samchain/econo-pairs-v1 huggingface dataset:
Christine M Cumming: Early intervention and resolution Remarks by Ms Christine M Cumming, First Vice President of the Federal Reserve Bank of New York, on Early Intervention and Resolution, at the Transatlantic Corporate Governance Dialogue, Brussels, 25 October 2010. *  *  *  Let me thank the organizers for the opportunity to speak today about the supervision and resolution of financial institutions in danger of failing. Let me begin by noting that the views I'll express in these remarks represent my own views and not those of the Federal Reserve Bank of New York or the Federal Reserve System. In any industry, it is important that unsuccessful firms fail. Business strategies fall short, franchises depreciate, management loses focus. Large or small, unsuccessful firms need to be cleared from the scene through merger, restructuring or liquidation. This is no less true for the financial industry than for any other. And for all firms, society has an interest in ensuring that the process of failure does not destroy more value than necessary. As an economist, I see much innovation in national insolvency practices over time as designed to reduce the cost of insolvency and increase the value preserved in the insolvency process. One of the vexing problems during the recent financial crisis was concern about the adequacy of means to resolve large financial firms and uncertainty about the externalities of placing a large financial firm into insolvency. The Lehman bankruptcy no doubt validated those apprehensions for many.

Naturally, macroeconomic stability was and still is a necessary condition for the framework to operate properly. The crisis has led to a reexamination of some issues we thought were settled and to the emergence of some new questions. Even though Brazil was not at the epicenter of the crisis, we were affected by the crisis itself and by the policies that were put in place in its wake. Furthermore, we have been actively participating in the international central banking debate in order to offer our views and to learn from the experience of others. *  *  *  In my opening remarks, I will focus on three topics that have provoked particularly intense debate and that I believe will shape central banking for some time to come. In each of these topics, the global financial crisis prompted a rethinking that is still underway, although some initial conclusions can already be drawn. First, maintaining financial stability was reemphasized as a core function of central banks. Central banks have always been concerned with financial stability, particularly through their lender-of-last-resort role. But in many jurisdictions, central banks progressively downgraded the importance of the financial stability goal in the post-war period. The supervision of banks was progressively split off from central banking, and a gap emerged in that, in some jurisdictions, nobody was tasked with looking at the vulnerabilities in the system as a whole.
Rather, it affects the exposure to loss of the DGS and thus the share of the losses having to be covered by the surviving parts of the industry.11 Amongst uninsured creditors, the position of bond holders will depend on whether they are issued from a (pure) holding company, in which case they have a structurally subordinated claim on the underlying business assets, or by operating companies that also have lots of other unsecured creditors. The exposure to loss of bonds issued by operating companies are, therefore, affected by whether or not they incorporate subordination clauses. For every bank group, all of that will be clear. The big issue, therefore, is about uninsured deposits. Should they rank alongside senior unsecured bonds or should they be preferred? In the US, all deposits are preferred. There is now an active debate in the EU about whether or not it should introduce depositor preference and, if so, whether that should be for all or only some uninsured deposits? Whatever the conclusion reached by the political authorities, it is important that the creditor hierarchy is the same under bailin, other resolution tools, and liquidation. Otherwise, pricing each piece of debt would depend upon time-varying assessments of the probabilities of the various resolution tools being applied in the event of a firm’s bankruptcy. On the substance of the issue, I can see a case for both insured and some uninsured depositors being preferred.

There is no better time to talk about resolution, as this year, 2017, has seen the adoption of the first resolution decisions and the management of several crisis cases, which have been a baptism of fire for the Single Resolution Mechanism. 1  The Banking Union, which is a major step forward for the euro area, is now operational, based on a single rulebook and – already – two pillars: the Single Supervisory Mechanism (SSM) since the end of 2014; and the Single Resolution Mechanism (SRM) since the beginning of 2016. Those two pillars should be supplemented by a third pillar, Deposit Insurance, for which we will need to find practical and reasonable compromises. But today I would like to focus on two cross-cutting challenges that are less often discussed: consistency and consolidation. As you will see, both involve resolution. However, it is my goal this morning to go further and consider the completion of the Banking Union as a whole. I. The first challenge is to achieve better consistency between regulation, supervision and resolution, at three levels:  -  First, consistency in the concrete mechanisms: finalising and simplifying the resolution pillar should be a priority. The case of the Italian bank failures has illustrated just how complex it is to combine the resolution regime laid down in the Bank Recovery and Resolution Directive (BRRD) with the State aid framework for orderly liquidation. In addition, confidence in the Single Resolution Fund (SRF) and its capacity to intervene has to be bolstered.
From mid April onwards, the national central banks of the Acceding Countries will participate - as an observer - in meeting of ESCB Committees (in extended composition) and meetings of the General Council. Enlargement involves a number of technical efforts from the side of the ECB and the national central bank, in terms of adaptations to the infrastructure, but also creates a new dimension to economic convergence and monetary stability in the European Union. I am, however, convinced that the Eurosystem will also master this challenge, as it has done before, on occasions, which demanded even more breath-taking efforts. Ladies and gentlemen, I should now like to conclude. Again, my gratitude goes to His Excellency Carlo Ciampi and Governor Antonio Fazio. I am deeply convinced that this meeting of the Governing Council will contribute to the team-sprit of the Eurosystem and hence will be one more step in the direction of a united Europe.

