samchain/econo-pairs-v1 huggingface dataset:
Dimitar Radev: Achieving the financial stability objective through macroprudential measures cannot be sustainable without understanding the financial cycle Opening remarks by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the Conference "The Current Global and European Financial Cycle: Where Do We Stand and How Do We Move Forward? ", jointly organized by the Bulgarian National Bank and the Bank for International Settlements on the occasion of the 140th Anniversary of the Bulgarian National Bank, Sofia, 7-8 July 2019. * * * Dear colleagues, Distinguished guests, We are delighted to have you with us to participate and share in our joint BNB-BIS conference organized on the occasion of the 140th anniversary of the Bulgarian National Bank. I would like to extend my special thanks to the General Manager Agustín Carstens and the BIS for their support in organizing this event. This is only a latest example in decades of cooperation between our two institutions. The BNB is among the oldest central banks in the world, 13th by order of establishment1. Today’s conference, therefore, marks a long history of central banking in Bulgaria. Evolution of a central bank’s mandates A central bank is historically associated with the goal of keeping the national currency and prices stable. After the Great Depression of the 1930 s supervision has become a function entrusted to or taken away from central banks in cycles depending on crisis experiences. With respect to supervision as a central bank function, the 2007/2008 global crisis had two effects.

The third step is the resolution of banks, applied by the Bank of Albania in view of the new mandate. Similar to recovery plans, the resolution plans drafted by the Bank of Albania aim to identify the legal and structural obstacles and difficulties with financial resources that banks face, toward resolvability. In this regard, the resolution plans are one of the key instruments to facilitate the Bank of Albania’s resolution implementation. This year in April, the Bank of Albania approved a bylaw that defines the content of resolution plans. Then banks were required to report a broad set of data for drafting these plans, based on the model of the European Banking Authority and we are currently in the process of drafting them. The drafting of the banks resolution plans is complicated, which includes complex and cross-border issues that must be implemented and coordinated within a short period of time. Hence, the resolution planning is an on-going process and a long-term mission to remove obstacles against the possibility for resolution action in banks. This planning does not mean drafting an annual plan that is stored somewhere in some shelf and it is dusted off only when its implementation is necessary; instead, it is the beginning of a long process of restructuring all aspects of the banking business that may hinder this process.
It is very well known that it is really hard to implement price stability-oriented monetary policies in an environment of fiscal dominance environment stemming from budget deficits and excessive domestic borrowing. In order to solve this problem, under the current economic program, giant leaps have been taken towards decreasing interest rates and achieving sustainable borrowing by employing tight fiscal policies. In addition, steps have been taken towards eliminating the public debt sustainability problem in the medium and long run by achieving primary surplus. At this point, I would like to underline that the stability, confidence and positive expectations, which have emerged in the markets as a result of the tight fiscal policies, have significantly contributed to the downward trend in inflation. Furthermore, continuous increases in productivity, the strong position of the Turkish lira and an income policy in line with inflation have to a large extent contributed to the favorable course of inflation in the recent period. Domestic demand has been kept under control as a result of the tight and prudent fiscal and monetary policies. The postponed consumption and investments, accompanied by advanced consumption, which was driven by worries stemming from old habits, have been instrumental in the rapid increase in domestic demand in the first two quarters of 2004. However, the increase in domestic demand slowed down evidently as of the second half of 2004, as expected. . Accordingly, the level of domestic demand did not exceed the production capacity, and thus no demand-side pressure was created on inflation.

Therefore, in our press release of “Monetary and Exchange Rate Policy for 2005” dated December 20, 2004, it was announced that 2005 would be a transition period and an explicit inflation targeting strategy would be adopted in 2006. Before concluding, I would like to remind you that detailed information about our policies to be implemented in 2005 is available on our website in our press release “Monetary and Exchange Rate Policy in 2005”. You can also obtain a hardcopy of this announcement as an annex to my speech. Thank you for your patience and attention. 22  BIS Review 36/2005
Most important among these are: improper lending to related parties if directors or senior management; improper lending to influential personality to maintain the goodwill and relationship, improper lending to clients in exchange for the right to equity participation or to benefit sharing from their businesses; and the improper profiteering by management from large procurement projects. The directors should be alert and on the look out for such situations. Sixth, the long-term future of a bank rests on continued acceptability from clients and society at large. Therefore, the directors must pay special attention to ensure that clients are treated in a fair manner. Of even more importance is the social perception of the bank. If there is a social perception that the bank has not conducted its business in high moral standings, or fails to look after the interest of the country, then social mistrust and sanction can lead to reputational risk, and the damage may have far reaching implications and difficult to restore. The directors can play a very important role here. Typically, high-flyer managements tend to aggressively pursue growth and profits, often at the expense of social perception. Directors, on the other hand, tend to comprise more eminent personalities, who are relatively more mature and broadly experienced than management who may have been in one profession all along. Seventh, this principle applies to the person performing the role of Chairman.

