samchain/econo-pairs-v1 huggingface dataset:
Oil You will not be surprised that the increases in the oil price have featured highly in many recent MPC discussions. We have observed the significant increase in demand for petroleum products, particularly from China and the USA. But did you realise that China’s average annual consumption of oil is currently almost two barrels per capita per year, but Brazil’s is about 4 barrels, and the USA’s just over 25? Depending on the assumptions one makes, it seems to me to be plausible, despite efficiency gains and possible replacement of oil by other sources such as nuclear power, that China with its growth rate of 9% per annum will reach Brazil’s per capita level in just over 15 or so years. And with its population of 1.3 billion that could mean an additional demand of some 3.5-4 billion barrels per annum roughly equivalent to the 2004 production of Saudi Arabia or around 13% of global production. Add India in with a slightly lower growth rate and you easily approach 5-5.5 billion barrels per annum which is not far off the 2004 production of the whole of the North American continent - getting on towards 20% of world production. So on the demand side there is clearly a challenge. There is also great complexity in assessing the evolution of supply. The supply and price of crude is complicated by OPEC politics, and the length of time that it will take to get non-OPEC production such as Canada’s tar sands significantly on stream.

Any signs of expectations becoming dislodged would be a signal that policy might need to be tighter than otherwise, in order to provide insurance that expectations remain on track. I will revert to this theme later. Over recent years long term inflation expectations have remained anchored close to the target level. This is important in delivering price stability: the fact that people think the MPC will be successful in sticking to the target conditions their behaviour in a number of ways. Higher prices for oil products, and indirectly other goods and services, leaves less disposable income for other things. Whilst the MPC takes comfort from the observation that so far inflation expectations and earnings growth have not risen, it is nonetheless possible that this could lead to demands for higher wages. Such demand, if granted, could be inflationary and even result ultimately in increased unemployment. The likelihood of this happening may be slight and there is no real sign of expectations presently becoming dislodged in the UK. And it is striking that although the effects of oil may have some impact  in today’s modest slowdown of consumption, that we have nonetheless managed to weather a significant price increase with so little disruption to the economy. Quite different from the late 1970s. But I think it is still too early to relax in relation to inflation expectations, and I think that the subject of oil will feature as a significant issue for some time to come in the monetary policy arena.
Similarly, although the flooding in June 2013 was the most severe in Germany since the 1950s, its macroeconomic impact was limited. As a result, the ECB, in its short history, has never yet been compelled to take action in response to climate-related shocks. So far their largely temporary effects on output and inflation have allowed us to look through them. This meant that central bankers thought the horizon of climate change was extending well beyond the one of monetary policy. But this may change. Indeed, I would argue that the horizon at which climate change impacts the economy has shortened, warranting a discussion on how it affects the conduct of monetary policy. That is, climate change is likely to affect monetary policy one way or the other – whether it 2/9  BIS central bankers' speeches  is left unchecked or humankind rises to the climate change challenge. This is my second corollary. Let me start with the more disturbing scenario in which both the private and the public sector fail to take prompt action to cut CO2 emissions in line with the COP21 commitments. On this trajectory, climate change is likely to affect the conduct of monetary policy in three important ways. The first relates to our ability to correctly identify the shocks hitting the economy. In recent years, for example, we have repeatedly observed an unusual blip in economic activity in the United States in the first quarter.

