samchain/econo-pairs-v1 huggingface dataset:
In so far as financial markets are concerned, these recent times have seen us avoid major and abrupt market movements or disruptions. Besides the 2016 measures that stabilised our markets, this growth is also the result of the many initiatives implemented since then. One key fundamental strategy has been our steps to enhance market transparency and visibility, which provides us with information and data for targeted development efforts. The operationalisation of the RENTAS Segregated Securities Account which enables us to observe the activity in the Malaysian bond market has also provided investors with improved efficiency and a reduced reporting burden, lowering the cost of investing in this area. On this topic, I am pleased to share that on Monday this week, Clearstream launched their revamped solution which will provide an internal settlement link to facilitate greater access to the Malaysian market. They now rejoin a host of International Central Securities Depositories and Global Custodians that provide such access. This is yet another positive development for our financial markets. With greater oversight capabilities, we were able to introduce the dynamic hedging programme in 2016, which successfully enabled institutional investors’ active management of their foreign 1/4  BIS central bankers' speeches  exchange exposures in the onshore market. The programme currently records participation of 104 registered institutional investors managing USD37 billion total asset under management, and has led to the migration of these investors’ former offshore strategies to the onshore market which has increased the level of transparency and orderliness of the ringgit market.

The famous economics author Neil Irwin, in his book titled “The Alchemists: Three Central Bankers and a World on Fire”, called the Governor of the German Reichsbank at the time, the “worst central banker in history”! Let us also look at the other extreme case of price movements, namely deflation. The example that will come to anyone’s mind is Japan, which underwent what was known as the “lost decade”. Now it is termed the “lost 20 years”! Since early 1990s Japan experienced deflation, a continued decline in prices of goods and services. One may think that this is great! But what could be considered good for a consumer in the short-term may not be good for the entire economy, as evidenced by the experience of Japan. Since then, the Japanese economy had experienced negative economic growth, a drop in nominal GDP, declining wages and negative interest rates! Some indications of sustained growth in Japan are seen only now. Fortunately, Sri Lanka has never experienced such episodes in the past, and clearly we want neither hyperinflation nor deflation even in the future. But what about double-digit inflation hovering around 10-20 per cent, as experienced in Sri Lanka for several decades from 1970s? Empirical evidence clearly shows that this kind of double digit inflation is bad for sustained growth.
There is still disagreement, however, on how to deal with flows, on who bears the burden of adjustment, and on the scope for global policy cooperation. However, there is perhaps a deeper lesson to be drawn from the global financial crisis. The crisis came largely as a surprise; not because we did not see the bubbles forming, but rather because the central banking community as a whole failed to fully take into account the vulnerabilities resulting from the growth of the shadow banking sector, the opacity of the novel financial instruments that helped fuel the bubble, and the complex domestic and international linkages between different financial sector intermediaries. A fundamental lesson to be drawn from the global financial crisis is the need to develop an integrated, forward-looking approach to central banking that brings together: •  Comprehensive, granular (and perhaps “real time”) financial sector surveillance that focuses on identifying systemic risk and develops adequate market infrastructure and reporting systems;  •  Market intelligence that captures short, medium and long-term trends in the financial system, including, for example, the potential impacts of the rapid evolution of electronic trading platforms and algorithmic investment strategies; and  4  BIS central bankers’ speeches  •  Research and analysis that spans monetary, exchange rate, and macroprudential policies. We have made some progress in this direction here at the Central Bank of Brazil, but we expect to continue to develop this integrated approach to central banking for some years to come.

