samchain/econo-pairs-v1 huggingface dataset:
Luis de Guindos: Key vulnerabilities for euro area financial stability Remarks by Mr Luis de Guindos, Vice-President of the European Central Bank, at the meeting of the Financial Stability Contact Group, Frankfurt am Main, 2 October 2019. * * * Let me start by thanking you all for participating in this meeting of the Financial Stability Contact Group. These meetings are a key feature of the ECB’s market intelligence gathering activities. The financial stability environment has certainly remained challenging since this group last met in March. The global economic outlook has worsened since then, and political and policy uncertainty has increased in a number of areas. Taking this into account, we continue to see four key vulnerabilities for euro area financial stability: (i) first, a risk of mispricing of some financial assets; (ii) second, high public and private sector indebtedness in several countries; (iii) third, in view of banks’ subdued profitability outlook, we see a risk of hampered bank intermediation capacity; and (iv) fourth, vulnerabilities stemming from increased risk taking in the non-bank financial sector. We see the likelihood of these vulnerabilities unravelling in a disorderly manner over the next 18–24 months as remaining largely unchanged. This is because the now widely expected “lowerfor-longer” interest rate environment mitigates many of the possible triggers for corrections over the short to medium term.

Let me expand a little on these vulnerabilities: Repeated downward revisions to the economic outlook and accommodative monetary policy actions on both sides of the Atlantic have put downward pressure on global bond yields across the whole maturity spectrum. For the first time in history, large parts of the yield curve for many euro area sovereign bonds, in particular those issued by governments with high credit ratings, have entered negative territory. It is often said that low or negative interest rates inflate asset prices as investors search for yield and take on more credit and duration risk. Equity and corporate bond prices, for instance, have appreciated across the globe over the past decade as yields have followed a path of long-term decline. Abrupt corrections, especially in equity markets and markets for lower-rated bonds remain a risk, particularly in the face of high economic and political uncertainty. Low funding costs can encourage firms to increase their leverage, which might intensify vulnerabilities in the event of an economic downturn. This risk has increased as the economic outlook has worsened and the share of triple-B ratings has grown. Concerning the second vulnerability, in several countries debt in the public and/or nonfinancial private sectors is lingering at levels that are high by historical and international standards. This leaves public and private finances exposed to the risk of a sudden change in market sentiment or deteriorating macroeconomic conditions. Third, parts of the banking sector continue to exhibit weak performance.
We trust in democracy in freedom, in human rights. We trust in the fact that market economies are the best way to produce goods, services and prosperity. And our future will depend on the people of Europe. It is the free will of our democracies which will shape Europe in the long run. And at the ECB we are very proud to be already an executive institution; we are the “avant-garde” of Europe. DIE ZEIT: Do you understand the French desire for a stronger role of national concerns in Europe? Trichet: I am not speaking of any particular nation. All European nations are members of the European team. And the success of Europe is the success of the team. DIE ZEIT: Perhaps the President of the ECB has to play a more political role in the next years than you want to... Trichet: Communication with the large public opinion, with all our fellow citizens is certainly one of the most important issues for all who care about the Unity of Europe. DIE ZEIT: Chancellor Angela Merkel wants European rules to protect Europe from sovereign wealth funds. Do we need protection? Trichet: These funds, like all new phenomenons, have to be studied and carefully observed. On the other hand the principle of free circulation of capital at the level of the global economy has been beneficial for all economies concerned. DIE ZEIT: The euro is at an all time high vis-à-vis the Dollar and the Yen.

Over time, we expect stronger governance within insurers to reinforce associations between financial reporting and fundamental economic factors, as intended by IFRS. In Malaysia, the finalisation of IFRS 17 is indeed timely in the light of current reforms being undertaken by Bank Negara Malaysia to further develop the domestic insurance market. This will see greater competition and complexity in the insurance sector, alongside a renewed impetus for growth through channel diversification and digitalisation. In this environment, the implementation of IFRS 17 will have an important role in improving the quality of information provided to the market on how these developments impact the performance of insurers, and in strengthening foundations for sound governance and risk management. This in turn will promote the effective functioning of insurance markets to serve the economy. Early preparation is key So then, where do we stand today? With less than two and a half years before the implementation date sets in, how prepared are insurers to implement IFRS 17? The answer is not encouraging. A recent survey published in January this year by a software firm covering some 240 insurance companies spread around the world, found that a startling 92% of insurers had yet to start putting solutions in place. Among those that have started, a vast majority are still only in the initial stages of planning.
The outcome of the monetary analysis confirms the assessment of low inflationary pressure over the medium term, as money and credit growth continues to slow down. Against this background, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Let me now explain our assessment in greater detail, starting with the economic analysis. Available data and survey-based indicators continue to signal an improvement in economic activity in the second half of this year. In particular, the euro area should benefit from the inventory cycle and a recovery in exports, as well as from the significant macroeconomic stimulus under way and the measures adopted to restore the functioning of the financial system. Taking into account all available information, in the second half of this year, quarterly real GDP growth rates could be back in positive territory. However, uncertainty remains high as a number of the supporting factors are of a temporary nature. Looking through the volatility of incoming data, the euro area economy is expected to recover at a gradual pace in 2010, as it is likely to be affected over the medium term by the process of ongoing balance sheet adjustment in the financial and the non-financial sector, both inside and outside the euro area. In the view of the Governing Council, the risks to this outlook remain broadly balanced. On the upside, there may be stronger than anticipated effects stemming from the extensive macroeconomic stimulus being provided and from other policy measures taken.

