samchain/econo-pairs-v1 huggingface dataset:
7/15  The crisis has clearly shown that the fundamental consideration when granting a loan is not the value of the collateral, but the borrower’s ability to pay. There should be no need to mention that whenever a loan is granted it is necessary to consider the probability that the principal and agreed interest will be paid, not the supposed quality of the collateral. A property bubble, like the one seen in Spain, can only occur if sufficient financing is available. Hence the responsibility of the banking industry, and by extension the supervisor, to avoid another similar bubble in future. Clearly, if the analysis carried out prior to granting a loan is based excessively on the value of the collateral supplied, there is no effective practical limit to credit growth, at least as long as the value of collateral also continues to rise. Certainly, if the amount of financing granted is close to the value of the property or, worse still, based on expectations of future growth in the value of the dwelling, the consequences will be even more dire. In this respect, we can see in the chart how two ratios that are highly relevant from a supervisory viewpoint have changed since 2004. The blue line represents the median loan as a proportion of the appraisal value (the so-called “loan to value” - LTV), while the red line shows the median loan as a proportion of the transfer price, according to the transfer deed.

Needless to say, had the debtor’s solvency and ability to pay been strictly used as the main consideration when granting credit, as proposed in the new law, this would have helped curb the runaway growth of credit before the crisis. At this point, it is worth asking where we currently stand in terms of ability to pay. We can see in the left-hand chart that, having peaked in 2007, the ratio between the price of housing and the median household income declined until 2012 and subsequently rose again after 2014. However, if we consider the red line, which represents the affordability of housing, we see that the instalments payable in the first year are currently slightly above 30% of monthly household income, in contrast to the level of over 50% reached in 2008. Admittedly, we need to treat these affordability data with caution. Since interest rates remain at historic lows, monetary policy normalisation in the medium term will inevitably have an effect on mortgage payments. 9/15  We should not forget that, although the proportion of fixed rate mortgages has recently reached 40% of all new transactions, 87% of the existing stock of mortgage loans remain linked to a variable rate, so that our mortgage market continues to be particularly sensitive to rising interest rates. Consequently, we take a positive view of the facilities to encourage conversion of variable to fixed rate loans introduced by the new law.
Our forecasts, taking into account the potential risk of high and volatile oil prices, show that the Thai economy could grow by 3.8-4.8 percent in 2007 and accelerating to 4.3-5.8 percent in 2008. The growth is expected to come mainly from exports, given healthy global demand, additional government spending and investment in public infrastructure, as well as lower oil prices. Core inflation, or inflation excluding raw foods and energy, is forecast to remain within a comfortable range of 1-2 percent in both 2007 and 2008. Fundamentals remain strong with low inflation, a current account surplus, and manageable levels of public and external debt. But a positive outlook by no means allows for complacency. Political risk remains substantial. The threat of a disorderly unwinding of global financial imbalances remains imminent; and by this I mean a surge in capital inflows still looms. And oil prices continue to be difficult to predict. We must constantly work to manage current challenges and prepare for those in the future. BIS Review 64/2007  1  Undoubtedly, many of you here are concerned about Thailand’s recent economic and policy developments and the considerable challenges ahead. Some among the international community have voiced concerns that Thailand is withdrawing from the global economy. I have therefore chosen to focus the rest of my talk today on coping with the challenges of economic and financial globalization. In particular, I hope to address any lingering fears and concerns by concentrating on three key issues.

