samchain/econo-pairs-v1 huggingface dataset:
Why the buy-side should buy into the FX Global Code  Remarks given by Andrew Hauser, Executive Director, Markets At London FX Hive Live 6 December 2018  I am very grateful to Frederick Ladbury, Ed Kent, David Edmunds, Grigoria Christodoulou, Rohan Churm, David Clark and David Puth for their help with, or input to, these remarks. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Introduction Thank you very much for the invitation to speak with you today. Much of your agenda is rightly focused on the future: on how to exploit new technology; how to trade with new platforms and market participants; and how to meet ever more demanding customer needs. That relentless push to innovate is one of the great strengths of the global FX markets, and it is a privilege to be part of that conversation. Against that backdrop, my own remarks – on getting the buy-side signed up to the FX Global Code – might seem a little backward looking. I hope to convince you otherwise. At a time when FX markets are evolving rapidly, there has never been a more important time for investors active in those markets – all of you – to be shaping, and adopting, the norms, conventions and standards embodied in the Code. You are a vital part of the market, and play a crucial role in maintaining market discipline.

In the UK, I don’t think we saw a major prudential failure of capital and liquidity which did not have a governance and management story at is root, and we had a system which was very poor at creating the right incentives for good outcomes. Here I want to put the emphasis on creating the right incentives. In my experience supervision is in part about creating and overseeing those incentives. The critical distinction here is that supervision is not just about doing things to firms, it is also about creating the conditions for firms to do this right thing in the first place. Let me give three examples of what we are doing. 2  BIS central bankers’ speeches  First, we have been much more active in remuneration policy and practice. I have no interest in regulating the level of pay, but we are interested to ensure that remuneration is compatible with meeting capital requirements (so it can be varied to do so) and that variable remuneration is deferred and can be withdrawn, and is thus compatible with creating the right incentives by putting that remuneration at risk if the firm fails to conform with the objectives of safety, soundness and good conduct of business. I am not in favour of limiting variable pay in the way European legislation has done through the so-called bonus cap because it reduces the opportunity to create the right incentives. We then supervise firms to ensure those incentives remain in place.
However, international real interest rates are currently very low, and various factors indicate that they will remain unusually low, at least in the medium term (see Armelius et al, 2014). BIS central bankers’ speeches  interest rate would not be restricted by its lower bound too often. During the financial crisis, however, several central banks lowered their policy rate over a short period to nearly zero, which they judged at that point to be the policy rate’s lower bound. And now, seven years later, the policy rates are still at the same low levels in many countries. Based on these experiences, many analysts think that it would be desirable to have an inflation target higher than 2 per cent. 9 This question is perhaps mainly discussed within the research community, though it has also been highlighted by the IMF and some central banks, among others. In the review of the monetary policy framework which the Bank of Canada conducts every five years, for example, an increase in the target is one of the areas to be examined. 10 Unlike the debate in Sweden, the international discussion therefore focuses on the central banks’ inflation targets needing to be raised rather than lowered. Some inflation is desirable for another reason, namely that wage formation can deteriorate when average inflation is too low. The reason is that in practice it has proved difficult to lower nominal wages.

