samchain/econo-pairs-v1 huggingface dataset:
This has enhanced our understanding of the commercial environment and invigorated our organisation. Just as MAS has gained from such insider insight, industry too needs its share of talent. Through the mixing of talent between the public and private sectors, industry will also come to understand the intent and thinking behind MAS’ policies and actions. Over time, this will lead to a healthier and more constructive relationship where MAS and industry together work toward developing Singapore as a world-class financial centre. Enhance market discipline Fourth, we need to continue to enhance market discipline. The easy part is to establish and enforce the right rules for disclosure and corporate governance. Getting companies to internalise and abide by the spirit of tighter rules will take longer, though our standards of disclosure are already quite good compared to other countries. The most difficult part will  BIS Review 62/2002  7  be enhancing consumer education and awareness, without which, as I noted earlier, disclosure and caveat emptor cannot work. We do not need to convert the entire population into Chartered Financial Analysts. But we must help the public to understand basic finance and investment concepts, and to make effective use of the information that is available. They also need to understand that investing is for the long term and should be based on fundamental analysis. This requires a collective effort on the part of MAS, industry bodies and consumer groups.

Consumers would benefit from a wider offering of products and services at competitive prices. Taking a more strategic and proactive approach to development Third, we adopted a more strategic and pro-active approach to developing the financial sector. We actively went out to attract new business here. For institutions already in Singapore, we tried to anchor them more firmly, and encouraged them to expand and introduce new activities here. BIS Review 62/2002  1  Enhancing monetary policy effectiveness Finally, we had to enhance the effectiveness of our monetary policy. Free capital flows and complex derivative products had made it impossible to completely insulate the Singapore dollar against attack. Our approach had been to operate an inscrutable monetary policy and impose comprehensive restrictions on non-resident borrowing of Singapore dollars. This was not only becoming untenable, but was also hampering the growth of our financial markets. We needed a more explicit and transparent monetary policy stance, and more precisely targeted safeguards against the risks of internationalising the Singapore dollar. III. The changes in the financial and economic landscape  We launched these major changes just as the Asian Crisis was breaking. But we did not foresee how difficult the next five years would be. Southeast Asian countries became mired in political difficulties triggered by the crisis. Malaysia dismissed its Minister of Finance and imposed exchange controls. Indonesia saw the fall of the Suharto government, only to be succeeded by a totally different dispensation.
There is no doubt that having to call off a test at the last minute because of insufficient planning will be counter-productive to reaching such a goal. Contingency Planning The final issue I will discuss today is contingency planning. Much has been said about the need to develop contingency plans for the Year 2000 conversion, and I fully support these efforts. We need contingency plans in place for two main reasons. First, to ensure that we have considered how to handle the inevitable disruptions that will occur as a result of Year 2000, and, second, to help build confidence that disruptions will not have systemic consequences. In the process of contingency planning, we must also keep in mind that it is prudent to consider the possibility of some very serious, but improbable, events. Contingency planning for Year 2000 will not be limited to the century rollover itself. As my colleague, Roger Ferguson, has described it, there will be a Year 2000 “shadow” that will affect financial markets both before and after the event itself. This shadow will relate to BIS Review 85/1998  -8-  the uncertainty among market participants about the possible consequences of Year 2000 disruptions for particular firms and markets. In some cases, this concern will lead market participants to consider conventions and procedures for limiting risks during the rollover itself. For example, some transactions that normally would be executed for settlement on January 3, 2000 may be postponed.

