samchain/econo-pairs-v1 huggingface dataset:
Spotting problems and keeping them from mounting up Given the limited time we have, I have given you a very brief overview of what resolving a bank entails. It is a gruesome and complex event, and one which is best avoided, but not at all costs. To avoid failure, banks and supervisors must spot problems early on and address them quickly. Since the crisis, stress tests have become an important tool for helping us to do this. Stress tests basically assess how banks would fare in various hypothetical scenarios involving different future paths for the economy and the financial markets. Usually, there is a baseline scenario, where things develop as expected. And then there is an adverse scenario, where they don’t: inter alia, GDP, unemployment and property prices are stressed two years ahead in this scenario. So you can see that the key idea of a stress test is to assess how banks would cope if the going gets tough; it’s all purely hypothetical, of course. Stress tests allow us to make a consistent assessment. Each bank has to apply the same scenarios and calculate their impact in the same way. This means that the results can be compared across banks. And stress tests provide a glimpse of the bank’s risk management in action. How quickly can it process the scenarios and assess their impact on [the state of] the bank? This is important information about the quality of governance. But the main focus of stress tests is on capital.

Those completed included: Data Management Group - a centralisation of data collection that were originally performed by many departments within the Bank; introduction of the use of information technology for the dissemination of information for public use through the Bank of Thailand's web site; Financial  4  BIS Review 6/2001  Markets Operations Group - to develop working efficiency by increasing skills in risk management and the modernisation of the trading room; another group which has been completed under the programme was the Supervision Group. On personnel development, most of the Bank of Thailand's staff lacked systematic development. In the past year, therefore, heavy investment was put on staff training by doubling the budget for this purpose. Moreover, staffs with high potential were assigned job training in outstanding private sector companies in order to increase their vision and experience and to understand how the private sector works. A job evaluation system has been applied to each position in order to put the right man on the right job. Most importantly, we have introduced performance evaluation and individual development plans in accordance with international standards. Next year, the Bank of Thailand will start a new salary structure to be consistent with job evaluation, and to set out a clear work target and plan for each group. The most important change that occurs has been the improvement in the decision- making process. Today, all Bank of Thailand policies have been made on the basis of sound principles and reasoning that can be explained clearly to the public.
Signals on the Eurosystem’s balance sheet have played a great role in the recent past. In November 2014, the Governing Council stated that the balance sheet was expected to move toward the dimensions it had at the beginning of 2012. Markets started to anticipate an asset purchase program. More recently, the asset purchase program which will last until endSeptember 2016 has been an important and clear signal of the expansionary monetary policy stance over an extended horizon. Those signaling effects have been very effective and following the announcement of the expanded asset purchase program on 22 January, significant movements took place on financial markets with, inter alia a decline in the forward interest rates across all maturities, a decline in government and corporate debt yields, and a rise in equity prices. 3. Are there drawbacks to be feared from the increase in CB Balance sheets? The active use of their balance sheets by major Central banks has raised a number of concerns. I shall focus on three questions. First, when unconventional monetary policies started to be implemented, many analysts were worried that the expansion of the monetary base would trigger inflationary pressures and Central Banks would lose control over price stability. As we all know, the reverse happened. Broad money aggregates have been basically flat – in the euro area- over the last eighteen months, the money multiplier collapsed and inflation has decreased well below our definition of price stability.