To illustrate this problem we can cite certain analyses published in 2012 which concluded that around half of all investors did not believe banks’ RWA figures, while 80% considered that the risk measurement framework should be simplified in order to be more credible. The Basel Committee conducted various studies attempting to cast light on this matter. Work on the credit and market risk areas was carried out. While this type of study should be viewed with all due caution, it is worth recalling some of the conclusions reached. 4/7  For instance, according to a study by the Committee published in July 2013, when different banks applied their own internal models to a single portfolio selected for the purposes of the study, there was seen to be high variation among the resulting RWAs. Only a portion of this variation was due to genuine factors, i.e. to risk factors, and to methodological differences permitted by the supervisors (and which were, therefore, in principle, acceptable or relevant differences). What was most interesting, or worrying, depending on one’s standpoint, was the fact that 25% of the variation could not be explained by either of the factors I have just mentioned. Market criticism and doubts, combined with the findings of the studies, led the Basel Committee to launch a far-reaching internal debate. At the risk of excessive simplification, at one extreme are those who have lost confidence in banks’ capacity to properly use their own models, and also in supervisors’ ability to validate and oversee increasingly complex models.
The follow-up could also comprise recommendations on macroprudential policy, which would also help to achieve the aim of global financial stability. Third, moral suasion is the only tool that the IMF can use to influence things. It is perhaps also logical that this is the case. International organisations seldom have any other mechanisms for exerting pressure. It is therefore important that the Fund is able to “speak truth to power” even when speaking to large and powerful countries if it is to have any chance at all to influence things.5 The notion that the global financial system was largely invulnerable was, as I have said, firmly refuted by the outbreak of the financial crisis. The crisis clearly demonstrated that the surveillance of the global financial system was inadequate and one of the reasons for this was an unclear division of roles between various international bodies. This led to the G20 assuming a leading role and many important and necessary decisions were taken, but this was done on an ad hoc basis by a limited number of countries. This is a problem; such decisions should be taken in a legitimate way for their impact to be effective. All of this has led to the idea of setting up some form of predetermined structure for how to act when a potential crisis is identified. The IMF staff recently attempted to concretise the possible form of such a structure.

Barbro Wickman-Parak: The IMF’s role – new thinking in the wake of the financial crisis Speech by Ms Barbro Wickman-Parak, Deputy Governor of the Sveriges Riksbank, at a meeting at Global Challenge, Stockholm, 5 October 2012. *  *  *  I would like to thank Ms Maria Wallin Fredholm and Ms Emelie Mannefred, from the Riksbank’s Financial Stability Department, for their assistance in the writing of this speech. The 188 member countries of the International Monetary Fund (IMF) will gather in Tokyo for the Fund’s annual meeting next week. When I began working with IMF issues at the Riksbank in 2007, my impression was that the IMF was suffering from an identity crisis. The Fund’s lending to countries in crisis appeared to have played out its role and major staff cuts were underway. In short, the mood was rather subdued in the corridors of the IMF. The financial crisis led to an abrupt change. The IMF was forced to quickly provide action programmes and funding for crisis countries. Before the crisis, the IMF’s lending amounted to approximately USD 9 billion, the largest part of which went to Turkey. Today, the IMF’s lending amounts to around USD 112 billion, and the absolute largest part of this sum now goes to countries in Europe. The media spotlight often falls on the Fund when it rides to the rescue with crisis-management measures like this. But the every-day, important and tireless surveillance work of the IMF seldom attracts any headlines.
•  But none of these price rises is even slight related to the fact whether and when Estonia adopts the euro in the future. •  In the conditions of market economy, price stability does not mean that prices do not change at all, but that they fluctuate moderately and that price movements can be anticipated. The price of sugar may slightly rise or fall both in Estonia as well as elsewhere in the European Union in the future. It is most likely that a piece of meat on the dinner table here in Estonia will at the time of adopting the euro cost more than today. It is integral to market economy that inflation goes in line with the increase in income. But the price will not rise due to the fact that the denomination of payment is the euro and not the kroon. It will be so because the incomes of people will have gone up and they can afford more and better goods. One thing is sure - there is going to be a rise in the standard of living. It is the pace of growth that is the issue here. And the European Union will significantly contribute to the increase in our income. Next I will provide a more general background to the coming developments in Estonia. Why is the European Union useful to us?

