samchain/econo-pairs-v1 huggingface dataset:
Jaime Caruana: Basel II - the road ahead Remarks by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the Institute of International Finance Annual Meeting, Dubai, 21 September 2003. *  *  *  Ladies and gentlemen, It is an honour and a pleasure for me to address the members of the IIF. In the kind invitation to participate in this meeting, two topics were proposed to me, the first being the economic situation and Spain’s experience in the euro area, and the second the new Basel II capital accord. I thought that Basel II would be more appropriate, given the very crucial stage we have now reached. But these two topics, the economic situation and the new accord, have suggested to me two preliminary comments. First, while policymakers have long understood the importance of price stability to the health of an economy, in recent years we have all learned much about the concurrent need to promote broader financial stability as well. A number of different episodes of economic crisis and financial disturbance have plainly illustrated the threats that weak financial systems and poorly managed banks can pose to the macroeconomy. This is why I have always stressed that banking regulation should be analyzed not only from a micro viewpoint but also from the macro perspective.

A third factor is that the fracturing of supply chains during the Covid crisis, national and international, would tend to increase the cost of goods and services, if it proves durable. Against these inflationary forces of course needs to be weighed the disinflationary effects of much higher degrees of (double jeopardy) uncertainty, weaker demand and potentially higher saving rates in the economy. With heavy weights on either end of the inflationary see-saw, it is unclear at this stage which will tip the balance. Those uncertainties are, to some extent, reflected in the differing responses of agents’ inflation expectations. Since the crisis, households’ expectations have tended to drift up, companies’ expectations have drifted down and financial markets’ expectations are relatively unchanged. Given the strong forces acting on inflation in either direction, the MPC is being especially vigilant in monitoring trends in inflation expectations. Perhaps the long-range forecast about which I have greatest confidence concerns the data and statistics used, by the Bank and others, to monitor the economy. The emergence of a new suite of fast indicators, including from the UK Office for National Statistics, has significantly shifted the technological frontier when monitoring the economy. That shift is likely to be permanent, improving the granularity and the timeliness of both our statistics and our understanding of economic trends. The Policy Response  Let me conclude by discussing the policy response to these searing developments in the global economy. Like the crisis itself, these responses have been unprecedented in speed and scale.
In Japan, industrial production fell by 8.5% in just one month in November, and in Germany, the value of exports declined by over 10%. In the United States, over a million jobs were lost in the final two months of last year – the fastest rate of job losses in over 60 years. And in the United Kingdom, manufacturing output contracted at its fastest rate since 1980. Trade was badly affected – the Baltic Dry Index, an indicator of demand to ship materials around the world – fell at the fastest pace on record in October. For the world economy as a whole, consensus forecasts of growth in 2009 have been revised down from 3% to just 1% since September.1  1  See charts below. Sources: Chart 1: Composite indices from Global Financial Database, comprising of: East Indies share for 1693; Bank of England and East Indies shares from 1694 to August 1711; Bank of England, East Indies and South Sea shares from September 1711 to January 1811; Rostow's Total Index of Share Prices from 1811 to 1867; the London and Cambridge Economic Service Index from 1867 to 1906; The Banker's Magazine Index from 1907 to May 1933; the Actuaries General Index from June 1933 to April 1962; and the FTSE All-Share from April 1962 onwards. Data are monthly until 1965, then weekly until 1968, and daily afterwards.