In our case, the surge in speculative capital inflows at the end of last year caused a rapid appreciation of the baht relative to regional currencies. I must stress that the recent capital surge heralds the onset, and not the end, of the unwinding of global financial imbalances. There remains considerable room for US dollar correction. As such, the threat of global imbalances to the economic and financial stability of Thailand is still very much present. You may recall that we have experienced sizeable capital inflows, and accompanied with that, a rapid appreciation of the baht effective exchange rate toward the end of last year. In dealing with the rapid appreciation, conventional wisdom suggests an adherence to market mechanisms. This proved to be inadequate. The baht continued to appreciate with the likelihood of it becoming more and more out of line with its fundamentals. After a number of unsuccessful conventional measures, we resorted to the measure of imposing a reserve requirement on capital inflows in December 2006. The measure was designed to break the one-way currency momentum, to preserve our overall economic stability, and to buy some time to allow a smooth transition. Let me be clear that we intended for the reserve requirement to be a temporary measure, designed to preserve financial stability and to afford the real sector time to adjust to a more volatile market condition. To this end, I believe that it has succeeded. To be sure, no measure is without its costs.
However, this of course increases the risk of prices falling, as it is easier to sell a house one rents out than one where one lives. Why has housing become so expensive? In connection with discussions of the housing market there are often claims that the market is overvalued in the sense that the prices can no longer be rationally explained. I believe that the house prices and household indebtedness can be largely explained by four underlying causes: low interest rates, increases in households’ incomes, a limited supply of housing and structural changes in the mortgage market.2 One important explanation for the low interest rates is that Sweden has moved from being a country with a high and volatile inflation rate to a country with low and stable inflation. Real interest rates (interest rates adjusted for inflation) have fallen, which has made it cheaper to borrow to buy housing. In addition, in an economy with high nominal interest rates, the payment burden for a loan is to a high degree concentrated on the first year. If, for instance, a household borrows an amount corresponding to 5 years’ incomes when the nominal interest rate is 20 per cent, the household will put its entire annual income in interest expenditure during the first year, which is a burden no household can bear. After that it does not matter if inflation is high and in the long term undermines the value of the loan, as the household will face payment problems the very first year.

Ratios of household debt and post-tax interest expenditure to disposable income (per cent)  debt ratio (lhs)  mar-06  mar-05  mar-04  mar-03  mar-02  mar-01  mar-00  mar-99  mar-98  mar-97  mar-96  mar-95  mar-94  mar-93  mar-92  mar-91  mar-90  mar-89  mar-88  mar-87  0 mar-86  0 mar-85  2  mar-84  20  mar-83  4  mar-82  40  mar-81  6  mar-80  60  mar-79  8  mar-78  80  mar-77  10  mar-76  100  mar-75  12  mar-74  120  mar-73  14  mar-72  140  mar-71  16  mar-70  160  interest ratio (rhs)  Sources: Statistics Sweden and the Riksbank  8  BIS Review 105/2006
when the interests of the institutions and the markets do not coincide with the interests of society as a whole - the lenders’ short-term market-share philosophy at the end of the 1980s is an example of this. If means of control are needed, they should be designed as far as possible to lead to solutions that are compatible with the normal working of the institutions and markets. Some problems We can all see that interest in risk management has increased and that considerable resources are being invested here. The interest applies to both the production of new financial instruments, the emergence of new markets and the practical measuring and management of various risks. In addition, awareness is being stretched to cover new types of risk that did not previously receive the attention they deserved, such as operational risks, interest risks throughout the bank, liquidity risks and legal risks. This is essentially a positive development, but let me nevertheless conclude by pointing out  BIS Review 10/2004  3  some phenomena and situations, which indicate that the new developments have also brought about problems that need to be discussed and hopefully solved. The best known example is perhaps the LTCM debacle. The hedge fund suffered a sudden decline in value, which led to a confidence crisis among customers and it had to be shored up with liquidity infusions of many billions of dollars from a group of banks.

Let me share with you another observation from Preet Bharara. A common element in many of the frauds his office has prosecuted is the failure of colleagues to call out bad conduct by raising their hands. This is so telling of a culture that condones or promotes misconduct. People see something, but do not say something. And, it is so shortsighted. It prevents problems from being addressed while they are small. By not raising their hands, these colleagues are “quietly adding risk to your books [and] invisibly enlarging your liabilities.”8 They are also tacitly encouraging bad conduct by skewing incentives. There may be many reasons for choosing silence over raising your hand. You may face a conflict of loyalties. It’s uncomfortable to tell on a colleague. You may think that the problem will just go away, or that calling attention to a problem will harm the firm. Raising your hand is difficult. But, it is also absolutely necessary. As rising leaders in the industry, you need to lead by 4/6  BIS central bankers' speeches  example. In doing so, you will make it easier for others to follow your lead. My final message is a request that each of you commit to a candid assessment of yourselves, your firms and your industry. For Adam Smith, candid observation was a cornerstone of economic behavior: “We suppose ourselves the spectators of our own behavior, and endeavor to imagine what effect it would, in this light, produce upon us.
But across the financial world, investors and regulators are asking themselves whether it also brought costs that are only now becoming clear.” The way oversight of the financial system is split between the FSA, the Treasury and the Bank of England is in doubt. Gordon Brown’s reform of a decade ago means that those responsible for monitoring the banking system are separate from those who make the decision to intervene.] In understanding the factors that impinge on this particular case about Northern Rock, one will learn that the roles and tasks faced by the supervisors and the regulators are enormous. Supervisors need to keep a step ahead of financial market developments and innovations. We must not be oblivious or ignorant to the fact that, despite all the strength of legal framework, regulatory and supervisory arrangements we can have, we always learn that banks still fail, even those too big to fail collapsed at their own demise – some due to reasons other than risks. In other words, the supervision of banks cannot provide full or complete guarantee against banking failures. However, supervision can assist the banks in managing their risks by taking appropriate measures and precautions. After all, banks are vulnerable to errors in human judgment and the fragile confidence of depositors. Therefore, regulation and supervision is not a substitute for good management. That is the lesson we have to learn from many bank  2  BIS Review 142/2007  failures even in countries with the best regulatory systems.

