samchain/econo-pairs-v1 huggingface dataset:
Mugur Isărescu: Central bank communication as a policy tool - an ongoing challenge Speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, at "The 41th Meeting of the Central Banks Governors’ Club of the Central Asia, Black Sea region and Balkan countries", Istanbul, 25 March 2019. * * * As prepared for delivery Distinguished audience, Dear colleagues, It is a great pleasure for me to address this distinguished panel on a topic that is both important and challenging for central banking. The session’s title includes three key issues: effectiveness, knowledge and trust, all in relation to the manner in which central banks communicate their policies and actions. I would like to share with you some general thoughts regarding these issues, as well as the National Bank of Romania’s experience in this area over the recent years. More transparency, commitments too Views and practices concerning transparency and communication have evolved dramatically in the last decade. Not long ago, the conventional wisdom was that monetary policymakers should say as little as possible, take markets by surprise and be rather cryptic. Things have changed, as the more independent central banks also became accountable for the ‘public goods’ they were called to provide for: a credible and convertible currency, price stability, employment and growth in other cases, banking sector supervision and financial stability. People tend to take these ‘public goods’ for granted, appreciating their importance only when lost.

The capitalist system depends on owners of capital to promote sustainable value creation through market discipline. Is it simply short-term profits that matter? Are there other social or environmental purposes that must be safeguarded? To this end, the Securities Commission’s Malaysian Code for Institutional Investors articulates the stewardship 3/5  BIS central bankers' speeches  role that shareholders ought to play. Ultimately, shareholders need to clarify that – we need more than just the bottom line – immediate profit is not everything. (b) Situation Let us move on to the second element – the “situation”. The system of values creates and maintains various situations. The situation represents the environment or immediate setting in which financial industry professionals operate. This is a broad subject. Today, I wish to focus on two types of situational incentives. Firstly, remuneration structures. And secondly, the attitudes toward speaking up. Remuneration plays a significant role in influencing behaviour, including ethical choices. Admittedly, the task of designing and implementing a remuneration system to encourage professionalism and integrity is not straightforward. However, the intuition is simple and attainable: financial institutions should avoid the folly of rewarding A, while hoping for B. In other words, we cannot hope for or expect ethical behaviour so long as we continue rewarding people for acting otherwise. In this regard, the Bank is currently phasing in requirements consistent with international standards to align remuneration with prudent risk-taking – with a focus on material risk takers.
Mr Duisenberg gives some views from the European Central Bank on EU enlargement  Text of the Zolotas Lecture given by Dr Willem F Duisenberg, President of the European Central Bank, held at the Bank of Greece, Athens on 15 October 1999. *  *  *  Introduction Ladies and gentlemen, Let me begin by saying that it is a great honour to be invited here to speak to you on such a prestigious occasion. This is particularly so given Governor Zolotas’ – or should I say Professor Zolotas’ – stature as perhaps the most significant contributor to Greek monetary history over the past few decades. Indeed, during Professor Zolotas’ time as Governor of the Bank of Greece, a period which, as we are all aware, extended well beyond two decades, the achievements of monetary policy were certainly quite impressive. The Greece of the early 1950s was certainly not the same as it is today. At that time the Greek economy, suffering from large fiscal deficits and high inflation, was in urgent need of a stable currency. It is thus a great tribute to Governor Zolotas that, for many years following his arrival at the Bank of Greece, the monetary stability that had only just been achieved was both maintained and combined with a particularly rapid rate of economic growth. It is therefore not surprising that this period in Greece’s economic history has so often been referred to as the “golden era of the drachma”.

BIS Review 113/1999  2  Until a decade ago, one might have been fooled into thinking that there were in fact two separate European identities supported by two distinct economic systems. However, this would be to deny the close ties which still existed, even under the difficult circumstances of the time, between countries both east and west of the Iron Curtain. Events since the fall of the Berlin Wall have now shown that this difficult period did not destroy but merely delayed a process of further European integration – including both East and West – which is a natural consequence of our shared political and economic interests and our common cultural heritage. Ever since the velvet revolutions which swept across central and eastern Europe a decade ago, it has been apparent that, as part of their difficult transition to properly functioning market economies, these countries would become increasingly integrated with the economies of western Europe. Moreover, it was clear that this process, with its ultimate objective of accession to the European Union, could not be achieved instantaneously, but would have to be extended over a period of time, in some cases a considerable period of time. No other scenario could be foreseen, given the largely uncharted path which these countries had to tread in dismantling the old system of central planning and replacing it with the structures necessary to support a properly functioning market economy.
According to the Police, the number of financial scams reported in Malaysia has risen to an alarming 1,883 cases between 2015 up to the 1st quarter of 2017, accumulating a total loss of RM379 million. This suggests that greed and ignorance can give way to rational financial decisions for many victims. Based on these observations, a lot more is left to be desired on the state of financial literacy to realise financial well-being for Malaysians. It is acknowledged that improving financial literacy is an intricate and long term journey. Through continuous and effective financial education, consumers would be able to improve their understanding of financial products and services, and develop skills and confidence to make informed financial decisions in their daily life. Financial education would encourage consumers to better manage their finances, plan for the future and manage risks associated to financial matters. While we agree that financial education plays an important role in elevating financial literacy, engaging in financial education alone is insufficient. It is equally important that the acquired knowledge and skills are put into practice and lead to a positive change in behaviour towards a healthy financial lifestyle. To this effect, initiatives to improve financial literacy must be implemented holistically. The ultimate aim is to promote sustainable behavioural changes at all life stages.