According to the principle of risk-spreading, it would still be better to support research and development activities on quite a broad basis. •  The economic analyses by the central bank consistently emphasise that in order to obtain financial capital required for development, Estonia must remain attractive in the eyes of foreign investors also in the future. However, in order to boost the country's competitiveness it would be a good idea to adopt a more carefully planned system of investments into human capital and set up a framework for financing innovation. •  There are many possibilities to do that. Firstly, large companies could train their own staff. This would require strong public secondary education, diploma studies, and postgraduate studies, and not necessarily public vocational education. (There are examples of such an approach primarily in the IT and telecommunications areas.) •  The second possibility is state-commissioned education. Since investments into human capital promote innovation and bring about other positive effects, state investments into the area are justified as the private sector invests less than is socially optimal. Estonia is quite progressive in that field - we spend 6-7% of the GDP on education, which is more than in other transition countries and similar to the respective levels in Finland and Sweden. •  Even though state-controlled development of human capital requires increased spendings from the national budget, it is relevant that some of the expenditure will be later recovered through additional receipts since rising productivity and employment boost tax revenues.
Nonetheless, for the time being, the size of these adverse effects can only be estimated with an extraordinary degree of uncertainty. Naturally, this will depend on the severity and duration of the conflict. Second, in such an extraordinarily uncertain scenario, caused by a shock that has little to do with economic fundamentals, it is vital that economic policy should respond forcefully, providing support focused on the most vulnerable affected households, firms and sectors, as well as certainty. In particular, in response to a shock of this nature, the contribution of supranational European policies and national fiscal policies is fundamental. For their part, the latest decisions taken by the ECB are the result of an analysis that weighs up the different risks arising from the current context for our price stability target. The measures agreed strengthen the data-dependent nature of our decisions, increase the flexibility and optionality available in our various monetary policy instruments and provide certainty to economic agents as a whole, with a clear commitment to adopt all the measures that may be needed to fulfil the ECB’s price stability mandate and to safeguard financial stability. Third, the sharp rise in the prices of energy and certain other commodities at global level in recent quarters, which has intensified as a consequence of the conflict in Ukraine, entails for the Spanish economy – a net importer of these products – a negative shock to our terms of trade. This reduces national income and raises inflationary pressures in the near term.

This can be inferred, for example, from the responses of firms in the latest edition of the Banco de España’s Business Activity Survey (EBAE, by its Spanish initials), corresponding to the fourth quarter of 2021. According to the results of the survey, three-quarters of Spanish 4  Indeed, several simulation exercises carried out with the Banco de España’s macroeconomic models, show that, should second-round effects on inflation materialise as a result of significant wage rises or the maintenance of profit margins, the losses for the whole economy arising from a negative shock to the terms of trade would be much greater. 8  firms experienced a rise in their costs in this period as a result of higher input prices, while only 30% increased the prices of their products. Second, it is vital that any incomes agreement between workers and employers should facilitate the coordination of collective bargaining across its various areas, while avoiding measures to be implemented too broadly. In fact, taking into account the extraordinarily asymmetric impact of the current shocks on different groups of workers, businesses and sectors (which are themselves highly heterogeneous), it would be advisable to avoid solutions that will be excessively rigid for certain segments of activity and/or businesses.5  Third, it would also be desirable to avoid formulae that automatically link wages to past inflation or indexation clauses.6 If these clauses increase or become more prevalent the risk of a wage-price spiral will rise significantly.
Our own foreign exchange reserve was not sufficiently large to manage such extensive lending in dollars. The increased lending has meant that the Riksbank’s balance sheet grew during the second half of 2008 from around SEK 200 billion to around SEK 700 billion. We have also changed our collateral requirements so that the banks can offer more types of security as collateral and thus more easily sustain their functions in the market. We have given special liquidity assistance to Kaupthing and Carnegie to safeguard financial stability and ensure the functioning of the financial markets. We have begun offering loans with commercial paper as collateral to facilitate companies’ financing. We have also signed swap agreements with Iceland and Latvia to support crisis management in these countries. And we have cut the interest rate. Since the monetary policy meeting in February we have further extended these unconventional measures. We have decided on loans with longer maturities, with variable interest rates and with smaller supplements and we have signed a swap agreement with Estonia. The Swedish National Debt Office and Finansinspektionen (the Swedish financial supervisory authority) have also taken action to alleviate the financial crisis. The Government has raised the state deposit guarantee and extended it to cover all types of deposits in accounts, it has introduced a guarantee programme, established a guarantee fund and decided on means of capital injections to the banks. At the same time, the Government is conducting a more expansionary fiscal policy than before. I now intend to move on to describe international developments.

