samchain/econo-pairs-v1 huggingface dataset:
Thank you very much for your attention. BIS Review 18/2005  5

I expect that much of the cost to banks of adopting the advanced approaches of Basel II will come from precisely these types of initiatives. While it will not be inexpensive to achieve these capabilities, particularly for a very large and diverse organization, I believe that it is essential for the largest and most complex U.S. banking organizations to continue down this path. We know all too well the costs to society of bank weakness and ultimately bank failures. As our largest banks continue to grow, to prosper and to pursue new opportunities, they must simultaneously make the investments required to manage themselves appropriately. Likewise, the new framework is providing supervisors with an opportunity to enhance their ability to identify and respond to sources of banking risk, and to share this knowledge within the supervisory community. The Basel Committee was established precisely to maintain an open and constructive dialogue among banking supervisors. This spirit of communication will be more crucial than ever as the new framework is adopted across national jurisdictions. To help ensure that market competition is driven by each bank’s strengths, rather than by differences in each country’s regulatory capital rules, the Committee established the Accord Implementation Group. This group, comprised of senior line supervisors, is responsible for promoting the consistency and quality of implementation of the New Accord. Further, the group has been established to facilitate the exchange of information among national supervisors about bank and supervisory practices.
The inherent flexibility of a managed float regime such as the one pursued by the NBR does, however, have its clear limitations, which should not be overlooked – this does not imply, by any means, that the central bank acts in a discretionary manner, taking the exchange rate wherever it wants. The abuse of flexibility can be as harmful to the proper functioning of the economy as the abuse of rigidity. In fact, the inflation-targeting regime implemented by the NBR is a mix of rules and discretion with the aim of formulating a coherent and effective monetary policy. As regards the current differences in the countries’ approaches to euro adoption, for some it might seem odd that Bulgaria, which lags behind in terms of real convergence, is considering joining the euro area sooner than Romania. It is only natural for our neighbour to contemplate euro adoption as the only sound exit from the present currency board. By contrast, in Romania, as well as in other countries pursuing a floating exchange rate regime, the approach is different, since euro adoption is more complex. This is by no means to say that Romania does not envisage joining the euro area, but merely that a comprehensive preparation is of the essence to cope with the related challenges. The Latin dictum festina lente is, in my opinion, quite suitable in the case of euro adoption as well. With respect to real convergence, many have been asking themselves “How fast is fast enough?”.

A current issue that has disproportionately drawn attention to banks is the affordable housing issue. Bank Negara Malaysia recently featured a box article on this subject in 2016 Annual Report. The public debate largely continues to misdiagnose or ignore the root cause of the problem, that is, affordability and accessibility, rooted by low incomes and compounded by the huge mismatch between demand and supply of affordable houses. The popular myth, is that it is all about access to financing. I am perplexed. Actual data is selfevident. It shows the continued strength in bank financing to households for the purchase of affordable homes, with four in five new housing loans extended for houses priced below RM500,000. Yet banks have done little to educate and inform the public on this financing trend. The industry ought to be at the forefront in explaining the real situation and where possible, offering suggestions to help address this issue. Affordable housing is not a problem that is unique to Malaysia. Policymakers around the world, 2/6  BIS central bankers' speeches  including in developed countries, continue to look for creative solutions to this delicate socioeconomic challenge. A common thread across these solutions is their multi-faceted dimensions. The solution for Malaysia has to involve rebalancing the supply of housing towards the affordable segments. We require a bold and pragmatic solution. We estimate a shortage of 960,000 units of affordable housing. This is projected to reach 1 million units by 2020.
As learned from the crisis that adequate capital is necessary, but not sufficient, the Basel III introduces internationally harmonized liquidity standards promoting internationally leveled playing field. The introduction of the Principles for Sound Liquidity Risk Management and Supervision (Sound Principles adopted in 2008), Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), undoubtedly address the prior inadequate liquidity regulation, which contributed to the crisis. The impact of the new regulation for sure will be felt in AE and EE, but most probably the nature of it will be different. Most of the EE’s have already established sound regulatory regimes for liquidity, as a response to the previous financial crisis within this group. But, despite the fact that the level of liquidity per se should not be a problem there are additional dimensions through which the new liquidity regulation impacts the EE’s. – The Basel III liquidity framework asks for very specific features of the high quality liquidity assets, which does not always properly reflect the structure, the depth and the liquidity of the financial markets in the emerging markets (tighter criteria compared to the existing ones in national regulations). This mainly refers to government bonds, being treated as highly liquid assets.