Exports are growing, and stock markets are up. As a regional grouping, we have continued to integrate our economies while individually pursuing restructuring. ASEAN is now back on its feet, up and running again. The necessity of deeper integration The need to broaden and deepen economic co-operation is a necessity recognised by ASEAN more than ten years ago. In 1992, ASEAN started the ASEAN Free Trade Area (AFTA) to boost intra-ASEAN trade and establish the region as a common area for manufacturing operations. At that time, the catalyst for greater integration was globalisation. Competition was getting tougher. Europe was consolidating and integrating itself to form the Single European Market. In North America, the US, Canada and Mexico were preparing to form the North America Free Trade Area (NAFTA). NAFTA provided US manufacturers an attractive, low cost manufacturing base in Mexico. Mexico too expected to benefit from new investments from the US, which would create jobs and bring growth and prosperity to the country. Both the Single European Market and NAFTA strengthened the competitiveness of the continents, and threatened to divert investments away from Asia. Determined not to lose out, ASEAN responded with AFTA. In retrospect, AFTA is perhaps the most important decision on economic cooperation that ASEAN members have taken together. Today, the world is even more globalised than compared to 1992. Competition is once again at our door step. This time however, the competition comes not from Europe or Mexico, but from much closer to home. China and India are growing very rapidly.
The requirement is intended to ensure that banks build up an extra capital buffer when systemic risk increases. Loan-to-value ceilings on mortgage loans may also be imposed. On this point, the Spanish model of statistical provisions, introduced by Banco de España as early as 2000, has proved valuable. At the end of 2007, Spanish banks held as much as 1.3 per cent of total assets in these provisions, nearly a fourth of total regulatory capital. Third, the authorities must acquire tools that enable banks to be wound up in an orderly manner. In this context, it is important that the structure of banking groups is transparent. Banks must also draw up plans for their own liquidation in the event of difficulties. Owners and creditors – not taxpayers – must bear the losses. The interest rate on banks’ funding will then reflect the risk they take rather than an implicit government guarantee. This will in itself have a preventive effect. The Basel Committee has decided on important measures. If countries are able to enforce new rules faster than the minimum standard of 2018, this should be welcomed. Let me now turn to the mitigating policies; provisions to help societies through the crisis with as little human cost as possible. The crisis has been eased by active economic policy. Monetary policy has been expansionary.

Twenty years of low and stable inflation had provided confidence in central banks’ ability to control inflation, which in turn had paved the way for a sharp reduction in real interest rates without compromising the overall monetary policy target. This contrasts with the downturn in the late 80s, as illustrated in the case of Norway, as well as during the Depression, when real interest rates were kept high due to faltering credibility. Fiscal policy has also been used everywhere, and has prevented an even sharper fall in output. After two years of extensive fiscal measures, many governments are facing the wall. They are unable to finance further deficit spending and have to cut spending and increase taxes now. The graph shows the increasing government deficit in the UK. The government has no choice but to tighten policy. The Swedish government, on the other hand, in spite of expansionary policies in the aftermath of the crisis, had maintained a surplus in the years before, and the Swedish economy has thus fared well. Although countries were hit by the crisis in a fairly similar way, they emerged from it very differently. Some countries have experienced good growth rates and falling unemployment. Others are struggling to keep their head above water. Production is still far below the precrisis level, with unemployment hovering at record levels. Are these differences predictable? As a participant in OECD meetings for many years, I have sometimes been among the backbenchers, trying to check the pulse of the economy in various countries.
What matters most is for Board and management members to embrace not just the letter of the rules but the spirit of the rules, to take ownership of outcomes, and to internalise the essence of these rules in the ethos and practices of the organisation. Corporate governance in our financial institutions  BIS Review 51/2010  3  have improved over the years. We must continue this partnership between the authorities and the corporate sector to seek continual improvements in corporate governance which will underpin Singapore’s reputation as a trusted financial and business hub. Capability building 23. The other area for collaborative partnership is in building up the capabilities of financial industry professionals. Asia’s financial services industry is likely to grow rapidly. If this is not underpinned by an equally rapid growth of capabilities, whether it is in the front office or the mid-back office, we risk a major disruption ahead. It is essential that we act premptively to address this. 24. MAS has been working closely with the industry and with organisations such as the Institute of Banking and Finance (IBF) and the Workforce Development Agency (WDA) to increase the supply of skilled talent and to build professional capacity. It is heartening to see that the industry-led initiative in developing the Financial Industry Competency Standards or FICS for short is gaining traction, and despite the financial crisis, investment in training has not become an easy target for cost-cutting measures. 25. Such efforts should continue apace.