Covering the failings of previous regimes is not simply some academic exercise, it is crucial in understanding why regulators have taken the actions they have, and why there is still some work to be done. The Basel capital adequacy regime dates back to the Basel Accord of 1988, which led to the introduction of what we now know as Basel I. This was an historic agreement, representing the first international initiative on bank capital standards. Basel I focussed mainly on the assessment of the quantity of credit risk, and had a (what now looks like) simple categorisation of assets on risk grounds into one of five categories, with risk weightings of 0%, 20%, 50%, 100% and finally a set of assets that were fully deducted from capital, the most risky sort. There was also a simple reporting framework for off balance sheet items which were factored into the risk-weighted asset framework. Basel I also set out for the first time an internationally agreed definition of the quality of qualifying capital for banks. Basel I was simple, and I will return to the consequences of that later. The first amendment to Basel I came in 1996 and 1997 in the form of the so-called Market Risk Amendment. It was significant both in extending the Basel Accord to capture market risk, and in introducing two alternative approaches to the measurement of market risk, a standardised method and an internal models approach. The latter was the first appearance of the use of firms’ own models in the capital framework.
The enhanced and robust competition in the marketplace would lead to greater consumer benefits in terms of improved business efficiency, product development and service quality. It is envisioned that the achievement of these imperatives will ensure that the Malaysian takaful industry is well-positioned to successfully make the transition from being "good-to-great" and, InsyaAllah, will remain as the global leader for takaful and retakaful. Ladies and Gentlemen, The overarching objective of our regulatory policies is to ensure that the financial system is in a position to serve the public with the best range and quality of products and services, that the interest of the consumer is at all times protected, and that best practices are adopted to ensure the soundness and stability of the system. It must be emphasised, however, that the ultimate responsibility for ensuring this rests on the players in the financial system, in particular, the Senior Management and the Board of Directors. This is particularly important to ensure public confidence in the efficiency and performance of the financial system to contribute to the overall development of the economy. The initiative formulated for the takaful industry in strengthening competition through the creation of new takaful players, is aimed at achieving this overarching objective. The presence of players with the right qualities and calibre in the marketplace is part of the process of ensuring product innovation and service excellence.

Zeti Akhtar Aziz: The takaful industry in Malaysia Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the launch of Prudential BSN Takaful Berhad, Kuala Lumpur, 8 August 2006. *  *  *  Ladies and Gentlemen, The takaful industry in Malaysia today is poised for greater dynamism and growth, within the expanded domestic and international frontier of the Islamic financial system. This reflects the culmination of the wide-ranging strategies that have been implemented over more than two decades for the full potential of Islamic finance to be now realised. However, to ensure that the momentum in the development of Islamic finance is sustained in a now more challenging and fast changing international financial environment, it not only requires continued development of the Islamic financial infrastructures, and the range of products and services it offers, but also an increase in the number of players and an enhancement of their capacity and capabilities in terms of size and quality of their participation in the financial system. The launch of Prudential BSN Takaful Berhad today marks a new phase of development in the Malaysian takaful industry. Prudential BSN Takaful Berhad is one of four successful consortia that has been identified to conduct takaful business. With the entry of the four new players into the financial system, the competitive element that is injected into the market structure of the industry can be expected to contribute to accelerate the pace of industry development.
Also contributing to this is that factors causing restrictions on supply, and temporarily pushing up commodity prices, are fading away, and that international inflation is being curbed by central banks raising their policy rates. The economic agents trust that the high inflation rate is temporary and will return to the target fairly soon. The longer-term inflation expectations will thus remain anchored at 2 per cent. Wage increases and the Industrial agreement benchmark are based on the assumption that the inflation target will continue to apply in the future, despite the temporary rise in inflation. Companies are refraining from excessive price increases, which risk giving rise to compensatory wage increases that increase their costs, and which force the Riksbank to raise the policy rate further, which will drive their costs up even more. In turn, fiscal policy focuses on targeted support to households and companies that suffer particularly badly in the poorer times that can hardly be avoided going forward. In such a scenario, the inflation target will be able to continue to provide a basis for a long-term favourable development in the Swedish economy, without very large policy rate hikes by the Riksbank (Figure 6). In a bad scenario, the opposite happens. Interest rate hikes will be insufficient and economic agents start to doubt that inflation can return to the target in the foreseeable future. This leads to the longer-term inflation expectations in the economy rising.

