samchain/econo-pairs-v1 huggingface dataset:
In particular, the fund specific regulation coupled with regulation covering certain activities, such as derivatives and securities financing transactions, have addressed investor protection issues and risks from a microprudential perspective.2 At the same time, the growing fund sector is creating emerging vulnerabilities from a systemwide perspective.3 The asset management sector is highly connected with other parts of the financial system 2/7  BIS central bankers' speeches  through ownership links, common asset exposures and the provision of wholesale funding to banks. Investment funds are not only important depositors in banks; they also provide longerterm funding through the purchase of bank-issued debt securities. Euro area investment funds hold about EUR 400 billion or approximately 10% in outstanding debt securities issued by euro area banks. Banks, on the other hand, lend to funds mainly through repo transactions. So any potential shock to the investment fund sector may quickly spill over to other parts of the financial system. When identifying possible weak spots in the financial system, it is sometimes useful to look back to past crisis events. I recall some 20 years ago, when Long-Term Capital Management (LTCM), a large and highly interconnected hedge fund, collapsed, in the wake of turbulence from the 1998 Russian crisis. The rapidly changing market environment effectively turned LTCM’s business model into a key amplifier. LTCM was betting on longer-term developments in fixed-income markets using exceptionally high leverage. When the fund collapsed, fire-sale spillovers and counterparty exposures threatened to erode the stability of the financial system.

I would also like to emphasise today that regulation needs to adapt to the evolving financial system. In that vein, I will discuss what remains to be done in developing macroprudential and other policy tools in response to evolving risks in the investment fund sector. Financial stability risks in the euro area In the euro area, we have now seen 22 consecutive quarters of economic growth and declining unemployment – a development which has also been bolstered by our accommodative monetary policy and which has supported financial stability overall. Notably, banks’ profitability has improved somewhat, though it is still at low levels, and they now have higher capital and liquidity ratios, making them more resilient than they were before the global financial crisis. Indeed, the results of the recent EU-wide stress test show that the banking sector has a good level of resilience overall, albeit with some pockets of vulnerability. However, while the fundamentals for solid growth rates over the next two years are still in place, some risks are building up in the financial system. We are currently paying particular attention to three major developments that could trigger financial stability concerns globally and in the euro area. First, the current expansion of the US is now significantly longer than historical norms and the second longest in US modern history. Looking ahead, a down-turn in the US macro-financial cycle could trigger a reassessment of riskier asset classes.
It does not mean that monetary policy will be tight. We will simply be moving from an extremely accommodative monetary policy to one that is slightly less so. It also will be a positive signal about the progress we have made in restoring the economy to health. In my view, it would be a cause for celebration, because it would signal that the FOMC believes that slightly higher short-term interest rates are consistent with its objectives of maximum BIS central bankers’ speeches  3  employment and price stability. Near-zero short-term interest rates and a larger Federal Reserve balance sheet were designed to be a temporary extraordinary treatment to help the economy regain its vitality, and not a permanent palliative. I remain confident that when the FOMC does decide to begin to remove policy accommodation that we have the requisite tools to effectively support this decision. We have tested numerous tools including overnight reverse repurchase operations, term reverse repurchase operations, and term deposit facilities to ensure that, when the time comes, lift-off can be managed smoothly. The primary tool will be interest on excess reserves (IOER), with overnight reverse repurchases as a supplemental tool to be used as needed to ensure a firm floor under short-term interest rates. For financial markets, the likely path of short-term rates after lift-off is just as important as the timing of lift-off. Here, I anticipate that the path will be relatively shallow.

