samchain/econo-pairs-v1 huggingface dataset:
Mr Bäckström looks at the Riksbank and financial system stability and comments on the LTCM case Speech by Mr Urban Bäckström, Governor of Sveriges Riksbank, to the Swedish Economics Association in Stockholm on 25/2/99. Financial stability is a topical subject in the light of events in the past yeara year that saw continued financial problems in Asia, the devaluation of the rouble and suspended payments in Russia, considerable turbulence in western financial markets and financial unrest in Brazil. What happened last autumn, when it was considered that problems for a single playerthe hedge fund Long Term Capital Managementmight create grave difficulties for the financial system in the United States, highlighted risks of a new type. The LTCM case can be seen both as an extreme example of what could happen in Sweden’s financial markets and as a serious reminder that the continuous development of financial markets is liable to give rise to new risks. The suspension of payments in Russia and its consequences should likewise lead us to reflect on the risks in the system. Today I shall be discussing the problems behind last autumn’s events in the U.S. market and the fact that a systemic crisis was judged to be imminent. First, however, I shall briefly sketch the background and explain stability’s central importance for the Riksbank. Background There is nothing new about financial crises. Over the centuries they have repeatedly hit financial systems in the industrialised world, as well as in less developed countries.

BIS Review 85/2010  3  During the forecasting process, the main scenario presented at the monetary policy meeting has in practice become a scenario that is supported by a majority of the Executive Board members. If there are any reservations against the main scenario or the monetary policy decision, these are made clear at the monetary policy meeting. Thus, the monetary policy decision is preceded by a long process. As the decision now also includes the Board’s view of the future repo rate, more in-depth and long-term discussions are required than if it was merely a question of whether or not to alter the repo rate. The repo rate path has entailed a fruitful change. The role of the repo rate path during the financial crisis When we began to make repo rate forecasts a few years ago, I do not believe anyone expected a situation like the one we had when GDP fell by 5 per cent in 2009. During the financial crisis several central banks were forced to cut their policy rates to close to zero. This has entailed restrictions on future decisions, as the nominal interest rate has a lower bound. The classical argument in favour of this lower bound is that the nominal interest rate on cash is zero, and that a negative interest rate would mean that economic agents would hoard banknotes. There are many discussions in the academic world as to whether the lower bound lies at zero or slightly below.
Assessing whether capital flows to emerging market economies are permanent or transitory is a challenging task. The current wave of capital inflows reflects both global push factors (including ample liquidity and low interest rates across advanced economies) as well as country-specific pull factors (including buoyant growth prospects, relatively sound fiscal positions, and decreasing country risk perceptions). Over the medium term the pull factors  BIS central bankers’ speeches  1  are likely to remain complacent, as relative to advanced economies, emerging markets are expected to grow faster, which would put upward pressure on interest and exchange rates, perpetuating their attractiveness for international capital. Although it is far from certain whether quantitative easing in several advanced economies would persist in the medium term, monetary authorities in these countries are likely to maintain their accommodative stance in the near future as well. All in all, the current outlook suggests that capital flows to emerging market economies may be a permanent phenomenon, while its magnitude is subject to change in risk perceptions. While tools to manage large capital inflows are well known, the appropriate policy mix depends on country-specific circumstances. Fiscal policy, monetary policy, exchange rate policy, foreign exchange market intervention, macro-prudential tools, and capital controls could be used to cope with the inflows, but each of them entails some tradeoffs, which are likely to be quite costly for emerging deficit countries in particular.

