samchain/econo-pairs-v1 huggingface dataset:
Jean-Claude Trichet: Leadership in Europe - euro, enlargement, economic reform Speech by Mr Jean-Claude Trichet, Governor of the Bank of France, at the 7th annual conference of the German-British Forum, London, 17 October 2002. *  *  *  Mr. Chairman, Ladies and gentlemen, dear German and British friends, it is a great pleasure and an th honour to be with you today, on the occasion of the 7 annual Conference of the German-British Forum. The title of this conference: “Leadership in Europe : Euro, Enlargement, Economic reform” is especially relevant this year, as 2002 will stay as a decisive milestone in the process of European integration. The beginning of this year saw the completion of the changeover to the single European currency, the last stage of a now more-than-twenty-year process of monetary integration. And we are now at the eve of another historic stage for the European Union: the forthcoming enlargement to Central, Southern and Eastern Europe countries. From a central banker’s perspective, these two major events confirm, more than ever, the attractiveness of the European endeavour, but also the necessity of implementing strong, audacious economic reforms in Europe. Before addressing in greater detail these two main challenges that the EU and the euro area will have to cope with in the next years, economic reforms and EU enlargement, I would like, first, to recall in a few words the successful launch of the euro banknotes and coins in January 2002.

In the latter part of the 1800s, Norway benefited greatly from free trade and free capital movements and became a relatively prosperous country. Access to international technology, competence and capital were important when the first industrial base was established in the late 19th century. The banking sector also expanded rapidly in this period. As this chart shows, value added in manufacturing and services became more important and increased as a share of total GDP. Employment and value added in agriculture, fisheries etc., on the other hand, declined markedly. By the beginning of the 20th century, the standard of living in Norway did not lag behind that of other European countries. This change in industry structure is necessary and lies at the heart of economic development. The second half of the 19th century also represents a golden age for Norwegian cultural development, with the literature of Henrik Ibsen, the music of Edvard Grieg and later the paintings of Edvard Munch. In the period preceding the First World War, the world experienced a period of strong growth in trade and cross-border capital flows. There were few political barriers and major technological advances fostered growth in trade. Prosperity increased. But this period was interrupted, and in the interwar period protectionism gained ground, with trade barriers and a contraction in international trade. This was combined with deep economic recessions. Economic policy after the Second World War After the Second World War, a strong belief evolved in Norway that the economy could be controlled and steered in the desired direction.
Peter Praet: Have unconventional policies overstretched central bank independence? Challenges for accountability and transparency in the wake of the crisis Keynote address by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the "Symposium on Building the Financial System of the 21st Century: An Agenda for Europe and the United States", Frankfurt am Main, 29 March 2017. * * * I would like to thank Claus Brand for his contribution to this speech. Evolution in consensus on the role of central banks and central bank independence In the course of monetary history, consensus on the role of monetary policy and on the appropriate degree of independence of the central bank has fluctuated considerably. During major crises, the pendulum has tended to swing from one extreme to the other. In the heyday of the gold standard, i.e. the decades preceding World War I, there was a commonly accepted understanding of how to preserve monetary and financial stability. The gold standard provided what we call a “nominal anchor”. It effectively ensured central bank independence from other public policies by subjecting monetary policy to an automatic rule.1 At the same time, there was a clear understanding of the role of central banks as a lender of last resort. Under that regime, central banks enjoyed sufficient discretion to take effective action in the event of banking panics.

