samchain/econo-pairs-v1 huggingface dataset:
International banking and finance – a new model for a new era While this debate will surely continue to unfold over the coming years, perhaps the more pertinent question is how we can evolve the model of international banking such that it becomes more desirable and beneficial for the needs of the future. It is worth considering a new model – one that is inherently more sustainable and inclusive. If I may postulate, the starting point is perhaps an honest appraisal that international banking ought to be much more than just a commercial decision. Beyond considerations of revenue, margins and returns, international banking should fundamentally be more attuned to and invested in the developmental journey of the host country. Existing and traditional considerations on profitability, while important, should not become a border that limits the potential of transforming international banking for the benefit of the future. Here, the mindset is not one of a “winner takes all”, but rather one where the benefits of development are equitably “shared by all”. This, again, resonates with the ‘ASEAN Way’ of greater shared prosperity and is perhaps a useful reference. There are at least three ways in which international banking can further this new model. Firstly, by actively identifying the economic needs of the host country and working to serve these needs. These include, for example, national infrastructure development needs, financing gaps for certain segments of society as well as adoption of productivity-enhancing technology by firms.

The recent example of the Facebook data scandal, where personal data of up to 87 million people was improperly shared, strongly illustrates the point that there are social repercussions to the actions of multinational companies beyond just the bottom line. In my view, international banking is no different. Beyond the traditional goal of providing financial capital, there is a very compelling case for international banking to also develop socialcapital. In this way, finance, often thought to be destructive, can be a very transformative force as well. 2/3  BIS central bankers' speeches  Regionalisation and digitalisation are changing the rules of the game So where does this leave us? As highlighted, the future of international banking is not necessarily bleak. With further calibration and evolution, it can continue to have a prominent role in serving global interests. The good news is this evolution is already taking place. Previously dominated by the elite few, in this case large global banks, international banking is now increasingly open to a larger group of market participants. On one hand, the circle of banks is expanding, from large global banks to smaller regional banks. This is an important point that is also highlighted in the Global Financial Development Report, reflecting the growing extent of banking relationships between developing countries, particularly in this region. On another front, digitalisation is ushering in a new era, expanding the borders of international banking to now include non-bank fintech players. These players have the distinct potential of transforming global banking as we know it today.
There are no simple criteria for determining the most appropriate central parity rate. What the Riksbank can do is to use the various models at our disposal and combine their results with expert knowledge and good judgement to try to narrow down a reasonable interval and analyse the consequences of different choices. All models and forecasts at the Riksbank's disposal now suggest that the real exchange rate will appreciate in the coming years. The question is by how much. The different models give a wide range of estimates for the real appreciation, ranging from a few per cent up to 10 per cent from the current level. With the realistic assumption that inflation will be about the same in Sweden as in the euro area in coming years, this implies an interval for the nominal SEK/EUR rate that extends from approximately 8.20 to a little more than 9 kronor. Even if the Riksbank thus participates actively in the preparations for euro introduction it will not, as an independent and non-political institution, be actively involved in the referendum debate. In 1997, The Riksbank's governing board took a decision in favour of early participation in the EMU as a response to the government report on EMU membership chaired by Professor Lars Calmfors. However the present Executive Board has not taken any common position ahead of the referendum, although the personal views of several board members on EMU are well publicised, including my own pro-euro stance.

Norges Bank exercises its ownership rights by voting at general meetings and through direct contact with companies. Moreover, priority is given to combating child labour and we look critically at how companies influence the authorities in environmental issues. The combination of accountability and transparency has contributed to building trust in the Pension Fund, both domestically and internationally. Domestically, a high level of confidence is vital in maintaining motivation among Norwegians for saving rather than spending the petroleum wealth. Furthermore, the transparency of the Fund is also viewed in a favourable light by those countries in which we invest, and it obviously exerts a certain disciplinary pressure on the management that improves its quality. Thank you for your attention! BIS Review 37/2008  17
David Carse: Environmental issues and their implications for financial institutions in Hong Kong  Keynote Speech by Mr David Carse, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Conference on Environmental Risk Management for Hong Kong Financial Institutions, held in Hong Kong on 29 November 2000. *  *  *  Ladies and gentlemen, I am pleased to be here to deliver the keynote speech for this conference on Environmental Risk Management for Hong Kong Financial Institutions. I congratulate the various organisers for putting together the conference, which I understand is the first of its kind to be held in Hong Kong. If so, it is long overdue. Environmental issues have come very much to the forefront of public awareness in Hong Kong in recent years, and cleaning up the environment has become one of the Government’s main preoccupations. There are all sorts of good reasons for wishing to do this, in terms of improving the quality of life and the long-term health and well-being of the people of Hong Kong. But there is also a growing recognition on the part of business, both here and elsewhere, that economic growth is inextricably linked with a healthy environment. At this year’s World Economic Forum in Davos, business leaders voted global climate change the most pressing issue facing the world’s business community. It is all the more disappointing therefore that last week’s UN summit conference in The Hague on climate change should have ended in failure.