19.07.2018  Address on taking up office as a member of the Council of State Pablo Hernández de Cos Governor  Madame Chair of the Council, Council Members, Lawyers, ladies and gentlemen, First I would like to thank Mr. Alberto Aza and Mr. Juan Velarde for having agreed to be my sponsors in the ceremony today. It is a real honour for me to take up office as an ex officio member of the Council of State, the highest-ranking advisory body of the Government and a time-honoured institution in Spain. According to the Spanish Royal Academy dictionary, an “adviser” is someone who gives an opinion on what they consider beneficial or necessary for the advisee. It is indeed an important aspect of the functions of the Banco de España, in accordance with its law on autonomy, to advise the Government on economic and financial matters. From this dual status as a member of the Council of State and as governor of the Banco de España, allow me to take the opportunity here to briefly reflect on what are the main challenges facing the Spanish economy. In the past five years our economy has seen sharp growth in activity and a marked reduction in the unemployment rate, enabling a gradual correction of the imbalances built up before and during the economic crisis.
The rise in prices for domestically produced goods and services slowed somewhat towards the end of 2005 and into 2006. The 12-month rise in prices for these products was 1.6 per cent in April 1 . Several factors now point towards higher inflation. Capacity utilisation in the Norwegian economy is increasing. This may result in higher margins. Furthermore, tighter labour market conditions may lead to higher wage growth. In addition, the rise in energy and commodity prices is pushing up producer input costs. Buoyant growth in the global economy has contributed to very high prices for oil, gas and other commodities. Since last autumn, copper prices have more than doubled and aluminium prices have risen by close to 50 per cent. Commodity futures prices have also increased markedly. Prices for other Norwegian export goods, such as fresh salmon, have also exhibited a marked rise. As mentioned by way of introduction, falling prices for imported consumer goods, in conjunction with rising prices for Norway’s export goods, have contributed to substantial terms-of-trade gains for Norway. Over the past few years, Norwegian export prices have increased twofold relative to import prices. The impact of the rise in oil and gas prices is particularly strong, but the terms of trade for the mainland economy have also improved. The situation in Norway differs from that of its Nordic neighbours. Sales of Swedish and Finnish high-tech products are growing strongly in volume terms, but prices are falling. Denmark has a diversified business sector, which is overall moving on a steady path.

Partly reflecting the improvement in the terms of trade, the nominal krone exchange rate has remained strong. Wage costs in Norway are now very high compared with other countries, measured in a common currency. The current situation is considerably different from that of the mid-1990s. At that time, performance in the manufacturing sector was strong partly owing to solid competitiveness. Today, the manufacturing sector is faring well in spite of a strong krone and a high cost level. The reason is the unusually buoyant markets for Norwegian goods. At the same time, the strong krone exchange rate has eased the impact of revenue gains. In periods, the effects on the krone may nevertheless be somewhat excessive, partly owing to the low level of inflation in Norway. Low interest rates, increased petroleum investment, strong global growth and the improvement in the terms of trade have contributed to solid growth in the Norwegian economy. Capacity utilisation has probably reached a higher-than-normal level, and the cyclical upturn is continuing. Enterprises are steadily increasing their debt to finance investments. So far, the cyclical expansion has been marked by strong production growth, with ample labour supply and unusually low inflation. 1  2  Adjusted for lower maximum day-care rates. BIS Review 44/2006  For a long time, employment growth measured by number employed was lower than in previous upturns, partly reflecting the fall in sickness absence as of summer 2004. In 2005, the number of person-hours worked increased relatively rapidly and productivity growth picked up.
Firms must have a safe and sound process for addressing all aspects of this transition. They also need to select alternative rates that are robust and resilient, in line with current best practice. At the Fed, we’ve been thinking about this risk across all portfolios, 5/8  BIS central bankers' speeches  from small community banks to the largest institutions. Our focus so far has been on outreach and education. We have been encouraging examiners to raise awareness with their supervised institutions, and we’ve provided them with some tools to enage in this discussion. We’ve also been reviewing our own contracts that use reference rates to make sure we’re walking the talk. Anecdotally, the largest financial firms seem to be more aware of the challenges than smaller ones. Last September, the UK Prudential Regulation Authority and FCA sent a “dear CEO” letter to the heads of large banks and insurance companies to seek assurance that their senior managers and boards understood the risks of LIBOR transition and were taking appropriate action ahead of end-2021.22 As the larger firms prepare for the transition, they are beginning to work on the operational challenges the transition will present. You all know that those kinds of system changes are never simple or straightforward. The potential death of LIBOR is causing everyone in the market a lot of grief, and everyone goes through the five stages of grief at their own pace.