Data on inflation or output simply appeared in information services at certain times. The NBP used to send the data on the balance of payments by fax to those analysts who requested for them. When, as the first financial markets economist in Poland, I launched a weekly macroeconomic service for customers, an analysis, which was one or two pages long, would be put on the pre-programmed fax machine, and it was not until the afternoon that the transmission was accomplished. At present, nearly every bank in Poland has its chief economist supported by a team of analysts who send hundreds or thousands of e-mails every morning, which reach tens of thousands of investors worldwide (banks, investment funds, arbitrage funds, company managements, wealthy private banking customers, decision-makers and central bankers). At present, the management of a large fund may receive hundreds of e-mails daily that contain analyses of listed companies, currencies, or macroeconomic and political developments. Nowadays, the problem does no longer involve access to information, but pertains to the excessive amounts of information and analyses that must be skilfully selected. In response to these – and other – challenges 3 international standards have been elaborated in the recent years. Not only the quantity, but also the quality of information and the comparability of data have been increasingly appreciated. In addition, unification of principles that govern the functioning of individual financial market areas has been a precondition for the development of effective competition in the international financial system.
•  While SME loans tend to be riskier on a standalone basis, as a portfolio the risks are more diversified than loans to larger corporates. •  The Basel Committee recognises this and the current capital framework provides for preferential capital treatment for exposures to SMEs for banks using internal models. •  And the Basel Committee has further proposed applying a lower risk weight for banks’ SME exposures compared to unrated corporate exposures under the revised Standardised Approach. This will help alleviate the cost of SME financing. Conclusion Let me summarise my main points. We have made good progress in bank regulation since the crisis. •  Implementation has been generally good but some areas need more work and some jurisdictions need to close the gaps. •  Overall, the reforms have helped to make banks safer and more resilient. As we finalise the Basel III capital reforms, we must ensure that banks are not only safe but also serve their purpose of supporting the economy. •  We should be mindful of the effects of low profitability on banks’ ability and willingness to lend. •  We should be mindful not to increase significantly the overall level of capital requirements on banks even as we finetune the detailed capital rules. •  And we should be mindful not to unduly penalise lending to important segments of our economies – like trade and SMEs – even as we address the limitations in banks’ internal models.

jurisdictions’  •  The United States and a number of Asian countries – including Singapore, Hong Kong, China and Japan were assessed to be compliant or largely compliant in their implementation of the Basel III capital standards. •  The European Union was, however, found to be materially non-compliant. •  As home to several of the largest global banks as well as important international financial centres, it is crucial that the EU shows leadership in ensuring more complete and consistent implementation of global banking rules. Regulatory reforms have generally been effective The regulatory reforms have been largely effective in meeting their intended outcomes. First, banks have become stronger. •  Banks are holding more and better quality capital. − Between 2009 and 2014, large, internationally active banks have doubled their average CET1 ratio from just under 6% to more than 11%. •  2  Banks are holding more liquid assets and have reduced leverage levels. BIS central bankers’ speeches  − Since the crisis, the average liquidity coverage ratio for large, internationally active banks has risen from about 80% to more than 120%. − Leverage has fallen from around 22 times of equity to about 16 times. Second, banks have become more resilient. •  Banking business faces serious challenges on several fronts. − The prolonged low growth, low interest rate environment has pressured net interest income. − Bouts of financial market volatility amidst a general contraction in market liquidity has increased the risks facing banks.
For a firm to go through Title II, a determination must first be made that the failure of the firm and its resolution would have serious adverse effects on U.S. financial stability under the insolvency law that would otherwise apply. This means that market participants will not know for certain which path U.S. authorities will ultimately take until this determination is made – allowing resolution under ordinary insolvency law, as contemplated under Title I, versus initiating a Title II resolution. Faced with this uncertainty, investors in the short-term obligations that would likely be protected only under the Title II regime could decide to run. Reducing the likelihood of failure Even with an appropriate resolution process in place that ends too big to fail, the consequences of failure will still be messy. Also, market discipline is only effective to the extent that those investors with their funds at risk perform the appropriate due diligence on an ongoing basis. This suggests that a resolution regime by itself is not sufficient. Further efforts should also be made to reduce the probability of a default. A number of steps have already been taken along these lines that further reduce default risk. The Basel III framework significantly raises both the quantity and quality of capital required of internationally active bank holding companies. This risk-weighted capital standard is also being augmented by a higher leverage ratio requirement. The Basel framework will also require SIFIs to hold additional capital due to their complexity (more commonly referred to as the SIFI surcharge).