Chart 2: National Bureau of Statistics, China Chart 3: Associação Nacional dos Fabricantes de Veículos Automotores, Brazil Chart 4: Ministry of Economy, Trade and Industry, Japan Chart 5: Bundesbank, Germany Chart 6: Bureau of Labor Statistics, US Chart 7: ONS Chart 8: Baltic Exchange Chart 9: Consensus Economics and Bank calculations  BIS Review 8/2009  1  Governments and central banks around the world responded decisively and boldly with large fiscal injections and cuts in interest rates, and the provision of hundreds of billions of pounds in capital and funding to support banks. The scale and urgency of their actions embodied an audacity born out of pessimism. Tonight I want to ask: what went wrong? How can we limit the impact of the banking crisis on the wider economy? And can we design a better approach to the management of our economy and financial system in the future? So what went wrong? The origins of the crisis lie in the imbalances in the world economy which built up over a decade or more. The entry of the rapidly growing economies in Asia into the world trading and financial systems provided a huge new pool of savings. But their development and exchange rate strategies meant that they were running large current account surpluses. In other words, their domestic saving was more than enough to finance investment at home. Significant amounts were channelled into foreign financial assets.
Hopefully, the report can contribute to a well-informed debate on the stability of the Swedish financial system and influence those participating in the system. The Riksbank can also use the Financial Stability Report to show how we work to achieve the objectives the Riksdag has set us. The layout of the report provides a good insight into the way we work. It begins with a review of international events, describing growth and prices in the financial markets and on various assets. In this context, the analyses and assessments of developments outside the Swedish borders play an increasing role, in line with the ongoing internationalisation process. After describing the environment in which the banks and their borrowers operate, we devote a chapter to a survey of how the borrowers - households and firms - have been affected. What is the level of indebtedness and the ability to service debts? Are there any risks entailed in their actions? If things go well for the banks’ borrowers, they normally go well for the banks. Developments over the past five years, with the Swedish banks increasingly investing abroad, have meant that a substantial percentage of their borrowers are in other countries - mainly in the Baltic region. This means that our analyses cannot focus exclusively on Sweden; we must also take into account developments in, for instance, neighbouring Nordic countries. The banks own actions can also affect the stability of the payment system. What strategic choices do the banks make?

The latter shows how important it is that the participants and users of the financial system have confidence in its functioning. The Commission on Business Confidence wrote in its final report that it is important to have a basic assumption that agreements will be upheld in the economy as a whole, and that this is essential in the financial sector. If this trust is lost, it can create difficulties for the banks to conduct their activities and thereby for the financial system’s functioning. However, it is not merely confidence in the individual banks that is essential to the efficient functioning of the financial system. The participants in the system must be able to rely on all of its parts. This means that the oversight role in practice covers more than just the obvious work of overseeing the banks in the payment system. The Riksbank must also to some extent analyse developments in the financial markets and any tendencies in these that might lead to threats to stability. What is financial stability and why should the Riksbank concern itself with it? What is financial stability? There is no unequivocal definition of stability. It is often described as a negative - the absence of instability in the financial markets that would hamper growth. The Riksbank usually focuses on systemic risk in its analyses and the aim there is to prevent problems spreading from one operator to others and having repercussions for the real economy. The work on financial stability has many dimensions.
This need for “consistent application” brings me on to the much harder condition for success – the “condition of mutual trust”. We have a globally integrated financial sector. But we have national – and I should note in Europe’s case, regional – regulation and supervision that answers to national parliaments and, when it goes wrong, drags in national taxpayers. Internationally we can only agree standards. We cannot implement them in international law, in international regulations. That can only be done by national legislators in national law. Nor, when we have implemented the rules, do we have international supervisors to apply them to international firms. We have only national supervisors, answerable to national parliaments. Without mutual trust between national authorities, without a willingness to recognise each other’s implementation of internationally agreed standards, we put at risk the success we have achieved so far in developing the “governance” of the international financial sector. The risk comes from two directions. From one side, there will be pressure for a race to the bottom. If there is inconsistent application and lack of trust regulators and supervisors in each jurisdiction will come under pressure from the firms they regulate to ease up. Firms will argue that other jurisdictions are not implementing properly and that their competitors in those jurisdictions are getting a favourable ride. The pressure will be to weaken implementation everywhere ending with a race to the bottom. This is not theory. It is one of the most important lessons of the pre-crisis period.