Over time, the size of the internationally exposed sector will be affected by the portion of petroleum revenues that is absorbed by the Norwegian economy but will be unaffected by monetary policy. Any  2  BIS Review 8/2002  appreciation of the krone may, nevertheless, affect the speed at which changes occur in the business sector. To maintain a balance in the Norwegian economy, the phasing in of petroleum revenues must be countered by a monetary policy stance that is tighter than it would otherwise have been. This may be accomplished through a higher interest rate, an appreciation of the krone, or both. On balance, we expect moderate growth in the mainland economy in the next two years. The projections for GDP growth that were presented in the October 2001 Inflation Report were approximately on a par with the growth potential of the economy. Household consumption and public spending are the main forces underpinning growth. Fixed investment and exports are restraining growth. Brisk growth in consumption is resulting in high demand for labour in public and private services. Low international growth and lower petroleum investment are curbing employment growth. A tight labour market is generating continued high growth in labour costs. An expansionary fiscal policy, growth in private consumption and a continued high rise in labour costs contribute to a high rise in prices for domestically produced goods and services. At the same time, we expect a temporary decline in prices for imported consumer goods.
There is currently a window of opportunity for Europe’s financial industry to make use of this top-tier infrastructure and the changing patterns in retail payments. But in order to seize these opportunities, it needs to avoid the mistakes of the past. Laying the foundations The euro was introduced in 1999, with physical banknotes and coins following in 2002. However, that success was not matched by integration in the market for electronic retail payments in euro, with national solutions remaining disparate and lacking interoperability. While the establishment of TARGET, the real-time gross settlement system for the euro, resulted in a fully integrated money market and wholesale payment market, cross-border retail payments in euro remained expensive, slow and inefficient, with no standardised way of making electronic payments across the euro area. For far too long, huge economies of scale remained unexploited. The ECB played a key role in laying the foundations for such standardised cross-border payments through the establishment of the Single Euro Payments Area (SEPA) – an endeavour that required substantial efforts by all stakeholders. That initiative consisted of two key stages. First of all, a harmonised legal framework was needed for payment services in the EU. Thus, the Payment Services Directive (PSD) was adopted in 2007 and entered into force in 2009. Second, it was important to ensure that consumers and businesses in the EU could send payments to each other quickly and easily across borders, with no differences between domestic and non-domestic payments.

CPI inflation remains subdued at a rate of 0.4 percent year on year in October, reflecting the sizable output gap and well-anchored inflation expectations. On the financial stability front, the banking sector remains resilient with healthy balance sheets and the lending capacity largely preserved. And notwithstanding the strong resurgence of capital flows, the risk of asset price bubble, either in equity or in housing, for now remains low given the slow growth of bank credit and the more subdued initial conditions. The situation on asset prices, however, warrants a close monitoring as credit conditions can change quickly given the ample domestic liquidity. In sum, the Thai economy is now in a process of recovery. The economy is poised to return to positive growth next year. At this time, however, the momentum of private sector demand is still not robust with the momentum largely mirroring the support from policy. Economic and financial stability, on the other hand, is intact with subdued inflation and a resilient banking sector. Therefore, given weak private sector demand, the Monetary Policy Committee is of the view that policy support remains needed as a firm recovery is yet to be established. It was in this context that the policy interest rate was kept unchanged at 1.25 percent in the last Monetary Policy Committee meeting in October. Next, let me share with you our assessment of the outlook for the economy and policy.
Like the educational and Citizen Panel programmes, it has allowed the Bank to engage with an entirely new cohort of people with new perspectives on new issues. Establishing these initiatives as central planks of the Bank’s engagement strategy is one of things I am proudest about from my time at the Bank. I believe they hold the key to closing the twin deficits. The economy affects everyone and everyone affects the economy. Central banks’ actions also affect everyone. So the Bank needs to seek to engage everyone if it is to meet the needs of its stakeholders. Doing so is one of the most effective ways to ensure the Bank’s social contract with the public is not breached. To my mind, the revolution in central bank communication and engagement practices has been as great as with monetary and financial stability frameworks - and crucial in cementing the success of both. I have done my bit, leading the Bank’s outreach programmes and through 32 working papers, 75 published speeches, over 100 regional visits, around 150 published articles in books and academic journals, and many hundreds more unpublished speeches and schools talks. To say nothing of several spectacularly unsuccessful books. Looking ahead, the transparency revolution has yet to run its course. There is more the Bank can do to deepen and broaden its engagement with a wider audience. There is further for the Bank to go in harvesting the stories from this audience to inform its view of the economy.