However, several aspects of the Year 2000 problem are unique and will require fresh thinking. For example, the potential scope of operational problems that may be experienced across different markets globally is new. At the time of the century change, there also may be significant uncertainty about how long problems will last, as well as the extent to which some participants are facing more than simply operational problems. On both of these fronts, I am hopeful that the transition to the euro at the end of this year will give us some insight into how supervisors and regulators should cope with these issues. The third major element of contingency planning that needs to take place is both cross-industry and cross-border in scope. The Year 2000 problem has reminded us of the extent of interdependencies in our global economy. Financial markets in particular are dependent on a mix of firms to provide liquidity in all of the various markets. These firms are dependent on vendors for market information and communications, on payment and settlement systems to complete transactions, and on power generators and other infrastructure providers to support all of their activities. In turn, these infrastructure providers are dependent on receiving and paying for adequate supplies to keep their plants operating, as well as on relevant insurance coverage to ensure that they can operate without unlimited liability. We must consider the scope of these dependencies in formulating contingency plans.
BIS central bankers’ speeches  3  Figure 2 Swedish exports and the Swedish export market Annual percentage change 20  20  15  15  10  10  5  5  0  0  -5  -5  -10  -10  -15  -15  Swedish exports Swedish export market  -20 80  85  -20  90  95  00  05  10  Note. The dots represent the Riksbank’s forecast for the whole year. Sources: Statistics Sweden and the Riksbank  The composition of Swedish exports is changing The forecast for the growth of the export market is calculated on the basis of current trading patterns (see Figure 2). At present, the predominant component of Swedish exports relates to trade with Germany and our Scandinavian neighbours. Together these countries account for approximately one third of Swedish exports (see Figure 3). Figure 3 Swedish exports per recipient country Percentage of total Swedish exports 30  30  USA UK  25  25  Germany Scandinavia BRIC  20  20  15  15  10  10  5  5  0  0 98  99  00  01  02  03  04  05  06  07  08  09  10  11  Source: Statistics Sweden  4  BIS central bankers’ speeches  The United Kingdom and the United States are also important export markets for Sweden.

In the euro area, it is above all the state of central government finances in Greece that has been in focus in the media, but other euro countries such as Portugal, Ireland Italy and Spain have also suffered debt problems. The situation in the euro area has made the situation in parts of the European banking sector increasingly strained. For example, a number of banks, above all those that are highly exposed to the countries with weak public finances, have suffered a shortage of liquidity and are finding it difficult to borrow money. There is concern that a collapse of these banks would lead to contagion effects in the international banking system. Uncertainty about the situation  BIS central bankers’ speeches  1  in parts of the banking system has led credit rating agencies to reduce the credit rating of a number of banks. GDP growth in the United States was weak already during the first six months of 2011. The increases in corporate investment and in employment have been low – far too low to reduce unemployment by more than a percentage point or so. Household consumption has also been weak. This is because a high level of debt in combination with falling asset prices has reduced the net wealth of the households and they are now trying to counter this by reducing their debts. The continued weak development of the US housing market is also a factor that is holding back an improvement in the net wealth of the households.
For 68 out of the 79 months, inflation was within 0.5 percent of the target - below it for 42 months, above it for 30, and on target for the remaining seven. Notwithstanding the stock market crash and the slowdown in world activity, the UK economy has continued to grow steadily and employment has remained strong. On a longer term view, the decade of inflation targeting since 1992 looks remarkably stable by post-war standards.4 The recent slowdown has been exceptionally mild compared with all previous slowdowns since the beginning of the 1970s, and since 1992 growth in both real GDP and consumer spending has also been significantly less volatile, with 46 quarters of positive growth, and no significant downturn in consumption since mid 1994. Prior to the 1970s, recessions were virtually absent, but real GDP was much more volatile than it has been in the past decade. Of course, better monetary policy and low inflation are only part of this story. It matters that monetary policy has been supported by fiscal discipline. Just as important are the many labour and product market reforms that, over a long period of time, have given us a more flexible and competitive economy, which is capable of adapting quickly to sudden change without prolonged periods of unemployment and under-utilised capacity. Attitudes towards inflation American economist Alan Blinder once said: “Price stability is when ordinary people stop talking and worrying about inflation”. Has low inflation entered our bloodstream yet? This is a hard one but there are some clues.

