samchain/econo-pairs-v1 huggingface dataset:
William J McDonough: Implementing the New Basel Accord Remarks by Mr William J McDonough, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Global Association of Risk Professionals, New York, 11 February 2003. * 1. *  *  Introduction  Thank you for that kind introduction. It’s a pleasure for me to be here today in my capacity as Chairman of the Basel Committee on Banking Supervision and President of the Federal Reserve Bank of New York. The topics to be discussed at this conference certainly are timely. One need not look any further than recent news headlines to understand why the work of a risk management professional matters so much. Current events remind us that when companies lack the commitment to manage their risks prudently, they will quickly fail to uphold their responsibilities to their shareholders, to their employees, and, ultimately, to the public at large. Those failures are felt not just as a loss of jobs, or investments, or savings, but also as the loss of public confidence in the soundness of our economy. Sound corporate governance only comes about when there is a genuine commitment to do the right thing and to manage risks in whatever form they arise. Risk managers must provide timely, objective and accurate information to their senior management. In turn, senior management and a bank’s board of directors need to ensure that there is an atmosphere of transparency within the firm - one that promotes healthy, disciplined risk taking.

Some of the conventional, static metrics that we now use - such as those to judge asset quality and to assess the adequacy of credit loss reserves - are likely to be supplanted by more quantitative and more sophisticated measures. Supervisors will increasingly have to assess the bank’s ability to properly rate all exposures across the spectrum of its internal rating grades - not just its classified or problem assets. In addition to ensuring the integrity of banks' internal rating assignments, supervisors will also need to understand how these ratings feed into the models and tools used by banks to manage credit risk. They will also need to understand the implications of using these new tools. I also see a significant shift on the horizon in our examination approach to operational risk, as we bring together operational risk management assessments with operational risk capital analyses. Examiners will have to understand, and be able to evaluate critically - much more so than today - how banks combine qualitative and quantitative techniques. Here I am thinking of the need to consider selfassessments banks may make of their control environments, as well as their processes for data collection and statistical analyses. It clearly will be important to devote the necessary supervisory resources - in terms of skilled personnel, technical training, and a targeted strategy - to these new supervisory efforts. As we prepare to traverse this uncharted regulatory landscape, there is an opportunity for supervisors to take a fresh look at how they do their work.
In recognition of continuing stresses in financial markets, the Bank announced in January 2009 that, for an additional fee of 25 basis points, it would temporarily permit drawings from the Discount Window with a maximum term of 364 days. 12  Because covered bonds and master trust RMBS are based on revolving pools of mortgages, an exception was made to accommodate them, but with a strictly declining limit over the three year life of the Scheme. 13  But it did require Treasury agreement for the Debt Management Office to create and lend the additional Treasury bills, and for the Treasury to underwrite the Scheme should there be any losses. BIS Review 126/2010  5  Access to the Discount Window is only permitted for firms that are considered by the Bank to be solvent and viable. Nevertheless, large scale borrowing from the central bank can generate credit risk concerns in the minds of market counterparties. To avoid this “stigma”, the Bank releases information on the use of the Facility averaged over counterparties and over a three-month period, released with a further quarter’s lag. Following a market consultation, the Bank has recently announced that, as of early next year, it will extend the range of collateral it is willing to take in the Discount Window to include diverse portfolios of “raw” loans. 14 This extension has a number of advantages. Securitising loans into asset backed securities – such RMBS – is expensive and only available to firms large enough to have a securitisation programme.