I do not think it is an exaggeration to say there has been a revolution in how the Bank goes about securing monetary and financial stability and how it communicates about both. The catalyst for this revolution has been crisis. Having discussed this historical evolution-cum-revolution, I discuss some of the key issues facing central banks today. This is the “dreaming” bit - looking around corners to judge not only what is coming but how to reshape it, seeking out the biggest issues not just of today but tomorrow. It is the Wayne Gretsky approach  For those who don’t follow football, the title of this speech is a line from the England football team song “Three Lions” released ahead of the 1996 European Championship tournament, 30 years after England’s last international triumph at the World Cup in 1966. 1  2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  to public policy - skating to where the puck is going, not where it is.2 That can be unconventional and sometimes misunderstood. But it is, for me, the essence of effective policymaking. Imagining a different future is not sufficient for policy success. It is the imagined made real that matters. The Bank is blessed with having the capacity to both think and do, both brain and hands. When former Governor Cobbold said “the Bank is a bank and not a study group” he was wrong. The Bank is both.
The result is improved fiscal balances and better public debt structure, which is heavy toward longer maturities and domestic-currency denominated. Monetary policy’s first priority is to achieve long-term price stability, and in certain countries, Thailand included, central banks actively pursue explicit inflation targets. To be sure, countries have made efforts to ensure stronger prudential regulation and supervision of banks. The evidence is mixed on this front, but increasingly, more countries are adopting risk-based supervision and international accounting standards, including Basel II and IAS 39. A number of Asian emerging economies have also achieved significant  2  The same is true when comparing relative volatility in growth rates of consumption and income (Kose, Prasad, and Terrones, 2005). While this is a broad characterization of emerging markets, some countries, for example Thailand, have experienced a much less volatile consumption to income ratio. (Aguiar and Gopinath, 2007). 3  From the new External Wealth of Nations Mark II (EWN II) dataset, compiled by Lane and Milesi-Ferretti (2006). The extent of financial integration is measured by the total international assets and liabilities as a percentage of GDP and the degree of trade integration is measured by exports plus imports over GDP. 2  BIS Review 99/2007  consolidation and modernization of their financial institutions. They have built up new legal and information infrastructure to strengthen the foundation for financial system capacity for crisis prevention and resolution. In some countries, new foreclosure laws, bankruptcy laws, debt restructuring mechanisms, and credit bureaus, which were absent before 1997, are now in place.

In 2020, the Central Bank sold foreign currency in the amount of 144 b.kr. in order to prevent lower interest rates from causing excessive, unwarranted depreciation of the króna. It is also possible to imagine that, in the future, the Central Bank could absorb excess capital inflows into Iceland if this should prove necessary. In the future, the Central Bank will need to use its balance sheet to ensure effective monetary policy transmission and ward off potential financial side effects. Nevertheless, in the long run, the future of monetary policy lies in using a greater number of policy instruments and in coordination with macroprudential policy and financial supervision. Here lie the opportunities for Iceland’s tiny currency area. Honoured guests: Yet another anniversary is uppermost in my mind today: the one-year anniversary of the merger between the Central Bank and the Financial Supervisory Authority – the reunification, we could say. The Financial Supervisory Authority was once part of the Central Bank, called the Banking Supervision Department. But in 1998 the banking supervision function was carved out of the 3/5  BIS central bankers' speeches  Bank, right around the time the two State-owned banks were being prepared for privatisation.
This event also serves very well to highlight the second reason, namely the political factor, which explains the temporary nature of the milestone steps mentioned earlier. Unless the so-called political “gridlock” is dealt with effectively in the U.S., passing and approving laws will remain a daunting task that needs to wait until the last minute. And unless the Eurozone leaders collaborate unreservedly, full resolution of the Eurozone crisis seems to be too lofty a goal to materialize. Ladies and Gentlemen, High risks and uncertainty surrounding the crises in the U.S. and the Eurozone contribute to higher risks in the global economy and financial markets, and Thailand will be affected in three primary ways – through international trade, financial market volatility, and inflation. I would like to touch briefly on each of these three channels respectively. The impacts through the first channel, namely international trade, are natural given Thailand’s strong tie with the global economy, with G3 economies accounting for almost one-third of Thailand’s exports. Slowdown in the U.S. and the Eurozone, and their spillovers to the global economy, will dampen global demand for Thai exports. But fortunately, the impacts through trade can be cushioned to some degree, given that Thailand has moved toward more intra-regional trade within Asia and also has succeeded in diversifying to alternative export markets. Although I have mentioned before that Thailand’s economic fate next year will be in the hands of domestic demand recovery, further contribution from exports will be very helpful.

