samchain/econo-pairs-v1 huggingface dataset:
We might choose to explain this accountability in narrow legal terms, by referring to laws, passed by the Legislative Council, that define and limit our powers and responsibilities, or by setting out the Monetary Authority’s accountability, through the Financial Secretary and the SAR Government, to the Legislative Council under Article 64 of the Basic Law. BIS Review 48/1999  2  But we also recognise a broader responsibility to the community of Hong Kong, and a duty to promote an understanding of our role and objectives, and to keep ourselves informed of community concerns and open to public debate. To this end, the HKMA pursues a policy of transparency and accessibility. This policy has two main objectives: to keep the financial industry and the general public as fully informed of the HKMA’s work as possible; and to ensure that the HKMA is in touch with, and responsive to, the community that it serves. We have done a great deal over the past year to advance this policy. This applies not just to technical matters, such as the greatly increased transparency of the currency board system or the daily publication, since November, of the size and composition of the Monetary Base and the virtually real-time publication of the Aggregate Balance of the Banking System. It also applies to the information we issue for general public consumption, whether in print, through the press, on the Internet, or in our programmes of educational briefings and seminars.

Mr Yam presents the 1998 Hong Kong Monetary Authority’s annual report Speech by the Chief Executive of the Hong Kong Monetary Authority, Mr Joseph Yam, on the occasion of the presentation of the 1998 HKMA annual report before the Legislative Council Financial Affairs Panel in Hong Kong on 3 May 1999. Introduction Mr Chairman, Honourable Members, I am most grateful to you for giving me this opportunity to speak to you on the occasion of the publication of the HKMA’s Annual Report for 1998. The Report is tabled at this meeting of the Financial Affairs Panel; it is also being distributed to all Members of the Legislative Council this morning. This Report covers the full range of the HKMA’s work for the calendar year 1998, in addition to giving an assessment of the economic and banking environment for the year. I have no need to remind Members that 1998 was, to put it mildly, an eventful year. The Report sets out the many problems and challenges that the HKMA has had to grapple with during the course of the year, and explains what actions and initiatives the HKMA has been taking to address them. You are all familiar with these issues, and you have the details before you. So I do not wish to take up too much time with a long description. My main focus in this presentation will be on the challenges for the HKMA in the coming year, particularly in the light of current economic trends.
It is well-known that I have advocated a lower repo rate to push down unemployment faster and to push up an inflation rate that is currently below our target of two per cent. As there is a broad opinion that low interest rates form a risk to financial stability, it may seem as though I am taking the risk of a financial crisis breaking out in Sweden too lightly. But I am not. I share the opinion that economic policy needs to focus on counteracting financial crises. But I do not think that this is primarily a task for monetary policy. On the contrary, it is a task for macroprudential policy, and it is this topical policy area that I will be talking about today. I have previously spoken on how macroprudential supervision could be organised in Sweden, and on how responsibility for the tools in question could be allocated. 1 The question of the allocation of responsibility and mandates is also being investigated just now by the Financial Crisis Commission. In my opinion, it is important that there are clear targets and mandates for macroprudential policy in the same way as there are for monetary policy. If this is the case, each policy area can take the other for granted. Macroprudential policy is aimed at counteracting risks in the financial system as a whole, and is a policy area for which many countries are now trying to set the framework.