Negative signals are coming from manufacturing, where companies' profit expectations are subdued in both the USA and Europe. However, the first reports just presented for Q1 look better than the market had expected. Although as private consumption has been relatively strong in the USA, there is no pent-up need to purchase capital goods as is usually the case after an economic downturn. Household consumption may also be negatively affected if households' wealth in property, and not just equity, is undermined. If the US long rates continue to rise as they have done in recent years, this may be one of the consequences. A large part of Sweden's exports go to the euro area, which means that developments in economic activity here are particularly important. There are fewer signs of a recovery in Europe and the upturn in economic activity may be less strong. However, if one examines the leading indicators, companies appear to have become more optimistic. All in all, it can be concluded that growth prospects in the world around us have improved. The effects of the expansionary monetary and fiscal policy conducted on both sides of the Atlantic are becoming more tangible. The slowdown in economic activity therefore looks to be relatively limited. At the same time, there are risks. The structural imbalances in the US economy, which were built up during the end of the 1990s as a result of excessive optimism, are threatening to slow down the recovery.
Active asset management could also become less viable in a low for long world. Lower asset returns put active asset managers under pressure relative to passive funds given the higher costs of active management. We are already seeing this: since 2007, the share of index tracking US equity funds has increased from about 20% to 50% of US equity assets under management. It is not yet clear what the impact in financial stability terms might be of greater passive asset management, though some research19 suggests further acceleration of this trend could result in more volatile markets with greater vulnerability to swings in sentiment. 18 The Bank’s 2017 exploratory scenario considered how the UK banking system might evolve if recent  headwinds to bank profitabiity persist or intensify. It incorporated weak global growth, persistently low interest rates, stagnant world trade and cross-border banking activity and increase competitive pressure on large banks from smaller banks and non-banks. See Bank of England (2017a). 9  All speeches are available online at www.bankofengland.co.uk/news/speeches  9  Financial stability challenges of low for long: households and corporates  One of the main drivers of the downward shift in the trend real rate is demographics. An ageing population is likely to lead to an expansion of both sides of the household balance sheet. Even allowing for longer working lives, increased longevity is likely to lead to a longer period in retirement and possibly longer in morbidity. Households will need to accumulate more wealth over their working lifetimes to fund this.

It may partly reflect very low levels of current policy rates and any spillovers from that.3 It may also reflect the term premia for inflation that are currently very compressed in some countries, for example, the US and in the Euro area. And it may also be a symptom of a more entrenched pessimism – an over-pessimism in my view – about long-term economic prospects, possibly due to fears of the de-integration of the global economy or concerns about future effectiveness of monetary policy. But, more fundamentally, the very low level of market interest rates reflects an underlying structural trend – the fall in long-run real interest rates since the early 1980s4 – that has been the subject of a great deal of research. The literature has identified a large number of candidate explanations – both real and financial – for a structural decline in the long-run real interest rate. These include: demographic trends and, in particular, increased longevity; lower trend productivity growth; the liberalization of financial intermediation and an increase in the risk borne by individuals and households.5  The long-run equilibrium real interest rates determined by these factors are, of course, unobservable. There is a range of estimates for how far they have fallen.
Today I shall confine my brief remarks to some aspects that have to do with the fact that shares now weigh considerably more heavily in household financial portfolios than was the case thirty years ago. As I just said, this development has coincided with a return on shares that has been very high historically. Sooner or later, however, there will be a normalisation, more or less in line with what has happened in the past. This is so because the return on shares is ultimately determined by corporate profits, which are bound up in turn with economic development in general. GDP represents the sum of all profits and wages in the economy and it is hard to see how an annual real growth rate of around 2 per cent could result in a development of corporate profits that warrants a real annual return on shares that averages around 20 per cent. A more “normal” combination of stock-market returns and risks makes saving in shares more troublesome than it has been with the good returns in the past twenty years. The financial system will need to do more than before to help households manage the risks associated with stock markets. The question is how this change is likely to occur. BIS Review 5/2002  1  Greatly increased household saving in shares One factor behind the growing interest in share investment in Sweden in the late 1970s may have been the low valuations initially.

