samchain/econo-pairs-v1 huggingface dataset:
Bandid Nijathaworn: Addressing potential interactions and feedback loops within the financial system – lessons learned and what can regulators do Speech by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Financial Stability Institute and Monetary Authority of Singapore Policy Forum “Banking and Banking Regulation: A New Era”, Singapore, 12-13 October 2009. *  *  *  First, let me thank the Financial Stability Institute and the Monetary Authority of Singapore for the invitation. All the issues we are discussing here today are both timely and important. My presentation this afternoon will focus exclusively on the interactions and the feedbacks within the financial system as a key aspect of macroprudential framework. But before I do that let me say at the outset that I am not surprised by the resurgence of interest on macroprudential surveillance, which is now seen as an important supervisory tool. We, in Asia, have learned this well during the Asian financial crisis in the late 1990’s. Then, the crisis demonstrated clearly the importance of the feedbacks between the financial sector and the real economy, especially the impact that fragility in the banking sector can have on the real economy. And in the context of macroprudential analysis, the Asian experience highlighted the importance of the time-dimension of systemic risk i.e, procyclicality linked to the credit and business cycles.

As a result, the whole class of asset backed commercial papers (ABCP) suddenly appeared risky to investors. Next, as the special investment vehicles (SIV), which essentially were virtual bank that financed mortgage/long-term lending by issuing ABCP, could no longer fund themselves as no new ABCP could be sold, the banks, who were the SIV sponsors, had to come to rescue for the fear that the reputation risk could harm their access to the interbank market. The rescue, as we know, led to large balance-sheet losses. Example C is the loss spiral linked to mark-to-market accounting and asset fire sales. In this feedback loop, we describe what has been termed a loss spiral, whereby some financial institutions, on suffering marked-to-market losses to their asset portfolios, were forced to conduct “fire sales” of assets. Maybe the fire sales were necessiated by an increasingly difficult funding environment, or by the need to comply with internal risk management limits and/or capital ratios, or because the original positions were so highly geared that a small percentage of loss triggered large asset sales merely to keep the leverage ratio constant. 2  BIS Review 130/2009  Whatever the main reason, the fire sales affected everybody. Other financial institutions with the same or highly correlated assets suddenly found themselves facing heavy losses from wholesale declines in asset values. They, in turn, for the same reasons, had to conduct their own “fire sales”, further depressing asset prices. Lastly, example D is the case of a positive feedback loop linked to liquidity.
28  As I said earlier, one of the ingredients of the economic policy response to the crisis has been the temporary suspension of fiscal discipline rules in Europe until the pandemic is over, which is projected to be in 2022. These rules require the structural deficit to be reduced by 0.5 pp each year, so closing the current deficit, which is estimated to be some 5 pp of GDP, would take approximately a decade of adjustment.8  According to the Banco de España’s simulations, using a model that describes the behaviour of the government debt ratio on the basis of certain assumptions regarding its determinants, in the absence of fiscal consolidation measures government debt will reach around 130% of GDP over the next 15 years. Conversely, a process of gradual fiscal consolidation, following the guidelines of the Stability and Growth Pact, as I have described, could significantly moderate the government debt dynamics. In particular, a fiscal policy that improves the primary structural balance by 0.5 pp of GDP per year, until budget balance is achieved, would result in a sustained reduction in the government debt ratio, such that by 2035 it would stand at around its end-2019 level. This consolidation process would be especially effective if it were combined with the implementation of ambitious structural reforms to increase the economy’s potential growth and therefore the size of the main tax bases.