Some countries have opted for various forms of capital control, although their effectiveness needs to be evaluated based on the objective of imposing them at the first place. Some studies find that capital controls have some compositional effect and could alter the maturity of new investments. So far as reducing the volume of flows, the empirical evidence is inconclusive. Unless the authorities have full control over capital accounts, partial restrictions are unlikely to offset the impact of flows, prevent appreciation of local currency and provide more space for independent monetary policy. In principle, flow of capital from advance economies to emerging ones and appreciation of the currencies of the latter over time is a mutually beneficial secular trend, as long as it is supported by strong fundamentals, better growth prospects, and high productivity differentials. Rather than fighting against this trend through over restrictive capital controls or excessive reserve accumulation, there is strong legitimacy in using macro-prudential policies to mitigate the adverse effects of volatility in capital flows, especially those with speculative nature, over financial stability. Several emerging economies have started implementing such measures to limit the credit growth and asset price bubbles. These measures include raising reserve requirement ratios, requiring higher income- and deposit-to-loan ratios, tightening capital adequacy requirements and liquidity ratios, introducing transaction taxes, fees etc.
A messaging standard is a common set of rules for exchanging relevant payment information in order to enable efficient communication with participants and related infrastructures. Messaging standards cover such things as: •  How senders and receivers identify each other;  •  How key properties of a payment message, such as currency, amount and value date, are represented; and  •  What additional information can be included. The Bank is committed to transitioning to a new standard, specifically ISO 20022, as is the New Payment System Operator (NPSO). This is an open and global standard which can continually evolve to meet the needs of users. It is network agnostic to enhance interoperability with various operating systems and it has substantially increased data carrying capacity. Ultimately, in the very long term, ISO 20022 could also enable us to include a diverse range of characters from existing languages and other communications systems, though we will focus on ensuring we get the basics right first. In any case, this transition from the legacy and 3  Bank of England, RTGS Renewal Programme Proof of Concept: Supporting DLT Settlement Models, https://www.bankofengland.co.uk/news/2018/july/rtgs-renewal-programme-proof-of-concept-supporting-dlt-settlement-models 4 Bank of England, Call for interest: Synchronised settlement in central bank money, https://www.bankofengland.co.uk//media/BoE/Files/payments/rtgs-call-for-interest-synchronised-settlement-in-central-bank-money  5  All speeches are available online at www.bankofengland.co.uk/speeches  5  restrictive standards currently used will have far-reaching implications and benefits for not only the UK’s payments system, but participants and their customers.

We have a fintech industry which 2  employs over 60,000 people. This success is not limited to London; centres of excellence exist across the country including Manchester, Leeds, Edinburgh and Cambridge (where Sir Dave Ramsden is today chairing a fintech roundtable). Innovation is not the preserve of those in the fintech sector; the banking industry as a whole is making system-wide changes to improve how it serves the people of the UK. The Bank is also no stranger to innovation and in my previous role as Chief Cashier I oversaw the introduction of the new cleaner, safer and stronger five pound and ten pound notes. We decided not to build the renewed RTGS on Distributed Ledger Technology (DLT), wanting to first see greater proof of resilience and scalability. However, we are keen to facilitate the use of new technologies and we are working to deliver a service that has the capability to interact with DLT systems should demand emerge. The Bank has recently concluded a Proof of Concept (PoC) with a number of fintech firms on this topic. The purpose of this PoC was to (a) understand how RTGS could be capable of supporting settlement in systems operating on innovative payment technologies. (b) To understand the limitations that such systems might need to navigate.
These must not be less than 72.5% of the RWA calculated using a standardised approach defined by the regulator. Page 4/8  capital may not fall below a certain percentage of its total assets. 5 By setting a minimum capital requirement, this ratio protects against overly optimistic risk assessments. The new liquidity and capital requirements apply to all banks. They strengthen the ability of an individual bank to withstand major outflows and losses without becoming illiquid or insolvent. 6 A second set of measures is aimed exclusively at large and highly interconnected banks, and addresses the ‘too big to fail’ issue. 7 Banks whose collapse would have a significant impact on the economy and financial system were thus made subject to more stringent requirements than other banks. 8 These systemically important banks must hold an additional capital buffer to bolster their resilience and reduce the likelihood of them getting into difficulty. However, the possibility of major shocks in the financial industry and real economy causing systemically important banks to get into existential difficulties can never be entirely ruled out. Systemically important banks must therefore take financial and organisational precautions to prepare for such an event. 9 Specifically, they must hold sufficient loss-absorbing capital to enable them to carry out a restructuring or wind-down on their own, i.e. without taxpayers’ money.