Only last week, ECB Banking Supervision communicated to banks that climate-related risks have been identified as being among the key risk drivers affecting the euro area banking system. And, of course, the Central Banks and Supervisors Network for Greening the Financial System published its first progress report just a few weeks ago, reasserting that climate-related risks fall squarely within the supervisory and financial stability mandates of central banks and supervisors. An area that has received less attention though, both in policy and in academia, is the impact of climate change on the conduct of monetary policy. Today I would like to contribute to this debate and offer a way of thinking about how climate change fits into our current monetary policy framework – the way we react to shocks and the way we think policy propagates through the economy – and how it may affect our monetary policy implementation. I will argue that climate change can be expected to affect monetary policy one way or the other. That is, if left unchecked, it may further complicate the correct identification of shocks relevant for the medium-term inflation outlook, it may increase the likelihood of extreme events and hence erode central banks’ conventional policy space more often, and it may raise the number of occasions on which central banks face a trade-off forcing them to prioritise stable prices over output.
Banks have demonstrated in recent stress tests their resilience to a sharp adjustment in credit market, and markets, rather than banks, have been the driving force behind recent growth. 10  But recent IMF work shows how rapid growth of corporate debt overall, and any skewing of corporate debt towards riskier firms can – by creating a debt overhang – add to medium term risks to economic growth. 11  The jury is out on whether what we have seen in the UK is material in this respect. But to keep the wider economy protected from financial disruption, it’s important that banks are resilient to these risks if they do become material. And that’s one reason why (as the Financial Policy Committee said in the Record of its March meeting) the FPC intends to “re-consider the adequacy [of capital levels] in June, with a focus on the evolution of domestic risk appetite.”  Let’s move on to the other hidden risks: the underwater bergs that can make markets less resilient  There were certainly plenty of these lurking under the surface of the system of 2008, making it fragile and amplifying market adjustments. They help to explain how $ of losses on subprime mortgages turned into well over $ of write-downs in the global banking system. The post-crisis reform programme has dealt with them. But our duty is not just to prevent the last crisis, it is to keep up with new risks as the financial system evolves and, where needed, take action to address them.

Incidents of the Libor being manipulated, whether already admitted or suspected, are problematic for the reputation of the banks involved, and for the financial sector as a whole. This discussion  2  BIS central bankers’ speeches  on the Libor is also significant for us, because we use the three-month Libor in the implementation of monetary policy. No Swiss franc Libor distortions relevant to monetary policy have thus far been ascertained. Furthermore, an SNB survey conducted among banks this year confirmed that the Libor remains an important variable for credit transactions, namely for mortgages. Of the banks surveyed, 80% indicated that they use the Libor as a benchmark for pricing loans. It also continues to play a key role in the pricing of financial products and derivatives. Neither the sharp decline in unsecured loans on the interbank market nor the incidents of manipulation have so far changed this. In July 2012, the Financial Services Authority (FSA) in the UK was commissioned to undertake a review on reforming the Libor. At the end of September, the working group convened for this purpose presented its findings in the Wheatley Review, which included a series of proposed measures. These aim to prevent further attempts at manipulation, and to restore confidence in the Libor. The report recommends, inter alia, that rate-setting processes and their oversight be improved, and that certain maturities and currencies be withdrawn. Under the proposals, the three-month Swiss franc Libor will continue to be determined.
This so called “productivity puzzle” – why the UK’s productivity had fallen so far and had not recovered – was a major part of the uncertainty the Committee faced about how fast the UK could grow without generating inflation pressure. If some or all of that lost productivity growth could be recovered, the economy could grow faster and for longer without putting the inflation target in jeopardy. But looking forward the Committee took a cautious view and based its view of the future on the expectation that productivity growth would recover only slowly and that none of the “lost” productivity would be recovered. Third, the MPC was operating under the “forward guidance” it had agreed in August last year and to which I had subscribed on joining the Committee. The underlying concern behind forward guidance was that the market might react too quickly and too simplistically to strong GDP growth numbers and forget the amount of spare capacity still in the economy. If the market predicated the Bank’s reaction to strong growth on a pre-crisis basis and, incorrectly, began to price in a tightening of policy the recovery could be choked off. To head off that risk the Committee had, earlier in the year, made clear its intention, through “forward guidance” not to consider tightening policy at least until there was a substantial reduction in spare capacity as evidenced by a fall in the unemployment rate to below 7%. So, over the subsequent year what have we learned? Have the puzzles and uncertainties resolved themselves?