Narrow mandate and independence as foundation In general, regulatory policy comprises all measures which a government puts in place to create appropriate framework conditions for the longer-term development of the economy. If, in doing so, the government follows sensible principles, it creates conditions in which the economy can optimally develop its potential and the prosperity of the population increases over time. An essential component of good framework conditions, and of good regulatory policy, is price stability. In the absence of price stability, the smooth functioning of an economy is inconceivable. Inflation as well as deflation hinder the steering role of prices in ensuring that labour and capital are used as productively as possible. Inflation also reduces household purchasing power and especially impacts the more vulnerable sections of society. In order to ensure price stability in the long term, two principles of regulatory policy are key: - First, price stability must be the fundamental guiding principle of monetary policy - and second, a central bank must be independent from politics. Both of these principles are today reflected in the legislation of many countries. In Switzerland, the independence of the central bank is enshrined in the Federal Constitution. This means that the SNB may neither accept nor seek instruction from politics or other quarters. The Constitution also states that the SNB shall pursue a monetary policy serving the interests of the country as a whole.
Together with Finansinspektionen, we are currently working on producing better and more detailed statistics on the mortgage market with the aim of gaining a better insight into potential causes of future problems. Because although – as I mentioned earlier – we will never obtain a clear, objective indicator that tells us when it is time to take action, there is every reason to reduce the uncertainty in our assessments of the situation. The second priority concerns a serious discussion of the level of risk weights for mortgages in Sweden. 3 Our risk weights are actually among the lowest in Europe (Figure 3). The risk weight of a loan determines how much capital a bank needs to hold per krona lent. Lower risk weights thus mean that the banks need to hold less capital. But the less capital a bank holds, the less resilience it has to loan losses. The low risk weights also contribute to some extent to the credit boom in the mortgage sector, as lending to buy housing thus becomes cheaper for the bank in relation to other lending. Why do we have such low risk weights? The reason is that the current risk weights are based on actual data on historical losses on mortgages. And these were not particularly high even during the crisis of the 1990s. Despite this, I believe that there are two reasons for questioning the low risk weights for mortgages.

Analyzed in terms of the ratio to national income, the ratio of the current account deficit was 6.4 percent by the end of 2005. The said ratio rose to 6.9 percent in the first quarter of 2006. Certainly, high rates of current account deficit are not peculiar to Turkey and can also be observed in other transition economies that grow at similar high rates. For instance, the ratio of current account deficit to gross domestic product is 11.8 percent in Bulgaria, 8.7 percent in Romania, 7.9 percent in Hungary and 7.2 percent in the Slovak Republic, as of 2005 1 . Higher rates of global and financial integration enable countries to sustain higher rates of current account deficit, to the extent that the robustness of their macroeconomic fundamentals allows. Due to the impact of these conditions, a current account deficit on a higher plateau has also been sustained in Turkey in recent years. 1  IMF, World Economic Outlook, April 2006  BIS Review 89/2006  9  The recent high increase observed in the current account deficit in Turkey is not the result of the increase in consumption, but comes from the increase in investments that boosts the production capacity. Crude oil prices, which have been following a high and volatile course in international markets and maintaining their upward trend in recent years, stand as another factor explaining the widening of the current account deficit.
How to deal with systemic risk – the traditional approach While these arguments are not profoundly new, the policy consensus before the current crisis was dominated by a reluctance to address systemic risk issues directly. This consensus was based on two key arguments. First, it was largely assumed that securing the solidity of individual financial institutions would also grant system-wide stability and thus that regulation at the level of individual firms – micro-regulation – would suffice. The crisis has shown that this view is clearly questionable. As just described, risk in a financial system can arise quasi endogenously, even if individual financial institutions appear to be robust. 3  For more details, namely on ways to address TBTF issues, cf. Danthine (2011). 4  Bank of England (2011). 2  BIS central bankers’ speeches  The second critical element of the pre-crisis policy consensus is known as the “Greenspan Doctrine”. This states that pricking an asset price bubble is in general more costly than cleaning up after the bubble has burst. The foundation of this doctrine is that it is simply too difficult to identify ex ante when a bubble is forming. Specifically, it is inherently difficult to disentangle situations where a credit or asset-price boom is justified by fundamentals from those where it is based on misplaced expectations and is thus a threat to financial stability.