If one also takes into account the depreciation of the domestic currency against $ as at end-November, the stock market of Thailand has fallen by 71% from its peak this year, Malaysia by 69.7%, Indonesia by 64%, Korea by 61% and BIS Review 116/1997  -2-  the Philippines by 61%. Even Singapore’s stock market suffered a 35.7% drop in $ terms, which is comparable to the 37.7% fall in the Hang Seng Index. Only Taiwan recorded a lower fall of 31%, whereas the Nikkei also lost 28%. I quoted these figures in order to illustrate the magnitude of the turmoil and its contagion effects on the asset markets in the region. Singapore, which is a strong economy and given a triple-A rating by the international rating agencies, adopts a managed floating rate regime, but such regime has not insulated its asset markets from the regional turmoil. In terms of interest rates, Singapore’s one month interbank rate rose by almost 5 times to 16% on 27 October from around 3.6% on 2 July. Singapore’s one month rate is now 6.25%, which is still significantly higher than the level in early July. In the case of Hong Kong, the one month rate rose also by around 5 times from 6% in early July to a high of 30% on 23 October. At present the one month rate in Hong Kong is around 7.5%.
Low inflation is not simply an end in itself. What we are really seeking to do in pursuing low inflation is to keep aggregate demand in the economy more or less continuously in line with the underlying capacity of the economy to meet that demand as a means to the end of sustainable growth. And I think that the facts that I have quoted are more consistent with the view that monetary stability - low inflation - can indeed contribute to sustainable growth. But it may be that some of you voted no on the first ballot for the rather different reason - that with the monetary policy focus so clearly on low inflation we appear to ignore the strength of the pound especially against the euro, which is seriously damaging many of the internationally-exposed sectors of our economy, including most of agriculture, much of the manufacturing industry and also some services sectors, with differential regional effects. No doubt some of you are suffering from the strong exchange rate in your own businesses even here in London. The question is what can we do about it. The problem - and it is our biggest problem in operating monetary policy at present - is not so much the strength of sterling - we have after all been remarkably stable against the dollar for most of the past five years - it is rather the surprising weakness of the euro.

Mr George identifies two distinct issues relating to monetary policy in the United Kingdom  Speech by The Rt Hon Eddie George, Governor of the Bank of England, to the CBI Annual Luncheon at the Guildhall in London on 25 February 2000. *  *  *  Thank you Chairman, Ladies and Gentlemen, I would normally open my remarks on occasions such as this by saying what a pleasure it is to be here. But central bankers need to time their appearances before CBI audiences with very great care. And I’ve clearly failed on this occasion. The exchange rate is strong - many would say excessively strong and the latest movements in interest rates have been upwards. Typically that is likely to mean that I’ve entered a lion’s den! Well I hope you’ve all enjoyed your lunch as much as I have - because I once dreamt that Daniel, who must have been one of my ancient forebears, and who knew a bit about entering a lion’s den, gave me some very good advice. He said to me in my dream, “If you really must do it then make sure that the lions have been well fed first - they might just drop off to sleep!” Looking around, I see there is something in what he said! Daniel also said, “Whatever you do, don’t provoke them!” Well at the risk of ignoring this advice I should like to establish just what sort of lions you all are!
In conclusion let me briefly focus on a few issues that will probably need to be discussed carefully, both in Sweden and on an international level. One lesson that can be drawn already is the need to develop and improve the rules for supervision and management of liquidity risks. More stringent demands for transparency in the financial sector will provide customers and investors with better opportunities to assess the risks associated with companies. Similarly, transparency in the structured credit instruments should be improved so that their associated risks can be assessed. More effective trading with these products is also important; the financial infrastructure needs to be strengthened. This discussion and any resultant changes in regulations should aim to ensure that this part of the credit market can work efficiently once again. Developments in the American investment banks in particular have made us aware that even financial companies that do not accept deposits from the general public, and which therefore are subject to weaker supervision and regulation, may have a crucial impact on financial stability. We should therefore consider how to design regulations and supervision of financial companies that do not accept deposits from the general public. Due to the global scope of the crisis, countries must coordinate measures to solve it. Separate national solutions could result in higher crisis management costs than would otherwise be the case. In all of these areas where supervision and regulation need to be improved, they must be coordinated and harmonised internationally.

The international component is particularly apparent in that the majority of banks today conduct a considerable amount of business in several EU countries. At the same time, the responsibility for supervision and crisis management remains at the national level. This entails obvious risks of coordination problems and conflicts of interest between countries, which naturally do not promote financial stability. It is therefore necessary that organisations for supervision and crisis management be coordinated within the EU. Lower repo rate in the wake of the crisis The escalating crisis intensifies the downswing in the Swedish economy, which was already apparent. As can be seen in the Monetary Policy Report from 23 October, our growth forecast for next year has been revised sharply downward to the prospect of zero growth. To alleviate the real economic effects of the financial crisis, over a short period the repo rate was cut by one percentage point to the current level of 3.75 per cent. Our forecast for the repo rate shows that in the future it may need to be lowered by an additional half percentage point over the course of the next six months. We can do this without jeopardising the inflation target. It is mainly rising commodity prices in the global market, such as the price of oil and food, that have driven inflation upwards. Now that the price trend for these commodities has broken and turned downwards, the rate of inflation will drop rapidly. At the same time, domestic inflationary pressure will be eased by the weaker economic trend.
Mr. Bäckström reports on inflation and the interest rate in Sweden Speech by the Governor of the Bank of Sweden, Mr. Urban Bäckström, at a conference organised by the Stockholm Chamber of Commerce and Veckans Affärer in Stockholm on 27/1/98. Thank you for the invitation to talk at this conference about the outlook for inflation and the interest rate. It is now five years since the inflation target was instituted; so before considering the current situation for monetary policy, I should like to say something about the intervening period. Five years with an inflation target In January 1993 the Riksbank’s Governing Board decided to adopt an explicit target for inflation and specified that as of 1995 and measured in terms of the consumer price index, the rate of inflation was to be limited to 2 per cent, with a tolerance interval of ±1 percentage point. The commitment to an inflation target originated from the Riksbank but both the Government and the Riksdag (Sweden’s parliament) expressly support monetary policy’s focus on price stability as well as the inflation target. Last year five of the political parties in the Riksdag agreed that the Riksbank’s objective, to safeguard the value of money, should have the force of law; a Government bill with provisions to this effect was presented to the Riksdag in November. In recent years, monetary policy’s commitment to low inflation has thus been established increasingly firmly.