The Estonian economy Looking more closely at the Estonian economy, it can be seen that the growth in Estonia in 2014 came primarily from the domestic market. •  Domestic consumption was lifted by rising employment, falling unemployment, and strong wage growth and a simultaneous fall in prices. The economy grew faster in 2014 than in 2013, but it should be remembered that no return to the growth rates seen in the boom years of the last decade is to be expected. •  It may be hard to get used to the idea of lower growth rates, but economic truths cannot be denied. The Estonian economy and Estonian demographics are in a different phase of development now, and long-term sustainable growth is notably lower at 3–4%. Consumer price inflation in Estonia fell below zero in June 2014 for the first time since the crisis. Four years ago prices fell across a wide range of goods and services, but last year the fall in prices was mainly caused by cheaper energy and food. Eesti Pank is not forecasting any rise in prices this year, but rising wages will put upward pressure on the prices of domestic goods and services. One reason for the rapidly rising labour costs has been the decline in the working age population, but faster growth in wages than in productivity could endanger the competitiveness of the Estonian economy in the longer term.
A debt-to-income limit may be an appropriate measure, but strengthening the loan-to-value limit and the amortisation requirement should also be considered. It may also be necessary to reduce households’ incentive to borrow by reducing tax relief on interest expenditure. Measures are also needed to strengthen resilience among Swedish banks. Given the risks in the Swedish banking system, it is important that the banks hold enough liquidity and capital. So that the banks can manage their short-term liquidity risks, they need to have a reasonable liquidity coverage ratio in all significant currencies, for example in certain Nordic currencies and pounds sterling for those banks that obtain funding in these currencies to a great extent. 15 [23]  To ensure that the banks have enough capital, a leverage ratio requirement, which is to say a requirement for the banks’ equity in relation to their total assets, should be introduced as a complement to the risk-weighted capital requirements already existing. This would restrict the banks’ possibilities for increased credit granting. It would be particularly effective to initiate this measure when the global financial cycle is on the way up and the banks are finding it easy to obtain funding. However, it should be repeated that a fundamental cause of indebtedness in Sweden is that the housing market does not function. It has not been able to meet the rising demand for housing that has long been highly visible.

2 [23]  A persistent low interest rate environment also risks leading to the continued rise of indebtedness among mortgage borrowers, making them more sensitive to interest rate changes. This means that they could be affected more than others when the policy rate needs to be raised. This would be unfortunate as monetary policy probably works best when it affects the entire economy in a similar way. Furthermore, low interest rates for a long time entail increased risks to the financial system and financial stability. And, as a stable financi al system is a prerequisite for successful monetary policy and financial policy, monetary policy in our present situation needs to be supplemented by, among other things, a wellfunctioning macroprudential policy. An important question in this context is what formal role the Riksbank should have in the work to reduce risks and vulnerabilities in the financial system. The Riksbank’s responsibility for financial stability is expressed in the legislation as the task of “promoting a safe and efficient payment system”. More specific details are not given. In my opinion, the Riksbank’s responsibility – in common with a number of other central banks – should include financial stability and this should be clarified in the Sveriges Riksbank Act. I hope that this is dealt with at the committee stage of the review of the monetary policy framework and the Sveriges Riksbank Act.
We have also advanced in a technological leveling project and we have implemented three-year periods for strategic planning. I am also proud to have presided over the Central Bank during a period where the average annual inflation rate was 2.8%, and was most of the time within the established tolerance range and where the functioning of internal and external payments was totally normal. These are the objectives set forth by our Constitutional Organic Law. Unfortunately, the unusual increases in the prices of foods and energy pushed annual inflation above 7% toward this year’s end. This should be a transitory rise in inflation that will fade away in coming quarters, conditional to annual inflation expectations remain anchored around 3%. It is not pleasant to leave the Central Bank with such a high inflation figure. But I understand that it is a circumstantial development that is part of the job, and that the highly qualified Board and staff will take the appropriate decisions to achieve the objective to return inflation to 3% within the habitual policy horizon. We have applied an effective monetary policy that has become a powerful countercyclical tool, in light of the experience of recent years. But it would be of little use if we did not rely on the responsible fiscal policy that Chile has applied. 2  BIS Review 149/2007  During my term, I was lucky to work with two top-level finance ministers, with whom I always had very fluent communication in the subjects of common concern.

This campaign succeeded thanks to the support of Jean Claude Trichet, Cristián Noyer, Tim Geithner and especially Jean-Pierre Roth. As a result of this campaign, aside from Chile, countries like Norway, Denmark, Greece, Finland, Israel and New Zealand were able to also integrate the discussion on the global economy. Those meetings gather central bank governors of the main economies of the world, and are a great opportunity to be updated on the evolution of the global economy and strengthen the networks for interaction across central bankers. Internationally, I must also mention the great recognition that has the work of our Central Bank in other central banks and in international forums. Dear Board members, executives and all the staff: I want to tell you all that I am deeply grateful for having had the opportunity to serve my country from this position. It has been a true privilege, especially for the opportunity that provided me to strengthen this institution and in this way to contribute to build the great reputation that this institution has today in the country and elsewhere. Traveling abroad as the Governor of the Central Bank is a great satisfaction because of the way our country is seen and respected. I have been the recipient of frequent praise for our country and for this Central Bank, which is the merit of each and every one of you.
In addition to tapping the vast growth opportunities that reside within the domestic environment, the enhanced economic and financial linkages between Malaysia and the rest of the world has also opened up the potential for new opportunities by venturing abroad and thereby strengthen the global integration process. On this note, it is my pleasure to congratulate the Commerce Group on this occasion of the official launch of Commerce Tijari Bank Berhad. Significant potential exists for Commerce Tijari Bank Berhad to achieve a quantum leap by leveraging on the integrated financial services and operating infrastructure of the Commerce Group. I wish Commerce Tijari Bank Berhad every success in this endeavour and I look forward to its contribution to the further development of the Islamic financial services industry in Malaysia. Ladies and Gentlemen, Dengan lafaz Bismillahirrahmanirrahim, “Commerce Tijari Bank Berhad”. saya  dengan  sukacitanya  merasmikan  pelancaran  Terima kasih. 2  BIS Review 26/2004