BIS central bankers’ speeches  5  The banks’ capital ratios are determined by their capital and assets and by the risk weights used for calculating the risk-weighted assets. If the risk weightings on lending to sectors considered as higher risk are increased, the banks must allocate more capital per loan. This could dampen lending to higher risk sectors. Our domestic banking crisis at the start of the 1990s provides one example of how systemic risks can build up and become concentrated upon a single sector – in this case, commercial properties. An increase of the risk weighting on loans to commercial properties might have been able to alleviate the crisis that we went through then. In Sweden, recent discussions have, above all, dealt with risk weightings on mortgage loans, which are among the lowest in Europe due to the historically- low loan losses. But there is reason to question these low risk weightings, as they do not account for recent years’ increases in household indebtedness. Consequently, Finansinspektionen has also started work on reviewing the risk weights with the aim of increasing them. I consider that variable risk weighting is a macroprudential policy instrument that it would be advantageous to include in a toolbox for Sweden. It could both strengthen the banks’ resilience against systemic risks in a broad sense, and reduce the risks associated with lending to a specific sector.
In this country hedge funds are obliged to register. Previously, the hedge funds reported all their holdings to Finansinspektionen, the Swedish Financial Supervisory Authority, which then published the positions with a three-month time lag. But since hedge funds often have very complicated strategies this public information became far too detailed and difficult to process. Neither was it particularly meaningful. Instead they have now gone over to regularly reporting different measures that describe the risk in the hedge funds. This is a more transparent means of gaining information about individual hedge funds’ risk. This information does not however show how large, direct or indirect, exposures the hedge funds have to the banks, for example. Information about this must come from the banks themselves and the risk must also be managed by the banks. At present we know that these exposures in the Swedish banks are extremely limited. 7 The uncertainty remains To summarise: On the whole the hedge funds have recovered rapidly from the August downturn which hit a number of different strategies. And it does not seem as though the hedge funds have played a decisive role in the most recent turmoil – not a negative role anyway. The hedge funds have functioned roughly as one could expect. In the Riksbank’s view, nothing has occurred that speaks for further regulation. However it is important that good market discipline can be maintained and that hedge funds in other countries are as transparent as the Swedish ones.

We have not yet seen the end of the turmoil that characterised the financial markets during the autumn. Unfortunately it cannot be ruled out that the crisis will be both more profound and longer than we previously believed. Perhaps some hedge funds will be hit in this process. But overall I believe that the hedge funds can contribute to resolving the crisis, not aggravating it. The future will show if the hedge funds can meet these expectations. Thank you! 7  See also Hedge funds and private equity firms – The exposure of banks and insurance companies, Finansinspektionen, July 2007. BIS Review 11/2008  5
A harder landing would have significantly larger effects, as these channels would likely be accompanied by negative spillovers to global confidence. The final caution concerns the future of globalisation. Trade tensions abroad and Brexit debates at home are manifestations of fundamental pressures to reorder globalisation. It is possible that new rules of the road will be developed for a more inclusive and resilient global economy. At the same time, there is a risk that countries turn inwards, undercutting growth and prosperity for all. Concerns over this possibility are already impairing investment, jobs and growth, creating a dynamic that could become self-fulfilling. While the current cycle of globalisation has brought widespread prosperity—lifting a billion people out of poverty and raising output per capita up 40% in both the UK and globally since the mid-1990s—it has also given rise to three imbalances that threaten its sustainability. First, external imbalances, with large trade surpluses emerging in some regions and big deficits in others. Though somewhat smaller than on the eve of the crisis, the sum of current account surpluses remains significant at 2% of global GDP. The sustainability of these imbalances is made more challenging by the asymmetry at the heart of the international monetary system. As the world economy has been reordered with the weight of emerging market economies rising from 40% to 60% of activity in the past quarter century, the US dollar is as dominant today as it ever was.23 This contributes economically to higher risks of sudden stops and politically to greater mercantilist pressures.

The share of recessions preceded by credit booms is fairly stable at around 55% under several definitions, for both advanced economies and emerging markets. The share of credit booms which end in a recession varies from half to two-thirds. 13  14  9  All speeches are available online at www.bankofengland.co.uk/speeches  9  Chart 7: Heat-map of credit indicators are relatively cool  Sources: Bank of International Settlements (BIS) and Bank calculations. Notes: Each data series included in the heat map has been rescaled into a percentile by using a kernel density estimate of its cumulative distribution function. Red values indicate readings in excess of the 80th percentile; dark blues indicate readings below the 20th percentile; green values are close to the median. Digging a little deeper, household balance sheets have generally improved. Whereas in the lead-up to the global financial crisis, household debt in the US, UK and major euro-area economies16 rose by almost 40 percentage points relative to income, since then households have delevered by an average of 11 percentage points.17 UK households have gone further, de-levering by about 20 per cent of income. The share of highly indebted UK households has fallen to 1% from a pre-crisis peak of almost 3%. It would take a rise in interest rates of 300bps to bring this share back up to its historical average.18 Corporate debt is more of a concern, particularly in the US.
Similarly, having a single financial market can make the task of federal institutions easier, in particular for resolution, as it allows mergers and takeovers to be used as a primary resolution strategy. Indeed, 450 out of the Federal Deposit Insurance Corporation’s 490 bank resolutions since 2008 have involved what is called “Purchase and Assumption” – selling parts of banks to other banks, often located in different states. The conclusion from this is simple: completing the banking union and completing the single financial market go hand in hand. Ins and Outs This brings me to the topic: how does the banking union relate to countries inside and outside the euro area? I will make three points here. First, the banking union is critical for the Euro Area countries. Second, it is also desirable for Member States, which do not share the euro. And third, the banking union should be about strengthening the internal market, rather than dividing it in two. Let me start with the first remark: the banking union is critical for the euro area countries. The reason why we are building it is to break the vicious circle between sovereigns and banks, the manifestations of which are much more acute and disruptive in a monetary union. That is why we need the Banking Union in the single currency area. But one thing must be clear: putting the Eurozone on a stronger footing will also benefit the countries that are not in the eurozone.

