samchain/econo-pairs-v1 huggingface dataset:
Using (1) it follows that the threshold level of fundamentals above which banks set risky policies is (a) increasing in the long-term cost of extending bad credit , and (b) decreasing in relative reputational concerns , or Both results accord with intuition. First, increasing the cost to banks of pursuing risky strategies causes banks to coordinate on risky policies only at very high levels of fundamentals. Or, put differently, safety prevails over a larger range of fundamentals when risky policies are costly. Prudential policies (discussed further in Section 5) are one means of raising the cost to banks of pursuing such risky strategies. These prudential policies would have both direct effects and strategic effects in the model. A rise in long term costs raises the direct cost to bank of adopting a risky strategy. But it also leads bank to expect fewer other banks to adopt risky policies. So a rise in has both a direct effect on banks’ actions and an effect through banks’ expectations of others’ actions. 8 This expectational channel is crucial from a policy perspective. Second, reputational concerns act in the opposite direction. As greater weight is placed on shortterm reputation, incentives are sharpened to signal high ability by pursuing risky policies, even when their signalling effect is relatively small ( is low). As in Rajan (1994), a tight credit policy becomes optimal for all levels of fundamentals as   , or as reputational concerns vanish.

They overdid it, defaults started to rise, losses were taken and they toughened their terms again. The speed and severity of that cycle can have implications for financial stability as well as the stability of the broader economy. It is for that reason that there is a wide acceptance that there may be a case for monetary policy to “lean into the wind” in a cyclical upswing. 11 That has been one factor in my support for the four interest rate rises of the last year. If there is evidence of a cyclical, unsustainable, element in the supply of credit and asset prices the next questions are: •  where are we in the cycle, and  10  M King “Speech to CBI Dinner, Wales”, 11 June 2007. 11  C Bean “Inflation Targeting: The UK Experience”, speech at the Annual Conference of the German Economic Association, 1 October 2003. 6  BIS Review 73/2007  •  is the present stance of monetary policy sufficient to bring it back to a sustainable trend or, given the lags in the impact of interest rate changes, is it set to exacerbate the downturn? Current conjuncture So where are we now? The consumer credit market in the UK and the sub prime and broader housing markets in the US have turned down and, while the sub prime saga is still not played out, it still seems unlikely that it will have severe knock on effects on the broader economy.
Second, the inflation target is quantified. The actual target varies, however, from one country to another. In some countries, such as New Zealand and Israel, the target has been set as a target band for inflation, and not as a single target figure. Other countries like Canada and Sweden have a target figure with a target band around it. Common to all inflation-targeting countries is the existence of symmetry: It is equally important to avoid an inflation rate that is too low as it is to avoid an inflation rate that is too high. Monetary policy in the US and the euro area is not usually considered to be inflation targeting. In the US, low and stable inflation is an important long-term monetary policy objective, but no explicit target has been set. In the euro area, price stability is the most important monetary policy objective. This is stipulated by a treaty. The ECB has defined price stability as a rise in consumer prices that is less than but close to 2 per cent. This means that there is no symmetry. The ECB differs here. It also appears that the ECB has a longer time horizon for its assessments, and the bank emphasises developments in the money supply. For most inflation-targeting countries, the explicit target is linked to a level or a band for the consumer price index. Some of the prices in the consumer price index vary considerably, however, due, for example, to tax changes, weather and wind.

