samchain/econo-pairs-v1 huggingface dataset:
2022 Paris Europlace International Finance Forum – Paris, 12 July 2022 Central bank digital currency (CBDC) and bank intermediation in the digital age  Speech by François Villeroy de Galhau, Governor of the Banque de France  Page 1 sur 7 Ladies and Gentlemen, It is a great pleasure to be with you today, thanks to Paris Europlace. In light of the current geopolitical context, the theme of this session appears particularly relevant: European strategic autonomy is not absent from our sight as central banks. We notably ensure that our banking system remains robust in times of great uncertainty – namely the war in Ukraine, and its economic consequences: the spur in inflation, the deterioration of the macroeconomic outlook, and the normalisation of interest rates. In this context, let me pay tribute to the solidity and performance of the French banking system: French bank’s CET1 amounts to 14.9 % in Q1 2022; while their RoE increased over a rolling 12-month period at 7.6 % in Q1 2022, and corporate risk remains manageable for sure. However, this collective strength should not mean any complacency, especially in the face of the triple digital revolution unfolding before our eyes in the financial sector;i new tokenised assets, new players, and new “decentralised” market infrastructures aim to remodel the financial system from the ground up. Against this background, central banks are increasingly considering the creation of a digital form of their currencies. And let’s face it: the idea sometimes raises doubts, and even fears, among commercial banks.

We have made significant progress, particularly during the latest Basel Committee meeting last month on 4 and 5 October, but we are not there yet, even though I hope that an agreement will be reached as quickly as possible. If we are to reach an agreement, two conditions must be met. First, the agreement must be fair – it must be applied by all jurisdictions, in all its components, including by the Americans in the measurement of market risks, i.e. the “fundamental review of the trading book” (FRTB). Second, the agreement must be reasonable, in terms of the increased capital requirements that will apply to French and European banks – including through the introduction of the so-called “output floor” on capital requirements for banks that use internal models. On the one hand, these capital requirements would have to be met over time through “normal” allocations of profits to reserves, without any bank having to resort to a dedicated capital increase. On the other hand, these new rules must be fully compatible with the smooth financing of the French and European economy and sound credit growth. In particular, our mortgage lending model, based on guaranteed loans, and our 4/7  BIS central bankers' speeches  financing of SMEs cannot be called into question. In my view, these are the principles that will determine whether any future agreement can be accepted. 2) The second challenge is to finalise measures that target non-banks.
Put another way, we do not want to tame international banking to such an extent that it is unable in practice to support international trade and growth, or that it does so at too high a cost. We do not want the lions to be completely sedated. My focus today is not on the improved regulatory standards for banks that have been set by the Basel Committee on Banking Supervision under the leadership of the Financial Stability Board and that have applied to all banks since the crisis. Rather my focus is on the who and the what of how we regulate international banks – those that operate across national borders – and in particular how in the absence of a single global banking regulator we can seek to ensure that the risks posed by these international banks are well managed. How the domestic regulators can work together to not just tame the risks facing their own economies, but the risks facing the global one – in the same way that lion tamers can work together. Given the highly interconnected, dynamic nature of these firms, it makes for an interesting challenge. And it is one that interests the UK in particular given our perspective as host BIS central bankers’ speeches  1  supervisor of around 170 international banks from over 50 jurisdictions, and including every one of the 30 Globally Systemically Important Banks (G-SIBs).

It can credibly act as a counterweight against the host supervisors’ natural desire for higher local equity capital to be pre-positioned. At the same time internal TLAC can also help to ensure that there will be sufficient locally held capital to enable an orderly wind down of that entity in the event of stress. This approach recognises the integrated nature of many international groups. It recognises that having a clear agreed resolution strategy, combined with committed cooperation including in-depth sharing of information between the home and host supervisor, is key to understanding the risks that are shared by the parent and subsidiaries of large, complex groups. But it also seeks to ensure that the potential risks of a disorderly resolution are mitigated. In summary there are a number of key components to committed cooperation. a. A credible resolution strategy and equivalence of the home resolution regime, supported by internal TLAC. 6  BIS central bankers’ speeches  b. A high degree of commercial, operational, and financial entanglement between subsidiary and parent. c.  Transparency over the financial position of the parent group, its capacity to support the subsidiary, and the equivalence of the home supervisory regime. d.  Transparency over the intervention framework, including host and home discretion and triggers for action.
This broader view of banking supervision, taking account of all its facets, translates into a number of provisions and notably introduces additional capital buffers (a capital conservation buffer, a countercyclical buffer and a buffer for systemically important financial institutions) in excess of the regulatory minimum. Basel III therefore represents a quantitative and also a qualitative leap. Given the magnitude of the changes to be made, Basel III has major repercussions on market participants, who must adapt to this new environment. These repercussions are both anticipated and desirable, but the potentially negative consequences of this reform must be kept to a minimum. In this respect, many associated risks were highlighted during its drafting and even more so recently, due to the current economic and financial difficulties. These included the risk of a rise in the cost of credit or of a credit crunch. Hence, the impact and stakes of Basel III must be carefully analysed and addressed. 2. The difficult economic environment stresses the importance of implementing Basel III in an appropriate manner but does not call into question the rationale of the reform  Without playing down the potential risks associated with the implementation of Basel III, to which the ACP pays close attention, I believe that this reform can be successfully implemented.