The limited development of equity markets and sizeable home bias in portfolios have significant consequences for the appropriate functioning of the monetary union. Indeed, they set a limit to the capacity of risk-sharing mechanisms in the euro area, compared for instance to the United States. 12  Conceptually, risk-sharing is closely linked to the capacity of EMU to withstand shocks. It can be seen as the ability of countries to diversify the impact of idiosyncratic shocks among other Member States through private channels (i.e. savings and capital markets) and public channels (i.e. fiscal transfers). In Europe, in the absence of a significant public budgetary instrument and of well-developed and integrated capital markets to diversify the impact of idiosyncratic shocks, the credit channel is the only way of cushioning shocks across the euro area countries. Nevertheless, this channel is not strong enough to offset the weakness of other channels. Despite the initial expectation when the euro was launched that many banks would provide retail services across the euro area, firms and households rely mainly on their domestic banking systems. Cross-border wholesale banking flows rose notably from the onset of EMU until the start of the crisis, but reversed abruptly afterwards. Finally, the fact that the ultimate backstop for deposit insurance still depends on national governments -implying a fundamental misalignment between liability and control- does not contribute to achieving greater integration.
An improvement in the workings of the economy can show up just as a larger supply of resources, be they capital or labour. To date in 1999, for instance, employment has been provided for more than 100,000 people without any signs of appreciable shortages. To me at least this is a welcome surprise. But one should not make too much of it; if we have in fact seriously misjudged how the labour market is functioning, one would expect wage increases to be lower than has been the case. It is also worth noting that the rate of wage increases in Sweden continues to be higher than elsewhere. Another difficult matter is the effect on inflation from a given level of resource utilisation. This was examined in a box in the latest Inflation Report. The results suggest that the Swedish economy can cope with somewhat higher resource utilisation than before without an acceleration of inflation. There is also a good a priori case for this. Raising prices, for example, should be more difficult in an economy where prices fluctuate less. It follows that firms should then put up more resistance in wage negotiations. It is also conceivable that increased international competition, for instance, has left firms with less room for price increases, at least for a time. Finally, then, what about the role of inflation expectations? They have indeed come down substantially in the 1990s, from 6–8% to 2%.

Lessons from the Asian crisis Five years have passed since the Asian financial crisis began, prompting a major re-think of policies held to be obvious and valid before the crisis. In particular, the crisis has highlighted three major issues in Asian economic and financial systems. First, some analysts have questioned East Asia’s growth model, with its emphasis on high savings, reliance on foreign investment, and export growth. East Asian economies, it is argued, should instead lower savings rates, in order to stimulate domestic demand, develop indigenous enterprise, and insulate themselves from volatile external conditions. Second, the crisis highlighted the dangers of liberalising capital markets too rapidly and without adequate safeguards. Before the crisis, capital account liberalization was the vogue. Conventional wisdom emphasized benefits rather than costs of free capital flows. The crisis demolished this complacent confidence. Undoubtedly, structural flaws and policy errors, especially in the financial and corporate sectors, contributed to the crisis. However, the financial markets’ reaction to these weaknesses was out of proportion to the severity of the crime. Markets proved highly susceptible to contagion and herd behaviour. Crashes and panics shook seemingly sound economies to their roots. Third, the crisis demonstrated the dangers of over-reliance on bank-based financing. In many Asian countries prior to the crisis, capital markets were underdeveloped. Bond markets, in particular, were illiquid or nonexistent. So Asian firms relied on bank loans for working capital and to fund capital expenditure. When banks ran into trouble, firms were left without alternative sources of capital.
On the cusp of the pandemic, inflation expectations had just started to go down as we saw them approaching 4%. The pandemic derailed that trend. Inflation expectations this year have grown drastically to a five-year high. What does that mean in practice? It means that people rush to buy everything before prices grow, and are taking out a lot of loans. And that further fuels demand and inflation. Whereas some central banks can afford to take a wait-and-see stance to adjust to demand — thanks to the consumer behaviour shaped by the expectations that price growth will stop, we cannot afford that policy. Conversely, if we miss the right moment to make a prompt monetary policy response, we will then have to raise the key rate even more. Our own experience and some countries’ history prove that. We are in a situation similar to that in the US and Germany in the 1970s and 1980s. The Bundesbank moved to raise its interest rate right away, but the Federal Reserve maintained its accommodative policy for a long time on expectations that the crisis would pass. As a result, while Germany saw a quick drop in inflation and an economic rebound, the US went into stagflation, and the Fed was forced to conduct an extremely tight policy, the consequences of which were felt for many years. Food prices are soaring on the back of a disappointing harvest, a rise in global food prices and in labour costs in agriculture.