Luis de Guindos: Interview in Corriere della Sera Interview with Mr Luis de Guindos, Vice-President of the European Central Bank, in Corriere della Sera, conducted by Mr Federico Fubini on 13 June 2019. * * *  The 5y5y forward inflation rate is at an all-time low and clearly below where it was when Mario Draghi first hinted at quantitative easing (QE) in 2014. The ECB has already done some more easing and President Draghi himself mentioned that there was an interesting discussion at the latest Governing Council meeting on different tools to do some more easing – the asset purchase programme (APP) and others. What do you need to see in order to decide to do more? What we need to see is a de-anchoring of inflation expectations. This has not yet happened, despite the fact that there has been a drop in market-based inflation expectations. If you look at the survey of professional forecasters, the situation is a little bit different – expectations have remained stable. Then we need to see if there is a significant additional drop in economic activity – a crystallisation of the downside risks that we have indicated. We can always try to look forwards to get an idea of what might happen, but ultimately the reality is the reality. And, well, let’s see what happens. But I think the important part of our stance is that we are totally ready to react. We will have time enough to know the future when it arrives.
If the adjustment is too slow, however, it could encourage a return to past behaviour, which led to excessive risk-taking. Today I would like to examine the issues relating to the role of the banking sector in supplying credit flows, in terms of the following three phases: the pre-crisis state of imbalance, the new long-term steady state, and the period of transition leading up to said steady state. 2. The banking system during the credit boom years  As with all system-wide banking crises, the recent turmoil was preceded by strong credit growth, combined with a speculative asset price bubble. 1 This is confirmed by various credit indicators, such as the deviation of the credit-to-GDP ratio from its trend, detrended global credit growth 2, the credit growth gap, and other indicators. 3  1  See C. Borio and P. Lowe, “Securing sustainable price stability: should credit come back from the wilderness?”, BIS Working Paper, No 157, Bank for International Settlements, 2004; C. Borio and M. Drehmann, “Assessing the risk of banking crises – revisited”, BIS Quarterly Review, Bank for International Settlements, 2009. 2  See L. Alessi and C. Detken, “Real time early warning indicators for costly asset price boom/bust cycles: a role for global liquidity”, ECB Working Paper Series, No 1039, 2009. According to these authors, a global credit-to-GDP ratio gap is one of the best indicators (with a lead-time between six quarters and three years) for asset price bubbles that are followed by busts, which prove costly in terms of GDP losses.

