samchain/econo-pairs-v1 huggingface dataset:
Abdulrahman A Al-Hamidy: Risk strategies for Basel III compliance and beyond – extracting business value from regulatory change Speech by His Excellency Dr Abdulrahman A Al-Hamidy, Vice Governor of the Saudi Arabian Monetary Agency (SAMA), at The Institute of Banking/Moody’s Analytics Symposium, Riyadh, 30 November 2011. *  *  *  Distinguished Participants, I am pleased to be here today to share my thoughts on “Risk Strategies for Basel III Compliance and Beyond”. Given the lingering global financial crisis with ongoing impact on a number of economies and financial markets, this is a relevant and timely subject to deliberate upon. I appreciate the efforts of the Institute of Banking and the Moody’s Analytics to organize this Symposium for the benefit of the bankers and supervisors in the Kingdom. I have seen the list of topics to be covered today and the impressive list of speakers and I am confident that all of you would greatly benefit from the discussions. The world today has not yet recovered from the global financial crisis that started in 2007. While the governments, central banks, supervisory authorities and international organizations have been working hard to revive and revitalize financial markets and financial institutions in many advanced markets, the recovery has been slow. Following the financial crisis the lessons learned exercise had attributed the main causes to include a long period of easy monetary policy that fueled accelerated economic growth accompanied by lax and light supervision in a number of advanced markets.

Indeed, some central banks have adopted interest rate guidance announcements covering the next two years. It is likely that monetary policy will, for some time, make use of a diversity of instruments. Macro-prudential measures will interact with monetary policies in a complex way. In that context, it is therefore all the more important to keep clarity of purpose and stick to two crucial features inherited from the pre-crisis consensus: the focus on price stability and, its corollary, central bank independence. There should be no ambiguity about what central banks are trying to achieve. The more non-conventional their actions, the less obscurity there should be as to their ultimate purpose. Non-conventional measures, like any others, can only achieve their objectives if inflation expectations are solidly and clearly anchored. From that point of view, calls by some economists and market participants for a temporary relaxation of price stability objectives  2  BIS central bankers’ speeches  are, in my view, totally misguided. I find it significant, on the contrary, that two major central banks have recently decided to quantify their price stability objectives and enhance their communication accordingly. BIS central bankers’ speeches  3
The Bank is continuing to implement the current regulatory framework until any new arrangements with the EU take effect. By enhancing the resilience of banks and by providing regulatory certainty so that firms can operate and plan with confidence, the Bank of England is ensuring that the financial system can continue to provide credit to businesses and households. This progress means that the financial system will dampen the aftershocks from recent events rather than amplify them. Next Tuesday, the independent FPC will release its biannual assessment of risks in its Financial Stability Report, and it will take any further actions it deems appropriate to support financial stability. Consistent with public accountability, we will then take questions from the media that day and will testify before Parliament the following week. 3.2  Monetary policy  Let me now turn to monetary policy. In May, the Monetary Policy Committee set out its central outlook for steady growth accompanied by a gradual return of inflation to the target. As required by our remit, the MPC identified that the most significant risks to its forecast concerned the referendum.15 This was the view of all nine independent members of the MPC. In May, the MPC judged that a sustainable return of inflation to the 2% target probably required a gradually rising path for Bank Rate over the next three years as growth picked up, jobs and wages increased and the drags from a stronger currency and lower commodity prices faded.