We are likely to meet the numerical values of the Maastricht criteria by the end of 2009 and Estonia expects to join the euro area in 2011, in full accordance with the Treaty provisions. It is clear that in order to adopt the euro, the key issue of Estonia's fiscal policy is ensuring sustainable public finances in the next years. Looking at longer-term growth potential, it would be advisable not to achieve this by excessive increases in the tax burden. BIS Review 90/2009  1  Finally, the way out from the current crisis depends critically on further strengthening of the EU Single Market for goods, services and production factors (including capital, labour and know-how). To conclude I would like to assure that Eesti Pank is always open for your inquires and cooperation. Thank you for your attention! 2  BIS Review 90/2009
The “zero-problem” policy Turkey has been trying to formulate in recent years with neighbor countries, the steps taken to lift visa requirements, and above all, the active part Turkey played in improving relations among the countries of the region, all pave the way for regional collaborations that are likely to generate favorable economic outcomes in future for all countries of the geographical area we live in. This conference that the Central Bank of Turkey hosts today is a step toward improving relations among the banking sectors of Turkey, Syria, Lebanon and Jordan in the short-term. Nevertheless, in the long-run, it is expected to contribute to efforts towards a common market surrounded by the Persian Gulf, the Red Sea and the Mediterranean with the participation of the region countries. The Banks Association of Turkey, Central Bank of Syria, The Banks Association of Lebanon and The Banks Association of Jordan will be signing a Regional Cooperation Agreement in the field of Banking shortly. This agreement aims to enhance cooperation among the banking systems of these four countries and to improve communication channels between them. Thanks to this agreement, cross-border trade and investments among these countries will be supported and facilitated by this cooperation between our banks. Turkey signed free trade agreements with Syria, Jordan and Lebanon in 2007, 2009 and 2010, respectively. Moreover, visa-exemption agreements were made between Turkey, Syria and Jordan in 2009 and between Turkey and Lebanon in 2010. Besides, these four countries established a High-Level Strategic Cooperation Council in 2010.

But monetary policy needs to be forward looking, so that does not add up to a compelling case for a change in monetary policy. The question is how has the growth and inflation outlook changed as a result. In my experience, recoveries have momentum. While growth might not be totally steady and even across sectors, as recovery progresses, various mechanisms begin to operate which can give it added momentum. Pressure on existing capacity grows, causing companies to dust off their investment plans. Supply chains tighten and firms start to re-stock. Memories of the uncertainty created by the shocks that generated the recession fades and confidence recovers. The labour market stabilises and unemployment should eventually start to fall, improving job prospects. These things happen over a period of time, so from month to month not much change may be perceptible. But looking back over a longer period, improvement is clear. In my view, this is the process that has been underway for the last year, and this process of gradual healing and recovery is likely to continue in the absence of big negative shocks which could derail growth. Given our experience over the last few years, we should certainly worry about future major shocks from the international economy. But the big downside worries resulting from the financial crisis which were present a year ago have receded, in my assessment. And the response of monetary policy has played a part in that process – though it has not been the only factor at work.
Miguel Fernández Ordóñez: Contribution of global banks to financial stability Opening speech by Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, at the International Capital Markets and Emerging Markets Roundtable, Institute of International Finance (IIF), Washington DC, 17 April 2011. *  *  *  Let me start by thanking the IIF for giving me this opportunity to present my views on global banks. I will speak from my perspective as Spanish banking supervisor. And I should say from the outset that in my country global banks have not given us the most problems. Indeed, the main message of my intervention today is that we should not fall into the trap of automatically equating “global banks” with “dangerous banks” in terms of financial stability. This may be an intuitive reaction to the crisis. But it would be a mistaken one, in my view. In fact, based on our experience, I would like to give you some examples of how global banks can make a positive contribution to financial stability. Naturally, these are only examples, and I would certainly not presume to have all of the answers on this complex issue. But I hope these examples will be illustrative of the point I am trying to make. First of all, it is true that some global banks have experienced severe problems. We have seen large, complex and interconnected banks and financial companies on the brink of bankruptcy, both here in the United States, and across Europe.

But capital does help to reinforce the system, because it provides an incentive for institutions to reduce the risk that they pose to the system. Banks which show that they are less risky should be subject to lower requirements, thereby incentivizing responsible and safe behaviour. Instead, those banks that pose higher risks should meet more stringent requirements. Let me stress, yet again, that my point is not about having all global banks following this organizational philosophy. On the contrary, I do believe a diversity of institutions from either a business model or an organizational perspective is needed to ensure that financial globalization promotes global growth. But we should also be aware that, if the regulatory framework in areas such as SIFIs capital surcharge is ill defined, we may end up promoting the convergence of global banks towards the most complex business model of the current landscape. BIS central bankers’ speeches  3  In this respect, I would like to draw your attention to the fact that we have recently raised core capital requirements – to 8% – for all institutions operating in Spain, in order to boost the stability of the financial system. However, we have also gone a step further and placed an additional 2% charge – to reach 10% – on those institutions which could potentially create more problems for the supervisor.
By our estimates so far, ProCredit has already made some mark in the domestic Banking Industry and is poised to do more. As at end January, 2008, the bank’s credit portfolio amounted to about Le8.0 billion; this was disbursed to 1,440 customers. Deposit base during the same period stood at about Le3.0 billion, with an impressive record of 5,600 deposit  BIS Review 33/2008  1  accounts. What is important here is that many of these customers are first-time account holders who might have found it difficult to open accounts with the traditional commercial banks. Loan recovery has also recorded a formidable and impressive rate. We therefore commend the management and staff for this ground-breaking performance. Microfinance activities now include products such as micro credit, micro insurance, mobile banking, etc, which are designed to increase the product portfolio and provide customers with a variety of products that are easily accessible. We believe that with the increased efforts to further institutionalise microfinance activities in the country, we will soon see a wider variety of microfinance products for small scale producers. Madam Chair, I believe this is a befitting occasion to discuss what we, at the Bank of Sierra Leone, are doing to foster an efficient, sound and stable financial sector, including microfinance. The Bank of Sierra Leone, in collaboration with MITAF, is drafting guidelines for the regulation and supervision of deposit-taking Microfinance Institutions. Development in this area is far advanced.