As I will set out, the regulatory measures put in place have clearly strengthened the resilience of our banking system, and we therefore have reasons to be optimistic in this regard as well. That said, if we are to sustainably safeguard the stability of the financial system, it is imperative that we implement in full the regulatory measures that have already been agreed. We must also continually review them to ensure they are fit for purpose. Let me begin with some comments on the current economic situation and monetary policy. The economic situation and the SNB’s monetary policy Economic situation  The Swiss economy improved continuously last year. Capacity utilisation increased and unemployment declined. Real GDP in the fourth quarter of 2017 was up 1.9% year-on-year, while inflation also returned to positive territory last year for the first time since 2011. The improved economic situation is not only attributable to the upturn in the global economy. There have also been favourable developments on the foreign exchange markets, as the Swiss franc has weakened since the second half of 2017, against the euro in particular. This has boosted the price competitiveness of export-oriented industries and provided welcome relief for the Swiss economy. The Swiss franc’s trade-weighted real external value is currently around the same level as prior to the discontinuation of the minimum exchange rate in January 2015. There has thus been a reduction in the significant overvaluation, but our currency nevertheless remains highly valued.
Capital deepening and TFP growth Percentage 12-month change (5 quarters sliding average) 6  6 5  Capital deepening  TFP growth  5  4  4  3  3  2  2  1  1  0  0  -1  -1 -2  -2 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04  Sources: Statistics Sweden and the  8  BIS Review 9/2004  It is also interesting in this context to compare how developments in Sweden compare with other countries, particularly the United States. These comparisons are made more difficult by the fact that comparable statistics are hard to find. However, the statistics that are available indicate the factor productivity growth is relatively good in Sweden; much better than in the euro area, for instance. To summarise, we can conclude that there has been an upturn in productivity development in recent years. Earlier economic patterns are not being repeated entirely. However, it is difficult at present to establish what lies behind the upturn. The situation is reminiscent to some extent of that we saw for a few years at the end of the 1990s. Then, as now, there was reason for a wait-and-see policy, but not to reject outright the idea that what we see is a clear change. In any case, some importance should be attached to the new figures when taking a policy stance, although we must try even harder to understand what is happening.

It is vital that the commitments made to achieving balanced budgets by 200304 be firmly followed up in the Member States concerned. A continuation along the path of fiscal consolidation is essential, as is vigilance in ensuring strict adherence to the medium-term plans and rigorous implementation of the procedures of the Stability and Growth Pact. Equally, the expected recovery should be seen as an ideal opportunity to strengthen efforts towards implementing comprehensive structural reforms – in public expenditure and revenues and product, labour and financial markets. Heads of State and Government confirmed this objective during their recent meeting in Barcelona. If implemented vigorously, such reforms could increase the growth of real GDP and employment on a sustainable basis. Past improvements in the functioning of markets, together with wage moderation, have contributed to strong employment growth and a considerable reduction in unemployment. It is therefore clearly in the interest of all countries to continue to rigorously implement the agenda agreed in Lisbon and recently confirmed in Barcelona. We are now at your disposal for questions. 2  BIS Review 22/2002
There is not a consensus in the academic literature on what source of financing has a higher contribution to financial stability and economic growth.1 On the one hand, banks, through their interaction with firms, manage private information which benefits the allocation of credit and favors a better and cheaper access of firms to financing when the bank-firm relationship is well developed.2 On the other hand, liquid and efficient financial markets offer the possibility of allocating households’ savings to long-term projects without the need of monitoring these savings. Although financial intermediaries and markets have been generally considered as alternative and competing ways of overcoming frictions between savers and investors, they can be also considered as complementary sources to achieve an optimal allocation of capital. In fact, there is some evidence in the economic literature that a proper diversification of firms’ funding leads to more investment3 and to a lower vulnerability to financial shocks.4 These results suggest that financing structures based exclusively in one of the two sources of funding are probably suboptimal. Certainly, the experience of the recent global banking crisis clearly shows that firms relying only on bank financing had more difficulties in their access to external funding than companies with a richer diversification of their liabilities.