In line with this assessment, we are taking steps to increase our understanding of the impact of climate change from a financial perspective and to ensure that banks fully incorporate these risks into their processes and practices. I will now go through the recent and ongoing climate-related initiatives related to our supervisory work. The ECB Guide and climate-related disclosures  2/5  BIS central bankers' speeches  In November last year we published the ECB Guide on climate-related and environmental risks.6 It builds on the Guide for Supervisors7 of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), and communicates the ECB’s understanding of a prudent approach to managing such risks to banks, markets and the wider public, with the aim of raising banks’ awareness and preparedness for managing them. In our Guide, we outline our supervisory expectations for how climate and environmental risks should be embedded in all relevant bank processes, from banks’ risk management frameworks to their governance structures, risk appetite, business model and strategy, and, importantly, their reporting and disclosures. Our ultimate goal is to cause banks to make sure their business strategies fully reflect the Paris Agreement – and there is one thing that will be key in getting us there: data. When it comes to tackling climate risk as a financial risk, data are what we are missing the most.
On the other hand, in volatile situations, policy makers need to be more agile to respond to new data and risks. Let me therefore turn back to the three practical issues I discussed earlier and try to draw three lessons for uncertain times: 1. The time horizon: even in normal times, forward guidance loses power over the longer term, as I said. But the greater the uncertainty, the shorter the forward guidance should be. Its reasonable horizon at present should be a matter of quarters rather than years. 2. The balance between calendar and state dependency: in the very short run, dates are more efficient to influence markets and economic agents’ expectations. But beyond the horizon of some months, state-contingent forward guidance is more preferable. And it should rely not only on forecasts – models are fragile in uncertain times – but also significantly on actual data. We should listen to the present and real world of price and wage setters – businesses and households –, who are at least as important as macromodelling or market expectations. 3. In the face of uncertainty, not being precommitted is an absolute imperative. The two most important words for Central Bankers recently are “agility” and “humility” – frankly, these are more than just words, they are the daily reality for us. Jay Powell rightly promises to be “humble and nimble”.

But had we joined at the outset the presumption must be that over the past two years we would have lived with both a lower exchange rate and lower interest rates during a period when we have in any case been operating close to productive capacity and growing at above trend. The likelihood therefore is that we would then have experienced something of an inflationary boom - as they have, for example, in Ireland though I am not sure one can generalise from the Irish experience. The subsequent weakening of the euro since the beginning of last year has not made things any easier for us. Just as, I suggested earlier, the euro is substantially undervalued in terms of the medium-term “fundamentals”, so in the same terms sterling is on most calculations substantially overvalued against the euro. To lower sterling to a more sustainable level in present conditions would again require an easing of monetary policy which would destabilise our overall domestic economy; and this in turn would tend to set in train a process that would lock in a subsequent real UK exchange rate appreciation within the Eurozone (albeit from an initially less uncompetitive level). That might help reduce sectoral imbalances in the short term, only for them to re-emerge. And in the meantime the whole of the economy would have been exposed to accelerating inflation, which we would be powerless to address through national monetary policy.
So I do not put them forward as the complete answer; rather I think we should be discussing whether there are some common understandings which could inform and shape crossborder cooperation. International complexity Of course reaching a common view will be difficult. But it seems to me a necessary step towards meeting the challenges of handling financial instability in the new world of open international capital markets and giant complex financial institutions. Many of the challenges have been discussed in the international community. In particular: the potential difficulty in amassing a complete picture of the health of firms and capital markets in crisis from different authorities; the potential complexity of large firm structures, where entities within a firm may be subject to different legal arrangements, preference rules and rules concerning ownership interests and creditor arrangements; and the possible technical difficulties in winding down an entity that is engaged in complex trading strategies. There are also of course issues around how liquidity and capital can be moved around a group: whether collateral, funding or capital can be moved quickly across borders to where it needs to be. Further, some of the commonly preferred methods for resolving a financial crisis, before moving to winding down methods, may be less easy to deploy than they were even a few years ago. I think many of us would share Eddie George’s view that we should look first for a private sector solution before committing public money to a rescue operation.

But the difficulty in spelling out underlying reasons must not become an excuse for lack of analysis and preparation. In order to make cross-border crisis management work, we may have to consider sacrificing some mystery – even if only amongst ourselves – for greater effectiveness. The most recent cases of official emergency liquidity support to UK banks occurred in the early 1990s, when the Bank lent to a few small banks in order to prevent wider loss of confidence in the banking system. The Memorandum of Understanding (MoU) between the Treasury, FSA and Bank which sets out our current roles in maintaining financial stability makes clear that decisions on support operations now rest with the Chancellor, acting in the light of advice from both the Bank and the FSA. Following the early 1990s experiences, Eddie – now Lord George – discussed various options for intervention. 3 He argued that, in deciding whether to provide support, the authorities should: explore every option for a commercial solution before committing public funds; structure any support such that losses would fall first to shareholders and any benefits fall first to the authorities; not, in normal circumstances, lend to a firm known at the time to be insolvent; and, look for a clear exit from provision of the lending. These guidelines go more to the question ‘how’ rather than the question ‘when’ the authorities should intervene, and they were drawn up before the globalisation of banking and capital markets had got fully underway.