samchain/econo-pairs-v1 huggingface dataset:
This clearly points to one possible mandate for macroprudential supervision that, it were feasible, would be both pragmatic and legitimate: to avoid bubbles. Bubbles are not always triggered within the financial system. They may have roots in productivity shocks, for instance. But they cannot develop unless permissive financial conditions prevail. There are good reasons to prevent bubbles. They impose significant costs on the real economy. They may place an undue burden on monetary policy. They raise important questions of fairness in the distribution of income. Such a simple definition of the objective of macroprudential supervision is quite attractive. However, simplicity comes at a price. Avoiding bubbles present enormous challenges, to which I turn now. The challenges of macroprudential supervision Analytical challenges The first – and most important – challenge is analytical. Bubbles are difficult to detect. Asset price boom-bust cycles become clearly apparent only after the event. Moreover there is little regularity in the business cycle, which makes it difficult to identify with certainty long lasting deviations of asset prices from fundamentals. Looking at the path of asset prices, how do we know ex ante if we are confronted with an inflexion in the trend, a one-step adjustment in equilibrium levels, or the start of a bubble? There is no simple or mechanical answer to that question. This is one of the reasons why "early warning" mechanisms have not really worked.

To make sure that bubbles never happen, one may need to impose permanently significant constraints on the development of credit or leverage, which would prove penalizing in normal times. A better – and less costly – approach would be, for supervisors, to closely monitor the financial system and preserve their possibility to intervene by establishing the kind of presumption I have just mentioned. Two approaches to macroprudential supervision As in many matters of public policy, there is a choice between rules and discretion in implementing macrofinancial supervision. There are basically two possibilities, which are not necessarily mutually exclusive. First, (the rule based approach), macrosupervision can be built through automatic stabilizers which would constrain institutions in their behaviour, regardless of their own individual situations. Examples would include contra cyclical capital requirements, for instance, as well as dynamic provisioning. As I will develop later, stabilizers should be constructed so as to act directly on the incentive to take risk and the rewards provided by risk taking. A second approach would consist on discretionary, "top down" interventions from macroauthorities. Prudential authorities would step in and impose (or relax) constraints whenever they come to the conclusion that dangerous imbalances are building up (or unwinding). We probably cannot dispense of this second approach. The difficulty to date cycles makes it dangerous to rely purely on automatic mechanisms, which cannot be precisely calibrated. Financial cycles, in particular, are driven by changes in risk appetite which are impossible to predict.
As we all know, forecasting economic activity and prices is not a simple matter. Since such assessments cannot be very exact, one has to weigh up risks and probabilities. Two secondary alternatives were therefore discussed in the March report, where future inflation might be lower and higher, respectively, than in the main scenario. In the former alternative, lower inflation might result from a weaker development of consumption. In the latter, on the other hand, higher inflation might stem from a weaker exchange rate that leads to higher growth for exports and GDP, thereby generating stronger inflationary pressure. Against this background, I want to say something about our current view of tendencies for private consumption and the exchange rate. Private consumption In 1996 household disposable income fell, unexpectedly, by 0.1 per cent despite a strong increase in the wage bill. The National Institute of Economic Research and many other observers had expected a 2 per cent increase in disposable income. The growth of consumption was therefore financed entirely from a reduction of the saving ratio to 5.4 per cent. This has altered the starting point for assessing private consumption’s future path. BIS Review 56/1997  -6-  In recent years household income has been greatly affected by measures for consolidating government finance, mainly increased taxes and decreased transfers. But for the impact of public systems, household income in each of the years 1994-98 would have been 3 to 4 per cent higher (Diagram 4). As it is, the level is likely to be virtually unchanged.