Bonds being richer in the cash market will make it more difficult to borrow them via reverse repos. This should also push up the price in the repo market, all else equal. In addition, investors who own more expensive securities should be able to profit from them by obtaining lower funding costs in the repo market. In other words, because the cash and the repo market often intermediate the same asset, it is natural that changes in one market may have repercussions in the other.5 Both effects have clearly left a footprint in the repo market. But one needs to look beyond aggregate data to understand the full impact of the ECB’s APP. 2 / 10  BIS central bankers' speeches  For example, there has been no overall fall in average euro repo market turnover since the great financial crisis. Daily volumes in the repo market even rose in recent years, despite the considerable increase in excess liquidity. You can see this clearly on my first slide. According to MMSR data, turnover was close to € billion daily in the second quarter of this year, up from around € billion a few years ago. What has changed, however, is the type of transaction executed in the repo market. This you can see clearly on this slide and on the next. First, there has been a clear shift from unsecured to secured transactions since the crisis.
At the same time, the Albania's budget deficit declined to 3.7% of GDP in 2022 from 4.6% of GDP in 2021, while public debt reduced to 64.6% of GDP from 74.5%. This improvement reflected the fast growth of public revenues, the reduction of the budget deficit in response to the fiscal consolidation policy, as well as the strengthening of the exchange rate. Last, but not least, financial markets have been relatively calm and the banking sector has performed positively, despite the elevated trend of interest rates and the higher uncertainty that has characterized the market actors. In particular, the banking sector appears robust, with good indicators of liquidity, profitability and capitalization. This sector has already turned into a stable business partner for Albanian households, supplying them with the necessary funds for the expansion of activity, providing reliable instruments for maintaining their savings, as well as by constantly expanding the range of financial products and payment instruments. Our analyses suggest that systemic risks remain contained, while the high level of capitalization and liquidity provides a significant buffer to withstand shocks. Dear ladies and gentlemen, The good resilience of the Albanian economy in the face of the ongoing crises of recent years is an evidence, first of all, of the dynamism, flexibility and sound balance sheets of Albanian businesses and households.

On a more general view, the first effects of our reaction are evident in curbing the increase of inflation and settling it on a declining trajectory. Our assessments show that in the absence of this reaction, inflation would have averaged 4.5 percentage points higher throughout the 2022 – 2024 horizon, having significant negative consequences on both the purchasing power of households and non-performing loans ratio. At the same time, our activity in the field of supervision, regulation and licensing of the banking sector, in 2022, focused on three main directions: (i) guaranteeing the soundness of the banking sector, in presence of real and financial shocks triggered by the war in Ukraine; (ii) monitoring the impact that the upward trend of interest rates had on the balance sheets of the banking sector; and, (iii) dealing with the intense and  3/5  BIS - Central bankers' speeches  organised cyber-attacks on the country's financial industry and infrastructure. The results of our work in these directions have been positive, helping the banking sector to successfully tackle the challenges of 2022. In parallel with them, we have aimed to further improve our regulatory base and our macroprudential policies and instruments, to further strengthen banking supervision, as well as to promote the development of the payment system, through upgrading the legal, regulatory and infrastructural base. In more concrete terms: First, the Bank of Albania has continued to complete and improve the supervisory regulatory framework, aiming at its approximation with the EU acquis and Basel Committee principles.
The deadline for compliance is 30 June 2014. As part of its proposal, the SNB drew attention not only to the cyclical risks but also, once again, to the high risks in mortgage lending, especially in the area of affordability. Some three months have passed since the CCB was increased. Based on the data currently available for the first quarter of 2014, the all-clear still cannot be given, in our view. In the first quarter of 2014, momentum in real estate prices was similar to that in the previous year and therefore has not further diminished. However, for an idea of the overall picture we are still lacking important data. A definitive assessment of the latest developments would therefore be premature. So we will continue to monitor developments on the mortgage and real estate markets closely. Any decisions on further measures must be made in the light of these observations. The SNB therefore regularly examines, first, whether the CCB needs to be adjusted. Depending on how the situation develops, this might need to be an upward or a downward adjustment. Second, the authorities are working on the specification of measures that would target risks in the area of affordability. Monetary policy and the SNB balance sheet: Flexibility as the key factor In the case of the CCB, the SNB plays an important role because it can make proposals for its activation, alteration or deactivation. However, this instrument does not have any impact on our balance sheet.