This year should mark the historic new chapter for the nation’s payment system, where we would see the transfer of the  BIS Review 25/2006  1  payments operation function from the Bank of Thailand to the private sector. This would provide greater flexibility for the system to adapt to the fast changing modern payments system development. Moreover, the recent announcement by the Thai Bankers Association of a major reform in the price structure of various payment media, including cheques, provides an important milestone towards a more efficient payment services. The move reflects a pricing based on the cost of various means of payments which would quickly eliminate inefficiency and costs to commercial banks. Another major achievement that calls for celebration is the significant reduction in the NPL last year. Thai banks have succeeded in bringing NPL down from 556,998 million baht, or 11.82 percent of total loans at the end of 2004, to 461,439 million baht, or 9.05 percent of total loans at the end of last year. In all, the NPL was brought down by a net amount of 95,559 million baht, the largest such decline since 2001, as a consequence of the recovery of the economy and improvement in business conditions. I am confident that this year will see an even more decline in NPL than last year. Moreover, the Financial Institution Development Fund has just completed the merging of Bangkok Asset Management Company, or BAM, with Asset Management Corporation or AMC.
In doing so it is contributing to strengthening international interlinkages between financial markets and systems that is more widespread and inclusive. The number of Islamic financial institutions worldwide has increased to more than 300 spanning over 75 countries. Total assets of the Islamic financial system are estimated to exceed one trillion US dollars. It is among the fastest growing financial segments in the world with an estimated annual growth in the region of 15 to 20 percent. There is now a growing strong demand for Islamic financial product in the global market, far exceeding the current availability of financial products and services being provided by the Islamic financial institutions. The global development of the Islamic financial system has become particularly important in this more challenging financial and economic environment. As the international financial system becomes more diversified and as this new form of financial intermediation develops, it has presented businesses with alternative means of raising funds while investors are presented with new asset classes. It has contributed towards greater diversification of risks. More importantly, the very fundamental requirement of Islamic finance is that it requires an underlying economic transaction thereby avoiding emphasis on speculative purposes. It also prohibits the commoditisation of risks, which leads to its proliferation through multiple layers  2  BIS Review 94/2007  of leveraging and disproportionate distribution. Islamic finance as a form of financial intermediation will also contribute towards enhancing the efficient mobilisation and allocation of funds across regions.

In 2007, Malaysia accounted for about two third of the global sukuk outstanding amounting to about USD47 billion. In 2002, the Government of Malaysia issued the first global sovereign sukuk. With this issuance, it became an international benchmark for the issuance of global sukuk. There have since been several further sovereign issues in the global capital market. The sukuk market has been an important source of financing for productive investment activities, while for investors, it provides greater potential for diversification into new asset classes. The development of the Malaysian sukuk market has involved wide ranging initiatives to facilitate an efficient issuance process, the price discovery process, the broadening of the investor base, the establishment of a benchmark yield promoting the liquidity in the secondary market and strengthening of the regulatory framework. These initiatives have been reinforced by the legal and Shariah framework and the supporting financial infrastructure including the settlement system and the bond information system. BIS Review 94/2007  3  The international prudential standards for Islamic finance is set by the Islamic Financial Services Board (IFSB), is located in Malaysia . The IFSB thus formulates the international regulatory and supervisory standards for Islamic financial institutions aimed at achieving best practices in order to secure soundness and stability of the Islamic financial system.
Moreover, if the weak development of exports and investment during, above all, 2012 had not been counteracted by household consumption, then the latest slowdown in the Swedish economy would have been more pronounced. Households have become more optimistic over the last 12 months and this is reflected in higher housing prices, increased lending and increased consumption. They have been helped by the increase in their disposable incomes over a period of several years. Low interest rates have of course contributed to this development in the household sector. Turning to the labour market, employment has increased but unemployment is nevertheless higher than it was a year ago as the labour force has increased relatively quickly. This is partly due to an increase in those of working age in the population, but also to the government’s labour-market reforms, which are both factors of a structural nature. At the moment unemployment is approximately 8 per cent and with the Riksbank’s current forecast we are approaching the interval of 5 to 7.5 per cent within which the Riksbank believes the long-run sustainable rate of unemployment lies.1 If we look at the situation in different sectors we can see that employment has increased in the service sector while the weak demand for Swedish industrial products is in part responsible for the weak development of employment in the manufacturing industry.