The Bank of Sierra Leone has also recognised the need to bring the legal framework for regulating the banking sector consistent with international best practice. Hence, in consultations with our International partners, (ADB, IMF, World Bank, etc), the Bank of Sierra Leone is undertaking a comprehensive review of the Banking Act 2000, and the Anti-Money Laundering Act 2005 in order to align them with international best practices and to address some of the weaknesses which have been identified while implementing them. We anticipate that once these legislations have been amended, the legal framework will provide a conducive environment for a more robust banking sector. Going forward, the Bank of Sierra Leone plans to draft operating guidelines for other specialised institutions, including Merchant and Agricultural banks, in order to broaden the financial landscape in the economy. Traditional Commercial banks, on the other hand, should endeavour to increase product innovation and diversification. The real challenge for all of us is how to enhance savings mobilisation and effectively channel such savings to their most productive use. Madam Chair, Distinguished Guests, let me conclude my remarks with a serious appeal to the entire banking industry for the better packaging of banking products for our clients. This, I believe will enhance our service delivery, which in turn, will enable us offer more affordable banking services. Providing affordable banking services has the potential of drawing a larger number of Sierra Leoneans to the formal financial system, resulting in an expanded banking clientele.
The final area in which recent innovations have improved market transparency is risk management. While we are far from being able to rest on our laurels, there is no denying the fact that financial institutions, their customers, and their investors have become more sophisticated over the past several years at evaluating, monitoring, and controlling market risk. If market participants better understand the risk of the positions they put on their books, they are more able to react effectively and efficiently when their assumptions are challenged or unwound. Although it is crucial that rapid innovations in trading and risk management practices continue, most of the institutions represented here have already made important progress along these lines in recent years. What needs to be stressed, however, is that it is not enough for a firm to develop - for internal purposes alone -- sophisticated new techniques to assess, price, and manage increasingly refined components of financial risk. If financial markets are to function most efficiently, shareholders, creditors, and counterparties of these firms also must be able to  BIS Review 60/1997  -4-  assess the risks when they make their evaluations. In order for them to do this, meaningful information about risks and risk management performance must be available. The Federal Reserve Bank of New York has been actively involved in encouraging an evolution of disclosure practices that will improve the functioning of financial markets.

Over the business cycle, the real interest rate required to sustain output at potential and inflation at target, can fluctuate around the long-run real rate as a result of shorter-term influences on the economy. At any given time, other factors like fiscal policy, uncertainty and global growth prospects may push the real rate required to bring inflation back to target further above or below the long-run real rate. But given the slow moving nature of the underlying drivers of the long-run real rate, one would expect the downward shift in the overall interest rate cycle to persist into the foreseeable future. It is this downward shift in the long-run real rate that has lain, in part, behind the Bank of England’s message that any future increases in rates will be limited and we should not expect to see a return to the levels of policy rates we saw before the crisis. And this is exactly what motivates me today to speak about the implications of this low rate environment for financial stability. Financial stability challenges of low for long: the financial sector  I want to look today at the three main challenges to financial stability that this environment could pose and briefly consider possible policy responses. The first challenge is that a slow or an unwilling adjustment to the lower returns implied by low for long can lead both to greater risk taking and less resilience in the financial sector. 7  Holston et al (2017).