As long as inflation expectations are unaffected, there is no reason to suppose that the effects on inflation will be permanent. Transitory effects account for inflation target deviations An explicit inflation target has the advantage of enabling us to evaluate how monetary policy is conducted. Consequently the Riksbank cannot implement an asymmetric approach to the inflation target without this being detected. Two curves are presented in the diagram below. One represents CPI inflation and the other is one of the various indicators of underlying inflation, in this case the CPI excluding transitory effects from house mortgage interest costs, changes in indirect taxes and subsidies, and prices of imported goods.1  Actual and underlying inflation 1995 – 1997 12-month change figures, per cent 4  3 CPI 2 "Underlying" inflation 1  0 95  96  97  98  Source: Statistics Sweden and the Riksbank. Note. Underlying inflation is represented here by one of the indicators (UNDINH) used by the Riksbank; it shows the CPI excl. changes in indirect taxes and subsidies, house mortgage interest costs and prices of goods and services that are mainly imported. 1The use of this indicator in the present context does not signify that it is particularly significant or the best approximation of underlying inflation in every case; instead, it happens to be the indicator where all the excluded items had a marked influence on price movements in the period 1995–97.
As a result, key elements of it, such as the Matching Adjustment, were designed with the needs of the UK industry in mind. The PRA’s implementation of Solvency II has been robust but proportionate, consistent with our statutory objectives. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Appendix: Drivers of changes in UK annuity rates  10  Chart 1: Annuity rates, risk-free rates and  Chart 2: Relationship between annuity rates and  corporate bond spreads since 2007  risk-free rates  Percentage points  Per cent Risk-free rate (rhs) 8 Annuity rate (rhs) Corporate bond spread (lhs) 7  6  5  Annuity rate (Per cent) 8 Pre-SII (2007-15) Since SII (2016)  6 4  7  5  3  4  6  3  2  2 1  5  1  4  2017  2016  2015  2014  2013  2012  2011  2010  2009  2008  0  2007  0  0 1 2 Risk-free rate (Per cent)  3  4  5  6  Sources: Bank of America Merrill Lynch, Bloomberg,  Sources: Bloomberg, sharingpensions.co.uk and Bank  sharingpensions.co.uk and Bank calculations. calculations.

Statistics Norway’s business tendency survey indicates continued favourable prospects for Norwegian manufacturing. Activity is expected to increase in service industries and the construction sector in the near term. Capacity utilisation in the Norwegian economy now appears to be close to a normal level. In manufacturing, capacity utilisation is close to its historical average. According to Norges Bank’s regional network, about 40 per cent of companies will have some or considerable difficulty in increasing production. Even though growth in the Norwegian economy has been high for a long period, substantial pressures have not yet emerged in the labour market. The rise in the number of employed in the first half of the year was fairly modest in relation to output growth. This may be due to lagged effects of the sharp fall in sickness absence through 2004. In many companies, the large increase in available person-hours was probably not fully utilised immediately. A considerable share of output growth may be the result of improved utilisation of company workforces. According to the quarterly national accounts, employment rose by 0.5 per cent from the first half of last year to the same period this year. Measured by the Labour Force Survey (LFS), the number of employed rose by 12, 000 from May to June and by a further 2, 000 from June to July. 1/7  The use of foreign labour has increased in the year that has passed since the enlargement of the EU.
Many US funds were also impacted by significant redemptions, partly because the customers needed the liquidity, but also because the customers became uncertain of the risks existing in the funds’ investments. In Sweden, the banks had no significant holdings of bad US mortgage securities, but they were still affected by the same difficulties as other European banks in borrowing dollars. Initially, of course, the market did not know that the Swedish banks had not purchased any “toxic assets” and had not lent significant amounts of money to any banks that had. But more important was the uncertainty that arose as a result of the Swedish banks’ extensive lending in the Baltic countries. Only two of the banks actually had significant business in these countries, but, as banks lend money to each other, it was not easy for the rest of the world to know where the risks actually were. Consequently, all Swedish banks encountered difficulties in borrowing on the market. …and how it was solved However, the inability of the European banks to borrow dollars as before turned out to be not only a European problem but, in fact, also a US one. When the flow of capital from the private market in the United States suddenly decreased, the European banks found it difficult to repay what they had borrowed from their US counterparts. But the US banks were already facing difficulties with their liquidity – because they were also dependent upon short-term borrowing from the money market funds.