It will be good for the euro, because it will help to repair our monetary policy transmission mechanism. In other words, it will ensure that the ECB’s low interest rates will be effectively passed on to those countries that probably need them most. It will be good for the internal market, because it will be of help to reverse the significant financial fragmentation that we have seen so far. And it will be good for the recovery, as banks will be put on a stronger footing, confidence will be improved, and ultimately credit will start to flow again to enterprises on affordable terms. But what are the necessary elements of a banking union? To our mind, two elements are indispensable: a Single Supervisory Mechanism (SSM) and a Single Resolution Mechanism (SRM). Furthermore, it is important to have a single rulebook and the implementation of the Capital Requirements Directive and Regulation IV is key in this respect. A single European deposit insurance is not top on the regulatory agenda today and it may be tackled in the long term only. In fact, the Bank Recovery and Resolution Directive (BRRD) and its liability cascade makes it clear that deposits will come in only at the very end in bank resolution and thus the need for a single deposit insurance scheme is less urgent and a better harmonisation could suffice at present. Let me start with the Single Supervisory Mechanism.
6  BIS Review 86/2010  With regard to how the supranational institutions competent in this area are being reorganised, special mention should be made of the political impetus from the new extended G20, since without its contribution the reform of international regulation would have been unlikely to advance so strongly. Also, the recently created Financial Stability Board (FSB), which replaces the Financial Stability Forum and of which Spain has become a full member, is playing a central role in this process of change. The FSB is charged with identifying vulnerabilities of the international financial system and coordinating the responses of the national authorities and other international fora. In addition, it oversees the international application of regulatory and supervisory standards, promotes the development of the colleges of supervisors and prepares the contingency plans required for managing international financial crises. Sweeping changes are also afoot within the European Union in micro-prudential and macroprudential supervision. In the first, although ultimate responsibility will continue to lie with national supervisors, the European System of Financial Supervisors will be in charge of improving the quality and consistency of supervision, strengthening that of cross-border groups and establishing a single set of rules applicable to all European financial institutions. In the macro-prudential area, which can be defined concisely as that entrusted with identifying systemic risks, responsibility will lie with the European Systemic Risk Board, which also makes the recommendations or proposes the corrective measures it considers appropriate.

We can now see that the economic upswing is continuing to strengthen gradually. Industrial activity has made some progress; export demand is accelerating and firms are relatively optimistic about the future. Capacity utilisation is also continuing to increase. Households’ expectations regarding their own finances and the Swedish economy are once again more optimistic, after a decline at the end of last year. Retail trade sales indicate a good level of consumption. A slightly stronger development in real disposable incomes, partly due to lower inflation, continuing low interest rates and rising asset prices, is expected to benefit consumption in the near future. Given this background, we have found no reason to make more than a few marginal changes to the overall picture of growth we have been outlining since last autumn. We now believe that economic growth will amount to just over 2½ per cent on average over the coming two years, which is a tenth of a percentage point more than our previous estimates. However, the annual outcomes differ slightly more because of the fact that the figures for the current and coming years are affected by changes between the years in the number of working days. This has no major significance for our view of resource utilisation, as both production and demand are affected. The conclusion of our assessment of economic activity is that the economy will approach full resource utilisation at the end of the forecast period.
They also require soundly functioning and well-integrated financial markets capable of diversifying risks across borders and correctly pricing concentration risks. This is why, in my view, the most immediate and significant challenge facing EMU is to reinforce the integration of both banking systems and capital markets. Reinforcing the Banking Union When the euro was launched, there was actually an expectation that many banks would become truly European, providing retail services across the whole euro area. The reality is quite different. 6/11  Cross-border consolidation remains very limited and most firms and households in the euro area remain largely dependent on their domestic banking systems to maintain investment and smooth consumption profiles. Although no formal barriers to foreign banks exist, relevant distortions arise from stillsignificant specificities in banking regulations across countries. Some of the existing savings banks, government-owned banks or regional banks in the EU are protected by national legislations hampering incentives to compete or effectively sheltering them from competition. Moreover, regulation fails to fully acknowledge the benefits generally arising from geographical diversification in a single market. We also need to address the current deadlock on the third pillar of the Banking Union, the European Deposit Insurance Scheme (EDIS). Some experts argue that this third element may not be essential once we have in place a stringent resolution framework with homogeneous bail-in requirements; but in my view, it remains crucial to make EDIS a reality.