A small banking system like ours is inevitably characterised by a degree of concentration risk and, because of a typical Maltese idiosyncrasy, our banks are heavily exposed to the construction and property sectors. Since our economy is likely to be affected by the oncoming recession and will experience a slowdown next year, it would be advisable for the banks to strengthen their balance sheets further. BIS Review 152/2008  1  Would you say that the worst is over for local banks? Can you envisage a scenario where one of the banks will go down? There is no direct threat from the crisis – they are not directly exposed. If the economy slows down, certain borrowers might be overextended and there might be an increase in nonperforming loans. During a press conference in Frankfurt last week, ECB President Jean-Claude Trichet said he did not exclude further interest rate cuts. Why the need for further cuts and are you optimistic that these cuts are the solution? During the ECB Governing Council of November 6, we concluded that the outlook for price stability had improved further because inflation rates are expected to continue declining. Market expectations about medium-term inflation based on information extracted from the bond markets have fallen to just over two per cent. While the Governing Council does not pre-commit itself, should the data available at our December meeting point to a further alleviation of upside risks to price stability, then the conditions would be ripe for another cut in interest rates.
In promoting the stability and efficiency of the financial system, we favour capital charges based on more sensitive risk measures. Some argue that such measures are procyclical and add to the vulnerability of the system as a whole. I will deal with this issue before going on to discuss some features of the new proposals. In particular I will consider the pros and cons of more complex rules, the use of internal ratings and the measurement of operational risks. I will end by looking beyond the current proposals at potential new chapters for the Basel Accord, including the harmonisation of provisioning policies and the development of capital charges for financial conglomerates. The role of the Bank of England in financial stability As many of you may know, the Bank of England has three core purposes: first, to maintain the integrity and value of the currency, generally referred to as our monetary policy objective; second, to maintain the stability of the financial system, both domestic and international; and third, to ensure the effectiveness of the UK’s financial services. The Bank’s monetary policy role is well known through the minutes of Monetary Policy Committee meetings and the quarterly publication of the Inflation Report. But a similar transparency is pursued in relation to financial stability with the publication semi-annually of the Financial Stability Review. Our interest in the regulatory architecture most obviously stems from this second objective.

Encik Abdul Rasheed Ghaffour: Value-Based Intermediation (VBI) propelling Islamic finance Address by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Value-Based Intermediation (VBI) Dialogue, Kuala Lumpur, 24 August 2017. * * * Over the years, finance has lifted the lives of many, enabled businesses to grow and helped to fund the construction of public infrastructure that we now depend on. Yet, as the global economy transforms and society evolves, the question as to whether the financial sector is sufficiently serving the needs of the real economy continues to be debated. The evidence from the global financial crisis underlines the need for the financial sector to restore its balance with the real economy. There is a need to rethink, reassess and re-strategise the role and contribution of the financial industry. Undoubtedly, there is an increasing expectation for the financial sector to deliver greater impact to the economy and society. I am pleased to be here with you today and be part of this important milestone in our Islamic finance journey. The issuance of the Value-Based Intermediation (VBI) Strategy Paper by Bank Negara Malaysia marks the next step to realising the full potential of Islamic finance. On behalf of the Bank, I wish to thank all of you who have devoted time and effort to work with us in this important initiative.
As the market for a currency becomes more liquid, the costs of carrying wealth denominated in that currency fall, raising investors’ preferences for denominating their portfolios in that currency. These increased preferences in turn lead to a further deepening and broadening of the market for that currency, costs of holdings are reduced further, and the process continues. As in trade transactions, the dollar is the predominant means of exchange in international financial transactions. Its predominance is especially apparent with respect to large issues of international bonds -- a clear reflection of the low cost of covering exchange rate and interest rate risk for long-term dollar instruments. I would suggest, however, that the current role of the dollar should not be taken for granted. Once the euro comes into existence, the simple conversion of the EMU countries’ outstanding securities into euros will contribute to the immediate creation of a major securities market. This development alone will create a critical mass for a market in euro-denominated securities. It will give the market depth and liquidity, and, in so doing, bring down the costs of conducting transactions, issuing loans, and trading securities below those currently seen for European national currencies -- possibly to levels comparable to those for dollars. The development of such a virtuous cycle could well feed upon itself and lead to the continuous growth of the market for euros.