Some people would argue that the stocks of assets held by Central Banks matter more than the flows of purchases. Others would contend that the composition and size of purchases are the real levers. The issue boils down to whether an expansion in the monetary basis is enough to trigger credit expansion or whether the latter is correlated to banks willingness to expand credit and more importantly to the appetite of economic agents to borrow. Based on how monetary policies have been conducted for the past several decades, banks have always had the ability to expand credit at a given level of interest rate irrespective of the size of the Central Bank’s balance sheet. Being at the ZLB does not change that simple reality. Hence I would tend to argue that, given the transmission channels of an asset purchase program, its composition and length may matter as much as its size. In any event, increasing the size of the Central Bank’s balance sheet, via large scale asset purchases, sends very important signals. This “signaling” operates at several levels. It may contribute to strengthening forward guidance on the policy rate. More importantly, it may have a direct impact on inflation expectations, therefore contributing to lowering real interest rates. When the balance sheet size is explicitly linked to the achievement of an inflation objective as in Japan, it may prove an effective tool to communicate the monetary authority’s determination – what economists would call a “commitment device”.
This coincided with monetary policy being increasingly aimed at holding inflation in check. A growing number of countries had introduced explicit or implicit inflation targets and monetary policy had increasingly been delegated to independent central banks. Once inflation expectations had been anchored, it became easier to stabilise the real economy as well. Many felt that an important reason for the favourable developments in the world economy was that these changed enabled monetary policy to be conducted in a better manner than before. 1 Moreover, during the period prior to the crisis financial stability was increasingly being taken for granted. It was assumed that the financial markets were on the whole efficient and functioning smoothly. Financial crises did occur, but most of the countries affected were able to get back on their feet relatively quickly. The successful management of the IT bubble at the turn of the millennium supported the impression that if crises occurred, they could be dealt with relatively simply and efficiently. Japan, where the problems following the crisis at the beginning of the 1990s nevertheless had been long-lasting, was regarded as a special case. Although developments in Japan were regarded as interesting, the lessons perceived were not thought to indicate that anything similar could happen in, for instance, the United States or Europe. In this apparently stable macroeconomic environment, interest in research into the interaction between the financial sector and the real economy gradually declined.

This is the reason why it is an illusion to think that central banks can control both the exchange rate and the inflation rate. However, there are options available to transitorily reduce pressure on the exchange rate while monetary policy continues to focus on price stability. 2  BIS central bankers’ speeches  In a flexible inflation targeting framework, a first implication regarding exchange rate fluctuations is that monetary policy would tend to lean against the wind. Indeed, a persistent exchange rate appreciation would have disinflationary effects and would induce a looser monetary policy than the one that would prevail with a more depreciated exchange rate (everything else constant). However, in the current juncture, this effect does not prevent the need to tighten monetary policy, given strong growth in EMEs and inflationary pressures coming from commodity prices. A second option to mitigate currency appreciation is exchange rate intervention. In order to keep control on the interest rate, this intervention must be sterilized. Of course it has lower effects than when the monetary impact is not sterilized, but it is consistent with inflation stabilization. In Chile, since 2008 we have intervened twice, and we have implemented it in a pre-announced way, with a known schedule for intervention and sterilization, so it does not interfere with monetary policymaking. The rationale for the intervention was twofold.
Demand for labour, measured in terms of advertised vacancies, is also low in other industries, indicating that unemployment may also increase further in the sheltered sector in the period ahead. Registered unemployment is projected to increase from 3¼ per cent in 2002 to 4 per cent in 2003 and up to 4¼ per cent in 2004. Unemployment is projected to stabilise at this level in 2005. There are wide regional variations in unemployment. At the end of February, the number of registered unemployed in Troms County came to 3.6 per cent of the labour force, which is lower than the national average of 3.9 per cent. Agriculture and fisheries combined account for a larger share of employment in Troms County than in other counties. The internationally exposed sector is relatively small in the county. The food industry accounts for about half of manufacturing employment. As in the rest of the country, the public sector and some private service segments are important for employment in Troms. Business and financial services account for a smaller share than the national average. The work on the Inflation Report drew on information from the regional network that was established last year. We will have six rounds of talks each year with business and community representatives concerning financial developments in their enterprises and industries. There will be a total of about 200 visits in each round. We have divided the country into 7 regions and established links with regional research institutions in six of them.