There were few plans for large-scale investment, and they mainly concerned the renewal of modernization of existing equipment. Retail sales contracted in February, after posting a substantial rise in January. Employment levels remained stable in industry, except in the automobile sector, where they declined. The retail and market services sectors showed little change, but employment fell in the building industry. Increasing use was made of flexi-time, annualized working time and part-time working to respond to variations in demand. BIS Review 32/1997
That the full impact of the rise in costs has not passed through to inflation owes something, I believe, to wariness amongst central bankers of their being able, given uncertainty about the underlying shocks, to calibrate policy with sufficient precision to bring about such a neat but vitally important distinction between first-round and second-round effects; let alone of their being able to communicate such a strategy to the public, the business community and financial markets. Textbook orthodoxy might perhaps have been more compelling if the rise in energy prices had been both sharp and caused purely by interruptions to, or constraints on, the supply of energy. But when, as over the past couple of years, the rise in costs was partly the consequence of increased global demand, and the price rise drawn out, the wariness in fully accommodating the first round effects was, I think, tangible, and reasonable. UK monetary policy That has been the backdrop to my own approach to monetary policy over the past year or so. The policy stance has needed to be set and explained in the context of cost shocks and demand  BIS Review 44/2007  1  conditions, placing a premium on clarity of communication about monetary strategy. 1 I have judged that to be a delicate exercise given recent and prospective volatility in headline inflation. This thinking informed my vote against an increase in Bank Rate in January.

Paul Tucker: A perspective on recent monetary and financial system developments Speech by Mr Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, at Merrill Lynch Conference “A perspective on recent monetary and financial system developments”, London, 26 April 2007. *  *  *  Global monetary and financial stability The past year or so has been marked by resilience in both the global economy and the international financial system. World growth has been robust. On average, headline inflation across the industrialised world has remained contained. Capital markets have, so far, weathered the gradual withdrawal of monetary accommodation in much of the G7, and also a series of specific disturbances, without destabilising spillovers. In short, the world has enjoyed a further period of monetary and financial stability. Against that background, banks and dealers have posted fairly remarkable profits, accumulating more capital resources; and the (risk-unadjusted) returns of the fund sector – and so probably for most of you here today – have been healthy. There are, for sure, wrinkles in this picture, including here in the UK. But overall it is probably not what most commentators would have expected given that oil prices have more than doubled over recent years. For financial markets, it has surely been important that such a large cost shock has not led to a pronounced rise in global inflation, dislodging medium-term inflation expectations, and so prompting industrialised country monetary authorities to slam on the brakes.
The Committee set out a necessary condition for Bank Rate to rise (that unemployment fall below 7%). It also added various “knock-outs” that, if breached, would automatically bring the guidance to an end. One of those involved financial stability: the guidance would become obsolete if, amongst other things, “the Financial Policy Committee judge[d] that the stance of monetary policy poses a significant threat to financial stability that cannot be contained by the substantial range of mitigating [macro-prudential] policy actions available…”  So there’s already been an episode where one policy committee accepted the possibility, however remote, that it might be asked to take into account the other’s objective. I can see no reason why, if the circumstances warrant it, this shouldn’t happen again. III: The positive case for separation All I’ve done so far is to make the case that the separation of monetary and macro-prudential policies has limited costs on average, and that if and when they were ever material, there are other ways, short of full integration, to deal with those. Whether or not those are persuasive, that doesn’t mean there’s no conceivable cost. In the co-ordination literature, in its various guises, there’s always some price to pay for a separation of powers: it’s inevitable, given the way things are modelled, that the “first-best” answer is that policy tools should be set jointly, taking into account all the collective objectives at once. The only question is how large the costs of decentralised decision-making are and what might be done to mitigate them.

If we are to perform, we need to build in ourselves, the ability and the courage to meet with obstructions and move forward, in the face of challenges. Otherwise, our performance would not be realized. Fourth, Thithi Dhathu. That is, stay firm in the intended path. Even in the midst of opposition or challenges, we have to develop the ability to be focused and move with a clear vision and determination. We should not be distracted. We should not dilute the impact of our performance. 2  BIS Review 10/2008  Fifth, is the Thawara Dhathu. That is, the action should convey a strong stable message of commitment and dedication. Such a strong signal is often infectious and when the leader shows such firm commitment, performance often improves. Sixth, Upakkama Dhathu. That is, being wise to cleverly steer the path and induce others to also support the performance of the particular action. That is not easy, but it is vital. Inducing all within the team to move towards a single goal is the best assurance of success. We are today living and working in an unforgiving world. In this unforgiving world, the business sector in which we operate is intolerant of failure. Failure or even suggestion of failure invokes harsh penalties and abrupt ends to promising careers. We show how many important heads rolled after the “sub-prime” issue hit the market. However high and mighty a person may be, failure or non-performance or sub-performance is not forgiven. All past victories are erased with a single failure.