Diagram 1  Co m p o sitio n o f G r o wth Pe r ce n tage co n tr ib u tio n s 4 3 2 1 0 -1 -2  Ne t e x p o r ts S to c k b u i l di n g G r o s s c a p i ta l f o r m a ti o n Co n s u m pti o n  -3 -4 -5 -6 19 93  19 94  19 95  19 96  19 97  19 98  S o u r c e : S t a t i s t i c s S w e d e n ; 199 1997 7 -98 f o r e c a s t b y N a ti o n a l I n s t i t u t e o f E c o n o m i c R e s e a r c h  Stock trimming in the current cyclical phase is not uncommon; it occurred at much the same juncture in the 1970s and 1980s. It has to do with the tendency to produce in excess of demand when activity is rising so as to avoid being unable to deliver if demand grows rapidly. In time, firms find they have accumulated surplus stocks and initiate an adjustment. This has the reverse effect - production rises more slowly than final demand.
This non-internationalisation policy, supported by our strong macroeconomic fundamentals and substantial foreign reserves, has helped us to maintain a stable Singapore dollar, and to avoid large swings in our exchange rate which would have severely damaged our economy. The trade-off was less vibrant capital markets. Indeed in some cases, the tight domestic restrictions fostered the growth of offshore markets in these restricted activities, undermining our purpose. Recognizing this, we have over the past four years progressively relaxed the $ restrictions. Our approach has been a cautious one: weighing the trade-off between development and the risk to exchange rate management, and feeling our way forward step by step. Our efforts have yielded encouraging results. The outstanding volume of Singapore Government Securities (SGS) has doubled since 1998 and average daily turnover volume increased about threetimes. SGS outstanding volume in 2001 was $ billion and average daily turnover was $ billion. New corporate debt issuance has continued to grow strongly, with $ and $ corporate bond issuance totalling a record $ billion in 2001. This was an almost 8-fold growth over issuance volumes in 1998, spurred by exceptional merger and acquisition activities, but significant nevertheless. Outstanding corporate bonds have also more than doubled to $ billion. Besides higher volumes of issuance, we are also seeing a greater diversity of corporate bonds in the market. The tenors issued range evenly across a spectrum of maturity up to 15 years. The average size of $ issues has also increased.

The connotation that people attach to the term “Nullzins” will likely be different from, say, “geldpolitischer Impuls” – although both terms in essence describe the same thing. Worse, monetary policy can quickly become overburdened if national fiscal and economic policies fail to internalise the effects they have on the common currency. The temptation to freeride is always present in a monetary union. It is easy to see that if fiscal policy is loosened during an expansion, or tightened during a recession, the burden on the central bank to stabilise the economy increases mechanically. Even today, euro area growth still relies too much on monetary policy support. According to ECB staff estimates, the contribution of our easing measures to annual euro area GDP growth was half a percentage point in 2017 and will still be around one-third of a percentage point in 2018. And monetary policy can do little to lift the long-term growth rate of our region. All of this means that our currency union needs further reform – both at Member State and euro area level. I believe there is wide agreement on this. Where we still lack agreement, however, is on how these reforms should look in practice. I have described elsewhere the requirements of reform from the perspective of the single monetary policy. 1 As the central bank of the euro area, we have a stake in the success of the current discussion.
Our critics have told us that we should not have squeezed so hard on interest rates last October and that we should not have increased the cost of borrowing for business and for those who have to service their home mortgages. We should have introduced our measures to strengthen our monetary and financial systems earlier. We should not have departed from our free market policy and intervened in the stock and futures markets. That there was a lack of a “sense of crisis” in how we handled the situation. These are the more significant criticisms. 4. I can fully understand the sentiment behind these criticisms. The people of Hong Kong have been suffering the worst conditions we have had to face for many years. Even the most patient and understanding community will have grievances when the value of the assets they hold has been halved while they have to pay significantly higher interest costs for their liabilities. Furthermore, income has not been growing, and, for some, it has been shrinking. And, worse still, the probability that they may lose their jobs has doubled in the past year. 5. So, whatever the cause of this difficult situation, whether or not it arose from events outside the control of the authorities, it is considered, and rightly so, the responsibility of a caring government to do what it can to relieve these grievances. Refusal or reluctance to do so, even for very sound reasons in the larger long-term public interest, is not looked upon kindly.