The latter is driven by, among other things, shrinking numbers of labour migrants coming to Russia for seasonal work. What is our concern? First, the lower a person’s income, the greater the share of food in their consumer basket. That means inflation hits such consumers in the first place. If we tolerate high inflation now, the least protected groups will suffer. Second, inflation expectations are accelerated by rising prices for food products that people buy every day: I have mentioned their effect. More so, last year’s loose monetary policy drove a reduction in deposit rates, making savings unprofitable. This year, a tougher monetary policy has pushed up interest rates, and deposits have been gradually growing again. We have raised the key rate several times this year to 7.5%. We have been raising the key rate gradually as we needed to make sure that tightening policy does not hinder economic growth and that inflation growth was really not a short-term episode, but that unfortunately, inflationary pressure is increasingly persistent. On this subject, I would like to raise the question of who wins and who loses from high and low interest rates. In general, this is a key point to understand the nature of monetary policy and key rate changes. High interest rates and low inflation benefit depositors, bond holders and those whose core income is fixed wages, pensions and social benefits.
Miguel Fernández Ordóñez: Momentum of the global economy and the recent turbulence on the financial markets Testimony of Mr Miguel Fernández Ordóñez, Governor of the Bank of Spain, to the Parliamentary Committee on Financial Affairs, Madrid, 18 September 2007. *  *  *  Ladies and gentlemen, My appearance before this Committee comes at a juncture characterised by two notable phenomena. First, the continued strong momentum of the global, European and Spanish economies for yet another year. And second, the sudden emergence of uncertainty in the world economy as a consequence of turbulence on the financial markets. The root cause of this turbulence is the increase in US sub-prime mortgage loan defaults. The distinctive feature of these loans is that they have been granted to individuals with incomplete, or even inexistent, credit records illustrative in all cases of a high risk profile. These loans have, moreover, often been extended under rather lax conditions and hence have ultimately put the US institutions involved in a highly vulnerable position. When the (in all likelihood excessive) risk exposures materialised, the intermediaries specialising in mortgages of this type began to incur losses and some of them were unable to meet their payment commitments. In the early stages, then, the crisis was confined to a limited number of specialised US financial intermediaries.

Indeed, if that episode significantly affected the buoyancy of Spain’s international markets, the capacity of external demand to contain the negative impact of the slowdown in private spending would be diminished. The Spanish economy’s track record over the last few years shows that the behaviour of employment and its influence on household income expectations play a key role as drivers of household spending. For this reason, it is essential that resource allocation mechanisms should be sufficiently flexible to enable industrial and service activities (partly linked to exports) to play a greater role and take up the baton from construction. From the standpoint of the continued dynamism of domestic spending, attention also has to be paid to how the Spanish economy may be affected by a possible tightening of financial conditions stemming from developments in European financial markets, a process in which a fundamental role is played by the behaviour of Spanish financial institutions. Allow me, therefore, to devote special attention at this point in my address to the current situation of Spanish credit institutions, which stand at the heart of our financial system. Spanish credit institutions face this bout of turbulence from a position of strength based principally on high profitability, which is always the first line of defence against any adverse shock; comfortable solvency levels clearly above the minimum regulatory requirements; and, standing at some point between the two, the ample coverage of doubtful assets by the provisions that have been built up during the boom years.
Indeed, we expect that given their mandates, they would lead in demonstrating how commercial principles can be fully reconciled with responsible finance and public interests. There are many instances where development financial institutions can play a catalytic role in economic development. They can open new frontiers in discovery and exploration; accelerate poverty eradication and mitigate global climate change. This ought to be a noble aspiration. We share a common vision for them to contribute towards the growth potential of our economies and consequently improve the wellbeing of the people. We have an excellent program ahead to help us move in this direction. I hope it will sow the seeds for individual and collective actions that will both transform development financial institutions and enhance their impact. 4/4  BIS central bankers' speeches