The banking sector still remains mainly national, and intertwined with the sovereign of its host jurisdiction. For bank depositors and national authorities, the current situation is such that the ultimate backstop for insuring deposits in a failed institution relies completely on a national government which has a limited say on the on-going supervision and resolution of the failed institution. This is so since decision-making processes on these responsibilities are now adopted by the European single mechanisms. 4/11  Notwithstanding cultural, legal or historical reasons, these inconsistencies and obstacles are broad-based, and stem from pure regulatory barriers, a lack of infrastructure or limited political resolve. The results are pervasive. Investment portfolios are not well diversified and investment opportunities are lost as these may not always be matched with savers’ funds. The financial system remains fragile and fragmented because of the doom-loop between sovereigns and banks. An important consequence of insufficient integration is the limited capacity of risk-sharing mechanisms in the Euro Area countries, compared with those of the United States. 5/11  As you know, risk-sharing is the ability of countries to diversify country-specific shocks among other member states through the cross-country savings and capital market channels (i.e. the private risk-sharing mechanisms), as well as through fiscal transfers (the public sector channel). With regard to the private channels, the degree of risk-sharing through capital markets is comparatively low in Europe.
The push for T+1 will require the committed support of both the public and private sectors because the stakes are very high. I would like to turn now to the securities settlement system and the Federal Reserve. Since its inception, the Federal Reserve System has been deeply interested in the design and operation of the securities settlement system in the United States. The Federal Reserve’s interest stems from its overall concern for the efficiency, reliability and stability of the financial system as a whole. First and foremost, the Federal Reserve System was created by Congress in 1914 to oversee the stability of the nation’s financial system. As part of its oversight responsibilities, the Federal Reserve Banks stand ready to lend funds from the discount window to US depository institutions and, under extraordinary circumstances, to other US entities. In addition, the Federal Reserve is a member of the international community of central banks, bank supervisors and securities regulators and, as such, works cooperatively with its counterparts in other countries to promote financial stability globally. Second, the Federal Reserve is responsible for supervising US depository institutions and US bank and financial holding companies, some of which are very involved in the securities settlement system. Commercial banks provide wholesale custodial services to both institutional investors and intermediaries in the securities business. Commercial banks also lend to firms in the financial services sector, providing short-term credit and thereby adding critical liquidity to securities markets.

To this end, a number of initiatives are currently in progress to help ensure the continued efficiency of the payment and settlement system in the United States. Let me be a bit more specific about some of the planned improvements to the infrastructure of the financial system that we expect to be implemented in a very short time. The first is the CLS Bank project, the Continuous Linked Settlement Bank, which has been under discussion since 1995. The owners of the CLS Bank are in the process of building the Bank’s systems and getting supervisory approval to begin operations in the fall of next year. The purpose of the CLS Bank is to create a privately owned and operated facility for payment-versuspayment settlement of foreign exchange transactions. Today, many foreign exchange transactions carry principal risk - that is, the risk that only one of the two legs of the transaction will be executed. This risk exists because of differences in the operating hours of large-value payment systems around the globe. However, when transactions are settled through the CLS Bank, the two legs of the transaction will be executed simultaneously with finality, thereby eliminating principal risk from the transaction. A second initiative under way to improve the payment and settlement infrastructure has to do with CHIPS, the Clearing House Interbank Payments System. The New York Clearing House, which operates CHIPS, is planning to introduce fundamental changes to its processes for large-value interbank payments that will bring about intraday finality.