Convinced that the Albanian economy would benefit in the medium and long run from lower public debt, we have encouraged and supported all measures taken in this regard. We deem that this philosophy should lay at the foundation of the expected 2011 midyear budget review, as well as other medium and long-term public finances projects. The external sector is another structural weakness of the Albanian economy. Partially also in response to this concern, the Bank of Albania has underlined constantly the need for deepened structural reforms to support a new economic growth and development model for  BIS central bankers’ speeches  1  Albania. This model should inevitably materialise through increased efficiency and competitiveness of our products and services in domestic and international markets. On the other hand, it requires a more rational attitude of the private sector towards the current economic context as well as a more careful financial-risks management. What is more, the Albanian economy needs to become more attractive to foreign investors by continuously improving the business climate, the legal framework and its implementation, as well as by providing educated and cost-attractive labour force. Thirdly, seen in the above-mentioned setting, our policies should remain prudent to guarantee the country’s macroeconomic equilibriums. As the crisis showed, prevention is better than cure. In this regard, political and structural measures that contribute to stability have a positive impact in the long term horizon.
In a situation in which extensive repo-rate changes have very large direct effects on the CPI, I consider it to be more appropriate to focus on stabilising the CPIF around the inflation target, instead of the CPI. BIS Review 32/2010  9  However, the assessment of the majority of the Executive Board was that the lower repo-rate path was not appropriate. At the monetary policy meetings held during the course of the year, the view of several members of the Executive Board was that the effects of the very low repo-rate levels on the economy and the financial markets were uncertain and that there was therefore reason to be cautious about reducing the repo rate below 0.25 per cent. It is not easy to make reliable estimates and forecasts of potential production and resource utilisation. The Riksbank’s estimates and forecasts for potential production and hours worked are in need of improvement and development. Such development work is currently underway. In 2009, the financial crisis reduced potential production so that resource utilisation in the economy is not as low for a given level of production as before. There is no doubt, however, that resource utilisation is very low and will remain lower than normal during the forecast period (see Figure 7). 10  BIS Review 32/2010  The numerical inflation target has entailed great progress for practical monetary policy and made it possible to measure and evaluate the target fulfilment of monetary policy in a much more efficient manner than before.

Recognizing that the reason that investors have generally stayed away from bonds issued by Asian entities is due to their low liquidity and low credit ratings, APEC is currently active in the design of instruments that can be traded in these markets, through its work on securitization and credit enhancement. Given that at present, a number of bonds issued by Asian entities are below investment grade, the use of securitization and credit guarantees to enhance the quality of these issues can act as a near-term solution to giving these issues a credit quality acceptable to investment managers, and give them the needed initial exposure to private investors. The introduction of these new instruments – which would attain a credit quality acceptable to investment managers by achieving a high rating from international rating agencies – would also benefit the international financial community by providing investors with a greater diversity of products and instruments for investment. More importantly, it would enable smaller corporate entities – who would otherwise be limited to financing themselves through short-term commercial bank lending – to access bond markets and find a source of funding more suitable to their needs. Cross guarantees A means of helping economies with less developed local bond markets to issue debt in the regional market may be through the use of cross guarantees.
Should that price outlook change, we may find that excessively high price pressures have been established, which may then prove difficult to break. It remains to be seen how long the effects on inflation of the price cuts for certain products will last. This argument, too, can essentially be said to involve an ambition to avoid excessive swings in interest rates and the real economy. Yet another factor that has been discussed for some time by the Executive Board is the rapid growth in household debt and the increases in house prices. A number of commentators have begun to highlight risks in this area. We have previously concluded that the developments are not a cause for great concern. Even though that largely remains our assessment, it has gradually become clearer that the developments in credit and house prices are one argument against looser monetary policy. A rate cut followed by a faster hike could bring about problems through their effects on household indebtedness and consumption. The inflation assessment I presented earlier indicates that inflation will be in line with the target at the end of the two-year period on which we normally focus. At the same time the issues that I have just discussed give cause for a certain amount of caution in interest rate policy in line with the Bank’s clarification of monetary policy in 1999. All in all, the arguments I have put forward advocate leaving the repo rate unchanged, which was also the decision we took yesterday.

We also conducted an array of awareness programmes for the general public on our clean note policy. Going forward, to improve currency operations and processes, the construction of a new secure storage facility has been initiated at the Centre for Banking Studies premises in Rajagiriya. The facility is expected to be operational from 2019. As a medium-term solution to improve operational efficiency and increase processing capacity of currency notes, we are planning 33  to redesign the current operational flow with the introduction of new machinery and equipment. We plan to issue a new note series, in 2021, with a view to enhancing the quality of currency notes. We are also planning to establish a proper mechanism to distribute coins and to introduce coin vending machines. Further, we intend to enhance contingency storage capacity for currency with selected Regional Offices, while introducing a stronger monitoring system for Cash in Transit (CIT) companies. Public Debt Management As the fiscal agent of the government, we continued to issue, service and manage public debt during 2018 with transparency and prudence and initiated several policies to ensure that the government’s financing requirements are met at the lowest possible cost with a prudent degree of risk, while ensuring debt sustainability. During 2018, we encountered several challenges in government debt management due to interest rate normalisation in the US, the skewed government financing requirement as well as uncertainties in the political sphere.
While each financial institution is best positioned to monitor its own risk exposure, it does not have the incentives to internalize the costs it may impose on other financial institutions should it experience difficulties. Second, supervisors are able to obtain and monitor proprietary information about an institution’s risk exposures, its management information systems and its internal controls when such information is not publicly disclosed. Third, supervisors are in a unique position to observe trends across groups of financial institutions and, based on these insights, to provide the industry with a perspective on what constitutes best practice. Fourth, official supervision is needed to enforce compliance with applicable laws and regulations. We have observed that poor compliance, beyond simply being wrong, can result in serious operational problems, including capital allocation deficiencies, managerial oversights and increased reputational risk. As we have seen, such problems can threaten the wellbeing of a financial institution and carry the potential for systemic risk. Finally, supervisors are able to assure that prompt corrective actions are taken when serious financial or other problems are identified, particularly if the problems are not known to the market. The importance of the role supervisors can play in problem cases, both through public enforcement and through other less visible means, cannot be overstated. Changes in the financial services industry present new challenges for how official supervision is to be carried out most effectively.