In addition, new labour market statistics show that seasonally-adjusted unemployment amounted to 8 per cent in August. The next Monetary Policy Report will not be published for a while yet, but at the Riksbank we are already working with new analyses and forecasts. Ahead of the monetary policy meeting on 23 October I will weigh these factors against each other, but also take account of any additional information that becomes available before then in order to arrive at a new assessment. 10  BIS central bankers’ speeches  Figure 8 Low but gradually increasing inflation CPI and CPIF, annual percentage change 5  5 CPIF  4  4  CPI  3  3  2  2  1  1  0  0  -1  -1  -2  -2 07  09  11  13  15  Note. The CPIF is the CPI with a fixed mortgage rate Sources: Statistics Sweden and the Riksbank  Good development in the short term, sustainable in the long term I hope that in my speech today I have been able to convey my thinking on monetary policy at the two latest monetary policy meetings and how I view the current situation. The repo rate is low at present. The Riksbank’s forecasts show that inflation will reach 2 per cent within the forecast period at the same time as resource utilisation will improve. Although the global economy is weak at the moment, the preconditions for a recovery are in place.
Monetary policy was embarking on a path which targeted inflation and which, unlike monetarism before it, downplayed money and credit. And the regulation of banks, long the preserve of central banks, was in many countries being hived off to separate regulatory agencies. What happened next was truly extra-ordinary. Whether by coincidence or causality, the world experienced the largest banking bubble in history. Between 1990 and 2007, global bank balance sheets rose by a factor four. On the eve of the crisis they had reached around $ trillion, or almost 1.5 times the annual output of the entire planet. At the Bank for International Settlements, Andrew Crockett saw trouble brewing. In 2000, he gave a speech calling for a “macro-prudential” approach to regulation.12 Crockett argued that central banks needed to look at, and act on, developments across the whole financial system if systemic risk was to be headed-off. Credit booms, the like of which was occurring for real at the time, sowed the seeds of that systemic risk. The rest is of course history, as pre-crisis credit boom turned to shuddering bust. Or rather it would be history were it not for the fact that this crisis, whose seeds were sown in the credit boom, is still with us. Output in the UK is still well below its 2007 level. The so-called Great Recession in the UK is already as severe as the Great Depression of the 1930s. In response, the policy framework has, once more, been radically augmented. Macroprudential policy is the next big thing.

As a creature of the G10, the Committee could originally lay claim to coverage of most of the world’s truly internationally active banks. But as banks and financial markets became increasingly integrated across national borders, this claim to be the standard setter for all internationally active banks became more and more difficult to justify. During the 1990s and 2000s, the Committee made good use of its Core Principles Liaison Group to seek advice from members outside the G10. The CPLG’s contribution was highly  2  BIS central bankers’ speeches  constructive when Basel II was developed, for example. But as the size and importance of jurisdictions “outside the tent” grew, even this arrangement became increasingly untenable. And so, in 2009, the Committee essentially stepped up from a G10 to a G20 foundation as it sought a truly coordinated response to the global financial crisis. Indeed, we now have more than 40 organisations representing 27 member jurisdictions around the table. As a result, the Committee’s coverage of global banking assets has gone from about 60% to 90%. This much greater inclusiveness lends, in turn, greater legitimacy and credibility to the Committee’s standards, as they are now set by a process that is truly reflective of international markets. The fourth key influence is a more recent one – the shift in thinking from a micro- to a macroprudential perspective. For much of its life, the Committee focused primarily on microprudential issues.
Why “rebalancing?” Because we were steadily raising interest rates toward normal territory amid global and domestic economic recovery. Well, that was one year ago. One year can be a long time, especially for financial markets. And, indeed, things have changed a great deal since then. We had the flood; and the euro crisis. Interest rate hiking was put on hold and rebalancing postponed amid post-flood recovery and reconstruction and especially amid global uncertainty due to the euro. Now we project global economic recovery to be weaker than believed since the financial crisis in 2008. So if last year was the “year of rebalancing” what is this year? For monetary policy, this year is a year of risk and reassessment. By risk I refer to the possibility that the euro crisis may spread to Asia and Thailand. And by reassessment, I refer to how monetary policy must reconsider rebalancing and carefully re-examine all the options, given how the balance of risks has significantly shifted toward growth and away from inflation. We are therefore faced with three key questions. First, how will the euro crisis play out? Second, can Thailand grow through the euro crisis? And third, what should monetary policy do? Let me now turn to the first question. How will the euro crisis play out? In my view, the short answer is this. The euro zone will mostly likely remain intact and avoid a liquidity seizure similar to the one seen during the Lehman crisis. However, the euro zone will face a slow and difficult recovery.