John Galbraith, for instance, has carefully documented the role of debt and leverage in crises going back to the 17th century. 6 More recently, the President’s Working Group on Financial Markets concluded in 1999 that, “The principal policy issue arising out of the events surrounding the near collapse of Long-Term Capital Management is how to constrain excessive leverage.” 7 3. Is there a need for better regulation? Assuming there is agreement that excessive leverage has been a major factor in past crises, what ought to be done about it? An obvious response is to limit leverage. But is it really that obvious? After all, some people would argue that regulation is at least partly to blame for past crises. Before I go any further, I want to clarify where I stand in the debate on regulation vs. free markets – my ideological baggage, so to speak. I believe that free markets are the best available mechanism to allocate resources and that they are ultimately the best way to promote welfare and economic growth. Fundamentally, I am therefore wary of elaborate efforts to interfere with the functioning of free, competitive markets. At the same time, it is obvious to me that, under certain conditions, free markets produce inefficient outcomes. If these market failures are apparent and important enough, they justify and indeed require interference in the market mechanism.
For example, my staff produces monthly indexes of economic activity – essentially local measures of output – for the city, New Jersey and New York. We have also started a consumer panel to track local household credit conditions. In addition, we have a new survey about credit and financing for small businesses. Almost 900 regional businesses responded to our May 2011 poll – nearly 10 percent from the Bronx. If you, as part of a small business, would like to participate in our January poll, please pass your card to my colleagues in the audience. This December we will host a workshop for the New York City metro area’s small businesses – to provide information about credit enhancements and loans from the Small Business  BIS central bankers’ speeches  1  Administration. I will send your president, Mr. Caro, details about how to register. I hope to see you in at the New York Fed in lower Manhattan in December. As you know, even states as wealthy as New York have large pockets of poverty. So, we target some key initiatives specifically to low- and moderate-income groups. We have worked hard to help neighborhoods, including some in the Bronx, that face high foreclosure rates. Later today, I’ll tour some hard-hit areas with the city’s commissioner of Housing Preservation and Development. To share what we learn about our diverse District, we have a rich website. I invite you to visit newyorkfed.org to explore our detailed maps and information on small business, credit and housing conditions.

Based on this analysis, in the third part of my speech I will describe the wide-ranging regulatory measures taken at international and national level to resolve ‘too big to fail’. Let me just present our own conclusion up front: In Switzerland, the response was quick, targeted and, at the same time, cost-effective. On the one hand, the regulatory amendments strengthened banks’ resilience, reducing the likelihood of a bank getting into financial distress. On the other hand, they introduced measures aimed at ensuring that even a systemically important bank can exit the market in an orderly way in the event of a crisis. We are convinced that the Swiss big banks and the Swiss banking system are much more weatherproof today than they were ten years ago. Many of the planned measures have already been implemented. Page 2/14  However, we have still not quite achieved our objective. Only once the agreed measures have been fully implemented will the conditions for resolving ‘too big to fail’ in Switzerland be in place. The ‘too big to fail’ issue So what is behind ‘too big to fail’, and what concrete form does it take in Switzerland? a) ‘Too big to fail’ institutions must be bailed out in a crisis ...  As I mentioned at the start, ‘too big to fail’ means that an individual institution is so important that the state is under a de facto obligation to bail it out in a crisis. This state obligation arises under two conditions.
Meanwhile, considering that the problems in the global economy have not been completely eliminated despite recent improvements, I would like to remind you that as we have already pointed out, policy rates may need to be kept at current levels for a while and may need to follow a low course for an extended period. In the first quarter of 2010, central banks mostly implemented exit strategies from expansionary monetary policies and therefore the global monetary policy outlook became partially tighter. In the said quarter, a limited number of central banks tightened their monetary policy stance by increasing policy rates, while most of them kept their rates unchanged at low levels. In the meantime, these central banks started to terminate the expansionary monetary policy implementations, which are conducted with the use of unconventional policy tools. Accordingly, while drawing attention to the risks regarding pricing behaviors and taking account of the normalization in both money and credit markets; we decided to gradually withdraw some of the measures taken in the foreign exchange and Turkish lira markets during the crisis. Owing to the importance that we attach to transparency and predictability, I would like to remind you that we informed the public about the general framework of our exit strategy in our Press Release of 14 April 2010, before putting the strategy into practice. 3. Inflation and monetary policy outlook  Now, I would like to share with you the monetary and financial conditions, as well as the economic outlook underlying our forecasts.