In this way, I trust, we can reconcile those who feel left out, including many of the protesters gathered in Frankfurt this week, with a process of integration that has already generated so many benefits for three generations of Europeans. Let me conclude. This building is a credit to all those who have worked to bring it to fruition. It is a landmark for the city of Frankfurt. And it provides the ECB with an impressive new home to pursue its mandate. But it also stands as a powerful symbol of what European integration is about. It reminds us of where we have come from and where we have come to. Of the horrors that can happen when we split apart, and the huge steps forward we can make when we work together. So let us not undo what has been achieved. Let us not hanker for the past. Let us draw on the past to unite us in the present – to build a complete Union that can deliver the stability and prosperity we need. We as the central bank will do our part in this process by ensuring the integrity of our single currency. Our shared money is the most tangible sign of the trust we place in one another. As the ECB’s first President, Wim Duisenberg, put it at the launch of the euro more than 16 years ago: “A currency is far more than just a medium of exchange … A currency is also part of the identity of people.
He believed “the policy was the one and only policy which ultimately would place the City and the country again on that eminence which it occupied before the war”. Such was his confidence that Norman mentioned only once, in passing, that “the policy” in question was to “attempt to regain the gold standard”, and he spent no time at all explaining what, apart from normalcy, would be achieved by it. Of course, this return to past certainties would eventually plunge the country into deflation and a deep recession. The old policy was not suited to the new normal and the UK was forced to abandon it a few years later. After all, what is normal when there are tectonic shifts? This dinner may look traditional, but its attendees have always recognised that the most longstanding and revered tradition of the City is its ability to anticipate, adapt to and accelerate change for the common good. That is why the UK’s financial system remains both a national asset and a global public good. Domestically, there are over 1 million financial services jobs, two-thirds outside London. Financial services run a trade surplus of 3% of GDP, while the rest of the economy runs a deficit almost twice as large. Last year, the UK financial system channelled £ billion in finance to UK businesses and helped 700,000 households to purchase homes. It provides pensions to 21 million people and insures the contents of 20 million homes.

Taking this high road could help solve the problem of persistent trade imbalances. Bank of England research suggests that reducing restrictions on services trade, to the same extent as those on goods have been lowered over the past couple of decades, could reduce excess global imbalances by close to one half. Global partnerships also mean taking care of the global commons. In Paris in 2015, 195 global leaders committed to curbing carbon emissions to limit the rise in global average temperatures to 2 degrees, and now many governments, including the UK with its new Clean Growth Strategy, are taking the necessary policy actions. In response, the private sector is recognising that financing the transition to a low carbon economy will be a major opportunity. On some estimates, this transition could require investments in infrastructure, equivalent to $ trillion per year through to 2030. Investment on this scale cannot be financed in niche markets. It must be mainstream and global. The City is showing the way by driving better disclosure of climate-related risks and opportunities and leading the underwriting of green bonds. The City is showing the way. UK firms, including all of the largest banks, are driving better disclosure of climate-related financial risks and opportunities. They join global financial institutions responsible for managing $ trillion of assets – equivalent to annual global GDP – that are now publicly supporting the  8  All speeches are available online at www.bankofengland.co.uk/speeches  8  G20’s Task Force for Climate-related Disclosures (TCFD).