Spain has recently introduced various reforms to improve the effectiveness of bankruptcy procedures, though it is still too early to appreciate in full what additional reforms are needed to further improve those procedures. At the European level, I also welcome the Action Plan on Building a Capital Markets Union recently approved by the European Commission. This project envisages some measures to overcome information barriers that could inhibit SME lending. That includes, following the Spanish example, the strengthening of the feedback given by banks declining SME applications and the promotion of systems facilitating the availability for investors of comprehensive information on SMEs. Moreover, the Action Plan also foresees actions to reactivate securitisations markets. Let me stress the importance of this specific set of measures. For smaller firms, for which direct access to markets is not feasible due to problems of scale, bank credit will remain the predominant financing source. Therefore, an adequate availability of funds for SMEs requires banks to have sufficient means and capacity to properly conduct their intermediation activity. In that regard, the development of the securitisation markets seems a promising avenue to facilitate credit risk management by banks and, therefore, to support lending. Indeed, securitisation markets activity was seriously impaired after the subprime crisis due to the stigma attached to any kind of asset-backed securities, and the lack of recognition by investors and regulators of the specific quality of each product.
While effective bank-level management and meaningful market discipline are crucial elements of an overall strategy for promoting and preserving financial stability, neither can substitute for the critical role played by official supervision. The Basel Committee on Banking Supervision, which I chair, has identified the necessary ingredients of sound supervision, and these principles must be applied to all internationally active banks within a more dynamic, risk-based and process-oriented framework. The role of a sound and stable macroeconomic environment A sound and stable macroeconomic environment is also crucial for financial stability, and more generally for promoting sustainable growth. The converse - macroeconomic overheating - raises the likelihood of an eventual crisis, first by promoting excessive, and eventually unsustainable, external and internal borrowing. The next step inevitably is the correction to the real economy, interest rates and/or the exchange rate, that can sharply worsen asset quality and expose the accumulated weaknesses in the financial system. BIS Review 57/2000  4  Role of central banks in promoting stability and growth A central bank’s most important role in achieving stable, long-term growth involves promoting price stability. Achieving long-run price stability is a difficult and continuous challenge, as it requires constant efforts first to detect and then to correct the building up of internal and external imbalances. Moreover, because of time lags in policy effectiveness, authorities often have to take action based only on partial evidence, well before adverse symptoms are fully evident.

However, while initially strong fiscal positions may have provided a sort of “spare tire”, as with any spare tire, it is risky to ride on it for too long, in part because it may be needed to deal with the next nail in the road. Public debt has already risen markedly in a number of countries, and contingent liabilities often remain significant, raising some concern about potential future debt growth. Thus, some governments now face the challenge of moving to retighten fiscal policy while preserving growth and stability and, over the longer term, gradually restoring their previously strong net debt positions. These considerations further underscore the importance of quickly completing the process of banking sector rehabilitation and of attracting new sources of capital. Such decisive action would allow the banking sector to again be an engine of growth, capable of offsetting the eventual withdrawal of fiscal stimulus. Improved transparency can help Achievement of the goals of corporate and financial restructuring, and of macroeconomic stability, are fostered by improved transparency. When authorities clearly explain the objectives or concerns that lie behind their policies, they greatly increase the likelihood that markets will move in a direction that supports, and even favorably anticipates, the authorities’ goals. Under the auspices of the IMF useful standards have been promulgated for transparency with regard to macroeconomic data, including international reserves, and for fiscal and financial policies.
Yet there is one key difference between the situation today and that in the Middle Ages. Then, the biggest risk to the banks was from the sovereign. Today, perhaps the biggest risk to the sovereign comes from the banks. Causality has reversed. State support is one side of the “social contract” between banks and the state. 3 State regulation of banks is the other. Table 1 suggests that the terms of this social contract have  1  Reinhart and Rogoff (2009) provide an outstanding history of financial crises over the past 800 years. 2  Homer and Sylla (2005). 3  Tucker (2009). BIS Review 139/2009  1  recently worsened. That should come as no surprise. At least over the past century, there is evidence of a ratchet in the scale and scope of state support of the banking system (Section 2). Whenever banking crises strike, the safety net has bulged. Like over-stretched elastic, it has remained distended. What explains this ratchet? All contracts are incomplete. 4 Contractual relationships, like personal ones, often break down due to commitment problems. Social contracts between the state and the banks are no exception. This generates a time-consistency problem for the authorities when dealing with crisis – a tendency to talk tough but act weak. This explains historical hysteresis in the safety net (Section 3). So what can be done? There are many reform proposals on the table.