We are determined not to let inflation become entrenched through second-round effects. It is this determination that would permit us to keep expectations where they are. WSJ: Since the current rise in inflation is due in large part to the buoyancy of emerging countries, are you worried that controlling inflation is to some extent out of your control? Noyer: It’s true that there are factors beyond our direct control. But there are also structural answers to these factors, such as development of production, in order to limit the rise in agricultural prices. There are possibilities, and the level of prices helps a lot to develop production and alleviate the pressure. When we look at the global picture of economy, there are emerging countries which have suffered less from the economic crisis and advanced economies which had to recover from a much lower growth and even recession. That in turn creates problems for emerging economies, including the fact that some of them have hesitated to run the fiscal and monetary policy that would have been absolutely appropriate given the state of their economies. That calls for a better understanding of each other’s state of economic development and economic policies. That’s what the G-20 wants to do through the framework for strong and sustainable growth initiative. WSJ: The G-20 is looking at various factors to assess the nature of global imbalances, and the debate often focuses on the part that foreign exchange rates should play in this assessment.
Here, the latest development on sovereign debt crises in Europe underscores the importance of the restoration of our fiscal discipline. If there are no changes in our policy, the ratio of public debt to GDP will increase to over 60 percent by 2012. This will not only leave little room for the government to use more fiscal stimulus should there be a new crisis in the region or in the global economy but it could also put Thailand in the spotlight of the foreign investors who have become much more sensitive to the issue of fiscal sustainability. This is why we have to rethink the stance of our fiscal policy once the short-term political and economic uncertainties fade away. Furthermore, to ensure fiscal sustainability over the medium to longer term, Thailand will need fiscal reforms that include: •  Continued fiscal consolidation;  •  Broadening of our tax bases;  •  Reforms to increase the efficiency and equality of the tax system; and  •  Greater allocation of public spending toward investment expenditures. Indeed, the government realizes the need for fiscal consolidation and reforms. With the better-than-expected tax revenues, thanks to the solid economic recovery, the budget deficit for this fiscal year and the extent of public debt will probably be lower than originally expected. The government has also taken initiatives to work on some reform measures such as the introduction of property taxes. These are commendable initiatives that remain to be seen whether will be successfully implemented.

In the case of monetary policy, from our experience here in Thailand, combining inflation-targeting with macroprudential measures under a flexible exchange rate regime has proven to be a good workable policy framework for meeting the challenge posed by the dual mandate of maintaining price and financial stability. Nonetheless, in an environment of large and persistent capital flows, having the right policy framework alone may not be adequate. Monetary policy will need to be supported by and coordinated with other policies to ensure the best outcome. For example, well-aligned fiscal and monetary policy is important at a time of strong capital inflows to help moderate the adverse impact of capital flows on domestic demand. This means fiscal policy will need to be less procyclical as domestic interest rates rise. Next, deeper and more diverse local financial markets will help lessen the chance that volatile capital inflows will create substantial risk to the economy. This calls for the need to continue with policies to strengthen and reform the financial system. And to the extent that sustained inflows generate the need for real resources to be reallocated across the economy in response to changes in relative prices, a high degree of flexibility in the local economy will be needed to support these adjustments, which will lessen the risks of imbalance and price pressures. The second issue to think more clearly about is the disconnect between the global nature of the problems facing central banks and the domestic orientation of the policy response.
Several banks that have better risk management systems and processes have been allowed to lower their minimum liquid asset requirements from the existing 18 per cent on the basis of their liquidity risk profile and liquidity risk management capabilities. Similarly, in the area of capital adequacy, we are currently developing a framework for setting individual bank-specific requirements according to their risk profile and risk management capabilities as part of our ongoing review of the overall capital adequacy framework. For securities and futures intermediaries, we introduced a risk-based capital framework last year. For insurance companies, we tested such a framework last year and are working towards implementation in 2004. Shifting from a rule-based to a risk-based approach requires MAS to sharpen its supervisory capabilities. It involves assessing key risks faced by individual financial institutions and their ability to manage these risks. We are building more comprehensive risk profiles of individual institutions, leveraging on technology and better information collection. Primary responsibility for risk management rests with the Board and senior management of the institutions themselves. This is why strengthening corporate governance standards in financial institutions has been a key priority at MAS for several years. Building on earlier initiatives, we have issued a consultation paper, proposing to set higher standards of financial transparency and corporate governance for locally-incorporated banks and direct insurers. We have proposed making it mandatory for the roles of the Chairman and CEO to be separated, and strengthening the independence of boards of directors from substantial shareholders.