The week of 12–18 March 2018 is internationally known as the Money Week. Initiated by Child and Youth Finance International, with the support of the Organisation for Economic Co-operation and Development (OECD), and adopted by more than 23.000 organisations across the globe, the Money Week is an annual financial awareness campaign built to inspire children and young people to learn about money matters, livelihoods and entrepreneurship. The celebration of this Week aims at raising the awareness of the younger generation to be responsible future citizens and capable of making well-informed financial decisions Following the tradition from the previous years, the Bank of Albania, in cooperation with the Albanian Association of Banks, with the support of the Ministry of Education, Sports, and Youth, like many other institutions worldwide, will organize various activities to involve children and young people, teaching them how to manage money, to save money, to think financially, to understand the changes in the economic systems where they live, to earn income through entrepreneurship, and set the foundations for their future through financial literacy. In the light of these objectives, during the Week, a number of activities will be organised such as lectures, contests, and visits to commercial banks and the Museum, aimed at including as many students as possible. This year’s motto “Money: You reap what you sow” highlights the importance of money matters as a necessary means to achieve and maintain welfare.
Nevertheless, we concur with the message of the Fund that risks are clearly tilted to the downside, and agree that it will be prudent for policymakers to prepare for more adverse outcomes, though we hope such outcomes will not come to pass. It is telling that emerging markets, which have already been responsible for the greatest part of the world’s economic growth, will play even more significant role in cushioning this downturn. We note that even at the slower growth rates projected, emerging markets are still expected to expand at a healthy 6.7 percent this year, and will sustain that pace in 2009. Developing Asia can be expected to see even more robust growth, in excess of 8 percent, led by China’s near double-digit rate of expansion. It is heartening to note that self-sustaining domestic demand is expected to be a greater feature of the expansion of individual Asian economies, along with greater intra-regional trade. 3. We welcome the ongoing correction of global imbalances we have experienced thus far. While recognizing that there is still a risk of disorderly unwinding of these balances, we are cautiously optimistic that responsible actions by all parties will prevent such an event. In our region, we have significant adjustments in domestic demand, underpinned by improved economic fundamentals. As a result, the surplus countries in our region continue to experience a gradual but significant decline in their current account balances, partly due to the acceleration in the rate of exchange rate appreciation in the region.

Chart 5: Sterling three-month interbank rates relative to future expected policy rates  Chart 6: Oil prices  Sources: Bloomberg and Bank Calculations  Sources: Bloomberg and Thomson Datastream  8  BIS Review 145/2008  Chart 7: CPI inflation projection based on market interest rate expectations  BIS Review 145/2008  9
In other words, we need to distinguish clearly between: (1) on the one hand, the task of defining and communicating the target level for short term interest rates, and (2) on the other hand, the task of achieving this level in the inter-bank market. 4  Alan S. Blinder (1997) “What central bankers could learn from academics – and vice versa”, Journal of Economic Perspectives, 11(2), pp. 3-19. 6  BIS Review 143/2007  Moreover, taking into account the fact that the Eurosystem has not increased the supply of liquidity, but has only adapted the profile in terms of maturity and timing in the course of a reserve maintenance period, it becomes clear that the re-alignment of market rates with central bank target through open market operations cannot contain losses of individual banks stemming from imprudent risk management. Rather these liquidity policy measures should be seen as a continuation of the practice in normal times to align liquidity supply with liquidity demand, the only exception being that, under the current circumstances, it has not been possible to estimate the latter by means of the regular liquidity analysis. Third, concerns about moral hazard issues have been raised in the case of a reduction of the penalty rate associated with the recourse to a central bank borrowing facility, such as the discount rate or the marginal lending rate.

To some extent, the resulting amount was taken as guidance for successive allotments carried out in the format of variable-rate tenders, which were reduced in size, in parallel with a temporary easing of tensions at the shortest end of the money market term structure. More generally, at times of market stress, a central bank has to operate in an environment characterized by an extreme level of unrest, in which interest rates are much more volatile than usual, and the martingale property loses its power to tie interest rates to the desired level. In such conditions, central banks can act quickly only if they have access to timely and accurate information. Indeed, differences in the speed, frequency and magnitude of interventions by central banks during financial turbulences can be due not only to structural distinctions in the banking sectors or in the operational frameworks and policy principles of the central banks, but might more simply reflect differences in information sets. Let me at this point briefly recall some of the main sources of information of interest for the Eurosystem in the current turmoil. Market intelligence. Over the last few months we have extensively used market information and activated our regular communication channels with the banking and financial industry. Particularly useful in this context has been the work of the Money Market Contact Group, a discussion forum on issues related to euro money market gathering representatives of the central banks of the Eurosystem and of the commercial banks from all over Europe.
One important explanation for the rapid growth is that previously planned and closed economies have been transformed into market economies and opened up to the outside world. The forecasts in the Monetary Policy Report entail world GDP growth slowing down to around 4 per cent a year in 20082009 and later rising again to around 4.5 per cent in 2010. Growth in the world was thus expected to remain relatively strong, despite the fact that we see ahead of us a couple of years of slower growth in the United States and the euro area. This is because of the strong growth in emerging and developing economies. For instance, the OECD calculates in its most recent forecast on an average annual GDP growth rate in the so-called BRIC countries of 4-5 per cent for Brazil, 7 per cent for Russia, 8 per cent for India and 10 per cent for China during the years 2008 and 2009. The emerging economies together account for around half of the world GDP and for three quarters of the growth in the world in 2008 and 2009. Rising and falling commodity prices in the world market The strong world growth has been the most important reason behind the sharp rise in commodity prices. Commodity prices have risen for six years, and these increases have accelerated over the last two years. Rapid growth has led to an increase in the demand for energy. It is almost impossible to make good forecasts for the oil price.