As Sri Lanka’s per capita GDP continues to rise, the country is losing its competitiveness in terms of its labour costs as wages increase. As a result, Sri Lanka will not be able to compete in  exporting labour-intensive, low-value products, since exporters with low wage structures such as Bangladesh, Cambodia and Vietnam will become more competitive. At present, Sri Lanka is not able to match the competitiveness of countries such as Malaysia and Thailand. So we are in little bit of a limbo. We find it difficult to compete on wages with Bangladesh’s, Page 9 of 17  Myanmar’s, Cambodia’s and Laos’s, and we find it difficult to compete on productivity and competitiveness with Malaysia and Thailand. So we have to have an absolute laser-like focus on  increasing productivity and competitiveness. That is how we have to move to support our export drive. The modernization of the services sector is also important, as the production flow processes are now largely dominated by services. Service exports have increased rapidly since the end of the conflict, with significant increases recorded in tourism, transport, and ICT. By transport I mean logistics as well. However, given the  competitive advantages the country enjoys, particularly in relation to its location, there is great potential for further increase in services exports. Persistent large trade deficits, which have become a fundamental weakness in the balance of payments of Sri Lanka, are a serious concern that needs to be addressed in the long-term interests of the country.
These were designed to boost confidence by demonstrating that we were conscious of the risks of a credit crunch. Since those actions, conditions in money markets have eased considerably. The benchmark 3-month interbank lending rate has fallen by around 75 basis points relative to expected policy rates. But conditions are not yet back to normal and remain fragile. Although central banks can and will respond to the consequences of strains in the banking system for their economies, the solution to the underlying problem does not rest with them but with the banks and financial markets themselves. Banks must reveal losses promptly, and, most importantly, raise new capital where necessary. But these developments in financial markets and the banking system have started to affect activity in the economy more widely. Interest rates charged to both households and companies have risen relative to Bank Rate, reversing the relative fall in the year or so before last August. And our own survey of credit conditions last month revealed that lenders intend to tighten conditions further this year. This tightening is unlikely to be short-lived. Tighter conditions will discourage borrowing to finance spending on residential and commercial property, on business investment and on consumption. The impact on property prices is already clearly visible. Commercial property prices have fallen by 12% since the middle of last year. And, after rising sharply earlier in 2007, house prices stagnated in the final quarter.

BIS central bankers’ speeches  1  The other is the Executives’ Meeting of East Asia-Pacific Central Banks or EMEAP, which have helped develop the capital market in the region through the establishment of the Asian Bond Fund and many other initiatives. The increasingly important role of China to the Thai economy and financial system has brought about the need for broader and deeper understanding of the Chinese economy and a more proactive response from public agencies, including the Bank of Thailand, to seek a presence in China. Your Royal Highness, Ladies and Gentlemen, Following the initial foothold in the form of two representative offices in New York and London twenty years ago, the Bank of Thailand recently established a representative office here in Beijing. The Beijing office is our first representative office in Asia. I also believe that we are the first central bank from the ASEAN region to have its representative office in China. But, being the first is not the only measure of success for our journey here. Since its establishment last year, our Beijing representative office has fulfilled its objectives to further promote closer ties between the Bank of Thailand and the People’s Bank of China, as well as other Chinese government agencies. The office also aims to sharpen its focus and first-hand understanding of the economic and financial developments in China. This achievement is well-illustrated by the deepening financial cooperation between China and Thailand.
As a result, key elements of it, such as the Matching Adjustment, were designed with the needs of the UK industry in mind. The PRA’s implementation of Solvency II has been robust but proportionate, consistent with our statutory objectives. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Appendix: Drivers of changes in UK annuity rates  10  Chart 1: Annuity rates, risk-free rates and  Chart 2: Relationship between annuity rates and  corporate bond spreads since 2007  risk-free rates  Percentage points  Per cent Risk-free rate (rhs) 8 Annuity rate (rhs) Corporate bond spread (lhs) 7  6  5  Annuity rate (Per cent) 8 Pre-SII (2007-15) Since SII (2016)  6 4  7  5  3  4  6  3  2  2 1  5  1  4  2017  2016  2015  2014  2013  2012  2011  2010  2009  2008  0  2007  0  0 1 2 Risk-free rate (Per cent)  3  4  5  6  Sources: Bank of America Merrill Lynch, Bloomberg,  Sources: Bloomberg, sharingpensions.co.uk and Bank  sharingpensions.co.uk and Bank calculations. calculations.