Such implications are determined by: (1)  local financial system features and inherent risks;  (2)  political and macroeconomic developments;  (3)  approach to reforms’ implementation;  In terms of financial system features, compared to advance economies, in CESEE the financial system is generally characterized by: –  more reliance in retail (longer-term) funding and more “buy to hold” business model  –  wider use of foreign currency in retail transactions;  –  less complex financial system, good level of capitalization and simpler approach to risk management;  –  serving as “host” to foreign financial institutions (usually from EU advanced economies)  –  higher reliance in banking to finance the public and private needs;  –  evolving regulatory framework of the financial system;  In terms of political and macroeconomic developments, CESEEs are generally characterized by: –  efforts to develop the financial system and integrate more the local economy in the regional and world one (in Europe, the process is driven by the process of European Integration);  –  stronger macroeconomic developments, which have seen improvement in the inflation due to more effective monetary policy, better use of economic resources and better fiscal management;  However, in terms of approach to international financial regulatory reforms implementation, given their features, CESEE will have to consider that: –  staying “out” is not an option;  –  less financial integration is not an option  and, given the complexity of reforms, preparations should progress quickly, although the pace of change should be carefully weighted and prioritized with local market features.
The fact that industrial nations enter an economic downturn together has been a rule rather than an exception. The decline at the beginning of the 1990s was different, because it was due to different types of disturbance. The German reunification meant that Germany and Europe went their own way to some extent. Bank crises hit different countries at different points in time. In Sweden there was also a very large increase in real interest rates following in the footsteps of the change in the inflation rate and the defence of the fixed exchange rate, which contributed to the crisis in Sweden becoming deeper than those in most other industrial nations and, in addition, the worst recession Sweden had experienced since the 1930s. The downturn we have just experienced has been unusual in that the decline in production in the USA and Germany was lower than usual and in many European countries there has been no decline in growth at all. In Sweden, too, the slowdown appears to have been one of the mildest during the postwar period. Growth is not expected to decline for a single quarter. During all of the previous downturns in economic activity there has been at least one quarter with a negative result for growth and since 1970 economic downturns have always led to a decline in production over an average of four quarters. Households’ consumption has been relatively strong in many countries during the downturn and this is also the explanation why countries have avoided a decline in production altogether.

In November 1999 we raised the repo rate and during early 2000 a similar assessment was made. During autumn 2000 we saw ahead of us a situation with a stable and strong upturn in economic activity that would gradually lead to a high level of resource utilisation and rising inflation. At the beginning of 2001 we received a number of statistics that indicated a slowdown, particularly in the USA. The Federal Reserve surprised everyone with an interest rate cut in January, in between two ordinary monetary policy meetings. The slowdown then spread. The Riksbank and most other forecasters began to revise down their growth forecasts for Sweden and internationally. The share and IT bubble burst and this together with rising oil prices and higher real interest rates during 1999 and 2000, led to a synchronous downturn in economic activity around the world. During the course of 2001, we made several major downward revisions to our forecasts for international growth. The economic downturn is assumed to have had a subduing effect on Swedish inflation via both direct and indirect channels. In mid-2001 the decline in the real economy had on the whole become more marked than expected. However, the development in prices deviated sharply from the forecasts made by the Riksbank and other analysts. When inflation surprisingly rose considerably during spring 2001, the assessment was made that this was largely due to factors of a transitory nature, partly caused by disturbances on the supply side.
I think we’ve been clear in our expectations around AML/BSA: •  That AML/BSA needs to be managed on an enterprise-wide basis;  •  That AML/BSA needs to be a high priority for the board of directors, senior management and line management;  •  That the message on compliance needs to be carried down well into the organization, so that those who are on the front lines making daily decisions understand the importance of compliance and the consequences for failing to meet the requirements; and  •  That AML/BSA shouldn’t be treated as a static exercise – standards and best practices evolve and you are required to keep up with and adhere to the latest requirements. As I know you are also aware, we are seeing keen competition for talent/resources in this area. While we recognize that it may be difficult to identify and retain talent, having a solid recruiting strategy and ongoing training in place, as I mentioned earlier, are important components to addressing the problem. You might wonder why this topic remains on my list – and it’s because in spite of the heavy public attention on the matter, including a range of public enforcement actions, it remains a work in progress for many firms. And, for firms that haven’t yet been faced with MRAs or a public enforcement action, I worry about complacency. So, I raise it again because it seems that another warning shot is warranted. 2.