The main purpose was to explain that the Riksbank is not able to control inflation precisely in the short term, but that it aims to limit deviations from the target. The band was abolished in 2010 because the Riksbank then assessed that it no longer had a role to fill. In the memorandum published in connection with the decision, it was noted: “There is considerable understanding for the fact that inflation commonly deviates from the target and that the deviations are sometimes larger than 1 percentage point. Inflation can thus be outside of the tolerance band without threatening the credibility of the inflation target. Such deviations have proved to be a natural part of monetary policy.” 13 The view was therefore that even the relatively broad band of 1 to 3 per cent gave the appearance of excessive precision. However, as economic agents did not find it noteworthy that inflation was outside this band at times, the Riksbank felt it was not a problem. The tolerance band was thus a pedagogical tool intended to illustrate the uncertainty surrounding the inflation development. It was never intended to be a target range, i.e. that the target was actually 2 percentage points wide, and that inflation of marginally over 1 or just under 3 was as consistent with the target as inflation of 2 per cent. 14 This appears to be many people’s interpretation today, however.
Minouche Shafik: Treading carefully Speech by Ms Minouche Shafik, Deputy Governor for Markets and Banking of the Bank of England, at the Institute of Directors, London, 14 December 2015. *  *  *  I would especially like to thank Grellan McGrath for his help with the analysis and evidence in this speech. Comments from Alex Haberis, Andrew Hauser, Gareth Ramsay, Jon Relleen, Matt Waldron, Martin Weale and James Talbot are also gratefully acknowledged. Introduction In what is likely a first for a monetary policymaker, I would like to begin my speech today with a chart of the depth of tread on car tyres – as measured by the busiest tyre fitting station in the UK whom I recently visited in the South East. Generally speaking, the deeper the grooves are on a tyre, the better is its grip, performance and safety. When the recession hit in 2008, people began to delay replacing their tyres, implicitly accepting a deterioration in quality in the hope of saving on costs (Chart 1). What is surprising, however, is that although we are now into the seventh year of the recovery, the frequency with which drivers replace their tyres has not returned to pre-crisis levels. This illustrates quite nicely that although the economy is thankfully returning to normal, we cannot blithely assume that relationships which held in the past will automatically revert.

Firms’ compliance with PPP and supervisory review or firm-by-firm regulatory intervention under Pillar 2 of the Solvency II framework are all important to manage concentration risk. But we should not have to rely on the PPP to compensate for perverse incentives that the quantitative capital rules under Pillar 1 might create. A robust and coherent Pillar 1 needs to play the primary role in incentivising prudent risk management practices in the first instance and to work in concert with Pillar 2 measures. The ongoing work on Solvency II reform plays a part in this. In order to enhance our understanding of the risks and the most appropriate ways to address them, the PRA will engage with insurers and other stakeholders, including international regulatory colleagues. Our own work on concentration risk will examine the need to tighten controls on recognition of reinsurance structures and volumes to mitigate systemic risks to policyholders. Page 9  Undertaken within a robust framework for the management of counterparty concentration and recapture risk, reinsurance can continue to deliver the global diversification that is at the heart of insurance, and which allows the insurance industry to play its part in helping individuals and businesses to navigate a world of uncertainty. Thank you. I am grateful to Wendy Fu, Alwin Luchmaya, Dean Minot, Charles Adam, Hannah Rashid, Alan Sheppard and Miranda Hewkin Smith for their assistance in helping me prepare this speech. 1.
Bank of England  Page 1  That was the year that was − speech by Dave Ramsden Given at Bank of England Watchers’ Conference organised by the Money Macro Finance Society and King’s Business School at King’s College London 24 November 2022  Bank of England  Page 2  Speech Thank you for the invitation to speak today. I am particularly pleased that I have close links with the two institutions, the Money Macro and Finance Society and Kings College London, who have organised this first Bank-watchers’ conference. In the spirit of the sixty year old TV programme that inspired my title I want to give my personal review of why the economy, and in particular inflation, turned out to be very different over the past year, and suggest some potential consequences for the MPC’s approach to forecasting the economy and setting policy to hit the 2% inflation target. As a member of the MPC I hope to be able to do justice to how our thinking has evolved but I should stress at the outset that these are personal observations, which will nevertheless hopefully help set the scene for discussions at this conference. In my other monetary policy speeches this year I’ve focused on the impact of shocks. Today I’m going to look more through the lens of the uncertainty generated by those shocks, which has made the course of the economy in general and inflation in particular increasingly hard to predict1.