In addition, we calculated on unit labour costs increasing by an average of almost 3 per cent a year in 20072010, to be compared with largely 0 per cent a year in 2002-2006. The high inflation rate could affect wages through demand for compensation for the price increases. However, this does not seem very likely at present. The slowdown in growth and the expected weakening of the labour market are factors that weigh against such a scenario. In addition, we now have three-year agreements in most areas of the labour market which regulate the agreed wage increases. Nor are there, as there were in the 1970s and 1980s and are in some other countries, price guarantees in the agreements that provide automatic  4  BIS Review 100/2008  compensation for price rises. These were abolished in connection with the so-called Rehnberg agreement at the beginning of the 1990s. It is, on the other hand, important that inflation and inflation expectations fall to around 2 per cent ahead of the next round of collective bargaining in 2010. With the current inflation forecasts, average inflation over the three preceding years will then have been over 3 per cent, which may be a problem. However, this would nevertheless mean that real wages prior to tax increase by around 1 per cent a year during the current three-year agreement period. After tax the increase is larger, perhaps 2-3 per cent a year. 3.
In the alternatives space alone, the average allocation by insurance companies, as a percentage of their assets under management, has in fact already increased from 10% to 15% between 2011 and 20135. 4  “Asian Insurers: Adapting Investment Strategies to a Changing World”, BlackRock in conjunction with the Economist Intelligence Unit, Sep 2013. 5  Preqin’s 2013 Global Alternatives Report. BIS central bankers’ speeches  3  15. A recent Goldman Sachs Insurance Asset Management survey reports that nearly half of Asian insurers are looking to raise their allocation to higher yielding assets. Like expected returns, risks – market, credit, liquidity, and legal to name a few – from investing in these newer asset classes will also be higher. There is no free lunch. Insurers’ risk profiles will be distributed across a wider and more complex spectrum of asset classes. This will call for more sophisticated and robust management of individual investment risks, as well as the correlation between the range of investment risks within a more diversified and complex portfolio. 16. The risk management deficiencies highlighted by the global financial crisis and recent tail events, have raised the bar in all areas of risk management. As a result, risk management has now been elevated from a mere control function under the responsibility of the Chief Risk Officer, to a strategic role that comes under the direct oversight of the insurer’s Board and senior management. 17.

Lower returns in the new normal 8. First, lower returns in the new normal. There has been increasing acceptance that the era of low yields is not just a cyclical phenomenon, but is in fact the New Normal. In advanced economies, policymakers are faced with conflicting challenges as they seek to maximise economic growth on the one hand; while having to pursue fiscal consolidation and financial sector reform on the other. Meanwhile, emerging economies will grapple with tighter financial conditions and by implication, slowing growth when unconventional monetary policies are unwound. The outlook is highly uncertain as the normal cyclical recovery template cannot be applied to structural deleveraging episodes such as the one we are currently in. Although bond yields are expected to rise from their current low levels, it is likely that insurers will have to settle for much lower returns from fixed income investing in the years ahead than that achieved in the pre-crisis period. Over the next 20 years, the slowing demographic outlook for the world will also exert pressure on economic growth and lower the expected returns for most asset classes. Shortage of long duration assets 9. Next, a shortage of long duration assets. Asia has often been singled out as the bright spot in the global insurance industry, as rising incomes and lower than average  2  Allianz Global Investors estimates. 3  OECD Global Insurance Statistics. 2  BIS central bankers’ speeches  insurance penetration in many markets offer rosy opportunities for growth.