Some differences in our practice as compared to international standards may not warrant any further action at all, for they reflect our conscious intention to adopt rules that best suit our own unique situation as well as rules that should be phased in gradually to comply with international standards only at an appropriate time. We welcome the opportunity to discuss and share this understanding with the FSAP assessors, who are drawn not only from IMF and World Bank staff but also from other countries’ central bankers, regulators, and international experts. Before I let you get on with the workshop, I would like to conclude by saying that, with or without the FSAP, the Bank of Thailand will continue to strive for a safe and sound financial system, both through efforts to restructure financial institutions under the Financial Sector Master Plan, and through continued strengthening of prudential standards and supervisory practice. Risk-based supervision approach has been adopted. Loan classification and provisioning requirements have been and will be tightened further. Good corporate governance has been enforced, including appropriate composition of the Board of Directors and, most recently, fit and proper criteria for the top management of commercial banks. We have come a long way since the 1997 crisis and we do not intend to look back. Yet, many formidable challenges lie ahead. On the international front, a lot of preparations and adjustments are needed in response to the introduction of IAS39 and the new Basel Capital Accord.
However, it was left to the Riksbank to determine the practical application of this objective. Our choice was to specify a quantitative target for the inflation rate: The annual increase in the consumer price index, CPI, should be two per cent with a tolerated deviation of +/- one percentage point. The purpose of a tolerated deviation is to make it clear both that inflation will deviate from the two per cent level from time to time and that the Riksbank's aim is to limit such deviations. The target is symmetrical, which means that it is as undesirable to have an inflation rate below the target level as above it. Many other countries also conduct monetary policy where they have formulated a price stability target in one way or another. The euro countries have chosen to maintain inflation at a level close to, but below, two per cent, in other words, a non-symmetrical target. The United States has taken a different view and chosen a vaguer wording for its target, with no figures expressed, as well as taking greater account of general economic trends. In New Zealand they have a target for inflation expressed in terms of an interval (1-3 per cent) but no exact figure. However, we have seen two clear advantages of having a clearly expressed target to aim for; firstly it provides a good foundation for inflation expectations and secondly it makes it easier to assess the policy conducted.

On an annual basis, M3 growth increased to 32.0% in September 2010 from 27.7% in June 2010. This outturn was due to the rise in NDA by 96.9% (June 2010, rose by 58.2%) primarily on account of increased lending to government. However, the NFA fell by 9.8% compared with a fall of 1.2% recorded in June 2010. Excluding foreign currency deposits that grew by 29.8% (June 2010, fell by 5.9%), money supply growth was 33.2% from the 49.0% recorded in June 2010. Total domestic credit, comprehensively defined to include foreign currency loans, increased by 3.1% at end-September 2010 compared with 10.1% growth registered in the second quarter of 2010. This was mainly due to a 4.4% rise in net claims on central government that contributed 1.7 percentage points to the growth in domestic credit. Similarly, lending to the private sector (including public enterprises) grew by 2.2% and contributed 1.4 percentage points to the total domestic credit outturn. Excluding foreign currency denominated credit, which fell by 4.1%, domestic credit increased by 5.2% compared to the 7.5% registered in June 2010. On an annual basis, domestic credit growth at 13.5% in September 2010 was 10.1 percentage points lower than 23.6% recorded in June 2010. This largely reflected a slowdown in credit to the private sector, including public enterprises, to 0.7% compared with the 25.9% growth recorded in June 2010. This outturn contributed 0.4 percentage points to the total domestic credit growth in the quarter under review.
The impact of the depreciation of sterling on future inflation has increased the salience of such a trade-off for the MPC. As the Committee has made clear, there are limits to the extent to which above-target inflation can be tolerated. These limits depend inter alia on what is driving the inflation overshoot, on the impact on inflation expectations and on the scale of the output gap. The exchange rate shock has made it more difficult for policy to follow the natural rate. And finally, I have discussed the implications of a low natural rate and low real trend rate for central banks. But the implications of course go much wider than that. A secular period of very low underlying interest rates would pose many challenges. If, as I have suggested, the forces pushing down on interest rates might be less cyclical than we had thought and more secular, authorities with a longer policy horizon and with instruments more enduring in impact than monetary policy are best placed to address such challenges. A key and well recognised challenge in this respect is to raise the growth rate of productivity in advanced economies which will in turn raise the return on investment and hence the trend real rate of interest. Another might be to address the imbalance in the supply of savings and the demand for investment that appears to have pushed the trend real rate down.