The November 2021 Treasury Comparison of Independent forecasts, included an average of forecasts produced over the last three months of CPI inflation of 2.8% for 2022Q4 and a range from 1.8% to 5.1%. 3 Among the components of GDP, the most striking downwards revision is to business investment which is forecast to be 18% lower in 2022Q4 then was forecast a year ago. There is various evidence to show business investment is particularly affected by uncertainty. Bank of England  Page 5  In response to significantly higher and more persistent inflation the MPC has increased Bank Rate at every meeting in the intervening twelve months, from 0.1% to 3.0%. The latest forecasts were conditioned on market expectations showing Bank Rate peaking at 5.25%, over 4% higher than the peak expected a year ago. I want to review four of the main sources of uncertainty over the last year and draw out their interactions as well as their implications for the persistence of inflation, since this is the key feature of the MPC’s latest forecasts and the focus of monetary policy. High and volatile energy prices First energy prices. While these had started to rise from late 2020, gas prices in particular started to accelerate more quickly a year ago in the build up to Russia’s invasion of Ukraine. This shock was unexpected, large and passed through quickly to consumer prices.
The size of the SNB’s foreign exchange reserves means that investment returns, in absolute terms, can fluctuate sharply from year to year. This has been particularly evident in recent years: in 2015, the SNB reported an annual loss of over CHF 23 billion. In 2014, it had recorded a profit of more than CHF 38 billion. A look at the breakdown of investment performance shows clearly that the volatility in our investment returns is mainly the result of exchange rate fluctuations. This is illustrated by slide 6. The red bars show that, when converted to domestic currency, investment returns have always been positive over the last 15 years. By contrast, the foreign currency contribution – which is denoted by the blue bars – has mostly been negative. In individual years, the strong appreciation of the Swiss franc has even led to the total return in Swiss francs being negative. This is denoted in the chart by the yellow triangles. Slide 7 shows that, over the last 35 years, currency risk has accounted for more than 80% of the total risk in our portfolio. We cannot hedge against currency risk, since this would increase the upward pressure on the Swiss franc. Hedging would thus undermine our monetary policy objectives. We must accept currency risk as an inherent component of our foreign exchange reserves. Gains or losses in the double-digit billions could thus also occur in the future.