I’ll have more to say about market discipline and its role in the evolving framework of regulatory capital in a few moments. Role of supervisors While effective bank level management and meaningful market discipline are crucial elements of an overall strategy for promoting and preserving financial stability, neither can substitute for the critical 5  BIS Review 27/2000  role played by official supervision. While banks perform functions that are indispensable to the success of any market economy, these same functions, by their very nature, introduce risks that are capable of undermining the prospects for such success. This reality was acknowledged by Adam Smith over two centuries ago in his seminal tract The Wealth of Nations. And it is with this fundamental reality in mind that governments have long recognized that banking and other financial institutions must be subject to at least some form of regulation and official oversight. The reasons for official supervisory intervention in the banking system, and in the financial system more generally, can be summed up as promoting financial stability and minimizing systemic risk. This is a broad mandate - one that encompasses the responsibility to ensure that markets operate in a fair, transparent and efficient manner, and that participants comply with the rules of the game. Indeed, supervisors bring a number of comparative advantages to the table that enable them to play this critical role in the broader supervisory framework. First, supervisors have clear incentives to monitor risks to the financial system as a whole.
My views are also shaped by personal experiences building my career in MAS, the challenges and trade-offs that I have had to strike in balancing family and career, reflecting on what would have been helpful for me then, and considering what can make a meaningful difference for the professionals in our sector today. 15. Firstly, in encouraging a broadening of horizons via overseas postings. Over the years, business leaders have consistently given feedback that our promising finance sector professionals lack regional and international experience and that Singaporeans, in particular, display greater resistance in taking on such assignments. In an international financial centre like Singapore, the exposure gleaned in this part of the learning journey is extremely useful and important for progression to the higher rungs of the corporate ladder. This is because overseas exposure provides the breadth of perspectives expected of global and regional management roles. This dilemma unfortunately affects women to a greater extent, as many have chosen to or may have felt the need to turn down these opportunities due to family commitments, spouses’ careers, or children’s education needs. How can we encourage more to embrace these opportunities, and better balance competing priorities? 16. It is never an easy decision – and that is where a support network such as FWA is valued. I do not know the percentages, but I would hazard a guess that many of you have had overseas stints, be in in the region or beyond.

For example, extreme weather events – which have been steadily increasing over recent decades3 – can harm borrowers’ ability to repay their debts and thus make the loan portfolios of banks much riskier. These risks can be further heightened if extreme weather events also depreciate the value of the assets used as collateral in those loans. Transition risks, on the other hand, include the financial losses that can directly or indirectly result from the process of adjusting to a low-carbon and more environmentally sustainable economy. This adjustment could be triggered by legislation, such as carbon pricing or the banning of carbon-intensive activities. Even independently from that, consumer preferences could shift towards goods and services that are more climate-friendly. An ECB initial assessment confirms that an abrupt transition to a low-carbon economy would have a severe impact on climatesensitive economic sectors, with consequences for up to one-tenth of banking sector assets if the creditworthiness of the highest carbon emitting firms is reassessed, and affecting more than half of banking sector assets if entire economic sectors are reassessed.4 And preliminary results from our ongoing climate stress test show that without further policy action, companies will face substantially rising costs from extreme weather events. This will greatly raise their probability of default.5 Both physical and transition risks will become increasingly material for banks in the coming years, and ECB Banking Supervision has identified climate change as one of the key risk drivers for the European banking sector.