Experience has also shown that financial crisis and economic recession entrenches the cycle of poverty. During a financial crisis, the poor lose their income by several times more compared with the average household. We saw this happen during the recent Global Financial Crisis, and we also saw how many that were displaced suffered "hysteresis" thus deeply affecting their income prospects. We also risk facing a severe setback in our fight against poverty. In the more recent years, the international community has accorded greater attention to addressing this agenda and to achieving more balanced and inclusive growth. Malaysia, while achieving growth and progress since the 1960s has always given attention for it to be a shared prosperity. Given the role of the financial system in facilitating this, Bank Negara Malaysia has always given priority to the financial inclusion agenda to not only bring the underserved segments of society into the financial mainstream but to promote a more effective participation in the financial system which will in turn strengthen the potential for enhancing economic well-being. Before I conclude my remarks, allow me to congratulate the World Bank Group on its many achievements realised in the Asian Region. Bank Negara Malaysia is pleased to partner the World Bank Group in its initiatives in the region.
I can’t pretend that we are completely out of the wood in terms of the external financial crisis in Asia, but there is now at least a good deal more light between the trees. International attention is now extending to managing the economic fall-out from last year’s financial disturbances, against the background of the longer-standing financial and economic fragility in Japan - which is of course the largest economy in the Asian region. The concern relates in part to the implications for global economic activity; but it relates importantly, too, to the prospective external payments imbalances within the global economy which will need to be handled very carefully if they are not to lead to trade frictions and/or exchange rate volatility. But attention has also turned to an intensive reappraisal, in all sorts of international fora, of more effective means of preventing, and managing, such situations in the future. It would have been understandable in the light of the Asian experience if there had been some turning back from the path towards greater freedom of international capital movements, and there has been some suggestion of this. But on the whole the international debate - in which central banks as well as governments are actively involved - continues to recognise the long-term benefits of free capital movements and the contribution that they can make to global economic prosperity.

It is a key part of the present international monetary agenda, and as the debate crystallises into policy consensus, it will become an important element in the environment in which you take your decisions on investment in the emerging markets. I have no doubt that massive capital flows to the emerging markets will be a continuing feature of the financial landscape - it is in the long-term interests of the recipient  BIS Review 49/1998  -5-  countries, the investing community, and the world economy that they should. The task is to try to introduce greater stability into the process. BIS Review 49/1998
This means that every two weeks of lockdown “costs” us approximately 1.5% of lost annual GDP and at least 1% of additional government deficit. II. Building the appropriate economic policy responses  2.1 The emergency: rapid, strong and convergent responses during the crisis Confronted with this unprecedented, and totally unforeseeable crisis, rapid, strong and convergent responses were implemented across the board in fifteen days to stem the effects of a severe economic shock. The lessons of 2008 have not been forgotten. Seldom has there been such a solid consensus on the direction and the scope of the measures to be taken, including among economists, which is quite rare. In France, we have put in place a shield to protect businesses of all sizes and to help them get through this shock, which in turn protects their employees. This “cash shield” is fashioned from both unprecedented fiscal and monetary measures. The fiscal measures put in place by the government primarily revolve around deferring payments of taxes and social security contributions, a solidarity fund for the self-employed and above all initiatives for those in partial employment – formerly referred to as “technical unemployment”, but we have fortunately inverted that description. France has thus learned from the success of Germany and its Kurzarbeit in 2009.

Central banks evolved in response to this vulnerability, which gave rise to a readiness to act as lender of last resort to the banking system in situations in which substantial systemic disturbance could otherwise occur and to an on-going concern for the macro-prudential characteristics of the banking system. And while this concern relates to the banking system as a whole, last resort assistance, when it is judged to be necessary, is extended to individual banks because problems of course arise in the first instance at the level of the individual bank. Now, the fact that central banks (in conjunction as necessary with governments) are prepared, in certain circumstances, to extend support in this way encourages bank intermediation; it represents in effect a form of subsidy, implicitly justified as being in the wider interest of the economy. It helps to preserve public confidence; and it enables the banks to take on more maturity transformation or risk than they could otherwise, so lowering the effective cost of their intermediation. But it has long been recognised that if central bank support is made available too liberally - in situations where there is no genuine systemic risk, so that it comes to be relied upon as a matter of course, then that would give rise to moral hazard. The extent of bank intermediation would be unjustifiably expanded.