the euro area, compared with 41% in 2001. In a recent speech,1 I suggested that the lag could be up to two years. Hence, "length" is still more important than "level", to quote the two dimensions mentioned by Christine Lagarde recently2. We stated in our last Monetary policy statement that "the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium term target and will be kept at those levels as long as necessary". I think we are close to the former (levels), and should be now sufficiently patient on the latter (duration). In other words, as transmission is of the essence, so is the persistence of our monetary policy. 1/2  BIS - Central bankers' speeches  1 Villeroy de Galhau, F., Monetary policy transmission: where do we stand?, speech, 22  May 2023 2 Lagarde, C., Breaking the persistence of inflation, speech, 27 June 2023  2/2  BIS - Central bankers' speeches

Similarly, the changes in the composition of labour contracts that I mentioned earlier are likely to imply that inflationary pressures might take longer than usual to build up. We need to factor this information into our policy deliberations. At the same time, we need to monitor carefully developments in long-term unemployment, labour force participation rates and hours worked with a view to informing our assessment on the likely evolution of structural unemployment. Should the share of long-term unemployed stabilise at one point, with no convincing signs of further likely downward adjustments, the risks of inflationary pressures starting to emerge at higher levels of unemployment would increase. At this point – when scratches indeed become scars – the level of slack relevant for determining medium-term price stability would decline. Policymakers would therefore need to start tightening policy earlier to remain faithful to their primary mandate. As I mentioned in my introduction, however, there are some who argue that such a response would be premature, since if hysteresis effects can be caused by lack of demand, then they can equally be reversed by excess demand. In a high-pressure economy, for example, firms might be encouraged to dig deeper into the labour market to find recruits, thereby reactivating and retraining some of those workers who were previously thought to be unemployable. Glenn Rudebusch and John Williams therefore conclude that optimal monetary policy would allow inflation to overshoot its target.13 I have some doubts about this view, mainly for two reasons.