For a more detailed analysis, see Banco de España (2020), “Recent developments in the most important Latin American banking systems for Spanish banks”, Box 2, “Report on the Latin American economy. Second half of 2020”, Analytical Articles, Economic Bulletin, 4/2020. 8 For a stress test analysis of the 61 largest banks in Latin America, see Annex 4 of the IMF’s Regional Economic Outlook (2020), Pandemic Persistence Clouds the Recovery. 9 See A. Werner, A. Ivanova and T. Komatsuzaki (2021), Latin America and Caribbean’s Winding Road to Recovery, IMF blog. 5  First, in addition to the human cost in lives, the effects on poverty and income distribution have been very severe.10 Indeed, during 2019, bouts of political tensions and social unrest in several countries, partly related to this situation, fuelled economic uncertainty; this in a region where numerous elections are due to take place in the coming quarters. A second challenge is that posed by shrinking fiscal space following the increase in government debt in the region during 2020, positioning it as the emerging region with the highest government debt-to-GDP ratio and, where debt refinancing is concerned, leaving it highly vulnerable to changes in investor sentiment. Against this background, monetary policy is supported by the accommodative policies of the main developed economies and by low inflationary pressures.
Banks will then record low losses and may increase their lending. Investments financed by loans may push up property prices. When the bubbles burst, either in the housing market or in the stock market, asset prices fall and many will want to reduce their debt. This reduces demand and may lead to a fall in prices. Deflation in Japan is clearly related to the property and stock market bubble that burst in the early part of the 1990s. The build-up of financial bubbles may make the financial sector more vulnerable to any disturbances in the economy at a later stage. A sharp rise in asset prices and debt build-up may pose a risk to economic stability. In order to reduce this risk it will in certain situations be appropriate to apply a somewhat longer horizon than the normal time horizon of two years for achieving the inflation target. This presupposes that financial market participants are confident that inflation will be low and stable over time. Norges Bank has stated that if it is necessary to deviate from the normal response pattern in order to promote financial stability, the Bank will give notification of this. Closing remarks Interest rates are now low both globally and in Norway. This applies to both nominal interest rates and real interest rates. Interest rates differ from what we were accustomed to earlier, and real interest rates are lower than the interval normally arrived at as a result of analytical attempts to estimate the theoretical equilibrium interest rate.

Those who experienced the banking crisis in the 1990s have a clear perception of this. Financial instability is characterised by wide fluctuations in prices for assets, such as dwellings, commercial property and securities or failure in the functioning of financial institutions (a “run” on banks) or financial markets. Financial instability is also characterised by disturbances in credit availability or the flow of capital. This may have consequences for output, employment and for inflation. Financial stability therefore promotes price stability. In tandem with the trend towards lower inflation since the mid-1980s, asset prices have shown wider variations and financial crises have become more frequent. In the short term, a conflict may arise between achieving the inflation target and financial stability. In Japan, equity and property prices increased sharply in the 1980s, while inflation was subdued. In the US, household and corporate debt rose fairly sharply and equity prices trebled between 1994 and 1999, while inflation was moderate. This has prompted a debate as to whether monetary policy must take financial stability into account to a greater extent. Low interest rates and low inflation may contribute to a rise in asset prices and debt build-up (financial bubbles) through several channels. With confidence in the inflation target, inflation may be less affected by changes in the economic situation. Increased international competition and imports from low-cost countries can keep inflation at a low level even during a period of strong expansion in the domestic economy. High productivity growth contributes to low inflation, but also to high earnings.
We now have a web portal that offers such opportunities, identical to the statistical portals of many European Union countries. The presentation within the today’s workshop is the first since its launching. The National Bank’s Plan of Activities we adopted yesterday also includes a project to further improve the availability and understanding of our press releases, information, data. In one of the first phases of the project, we plan to conduct surveys in order to obtain opinion from you, the journalists, as well as from other users of our information and data. But even before we embark on such a project activity, we would greatly value your suggestions and ideas, which will surely be an important road map for us to develop our communication with the public. According to recent releases, we are one of the most transparent central banks in the region and actually very close to the average index of Eastern European countries and the ECB.1 Of course, there is room for further improvement to approach more advanced economies, or the euro area as a whole. I believe that you, with your ratings and comments, will help us achieving this goal. A good opportunity for this will be the open discussion that is foreseen in the closing part of today’s event. In the end, for modern central banks, the rule “it would be good to have” no longer applies, but the rule “it must have” good, open communication with the public.

We strive to keep up with new forms of communication, making us active on social networks by posting the the latest data in real time, addressing key changes and visualizing trends, making information available to more target groups. One of the aspects of enhancing our communication in this segment are certainly these regular meetings with you, as a platform where certain more complex statistical concepts can be openly discussed thus giving them analytical feature. During this year, there has been a trend where most of the media publish our latest statistical immediately after our release, which contributes to keeping the public informed on time. At the same time, the number of your articles related to central bank statistics more than doubled this year compared to last year, and even more compared to 2017, further increasing the their availability to all users. Since we have been publishing regular statistical releases, the number of visits to our website has increased, indicating that users are actively using these releases as a source of information. I have to mention that we are constantly and actively presenting the statistical data to the public in an indirect way, as well. They are the basis of our analytical infrastructure and decision-making. Therefore, in our monthly press releases, in which we inform on the monetary decisions, we refer to several statistical dimensions that we produce – for example monetary statistics, external statistics and banking system data. In our regular publications, analytically and in a consistent context, we talk about about economics through statistical data.