Finally, it is the responsibility of the management of the banks themselves to introduce proper checks and balances to ensure that the risks are managed efficiently and effectively. As we know, the whole approach to bank supervision in particular and financial supervision in general is still in its early evolutionary stage. With the fast changes in financial markets and information technology, the methods of ensuring the safety of banks will also need to change. Already, the rules relating to bank operations are changing in many parts of the world. This means that the ways banks are supervised also need to be changed. The responses to these rapid changes may be slow, but there is concerted and dynamic effort by the international supervisory authorities to ensure the safety of banks. Thus, banking supervision is conducted in the interest of everyone because the cost of a banking crisis can be enormous. When banks fail, we all fail. And certainly, the cost of a banking crisis will be unbearable especially for our relatively small economies in the Pacific Region. I note that you have a full agenda ahead of you. At the same time, I have no doubt that the choice of topics is to provide discussions, which should add value to your work not only in your own countries but also for the Pacific region.
Resolution authorities must also ensure that a firm can continue to meet conditions for authorisation and to be sufficiently well capitalised to command market confidence post-resolution. These principles are reflected in the final TLAC calibration: we worked on the basis that minimum capital requirements would be eroded on the way into resolution, and that G-SIBs would need to be recapitalised to at least a level to continue to meet minimum conditions for authorisation and maintain market confidence on the way out. The FSB agreed that TLAC corresponding to 18% of risk weighted assets (RWAs), or 6.75% of leverage, would provide the minimum necessary to meet these goals, but that more may be necessary depending on  2  BIS central bankers’ speeches  firm-specific considerations. Indeed, in transposing TLAC in domestic regulation, several jurisdictions have already indicated that they consider higher requirements to be appropriate for G-SIBs based in their jurisdictions. But the common floor provides a base level that should allow G-SIBs to operate cross-border with something of a level playing field. If this is the agreed minimum end-point for TLAC, in the course of the last year, on the basis of a quantitative impact study (QIS), we also agreed a viable transition path for G-SIBs to implement TLAC. This is reflected in the two-stage conformance period under which G-SIBs need to comply with TLAC of 16% RWAs and 6% leverage by 2019 and at least 18% and 6.75% by 2022.

And clear as authorities with each other to confront the obstacles and difficult questions around firm failure upfront and find answers to them. Resolution planning will be a constant from here for firms and authorities. CMGs held annually or semi-annually have been central to this effort. Incrementally, resolution plans for G-SIBs have come into focus in CMGs. The resulting plans have then been endorsed by senior policymakers from the authorities around the table in CMGs in the Resolvability Assessment Process (RAP). In RAPs for each firm, the plans have been reviewed, barriers  1  Financial Stability Board (2015) ‘Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution: Total Loss-absorbing Capacity (TLAC) Term Sheet’. 2  Financial Stability Board (2014) ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’. BIS central bankers’ speeches  1  to resolvability identified and agreement reached on how, and on what timeframe, they will be removed. This way commitment has been secured from all the authorities in CMGs to the plan ex ante. But perhaps more importantly, there is a network of people who have worked through these questions together and have a degree of mutual trust and reliance that will enable us to get to a co-operative outcome cross-border in a way that has often failed us as authorities in the past. We will need to continue to ensure that these contacts are maintained and deepened. Ultimately they are what will make resolution work for international banks.
Managing excessive volatility is particularly pertinent for small and open economies as volatile currency fluctuations not only affect trade, external debt servicing and cost of investment, but also affect domestic business and consumer sentiments. In response, countries in the region have embarked on greater quest to use local currencies for the settlement of trade and investment activities. Against this backdrop, I shall attempt to outline some of the core issues in need of policy responses. I will be sharing some thoughts on the so-called “new global economy”, and along the way provide some policy insights that may spur research ideas for the many economists and policy thinkers in this room. A World Defined by Paradoxes Since the global financial crisis almost a decade ago, the world has continued to be reshaped by complex and challenging forces with far-reaching implications, both economically and politically. Some of these forces were not foreseen and are causing many unintended consequences. So it’s not surprising that some circumstances are seemingly contradictory yet in some sense expresses a possible truth. In other words, paradoxes. These paradoxes pose a challenge to us all; from policy-makers, to businesses, to academics , provoking us to question our understanding of how the world works, and forcing us to rethink the approaches that we need to formulate in response to these forces that are shaping the global economy. I have three paradoxes in mind. The first paradox is this; while globalisation drives the world to grow closer together, we are simultaneously drifting further apart.