BIS central bankers’ speeches  Charts and Tables Chart 1: Evolution of the global financial  Chart 2: Composition of IMF resources  safety net as a percentage of external liabilities (1980–2014) Per cent of global external Per cent of global external liabilities liabilities 14 3.5 Regional Financing Arrangments Swap Lines  12  3.0  IMF Temporary  10  2.5  IMF Permanent Self Insurance: FX Reserves (LHS)  8  2.0  6  1.5  4  1.0  2  0.5  0  1980 1984 1988 1992 1996 2000 2004 2008 2012  0.0  Sources: IMF, central bank websites, RFAs, Lane and MilessiFeretti (2012) and Bank calculations. GAB – General Arrangements to Borrow NAB – New Arrangements to Borrow Source: IMF and Bank calculations. Chart 3: Regional FX over- and underinsurance (2014)(a)  Sum overinsurance  Sub-saharan Africa  Middle East and North Africa  Latin America  Central and Eastern Europe  Sum underinsurance  Asia  $ billion 1000 900 800 700 600 500 400 300 200 100 0  Sources: IMF and Bank calculations. BIS central bankers’ speeches  9  (a) Degree of insurance is measured against the standard IMF metric. Chart 4: Access to regional financial arrangements bigger than 0.5% of regional GDP (2014)  Sources: National Sources, IMF and Bank calculations. 10  BIS central bankers’ speeches  References Brooke, M et al (2013) Sovereign default and state-contingent debt, Financial Stability Paper No. 27.
Turning to direct investments, let me be clear that the PRA supports sensible diversification of portfolios backing annuities into assets such as infrastructure finance, commercial real estate lending and equity release. However, we expect insurers to do this properly. That includes:  6  https://www.bankofengland.co.uk/prudential-regulation/letter/2018/solvency-2-risk-margin  6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  1. Having a strategy and risk appetite. Insurers need a disciplined approach. To put it flippantly, they should not be buying whatever is on the market this week or simply because they see their competitors buying those assets. The risks from direct investments are different to bonds. This is especially true if insurers originate their own Matching Adjustment assets: for example, by financing property development. Boards need to set clear risk appetites that capture all material risks at a suitable level of granularity, translating into a set of limits. 2. Building the right capabilities. Some insurers do investment in-house and others outsource. All insurers need people with sufficient market knowledge in all three lines of defence. That includes underwriting, risk management and potentially work out. 3. Developing appropriate management information, including for the board. 4. Appropriate valuations, internal ratings, and Matching Adjustment and Solvency Capital Requirement calculations. On this final point, we have provided considerable guidance on our expectations in Supervisory Statement 3/17 (SS3/17), particularly in relation to restructured equity release mortgage portfolios. One thing that has become clear to me is the importance of internal ratings.

We expect to finalise these proposals by the end of September so that firms can start applying the Test on their base balance sheets from the end of this year. Firms will need longer to review their internal model methodologies and make any necessary changes. We have proposed that this should take place by the end of 2021 at the latest. A key point to draw out is that lenders of equity release mortgages are exposed to the risk of individual property prices. This is because insurers provide a no-negative-equity guarantee to every borrower. Modelling approaches focused on house price indices do not capture all the risks – a portfolio of options is a very different thing to an option on a diversified index. Indeed UK insurers have experienced a number of these guarantees crystallising in recent years despite the rapid rise in UK house price indices over the past decades. One reason is that different localities of the United Kingdom have seen widely varying house price inflation – a national index masks the range of outcomes (Chart 7). Another is that some properties may become dilapidated if elderly borrowers are unable to maintain the property. Willingness to maintain may be lower where borrowers have limited or no equity remaining in their properties. Equity release contracts generally require properties to be maintained. But, in practice, losses do occur and cannot necessarily be recovered.