Chart 10: Bank and hedge fund concentration  35  T op 5 as % of sample assets  T op 5 assets % of top 1000  30  18 16  Global banks (RHS)  14 25 12 20  10 8  15 Hedge funds (LHS)  6  10 4 5  2 2009  2008  2007  2006  2005  2004  2003  2002  2001  2000  1999  0 1998  0  Source: TASS and The Banker  18  BIS Review 139/2009  Figure 1: Payoff profile for bank equity  β=1  Return on Bank Equity  Return on Market Portfolio  Socialised losses  Figure 2: Payoff profiles for bank equity  β=2 Return on Bank Equity β=1  Return on Market Portfolio  Leverage-induced social losses  BIS Review 139/2009  19  Figure 3: Payoff profile for bank equity  Return on Bank Equity  β=1  Return on Market Portfolio  Risky-bet induced social losses  20  BIS Review 139/2009
In the UK, we adopted a target for inflation as long ago as 1992 and the whole framework for taking decisions about interest rates was overhauled after the 1997 election. I am sometimes asked how different British economic history would have been if we had adopted the present approach to monetary policy at various landmark dates – such as 1976 or 1979. This is a hard one. Tolstoy famously said that all happy families are alike, but unhappy families are each unhappy in their own way. It is rather the same with monetary policy. There are very many ways of getting it wrong – the UK has some experience here - but the hallmark of all good monetary policy is what Hans Dietrich Tietmeyer (President of the Bundesbank in the 1990s) used to call ‘the three Cs’: credibility, consistency, and continuity. BIS Review 116/2006  3  My own view, for what it is worth, is that there has been a virtuous circle over the past 10-15 years when central banks have taken advantage of relatively benign global conditions to embed the three Cs, by successfully implementing better policy-making frameworks and establishing strong reputations for competence on the back of excellent track records. The Bank of England would have faced a tougher challenge in doing this in the economic circumstances of the 1980s, and certainly the 1970s – even if the political consensus had existed to support such an experiment (which it didn’t).

Between the beginning of 2004 and their peak in August of this year, world oil prices rose from $ to $ a barrel. There have been comparable increases in the prices of metals and other raw materials over the same period. Economists have also speculated that globalisation may be changing wage- and price-setting behaviour in developed countries, by adding to the competitive pressures facing domestic producers and wage earners. This is not just a reflection of increased competition from cheap manufactured imports, and the greater availability of migrant labour to ease domestic labour shortages. A Welsh audience will need no reminding of the many ways in which both inward and outward foreign direct investment can affect domestic employment opportunities. Hard as it is to quantify, the net effect of these trends may have been to reduce the sensitivity of domestic inflation to changes in the margin of spare capacity in the economy. But while these effects go some way towards explaining why the global inflationary climate may have been relatively benign over much of the past decade, I think they fall short of providing a complete explanation for the strength and resilience of global output growth. For this we might look to the more elusive influence of financial integration, and the added impetus to global growth provided by the increasing weight of fast-emerging market economies, particularly in Asia. It is just worth pausing on the remarkable ease with which the world economy has apparently absorbed the impact of sharply higher oil prices.
Conclusions  I don’t think that you were much surprised by my saying that I don’t think much of lax regulation. Given the obvious tendency towards exaggeration and erroneous developments in financial markets, and the potential damage for the economy and society, good regulations are an indispensable prerequisite for ensuring that the financial sector is able to function properly in the long term. This does not mean that the consequences of regulation and supervision for the banking industry’s ability to function should not be considered. The desire of some to make up for the rigour of the rules with less stringent supervision is something I reject. That would be the wrong approach. But what are required are not only good regulations, but also a well-functioning supervisor that exercises tough but fair control to help ensure a stable banking system and a level cross-border playing field. A decisive factor for the success of the SSM will not just rest on banks in the euro area being subject to a consistent supervisory approach. Rather, both supervisory legislation and the powers of European supervision must take further steps in the direction of harmonisation. Finally, it is not possible for every conceivable situation to be covered by regulations, nor can every crisis be anticipated from a supervisory point of view. Although regulation and supervision can ensure a certain measure of protection, or build a line of defence, as it were, they cannot and should not eliminate every risk.

The consequence of the crisis is therefore not only that the supervision of banks has shifted from the national level in the euro area to a European level, but also that supervision has changed in its basic approach and in what is expected of it and the supervised entities. •  The SSM has allowed us to start afresh in our relationship with banks. It has broken with traditions and customs that were often no longer being questioned. Supervisory teams from different countries see the banks with fresh eyes and on the basis of their common experience. This creates the necessary critical distance for sensible supervision. •  Banking supervision in Europe should take tough but fair action (the emphasis being on “action”). European supervision, the SSM, sees itself as a supervisor which identifies and addresses risks at an early stage, and thus contributes to ensuring that the banking system is able to function properly. A light touch and reactive supervision should belong to the past. •  European supervision should create a level playing field. That is why the first thing that we developed in the SSM was a consistent supervisory approach with a consistent methodology for assessing banks’ risks and governance structures, as well as their equity capital and liquidity positions. •  For the supervision of systemically relevant and large, internationally active banks in particular, the SSM represents a quantum leap forward.