As a result, the capital buffer for the more systemic firms should be higher based on size, complexity, interconnectedness, global exposure and substitutability, so that their expected probability of failure will be lower than for less systemic firms.1  1  New liquidity requirements such as the liquidity coverage ratio also work to reduce the risk of failure by giving firm management more time to address problems before a funding squeeze becomes acute. BIS central bankers’ speeches  5  The SIFI surcharge acts as a penalty for size and complexity, leaning against any remaining funding cost advantage that might remain for a large complex firm even after a viable resolution regime is in place. This should further level the playing field for smaller firms and reduce the incentive to become systemically important in the first place. However, I expect that it will take considerable time for the surcharge to have a meaningful impact on size and complexity. We also need to create new mechanisms and incentives for bank management to act early, well before resolution becomes necessary. Early intervention is likely to be much more successful in preventing failure as compared to last-ditch efforts. These actions can take many forms – cutting capital distributions earlier, raising new capital faster, restructuring businesses sooner, and reorganizing senior management and boards of directors more radically when the firm is not performing well. In this regard, the Comprehensive Capital Analysis and Review (CCAR) should bolster the incentives for early action.
The possibilities to provide the financial sector with loans in foreign currency and to be able to meet the increased international commitments have been reinforced by the swap agreements with the ECB and the Federal Reserve and the borrowing through the Swedish National Debt Office. BIS Review 160/2009  15  There are clearer signs that the world economy is beginning to recover, and the financial markets are gradually functioning better. As the financial sector stabilises, the need for extraordinary measures will decline. According to the forecast we made in October, the repo rate will probably need to begin being raised in autumn 2010 (Figure 16). Figure 16 Repo rate and repo rate path Per cent 5.0  5.0 Repo rate path Oktober  4.5  4.5  4.0  4.0  3.5  3.5  3.0  3.0  2.5  2.5  2.0  2.0  1.5  1.5  1.0  1.0  0.5  0.5 0.0  0.0 05  06  07  08  09  10  11  12  Source: The Riksbank. The other question with regard to phasing out the extraordinary measures is when and how we should phase out the loans to the banks. The Riksbank, unlike many other central banks, has not purchased any securities, which makes phasing out the support measures relatively uncomplicated. The dollar loans have already ceased, as it became cheaper for the banks to borrow dollars on the market than through the Riksbank.

Quite simply, it has become cheaper for the banks to borrow dollars in the market than from the Riksbank, which is a sign that the financial markets are gradually functioning better. These loans have now ceased. For simplicity’s sake I am talking about lending to the banks. But the correct designation for the group of institutions which can borrow from the Riksbank is monetary policy counterparties. Over the past year we have extended the number of counterparties who can act as counterparts in our fine-tuning transactions and introduced a new category of counterparties, known as restricted monetary policy counterparties, who can purchase  BIS Review 160/2009  7  Riksbank Certificates and take part in the Riksbank’s auctions of loans at longer maturities, without being participants in the RIX system. 1 We have also given special liquidity assistance in autumn 2008 to Kaupthing and Carnegie, which they have since repaid. All lending by the Riksbank is against collateral. Over the past year we have extended the eligible assets that can be used as collateral, but this still encompasses securities that are safe assets. The securities accepted are debt securities issued primarily by the Swedish government and by Swedish mortgage institutions. All increased lending by the Riksbank ends up in some form of increased deposit on the Riksbank’s balance sheet. While there can be long transaction chains, as all payment flows in kronor go through the banks' accounts in the RIX payment system, the money never leaves the system.
And this requires an investment in risk management and controls commensurate with the increasing complexity of these challenges, and it requires a cushion of capital and liquidity large enough to capture the potential risk of losses in a less favorable macroeconomic environment. The increase in the flexibility and resilience of the U.S. economy over the past two decades has a lot to do with the increased openness of the U.S. economy. And sustaining this flexibility, which is so important to our capacity to adjust to shocks, requires that we continue to support the process of openness and economic integration. We jeopardize future income gains if we are unable to sustain support in the United States for what has been a relatively open trade policy. How effective we are in meeting this political challenge is likely to depend significantly on how effective we are in improving educational opportunity and achievement in this country, and perhaps also in improving the design of the temporary assistance we provide individuals who bear the brunt of the adjustment costs than come with greater global economic integration. These policies by the United States would help improve the prospects of a more benign adjustment process. But they would not be sufficient to produce a more favorable adjustment path. A more favorable adjustment scenario would require a complex mix of policies and action in each of the major economic areas, sustained over a considerable period of time.