Headwinds in the aftermath of the financial crisis are still in evidence, particularly the diminished availability and tougher terms for residential mortgage credit. How fast the normalization process will proceed depends mainly on two factors: how the economy evolves and how financial market conditions respond to movements in the federal funds rate. If financial market conditions do not tighten much in response to higher short-term interest rates, we might have to move more quickly. After all, the point of raising short-term interest rates is to exert some restraint on financial market conditions. In contrast, if financial conditions tighten unduly, then this will likely cause us to go much more slowly or even to pause for a while. At the end of the day, we will move short-term interest rates to generate the set of financial market conditions that we deem is most consistent with our employment and inflation objectives. How high will short-term rates ultimately need to go? I think this issue is very difficult to judge for a number of reasons. First, it depends on how financial market conditions evolve in response to our monetary policy adjustments. Second, it depends on other factors, such as real potential GDP growth, which, in turn, depends on the growth rates of the labor force and of productivity. My current thinking is that the long-run nominal federal funds rate consistent with 2 percent inflation is somewhat lower than in the past. My point estimate is 3½ percent, but I wouldn’t bet the farm on this.
When I think of the risks ahead, my concern goes less to countries, institutions or particular markets, and more to the broad set of challenges associated with the eventual normalization of the policy measures which are being taken now, especially in the context of markets that may be frothier than what we see today, and in ways that may not be fully apparent given all the new incentives being created for “innovation” in intermediation and in the nature and location of risk taking. Tightening cycles tend to bring surprises. And in the upcoming cycle, both central banks and markets will be operating in unfamiliar territory. Minimizing potential fallout for markets and for the economy will require deft management, and skillful and disciplined communication on the part of policymakers. That said, at least for now, inflation risks appear contained. Notwithstanding the additional liquidity, inflation in the advanced economies is running toward the low side of desired ranges – and in Japan, well below. Financial markets show little evidence of longer-term inflation expectations becoming less firmly tethered. And when the time comes for normalization, there are a number of powerful tools available to keep them in check. Finally, on the issue of currency spillovers: this is a topic where, at least so far, the rhetoric appears to have substantially outpaced the reality. The talk about so-called “currency wars” strikes me as having gotten a little ahead of itself – better for capturing headlines than for accurately describing recent policy or the current situation.

To give you a brief background on the central bank legislation, since its inception in 1964 the Bank has operated under 3 different Bank of Zambia Acts; the BoZ Act of 1965, the BoZ Act of 1985 and the current BoZ Act of 1996. Each of these Acts has responded to the era of its time. For example, the Acts of 1965 and 1985 were characterised by high Government involvement in the operations of the Bank. The Bank administered exchange control regulations. It also determined and regulated the frequency and rates of fees, commissions and interest rates etc charged by financial institutions. The economic reforms that swept the country in the 1990’s saw the ushering in of the current BoZ Act of 1996 which supported the Government’s free market policies. The Bank’s mandate was made clearer, exchange control regulations were suspended and the Bank’s regulation of interest rates etc was removed. There was also improved transparency and accountability. Since the enactment of the BoZ Act of 1996 two issues have precipitated the need to have the Act reviewed again; 1. In 2002, the IMF and the World Bank conducted a joint assessment of Zambia’s financial sector under the Financial Sector Assessment Programme (FSAP). The result of this assessment raised awareness of various weaknesses in our financial system which needed to be addressed. For this purposes, the Government approved the establishment of the Financial Sector Development Plan (FSDP) in 2004 to address these weaknesses and implement recommendations.
However, at the rate it is growing, we will only reach 16% in 2020, from the 14.8% today. This would be even lower if we were to correct for double counting of policies. Clearly, the data proves that takaful is still far below its full potential, and is nowhere near where it should be. Second, individual takaful operators have not reached optimal size. Takaful operators are dwarfed by their conventional counterparts. Without sufficient scale, takaful operators are hampered in making meaningful inroads against their larger competitors. This is not just about competition within the takaful and insurance industry, but also of technology. Technology is reshaping the landscape of finance and lowering the barriers to entry from adjacent industries. Takaful operators must shape up, or risk being marginalised, or worse, made irrelevant. Third, the value proposition of takaful needs to be more apparent. As it currently stands, many view it as being no different from insurance. Some even view it as being unnecessary. It is disheartening to learn that 51% of respondents to a MTA survey cited these very reasons on why they have little knowledge or interest in takaful products. The issue of misperception also remains, with many non-Muslims deeming takaful as being only for Muslims. Opportunity to reposition takaful for the future This is the grim reality of the state of the industry, but it need not be so. In fact, I am positive about the prospects and potential of takaful. However, to get out of this “predicament”, we need an immediate and radical change.