This is necessarily work-in-progress, as it will take several years of learning and adaptation by MAS, financial institutions, and market participants. But achieving this is an important part of ensuring that Singapore remains a resilient, competitive, and dynamic financial centre. Thank you very much. My colleagues and I will be pleased to take any questions that you may have. BIS Review 33/2003  3
4  BIS central bankers’ speeches  Chart 4 – Long-term economic and demographic projections for Asia Percentage share of world output and population 60% Output Population  50% 40% 30% 20% 10% 0% 2010  2050  Source: Asian Development Bank Even if growth slows down somewhat from the very strong rates seen in recent years, the economic contribution of the Asia-Pacific region is likely to rise to match its share of world population. Chart 4 shows recent projections from the Asian Development Bank which point to the Asian share of world output rising to around 50% by 2050, much closer to its population share. To achieve this will require average GDP growth rates for Asia of 5–6% in the next twenty years and 4–5% in the period 2030–2050. This does not appear unreasonable in the light of the track record of rapid growth in the past two decades and the strong economic fundamentals of the leading economies in the region.3 What might this imply for the economic performance in the rest of the world economy – and in particular economies like the UK and Jersey? Fortunately, the economic performance of different regions and countries across the world is not a zero sum game. There are opportunities created by the opening up of new markets as well as competitive challenges to established industries.

I have spent just over four and a half years as a member of the MPC and it has been a most eventful period to be involved with economic policy-making. My period on the Committee has been dominated by the global financial crisis and the major global recession it triggered in late 2008 and early 2009. However, the global recession is now behind us, even if we are still feeling some if its after-effects. Since the second half of 2009, the world economy has been in a recovery phase and the UK and most other European economies have shared in this return to growth. Indeed, the growth of the UK economy has tracked very closely the average performance of the European Union through the recession and into the early phases of the recovery, as Chart 1 shows. And current forecasts point to a continuation of this pattern this year and next. Chart 1 – UK and EU output growth, 1997–2012 Percentage change in real GDP 5 4 3 2 1 0 -1 -2 UK (exc. oil and gas) *  -3  EU-27 *  -4 -5 -6  1997  1999  2001  2003  2005  2007  2009  2011  *:2011 and 2012 are IMF forecasts. Forecasts for the UK do not exclude oil and gas.
All kinds of regulatory arbitrage, which would enable firms to relocate to other jurisdictions to bypass national regulations, should be avoided. In this regard, the European Union is currently building a harmonized regulation. Last September, the European Commission launched its proposal for a “Markets in Crypto-Assets regulation” (also known as MiCA). If this proposition is adopted by the EU, companies that issue crypto-assets or provide additional services will be subject to the same requirements, under the watch of supervisory authorities. For example, the crypto-assets intended as a means of payment will have to provide a predictable redemption right in sovereign currency for asset holders, which is deemed necessary for the protection of consumers. At the international level, a cooperative framework is gradually setting up in order to deal with the challenges raised by stablecoins. 2. Supporting initiatives to strengthen Europe’s sovereignty in payments such as EPI The second response is to support private initiatives that can have a constructive impact on market functioning, payment systems efficiency and help address European sovereignty in payments. The best example of this is the European Payments Initiative (EPI), a project led by a set of major European banks and processors aiming at creating a unified, innovative and autonomous European payment solution. The Eurosystem, as well as the European Commission, has been in support of this work right 2/4  BIS central bankers' speeches  from the start. 3.

Small and medium-sized enterprises are mainly affected since they are often young firms and have hardly diversified activities and a modest capital base. Enterprises, however, can mitigate this disadvantage to a certain extent by improving information. Bank balance sheets likewise have an influence on the extension of credit. This applies mainly to small and medium-sized enterprises, whose sole source of external funding are frequently bank loans. Bank regulation should seek to prevent provisions from unnecessarily reinforcing the procyclicality of credit extension. In order to help achieve this, the new Basel Capital Accord (Basel II) provides for some flexibility. BIS Review 6/2004  1