Our current account deficit is now running at a rate of above 6 percent of GDP, a level without precedent for a major economy. It matters because of the composition of the imbalance. Our trade deficit is now roughly the size of the current account deficit, and very large relative to our export base. And our net investment income balances are now likely to move into deficit. It matters because of the trajectory of the U.S. imbalance. On reasonable assumptions about its likely near term path, this deficit will produce a very large net deterioration in our net external liabilities relative to national income, with progressively larger net transfers of income to the rest of the world. This pattern should concern us because it is not simply the result of the savings and investment decisions of the private sector. The fact that we are using a substantial part of the savings we are borrowing from the rest of the world to finance an unsustainable level of public borrowing leaves us more vulnerable than if those savings were being used for productive private investment. Large structural fiscal deficits limit the size of the sustainable external imbalance for any country, even the United States, and they necessarily increase concern about the terms on which we are likely to finance the present imbalance. 1/3  It should concern us because of how the imbalance has been financed.
In Italy, but also in the vast majority of euro area countries, the fall in loans recorded in December has come to a halt, avoiding a much more severe risk of credit restriction which would have had far more serious consequences for growth and monetary stability than the ones we are seeing currently. The Bank Lending Survey registered a gradual normalisation of interest rates set by banks and of the criteria for granting loans to companies. The continued anaemic developments in lending reflect the weakness in demand and the worsening of creditworthiness resulting from an adverse economic cycle. Furthermore, in the countries most adversely affected by the crisis, banks are rationing credit on account of certain prevalent contractual structures. The large-scale participation in the February operation, in which around 800 banks obtained funding, and the composition of counterparties in terms of their size and type implies that the distribution of liquidity has been widespread and could be even more so in the near future. Furthermore, this widespread distribution of liquidity is also of advantage to small and medium-sized enterprises with which smaller banks have closer relationships. We would wish for the liquidity provided to end up as credit to the private sector. This is the motivation behind the new non-standard monetary policy instrument.

This approach is quite unique to Singapore and it has served us well. 8  BIS central bankers’ speeches
When it comes to the supply of reserve currencies, coordination problems are larger when there are fewer issuers than when there is either a monopoly or many issuers. While the rise of the Renminbi may over time provide a second best solution to the current problems with the IMFS, first best would be to build a multipolar system. The main advantage of a multipolar IMFS is diversification. Multiple reserve currencies would increase the supply of safe assets, alleviating the downward pressures on the global equilibrium interest rate that an asymmetric system can exert. And with many countries issuing global safe assets in competition with each other, the safety premium they receive should fall.40 A more diversified IMFS would also reduce spillovers from the core and by so doing lower the synchronisation of trade and financial cycles. That would in turn reduce the fragilities in the system, and increase the sustainability of capital flows, pushing up the equilibrium interest rate. While the likelihood of a multipolar IMFS might seem distant at present, technological developments provide the potential for such a world to emerge. Such a platform would be based on the virtual rather than the physical. For a comparison with the UK as a hegemon in the period 1870-1914, see van Hombeeck, C (2017), ‘An exorbitant privilege in the first age of international financial integration’, Bank of England Staff Working Paper No. 668. 39 Investors switched between pound and dollar depending on their perception of each country, leading to increased volatility in currency flows.

Yet there is an effective limit to lowering rates since ultimately this conflicts with the ability of citizens to hold cash. Therefore some scholars have called for the imposition of electronic money and the abolition of cash. As I have discussed at length elsewhere, I see serious problems with such an approach.8 It risks gambling with central banks’ credibility at a time when credibility is paramount. And perhaps even more importantly, it denies the crucial social function of cash. Another option proposed by some observers is for central banks to raise their inflation objectives and therefore to lift equilibrium nominal rates. Leaving aside the debate about the costs of higher inflation, I am not sure that this idea is entirely convincing. The reason is that the mechanism through which it works is the signalling channel – people expect higher inflation, so inflation rises. But at a time when inflation is low everywhere, and when central banks are running very accommodative monetary policies just to achieve that, one can question whether such signals would really be credible. I see a risk, in fact, that changing our strategy to rely on fuzzy concepts and unobservables would only end up damaging our credibility. So what we need today, in my view, is to shift the debate away from its narrow focus on monetary policy. Rather than concocting more and more innovative solutions for central banks to get around the lower bound, we should focus instead on what other policy areas can contribute.