I am convinced that, under the circumstances, the SNB’s monetary policy is currently the approach that best serves Switzerland’s overall interests in the long term. At our most recent quarterly monetary policy assessment, we therefore decided to maintain our expansionary monetary policy. The interest rate on sight deposits at the SNB is unchanged at –0.75%. At the same time, the SNB will remain active in the foreign exchange market, in order to influence exchange rate developments where necessary. Despite a slight depreciation, the Swiss franc is still significantly overvalued and this is reflected in economic activity. Last year, the Swiss economy only recorded year-on-year growth of just under 1%. For this year, we expect growth of between 1% and 1.5%. Uncertainty is high, however, and conditions remain difficult. Last year, inflation was very low, at –1.1%, due in large part to the slump in oil prices and the appreciation of the Swiss franc following the discontinuation of the minimum exchange rate. The impact of both variables is temporary. For this year, we expect an inflation rate of –0.8%. In the SNB’s view, it is essential that, in the medium term, inflation returns to the range compatible with price stability. And, according to our current inflation forecast, that is what will happen. As you can see from slide 12, we are expecting that, given an unchanged threemonth Libor of –0.75%, the inflation rate will return to positive territory next year. This brings me to the end of my speech.
There are a number of reasons why this can be economically attractive for firms: the reinsurer benefits from cross-risk diversification; there may be tax advantages; and so on. But there are also potential regulatory drivers: the balance between the treatment of credit risk underpinned by the MA and the treatment of longevity risk underpinned by the risk margin can incentivise this choice. Whilst it is clear that reform is needed, there remains a choice of method to implement this reform. Internationally, market-consistent regimes have used a variety of different approaches to risk margin calculation. The data we gather in the QIS will help form proposals on the best way to implement reform which meets the objectives of the review. Matching Adjustment Turning to the Matching Adjustment. The Matching Adjustment, or MA, has a clear link to the investment incentives for annuity writers. As such, an MA that works will be a key plank of allowing annuity writers to support the recovery and growth, both by innovating, and by investing in long-term productive assets and in assets consistent with the government’s objectives on climate change. The MA lets a firm recognise an immediate benefit today, from future returns above the risk-free rate that have not yet been earned. So getting the MA right is critical for ensuring the right level of policyholder protection in the UK, and getting it wrong could have very severe consequences.

4  BIS central bankers’ speeches  Federal Reserve’s role in financial intermediation – particularly if it were permanently in place – by expanding the Federal Reserve’s presence in short-term funding markets or potentially altering the structure and functioning of money markets in unanticipated ways. 10 These risks are likely small given the sizable level of excess reserves currently in the system, which establishes the Federal Reserve’s large footprint in money markets. However, the risks associated with offering a perfectly elastic supply of ON RRPs at a fixed rate could increase as the level of excess reserves declines over the course of normalization and an ON RRP facility becomes less important to support interest rate control. These risks inform the Committee’s desire to phase the facility out when it is no longer needed to control the federal funds rate. Indeed, money market rates should become more closely aligned with the IOER rate as the quantity of reserve balances in the system approaches greater levels of scarcity, likely reducing the need for supplementary support from an ON RRP facility. And since ON RRPs just swap one Federal Reserve liability for another – reserves for reverse repos – demand for RRPs should recede as the asset side of the Fed’s balance sheet shrinks.
In the harshest scenario considered in this exercise (which includes the cumulative fall of 5.7% in Spain’s GDP from 2020 to 2022), the decline in the CET1 ratio totalled 3.9 pp for significant institutions with an international presence, 4.6 pp for other significant institutions and 1.3 pp for institutions under the direct supervision of the Banco de España. Although this impact is significant and heterogeneity across banks is high, the Spanish banking sector as a whole duly evidenced notable resilience. The first year of the crisis: the importance of economic policy measures Despite this better starting position, the economic shock is unprecedented. Specifically, the 11 pp decline in the Spanish economy’s GDP in 2020, which was already considered in our latest stress test, far exceeded in a single year that simulated for three years in the stress tests conducted pre-crisis. That the banking sector has proved very resilient in the first phase of the crisis has been due not only to this better starting position, but also to the forcefulness of economic policy measures. These have covered all dimensions (monetary, financial and fiscal; national, European and global) and have acted in a complementary fashion. The ECB’s monetary policy, especially through our pandemic emergency purchase programme, has managed to maintain very accommodative financing conditions and to head off episodes of financial fragmentation. This monetary policy action has, in turn, enabled fiscal policy to be very forceful in mitigating the impact of the crisis on households and firms.

Accounting standard-setters were also explicit concerning the need to take into account the exogenous and, in principle, transitory nature of the crisis when applying the rules, which incorporate the flexibility needed to accommodate this situation. The rapid European reform of capital requirements (informally dubbed the “quick fix”) contributed to these same objectives. Finally, forceful fiscal policy action has helped alleviate the declines in household and corporate incomes. Some of these measures have, precisely, focused either on making it easier for banks to lend, in particular through the public guarantee programmes, or on easing payments arising from their indebtedness through moratoria. The banking sector has played a key role in the application of some of these support measures, smoothing the transmission of monetary policy decisions and the implementation of certain financial and fiscal initiatives, such as the moratoria and public guarantee programmes. As a result of all these measures, and despite the severe economic downturn, the CET1 ratio has increased by 71 basis points (bp) to 13.3%.3 One means of showing the impact of these measures on the sector’s resilience is to calculate their effect on banks’ capital ratios in the stress test exercises mentioned.