In short, being transparent also means being able to explain one’s own decisions and actions. And the final related point about disclosure is that, despite the recent trend on transparency, with more and more central banks moving towards greater transparency, our research shows that there is still no clear convergence of the practice. Central banks continue to practice things differently, although in some areas the established practices are more or less uniform. To illustrate this point, let me now turn specifically to transparency in monetary policy which is the heart of central banks’ responsibilities and operations. In monetary policy, there are six areas where transparency is now well established and is being practiced by most central banks. These are (1) stating clearly what the objectives of monetary policy are; (2) explaining clearly the framework of monetary policy and its operating procedures; (3) having regular economic data release; (4) making known clearly the decision-making process of monetary policy which includes who make the decisions, how often, the timetable of meetings, and the dissemination process to announce the policy decisions; (5) publishing timely economic reports to explain views on the economy and risks as well as the rationale for their monetary policy decisions; and (6) the readiness of central banks to communicate with markets either through the media and public addresses or appearing before public or congressional committees.
As the debate about adequate capital levels for banks rages on, we feel that it is important to keep these lessons in mind. Whatever is decided in terms of capital requirements, the numbers should be calculated with tail event analysis in mind. A new example: contingent capital securities One present issue is that, given banks will need to hold much more capital in future, how could that best be achieved? Some have called for very high levels of equity capital in banks16; others have been focusing on requirements to raise new equity before it is too late, e.g. mandatory rights issues17. We find contingent capital securities – so-called “co-co’s” – to be a potentially attractive proposition for a number of reasons. One has to evaluate contingent capital on how it would perform in a crisis. First, the funding for extra capital is already in place. In other words, no one has to scramble to execute a contingency plan, or convince someone to come up with new cash in a difficult situation. Obviously, conversion is consistent with a bank being under stress, but if conversion was always automatic, not discretionary, that could help to avoid signalling even wider problems. Second, and related to the examples in this paper, because the contingent conversion feature is explicit, no investor should be able to say that “equity conversion” could never have been anticipated. As new mechanisms are being explored, we believe that it is crucial that investors correctly assess and price the probability of conversion into common equity.

The key difference from SIVs was that the underlying assets were largely purchased from third-parties and not necessarily in securities form. 6  BIS central bankers’ speeches  We now want to turn to an example of a structure that did at least partially survive the crisis: UK RMBS master trusts. These are versatile structures that allow an issuer to transform a portfolio of assets into a very different investment product. In principle, the master trust purchases mortgages from the bank and issues tailored bullet-maturity securities. The assets and the liabilities can be very different, e.g. the demand for the securities may be stronger in US dollars than in sterling, so an FX swap converts the cash-flows into dollars. Or most of the mortgages may be floating rate, whereas investor demand is stronger for fixed-rate product, and an interest rate swap(s) converts the cash flows accordingly. Mortgages typically pay down somewhat randomly and relatively quickly, whereas investors prefer straight-bullet maturities. The master trust can accommodate this by allowing on-going reinvestments of the pay downs and conversely allowing the trust to put assets back to the bank if the cash-flows are not sufficient to make a particular principal repayment. The downside is clearly that the on-going linkages between the issuer and the trust remain very strong, and it is thus hard to identify where economic risks ultimately reside. RMBS master trust securitisations are designed to be called on their bullet maturity date and that is how they were priced and traded.