Although application of the Matching Adjustment is subject to a number of asset and liability eligibility criteria, it has much in common with a similar feature of the previous UK ICAS framework – the ‘liquidity premium’. Within the EU, the main users are UK life companies. Indeed the only countries with firms currently using the Matching Adjustment are Spain (15 companies) and the UK (23 from the UK). 3  2  Under Solvency II, the scope of internal models is comprehensive and firm-wide. A typical insurance group internal model might take 1 day to run 500,000 scenarios with key processes requiring multiple model runs. A diversified insurance group internal model may use around 150 risk drivers, separated into over 10 different risk categories (e.g. credit, market, mortality, lapse, operational). By contrast, under Basel standards and the EU Capital Requirements Regulation, bank internal models are separate and limited to particular risks eg credit and market, with capital requirements from them added up at the firm level. 3 Long Term Guarantee Report, EIOPA, December 2016. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  In its Financial Stability Report in November 2016, the Financial Policy Committee concluded that the matching adjustment “is beneficial from a macroprudential perspective by reducing potential instability across the financial system”. 4  This combination of internal models and the matching adjustment has created strong incentives for UK life firms to invest in long-term illiquid assets, such as commercial property, equity release mortgages and infrastructure financing.
Chart 2 shows that the BPA market is projected to have opportunity to grow at significant pace over the next ten years. The decline of Defined Benefit (DB) pensions and the desire to secure future scheme member benefits continues to create demand from DB pension scheme sponsors and trustees for de-risking or exit solutions. These should provide their members with a wellmanaged and cost-effective delivery of their outstanding pension benefits as they fall due over the coming decades – some extending more than 50 years into the future. Life insurers also have the capability to use the relatively stable and long-term annuitant liabilities entrusted to them, to invest in productive assets for the benefit of future generations, including in the transition to net-zero carbon. While I talk about growth, overall this is really a transfer of promises - specifically promises made by a large number of employers converted to promises made by a smaller set of insurers. It is important to remember that this is not all new investment or credit creation. But in making this transfer there is a change in investment strategy that backs those promises. And, given there is still a much larger pool of DB pension liabilities potentially available, as prudential regulator we need to know that the right package of incentives – and constraints – are in place for this transfer to be soundly managed in both the short and longer term.

Although a delicate balancing act is required, I am confident that this is possible without imposing heavy reporting burdens or infringing too much on proprietary information of individual institutions. In this connection, the proposal by Germany for an international credit register is attractive. The register could collect information on the exposures of international financial intermediaries to single counterparties that have the potential to create systemic risk. For the public sector, the tasks include developing still higher standards for macroeconomic and financial data in emerging market economies, and promoting transparency in the reporting of their holdings of foreign reserves. Greater transparency in the operations of international financial institutions, such as the IMF, is also being pursued. The second approach involves designing an appropriate form of oversight of highly leveraged institutions. The Basle Committee’s report on Banks’ Interaction with Highly Leveraged Institutions recommends indirect regulation in which banks should adopt more prudent policies on the assessment, measurement and management of their exposure to highly leveraged institutions. Other tools of indirect regulation could include the imposition of capital charges on lending to such institutions, raising margin and collateral requirements, and so on. While such indirect regulation, through creditors, should clearly be supported, we need to satisfy ourselves that it is an adequate safeguard against the highly leveraged institutions causing the type of systemic problems in smaller markets when their activities overwhelm these markets. The third approach involves international co-operation to tackle regulatory arbitrage.