To grow out of the crisis and survive the shocks from outside, Thailand must look within and unleash domestic engines of growth. Long-term investment in productive infrastructure is one key engine of growth. Another is domestic structural change spurred by two drivers of change in the region. The first driver of change is growth in China and the attendant rise of the Chinese middle class and demand for a broader range of imported goods and services. Chinese exports will also grow in sophistication. The second driver of change is trade liberalization in the region – such as free trade agreements with China and India as well as the ASEAN Economic Community, or  2  BIS central bankers’ speeches  AEC. AEC, in particular, goes beyond free trade and also has the potential to foster not only goods and services integration but also cross-border labor and investment flows. Because of the sheer size of these markets – China, India and AEC – the regional pattern of production will change considerably to cater to new demands while leveraging on new comparative advantages and supply chain synergies. Uncompetitive firms have to either upgrade themselves, or close down and free up labor resources to more competitive firms. This reallocation process implies that the country makes better use of labor resources and achieves higher productivity. Ongoing financial sector reform will also build financial sector resiliency. Thailand’s Financial Sector Master Plan, now in its second phase, continues, and focuses on liberalization through increased competition, raising efficiency, and strengthening the financial infrastructure.
But the down side risk which all of us should be aware of is the possibility that the global financial market may then become segmented into regional blocs which may result in more competition and friction, rather than co-operation. 11. On the form of monetary co-operation, there is a wide spectrum of experience on the basis of current practice. There is on the one extreme the simple exchange of information and expertise amongst monetary authorities helpful to the management of the domestic monetary system generally, covering the whole range of central banking functions in the management of the currency, the supervision of financial institutions, the development of the financial infrastructure, the management of foreign reserves, etc. On the other extreme, there is monetary co-operation to the extent of achieving monetary union or integration. 12. In between the two extremes there are arrangements for policy co-ordination at the macro level initiated on the realization of increasing international, particularly regional, economic interdependence. There are also the more focused schemes for mutual assistance in the provision of liquidity to facilitate effective monetary management, which may or may not involve the assumption of credit risks between governments. There have also been considerable efforts spent in supervisory co-operation towards the standardization of supervisory practices in order to promote international financial stability, again in recognition of the possibility of the damaging contagion effect of financial crises across financial systems.

What I intend to do this afternoon is first to define what international monetary co-operation is about, and in this connection, survey the attitudes of the parties that should have an interest in such co-operation and discuss the form of this co-operation. I wish to point out that these attitudes have, perhaps unintentionally, led to international monetary co-operation being regionalized. I shall then focus specifically on Asian monetary co-operation, covering the history, or the lack of it, and the monetary problems, current and potential ones, that Asian economies face. I shall then make a case for much greater monetary co-operation in Asia. I shall also suggest a way forward for Asian monetary co-operation, with a strategy and a list of issues to be addressed in such co-operation. Monetary Co-operation 4. Let me start now by attempting a definition on what monetary co-operation is about. The Oxford Dictionary defines “co-operation” as “working together to the same end”. So I suppose monetary co-operation can simply be defined as working together to the same monetary end. This then leads to the questions as to what that same monetary end should be, who should be working together and the form in which they should best work together, particularly when one is talking about monetary co-operation across monetary systems on a global or regional dimension. 5. The Articles of Agreement of the IMF provide some guidance on what that same monetary end should be.