There is nothing to suggest that the rate of and pressure from these changes will ease off in the years ahead. On the contrary, international integration seems to be becoming more intense. The establishment of EMU means that this trend will accelerate. EMU affects the financial system The introduction of the single currency will affect the financial system in various ways. The most obvious change is the end to exchange transactions between the national currencies in the euro area. This also means an end to forwards and swaps in these currencies. By itself, this will leave its mark on the earnings of European banks. The coming of the euro will also affect financial activities in Europe more profoundly and may necessitate a number of changes. The euro area will constitute a larger and more uniform market with a population of about two hundred million. This market, moreover, is likely to attract investors from other European countries and other parts of the world. Via growing competition, a larger market normally leads to lower costs and increased liquidity. With more investors and the elimination of exchange risks, it will cost less to diversify savings by placing them in more countries. In other words, savers in one country will transfer some of their assets to other countries. This process has, in fact, already begun. Briefly, then, all at once there will be a much larger and much more liquid European capital market that in time may resemble the US market in size and nature.
But, if the athlete cannot breathe for some reason, he will soon be dead notwithstanding his fitness. Your liquidity, or your cash inflows and cash outflows is also like breathing in and out. These cash flows have to be monitored very carefully. Liquidity management has to be practised diligently. The board members of finance companies must also learn and appreciate the principle of liquidity management. Don't think that it can only be left to the executives of the company. In the final analysis, the executives may not even be responsible in a legal sense. The legal responsibility will rest with you! BIS Review 55/2008  3  I am sure the other speakers will expand on all these aspects that I touched upon. So, I will now conclude with a few overall thoughts. My dear friends, take your responsibilities as Directors very seriously. Keep abreast of what is happening. Keep abreast of the markets. Keep abreast of the risks that are taking place, both globally and locally. Watch the world and environment carefully. Be alive to new techniques. Take the interest to do all that, because if you do, then we can all have a healthy market. That is what we at the Central Bank, are hoping you would discharge your responsibilities diligently. The last thing we would like to do is to call you up and to say that your business is not run properly. We don’t want to do that.

Do you think your depositors are going to have the same confidence in you, even if it is somebody else that has failed? Do you think they are going to say, “it’s okay. Only one finance company has failed. The company that we have deposited our money in is okay. Therefore, we can go on without any problem”. Do you remember the finance company crisis in the late 1980s and early 1990s? When one finance company failed, what happened? Why is it that Northern Rock had to be supported so strongly by the Bank of England, even though it is not a clearing bank? Isn’t it simply because the Bank of England realized that if one major bank fails, the domino effect, or the contagion effect will take place? So, my dear friends, it must be now clear to you, that as directors, you are not only responsible to your shareholders; you are not only responsible to your own depositors; you are also indirectly responsible to all depositors. Don't forget that if one fails, the resulting effect on the industry and the markets is going to be very very serious. Nobody is going to be spared. That's why we want you all to understand your responsibilities. That's why we take the necessary steps to regulate the industry so diligently. We have a responsibility, to preserve the financial system stability of this country. We take that responsibility seriously.
The rationalisation of current regulations will also take into account international developments which will help to reduce the compliance costs for internationally active insurers operating in Malaysia. The transition to the new structure has, so far, been smooth. As expected, the industry is still familiarising itself with new personalities and the new functional responsibilities of the various Departments. For this purpose we have designated the Insurance Supervision Department as the main contact point for insurers in their communications with Bank Negara. Internally, we will ensure that the issues raised are channeled to, and speedily resolved by, the right Departments. Under a more principle-based approach to regulation, Bank Negara will continue to introduce more flexible prudential standards for insurance companies. This will reflect an increased emphasis on the strength of an insurer’s corporate governance and risk management capabilities. It is also in line with the Bank’s implementation of the risk-based approach to supervision. Insurers that demonstrate sound risk management and strong governance can expect to enjoy greater capital efficiency and a lighter supervisory touch. In this connection, the Bank is putting in the final touches to risk-based capital framework which will issued before the end of March for implementation on a parallel run basis for a period of two years. Ladies and gentlemen, As life insurers gear up to take advantage of expanding opportunities in the changing environment, it is essential that commensurate efforts be directed at raising standards in the fair treatment of consumers.

In the long run, the industry as a whole has a clear interest in informed, responsible and  2  BIS Review 24/2007  capable consumers. As past experience, whether in Malaysia or abroad, has invariably shown, the irresponsible and unfair treatment of consumers is damaging to the consumer, damaging to the firm, and damaging to the reputation of the industry. The Bank is encouraged by the high level of commitment shown by some insurers towards significantly improving their market conduct practices. Nevertheless, much more can be achieved across the industry to address overly aggressive sales practices that result in unsuitable products being sold to consumers. Bank Negara is investing significantly in raising the level of financial capability among consumers through initiatives under the Consumer Education Programme. Additional focus has been given to this task with the setting up of the Consumer and Market Conduct Department. But this is an extensive task, for which a significant improvement in the level of financial literacy among across a widereaching spectrum of consumers may only be seen in the next generation of consumers. It is, therefore, important now that insurers take their responsibility for the fair treatment of consumers seriously. In particular, we would like to see a far greater interest by the Board and senior management in improving selling practices, as well as the quality of disclosures and advice provided to consumers.
It takes very significant decisions, which made it an extremely attractive proposition. How do you explain the arrival of people like you or Christine Lagarde, who have a different profile to the one that ECB Executive Board members have traditionally had? I don’t think anything was predetermined or premeditated. Members of the Governing Council have different profiles and each of them contributes according to their experience. I contribute my knowledge of the European economy and the financial system, and my experience taking decisions when the Spanish economy was at its most delicate moment. What role does politics play in the ECB? The 25 members of the Governing Council don’t always agree, although many of the decisions we take are unanimous. There are those who think that the situation requires further measures, and others who think we have already gone too far. We look for a consensus. The decisions are very democratic – one Governor, one vote – but actually taking a vote is an exception, not the rule. In recent months there has been very strong, unprecedented public criticism. I’m not at all concerned by the fact that there are differing views, that’s healthy and it’s normal because there are 25 of us. But what has been happening in recent months has not been very helpful. It hasn’t undermined the effectiveness of the September package of measures, because it went ahead as planned, but it’s much better to be united. We are a collegial institution and once we have reached an agreement, everyone should defend it.