With these differences in mind, we can note that it is unlikely that the fall in prices we have seen so far will lead to a crisis on the Swedish property market. However, an economic downturn is always associated with increased risks. During the second quarter of this year, nominal prices for office premises in Stockholm, Gothenburg and Malmö fell by between 14 and 20 per cent on an annual basis. These are substantial price falls, although not as substantial as during the crisis of the 1990s. Prices began to fall in late 2007 and this was primarily driven by that fact that investors increased their return requirements. At the same time, rents were still increasing at a good rate, which counteracted an even more substantial fall in prices. However, rents began falling in the spring, especially in Stockholm where the number of vacancies has also increased. Given that the outlook on the labour market is deteriorating and that bankruptcies are expected to increase among tenants, it is highly probable that vacancies will continue to increase. Such a development will reduce the earnings of the property companies, thus weakening their ability to make interest and amortisation payments. Ultimately, this may also lead to the suspension of payments on the part of property companies too. Falling prices may also cause difficulties for the property companies if they do not meet the banks' requirements regarding maximum leverage.
Jean-Claude Trichet: Financial integration, development and stability – lessons from the crisis (introductory remarks) Speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the conference “Financial integration and stability: the legacy of the crisis”, sponsored and organised by the European Central Bank and the European Commission, Frankfurt am Main, 12 April 2010. *  *  *  Ladies and Gentlemen, I would like to welcome you to this conference on financial integration and stability, jointly organised by the ECB and the European Commission. I would like to thank in particular Commissioner Barnier for participating in this event, and his services for the smooth coorganisation of it. This joint conference is an illustration of the very good cooperation that exists since a long time between the two institutions. The European Commission is in the driving seat on all what concerns financial integration. The ECB also a strong interest in this topic, because of the implications for the single monetary policy, our primary mandate, and also on financial stability and the operation of payment systems, areas where we have a statutory responsibility. The very good cooperation between our institutions has intensified in the wake of the financial crisis. Let me just mention the recommendations and guidance we developed in the course of last year on support measures for banks in difficulties. This joint work limited the risk of unilateral and uncoordinated support measures by governments and was therefore crucial in maintaining a level playing field and in preserving the Single Market.

It has soared above 200 twice: for two months in 2011, coincident with that year’s debt-ceiling debate, and in December 2012, when a compromise implementation of sequestration was being hammered out. It’ll be interesting to see what happens with the index in the wake of the past week’s developments (or lack thereof) in Washington. The point is that starting with the collapse of Lehman Brothers in September 2008, economic policy uncertainty has been consistently high, and half the time it has been extraordinarily high. It’s difficult to prove “beyond a reasonable doubt” that this elevated uncertainty is causally related to the weak recovery we’ve experienced. But the hypothesis is surely sensible, the timing is certainly auspicious, and enough careful confirming analysis has been done to say that the preponderance of evidence favors the proposition that not just recent policy decisions, but also the manner in which those decisions were arrived at, have been a significant hindrance to economic expansion. The Kinky Stuff: monetary policy As to monetary policy, I would submit there are several links between monetary policy and economic uncertainty. First, though, some background. Ordinarily, monetary policy works by influencing the current and expected near-term levels of short-term interest rates. Once short-term interest rates hit zero, however, the Fed turned to unconventional policies. By using massive purchases of longer-term Treasuries and agency mortgage-backed securities, these policies helped hold down term premia and support the housing recovery.