15  Figure 7  Current-account deficit (percent)  2  Current account: percent of GDP in last 12 months Current account: percent of quarterly GDP  0 -2 -4 -6 -8 -10 -12 -14 18  19  20  21  22  Source: Central Bank of Chile. Figure 8  Inflation in developed economies  Growth forecast for 2023 (1)  (annual change, percent)  Headline 15  10  U.S. Eurozone U.K.  (percent)  Core 8  6  U.S. Eurozone U.K.  3.0 3,0 2.5 2,5 2.0 2,0 1.5 1,5  4  5  1.0 1,0 0.5 0,5  2  0  U.S. Eurozone 6.0 6,0 Latin America (2) China (rt. axis)  5.5 5,5 5.0 5,0 4.5 4,5  0.0 0,0 0  -5 05 08 11 14 17 20 23  05 08 11 14 17 20 23  -0.5 4.0 -0,5 4,0 Jan.22 Jul.22 Jan.23  (1) March 2023 forecasts were made in different periods during March. For this reason, in some cases, these forecasts contain only partial information on the recent financial developments. (2) Considers Brazil, Argentina, Peru, Colombia and Mexico. PPP-weighted growth, shares of each economy according to WEO (IMF). Sources: Bloomberg, Consensus Forecasts and IMF.
With growth at nearly 10% p.a. over the past decade, China’s imports of consumption goods have expanded twice as fast as intermediate goods. Singapore’s economic growth remains sluggish. Real GDP growth came in at 0.8% in the second quarter on a quarter-on-quarter, seasonally adjusted annualised basis. Growth in the first half of 2016 has averaged 2.2% in year-on-year terms. The economy’s performance in the second half of 2016 will not be too different from the first half. But there will be some month-to-month volatility in economic activity and the composition of growth will shift somewhat. The trade-related cluster is showing tentative signs of stabilisation with improvement in certain segments. •  The electronics industry, which recorded positive sequential growth in April and May, shows tentative signs of a patchy recovery. •  The wholesale and sea transport sectors have benefitted from buoyant oil trade. The modern services cluster, which has been a key pillar of growth in the last few years, will see its contribution fall significantly in 2016. •  Financial services, which had grown much faster than the rest of the economy in the last four years, will see growth much closer to the overall economy. •  Professional services – like architectural and engineering services– which are more exposed to the UK and EU, will experience slower growth. •  Info-communication services will see a moderation in growth but will be supported by demand for productivity-enhancing IT solutions in a restructuring economy. The domestic services cluster will continue to see modest growth.

Uncertainty prevails over exactly when and how Brexit will take place; we can expect recurrent bouts of market volatility in the months ahead. Central banks across the world have said they will do what it takes to safeguard financial stability and maintain smooth functioning of their markets. We expect the global financial system to stay resilient, given ample liquidity and the generally stronger balance sheets of banks. But the UK economy is expected to take a hit and there will be some fallout on the EU. Uncertainty, especially over the terms of the UK’s exit from the EU and its future access to EU markets, will weigh on business confidence and investment spending. Growth in the EU will be weighed down by Brexit, on account of its significant trade and financial linkages with the UK. This in turn is likely to have a small dampening effect on global growth. The political and social implications of Brexit could have more significant economic consequences over the medium to long term. But it is too early to tell what these implications might be. There are several key elections taking place in Europe next year. They will determine the ability of governments to maintain support for structural reforms as well as for the European project. Destabilisation of politics in Europe could impact global markets and global growth. The US is expected to stay on a moderate expansion path. The consensus growth forecast for 2016 is 1.9%.