Takaful must shed its image as being an imitator, a follower or impersonator of conventional insurance. Takaful operators, including the financial groups to which they belong, must see beyond takaful as yet another line of insurance products. In this, we need the right leadership, shareholders included, to set the right tone from the senior leadership that takaful must offer distinctive benefits highly valued by all. Its impact must be lasting and profound. This is especially so in our system, where takaful is competing side by side with the insurance industry. 1/6  BIS central bankers' speeches  All this considered, allow me to suggest three priorities for the industry to embark on to realise the full potential of takaful: First, fulfill the promise of takaful in helping protect people and businesses. Takaful is derived from the Arabic word “kafal”, which means ‘to help’. To my mind, this calls for the industry to reach out beyond its comfort zone of focusing on mandatory products, such as motor and fire, or those that are easy to sell, namely mortgage related products. It must make serious inroads in other areas where protection gaps exist, such as in agricultural risk, annuity and trade credit. Something that is consistent with the needs of our economy. Ultimately, the industry must be ahead of the curve to innovate and deliver solutions that are truly needed and highly valued by customers, both individuals and businesses. In family takaful, the industry must position itself as a trusted and valued solution provider for all Malaysians.
This willingness of American workers to move themselves and their family is a cultural characteristic of our people, no doubt based in the history of the United States as a nation of immigrants. To complement its high degree of labor mobility, the United States also has in place a federal fiscal system that allows the federal government to channel large transfers from fast-growing regions to slow-growing regions. Progressive income taxation, a high elasticity of corporate tax profits to changes in income, and an integrated federal budget are the main components of this system. In contrast to the United States, Europe is characterized by a more segmented labor market and very limited integration of its national fiscal systems. Both these characteristics limit the ability not only of Europe’s private sector to shift resources in response to regional recessions, but also of Europe’s public sector to compensate for this rigidity. This lack of flexibility is widely acknowledged to be one of the root causes of the high unemployment rates that Europe has experienced during the last decade. But, we may well ask, does it necessarily follow that because of the greater rigidity of its labor markets and the lack of a federal fiscal system, Europe cannot accommodate a common currency and instead needs to rely on periodic exchange rate adjustments as surrogates for productive flexibility? I do not think so.

While some decline in the reserve role of the dollar is certainly plausible over time with the creation of EMU, I believe that the risk of a dramatic shift in official dollar reserve holdings both in and outside Europe in the wake of EMU has been exaggerated in terms of both its potential scope and effects. I would suggest that it will take some time before the objectives and operating procedures of the European central bank become clearly understood by market participants. Although low inflation will be the ultimate objective of the new European central bank, markets will have to understand precisely how that objective will be pursued: What price aggregate will be the focus of monetary policy? How will intermediate instruments such as monetary aggregates be used to achieve the ultimate objective? What channels will the central bank choose to signal and implement changes in its policy stance? As these longer-term questions are addressed, the policy importance of the external value of the euro, particularly the euro/dollar exchange rate, will certainly be watched carefully. Both market participants and foreign central banks are likely to focus on the euro exchange rate as a high-frequency and widely available -- if somewhat noisy -- indicator of the current and likely future stance of European monetary policy.
Many foreign workers who come to Norway find employment in Norwegian enterprises. This represents an increase in the supply of labour in Norway. Employment will thus be able to increase to a further extent than would otherwise have been the case without the emergence of labour shortages. In isolation, an increased supply of labour from new EU countries may lead to a higher-than-normal increase in potential output for a period. Many of the foreign workers work for a shorter period in Norway without being employed in a Norwegian enterprise. Examples are foreign contractors and self-employed in the construction industry who carry out various building projects in Norway. An increase in the use of these short-term contracts will appear as an increase in Norway’s services imports, and contribute to increasing the supply of goods and services without drawing on domestic resources. Inflation decelerated markedly from summer 2003 and continued to fall in the beginning of 2004. Subsequently, consumer price inflation has picked up, albeit at a gentle pace. In July, the year-on-year rise in consumer prices adjusted for tax changes and excluding energy products was 1.1 per cent. Prices for imported consumer goods have continued to fall. The price fall may reflect high productivity growth in the production of some goods and large investments to increase production capacity, particularly in China. This has led to strong competition and a low rise in prices for internationally traded goods. The shift in imports, for example clothing imports, towards low-cost countries seems to be substantial again this year.