They needed every dollar they could get back from their European counterparts. So the European dollar problem bounced back to the United States. In this situation, the US central bank (the Federal Reserve) decided to supply the European Central Bank (the ECB) and a number of other European central banks, including the Riksbank, with dollar loans. While this had already been carried out on a smaller scale since 2007, it escalated steeply in conjunction with the Lehman collapse. This lending was conducted via what are known as currency swaps, in which (put simply) the Federal Reserve lent dollars against collateral in euros or other local currency. In this way, the ECB, the Riksbank and other central banks could provide their domestic banks with loans, not only in their own currency, but also in dollars. The flow of dollars from the private market was thus  2  BIS central bankers’ speeches  replaced by a flow of dollars from the Federal Reserve (see Figure 1). This saved a number of European banks which otherwise would have gotten into trouble, but what was probably more important from a US point of view was that it also saved a number of US banks. Figure 1. Federal Reserve’s lending to other central banks USD Billions 600  500  400  300  200  100  0  Sources: Federal Reserve and the Riksbank  The way that this drama played out in Sweden can clearly be followed by examining the Riksbank’s lending activities (Figure 2).
On the contrary, domestic demand has been the most important driving force behind 3 For a more detailed review, see the article “How do low and negative interest rates affect banks’ profitability?”  in the Monetary Policy Report April 2016. The Riksbank's conclusions in this field are shared by Turk (2016). 3 [20]  the improved economic activity in Sweden. In addition, sentiment in the household and corporate sectors is good, according to various confidence indicators (see Figure 5). It is also worth noting in this context that there is a fairly intensive international discussion on whether negative policy rates should be included in the central banks’ normal arsenal going forward, as a weapon that could be used if special needs arise. One advocate of this is Ben Bernanke, former chairman of the Federal Reserve. 4 He argues that negative policy rates have many advantages in relation to raising the inflation target, which is also discussed as a means of creating greater room for manoeuvre in future recessions. It is worth noting that this international discussion exists, as a contrast to the picture often painted in the Swedish debate – that negative policy rates are an isolated and strange invention of the Riksbank and a few other central banks. Negative policy rate wrong policy in current economic situation? The second form of criticism, as I mentioned earlier, is that a negative interest rate is the wrong policy in the current economic situation.

He hoped that the Bretton Woods twins, Master Fund and Miss Bank, would receive three gifts from their fairy-godmothers: first, a many-coloured coat “as a perpetual reminder that they belong to the whole world”; second, a box of vitamins to encourage “energy and a fearless spirit, which does not shelve and avoid difficult issues, but welcomes them and is determined to solve them”; third, “a spirit of wisdom … so that their approach to every problem is absolutely objective”. Keynes warned the delegates that this was asking a great deal: “there is scarcely any enduringly successful experience yet of an international body which has fulfilled the hopes of its progenitors”. So he hoped that the malicious fairy would not bring its curse upon the twins: “you two brats shall grow up politicians; your every thought and act shall have an arrière-pensée; everything you determine shall not be for its own sake or on its own merits but because of something else". And if the IMF were to become politicised then, Keynes said, it would be best for the twins "to fall into an 2 eternal slumber, never to waken or be heard of again in the courts and markets of Mankind". Sixty years on, the wisdom of Keynes's position at Savannah is clear. In recent years, the critics have charged that all three of the virtues of universalism, energy and wisdom have been lacking in the IMF. And if not in a deep slumber, then the Fund has appeared drowsy.