Here in Asia, as in other markets, more work needs to be done to improve the quality of disclosures regarding traditional banking activities. Time and again experience has shown that in periods of stress, insufficient or inaccurate information about asset quality can lead to rumors and overreactions in the marketplace, creating the potential for problems to spread to institutions that may otherwise be in good health. Of course, progress on the disclosure front will be limited until accounting standards are enhanced to ensure proper valuation and to reflect innovations over the past decade, both in terms of new products and modern risk management techniques. Accounting systems serve a variety of purposes, but none more important than helping creditors make rigorous decisions as to which enterprises meet market tests of efficiency, competitiveness, and profitability that are necessary for those enterprises to fulfill their obligations. Sound accounting systems also enable investors to determine the value of enterprises, and, in so doing, assist in attracting capital, both foreign and domestic. With these important purposes in mind, ongoing efforts to enhance accounting standards worldwide should continue and even intensify. There is also a need for greater harmonization of accounting standards across countries. We simply must get to a point where supervisors and market participants alike can analyze and compare all internationally active financial institutions on a consistent basis. And it will not be possible to have uniform capital standards until we have achieved some consistency in accounting standards across countries.
Moreover, the banking sector has significant exposure to the NBLs, through commercial loans to these institutions. In particular, loans to this segment have increased among medium-sized banks in recent years. Thus, the exposure—to NBL debt—of the large and medium-sized banks, as of February 2019, represented 12.7 and 27.2% of their regulatory capital, respectively. The profitability of the NBLs, measured through ROA, has been relatively stable, standing at 4.6% at year-end 2018 for retailers; 3.8% for S&Ls; and 2.6% for factoring, leasing, and car dealership (FL&A) together. In the case of the CCAFs, ROA has increased in the last two years. The leverage ratio, in turn, is highest for the FL&A group, and it increased for the retailers in 2018. Page 6 of 12  Central Bank of Chile September 2019 High-level Policy Seminar on Integration or Fragmentation?

(2015), shows that EMEs countries exposed to the original sin (unable to borrow internationally in local currency) appear as tightening CBMs on banks’ liabilities during the 2013-2015 period. Our understanding is that the databases used in cross-country analysis still contain a high degree of self-judgement by reporting countries that sometimes affect the quality and consistency of the information provided. At least this is our experience regarding answering the IMF’s survey on exchange rate Page 3 of 12  Central Bank of Chile September 2019  arrangements and exchange restrictions (AREAER), which is used in the majority of cross-country comparison of CBM and capital controls usage. High-level Policy Seminar on Integration or Fragmentation? International Capital Flows in the Post-crisis World, September 2019 CENTRAL BANK OF CHILE  Currency-based measures  With the exception of China, only countries suffering from original sin used and tightened CBMs on banks’ FX liabilities  Tightening  No tightening  No Original Sin  Original Sin  Source: De Crescenzio, Golini, and Ott (2015), “Currency-based Measures Targeting Banks - Balancing National Regulation of Risk and Financial Openness,” OECD Working Papers on International Investment 2015/03. Recent evidence on the evolution of capital controls shows that Chile has taken more liberalization actions than tightening actions on both inflows and outflows (Pasricha et al., 2018). The following Figure shows the cumulated weighted net inflow easing actions and weighted net outflow easing measures in Chile and in a group of EMEs (excluding Chile).