Household debt has increased at a faster pace than income in the last ten years. Norges Bank’s calculations indicate that the sharp rise in house prices in recent years may explain a large share of debt growth. Higher house prices have a fairly long-lasting effect on household debt growth. As a result, credit growth will remain high for a fairly long period even though the rise in house prices is expected to slow. Given the assumptions underlying our projections, it is likely that debt will continue to grow at a faster pace than disposable income through the entire projection period. As a result of high credit growth, the household debt burden has increased over the past year. The debt burden is currently record high. Due to unusually low interest rates, the interest burden is, nevertheless, relatively low. A normalisation of interest rates will increase households’ net interest expenses, but according to the projections the interest burden will not be higher than it was at the end of the 1990s. If there are expectations of persistently low interest rates, there is a risk that the debt burden may increase more than assumed in the projections. Net interest expenses will then also be higher than assumed. In addition, households will be vulnerable if unexpected disturbances result in higher than expected interest rates. Challenges ahead Oil gives us an economic base that is not available to many other countries.
Perfectly illustrating this flexibility in the distribution of purchases over time is the fact that the average monthly pace of purchases in the April-June period was € billion, whereas from October to December, against a backdrop of greater easing in sovereign debt markets, average monthly purchases barely exceeded € billion. Thanks to this flexibility, along with the large volume of asset purchases initially envisaged, the announcement of the creation of the PEPP on 18 March helped substantially reduce sovereign yields in the euro area, particularly in countries such as Italy and Spain. These countries had relatively high levels of public debt and were also more affected by the first wave of the virus, both in epidemiological terms and given their dependence on more vulnerable sectors such as tourism and hospitality. The outcome was a much more pronounced increase in financing costs in these countries, that the PEPP’s flexibility has enabled us to counter by ensuring a smooth transmission of our monetary policy to all euro area countries. This flexibility is again proving particularly useful in the current situation. Indeed, after extending our programme last December, there was a rise in long-term interest rates in a setting in which our inflation forecast was some distance off target and below that expected before the crisis.

It is therefore important for Islamic finance practitioners to have greater understanding on the scope of SRI to effectively match the segments of opportunities available in the SRI space. 3/4  BIS central bankers' speeches  An imperative to the successful outcomes of the key growth areas is the availability of multiskilled and top-notch talent in the industry. In Malaysia, we have over 26,000 talents in the Islamic banking industry and a holistic infrastructural ecosystem that supports their developmental needs. As we move forward, we need a deep talent pool with wider set of competencies beyond the scope of Islamic finance knowledge to provide the additional competitive edge to the industry. Continuous nurturing of Islamic finance talent, with intellectual diversity in other related disciplines such as economics, finance, law and financial technology can give rise to new visions and wisdoms that go beyond traditional boundaries. Under the current scenario, talent development is crucial at every level of the organisation from the Board to Shariah committee members as well as front-liners. Currently, an initiative is underway to develop a dedicated programme for Board of Islamic financial institutions with a scope that includes wide-ranging and unique issues within the Islamic finance industry. The Shariah Leaders Education Programme that has commenced since last year has enriched more than 100 local Shariah scholars with the necessary governance and business insights for them to effectively perform their roles as Shariah Committee members.
Further, the crises in Turkey and  BIS Review 38/2002  1  Argentina once more highlighted the vulnerability of some emerging economies and certain shortcomings in the architecture of the international financial system. And finally, there were the attacks of 11th September, which had a specific and strongly depressive effect on confidence. Despite this build-up of adverse effects, the world economy proved notably resilient. This was all the more striking considering that on this occasion the downturn coincided in the three main areas (the United States, the European Union and Japan), which a priori heightened the risk of a deep and prolonged decline in world output. With the exception of Japan, the industrialised countries avoided going into recession, while the emerging economies, although seeing a decline in their growth rates, have on the whole remained more buoyant than the developed countries. The opening months of 2002 have gradually confirmed the greater buoyancy of the world economy. This is clearer in the United States, but is also perceptible in other countries. Activity, confidence and employment indicators have all firmed, and GDP growth forecasts have been revised upwards. Nonetheless, elements of uncertainty remain in place over the strength and timing of the ongoing recovery. These relate essentially to the persistence of certain imbalances in the US economy (linked mainly to the shortfall in private saving and the high foreign deficit), the weakness of the Japanese economy and the crises besetting certain emerging countries.

Conventional judgment is a safe haven for bankers and regulators alike. It is not easy to persuade people, especially those who are earning vast sums as a result, that what looks successful in the short run is actually highly risky in the long run. As in monetary policy, it is unlikely that prudential supervision can be implemented as a set of rules to be applied mechanically. Nevertheless, to rely solely on the discretionary judgment of individual bankers and regulators is asking too much of human capabilities. This suggests that the principle of constrained discretion, applied so successfully in monetary policy, needs to be applied to banking regulation. That is not to say that a similar institutional apparatus would be appropriate, but we need to build into the system some simple and robust impediments to excessive risk-taking that can be monitored. And we must ensure that an institutional memory is maintained so that the lessons from the crisis are not forgotten and those impediments to excessive risk-taking are not swept away once memories of the crisis recede. The design of those impediments should be based on an explicit identification of the market failures that regulation can hope to correct. Such market failures seem to relate to two dimensions of banking – the “cross-section” and the “time-series” aspects of behaviour. The former reflects the extreme interconnectedness of banks. Each individual institution can appear relatively safe while the links between them mean that the system as a whole is vulnerable.