As I mentioned earlier, the UK economy has been growing rapidly. Over the past year, job creation has been the quickest on record, pushing unemployment down to 6.5 per cent. The economy is finally producing as much as it did on the eve of the crisis in 2008, and inflation is back near its 2 per cent target. In short, the UK economy is starting to head back to normal. 1  Bank of England founding charter, 1694. BIS central bankers’ speeches  1  As the economy normalises, Bank Rate will need to start to rise in order to achieve the inflation target. But the MPC has no pre-set course and the timing of any increases in interest rates will be determined by the data. In this regard, the Monetary Policy Committee (MPC) is balancing the implications for inflation of hard evidence of sustained economic momentum against conflicting signals over the degree of slack in the labour market. While some indicators such as wages suggest that there was more labour supply than we had previously thought, it is also true that spare capacity is being used up a bit more rapidly than we had expected. A key judgment for the MPC is when and to what extent these developments will translate into real wage growth, and in turn that wage growth into price pressures. Next month’s Inflation Report provides the next opportunity to update our thinking on these important questions. A durable expansion rests ultimately on moving from anaemic to strong productivity growth.
If we take into account the margin provided by the loan-to-value ratio and the fall in real estate prices that has already taken place, it would be necessary to make catastrophic assumptions, beyond all reasonable expectations, regarding the expected losses in order for the total losses to be well above the total volume of loan loss coverage. Moreover, the Spanish system of specific provisioning has been tightened so that banks have an even greater incentive to speed up their balance sheet write-downs. Thus doubtful loans, once the value of the collateral has been taken into account, have to be fully provisioned within a period of one year. In addition, the value of collateral is subject to significant haircuts ranging from 20% for completed housing to 50% for land. Finally, the law requires provisions of up to 30% to be recorded for foreclosed assets that have remained on the balance sheet for two years. But perhaps the characteristic which makes Spanish provisioning regulations unusually strict is that the parameters determining the provisions are transparent and apply to all banks. Therefore, unlike in other countries, they are not left entirely to be negotiated between the bank and its external auditors. It is not only legislators and regulators who have adopted measures to anticipate future problems. Spanish banks too, savings banks included, have made an enormous effort to clean up their balance sheets, something which is not always duly acknowledged in analyses of the Spanish banking system.

Consequently, our optimism can only be conditional upon the continuation of the reforms. Finally, we must be patiently optimistic not only with the reforms, which need to be accelerated as much as possible, but also with their results. 2011 will continue to be another year of adjustment and it will even be one of the hardest years for the banking system. It is said that some marathon runners hit a “wall” in the final miles of the race. Even though they have completed most of the race, the finishing line seems far off to them and they need great mental fortitude not to give up. We, too, should ensure that the adjustment process and reform of the Spanish economy does not hit any “walls”. During the recession to date there has been a highly substantial correction in the real economy and in the banking sector, but now we need patience and perseverance to successfully conclude this process. Thank you very much  BIS central bankers’ speeches  7
I know that the subject is a sensitive one in Italy... but I would like to say this as a friend: you should agree to examine and discuss the substance of these proposals, before worrying about the very principle of Franco-German discussions, which are often necessary but never sufficient. Rest assured, we very much want Italy to join us at the negotiating table, and you will, I think, find it in your interest to increase public and private solidarity. 1/ The first priority is to increase private risk-sharing. Our starting point here should be the real needs of the economy, and especially those of firms and entrepreneurs. In order to invest and innovate, for example in the digital economy or the energy transition, firms must to be able to take greater risks. This means more equity financing, which has a longer-term horizon, as opposed to debt financing. The euro area is already lagging far behind in this respect: equity financing was equivalent to just 77% of GDP in France in mid-2018, compared with 124% in the United States. And yet we have abundant resources: a savings surplus of around EUR 350 billion in the euro area. [slide] We therefore need to build a “Financing Union for Investment and Innovation” in order to channel these resources to where they are needed. This Union would be a combination of two existing initiatives, first of all the Banking Union, which must at last be finalised.

I am very much aware of the challenges facing Italy today – including, until very recently, the flow of migrants – all the more so because of our shared culture and history, and, today, our shared institutions and challenges. As a central banker, however, I am going to focus on the economic issues, and notably on our shared currency and the euro area. ** To start with, let me just remind you of some stylised facts about Italy, which are often too quickly forgotten. Italy has many strengths: it is the euro area’s second largest manufacturing economy, after Germany and ahead of France. Its export performances have improved in recent years, thanks notably to an increased specialisation in high-end products1 and to the talent of its imprenditori, from Brescia to Bologna. Moreover, thanks to the reforms undertaken by successive Italian governments since 2012, its macroeconomic position is on the whole solid [slide]. To highlight just a few key figures: its net external position is almost balanced (-5% of GDP in 2017), and better than France’s; its current account has been in surplus since 2013 (2.8% of GDP in 2017); and its private sector debt is lower than the euro area average. Yes, Italy – just like Europe – has much more to be proud of than people say. Pride means that we can be more serene, without being aggressive. But it should not prevent us from being lucid. Italy is indeed expanding at a slower pace than it should be [slide].