samchain/econo-pairs-v1 huggingface dataset:
I am also grateful to Stanley Fischer, the vice chairman of the Board of Governors, who will speak with Christine Lagarde following her remarks. Please join me in welcoming Christine Lagarde. 9  Christine Lagarde, Economic Inclusion and Financial Integrity, Address to the Conference on Inclusive Capitalism, May 27, 2014. BIS central bankers’ speeches  3

On the other hand, the supervisory authorities will need to strengthen their macro-prudential risk assessment capacities, by focusing more on systemic behaviors of the financial institutions. The central bank is expected to take a larger responsibility in this area, particularly in those countries where it did not use to have a strong supervisory role. Whatever the approach in this direction, the supervisors will need stronger legal powers which will ensure their ability to act in a timely and flexible way. As mentioned also above, procedures for managing distressed financial institutions and for crisis management will need to be revised to ensure stronger and more effective inter-institutional and cross-border cooperation, and in general to better address the potential conflict between ex-ante supervision and ex-post intervention. This important process of financial regulatory reform is not without risks. I believe that the public authorities will pay particular attention to control the tendency for over-regulation, and to avoid a “blind” adoption of the regulatory changes as well as asymmetric/unilateral approach. Regulating more should mean regulating better. Undertaking risks is a natural thing for the financial industry in their valuable role of financial intermediation. Such undertaking of risk, when well identified and properly managed, is useful for increasing efficiency and returns of the activity, two important elements for a viable and solid on-going financial performance. Every country should certainly follow with particular attention the discussion and the changes that are being proposed for the financial regulatory reform, as this process will affect them for sure.
This is consistent with the Terrorism Financing Regional Risk Assessment findings at the 2nd CTF Summit in 2016 in Bali, where one of the priority actions identified was for FIUs to improve the visibility and insights into the nature of terrorism financing in the region. The idea is intended to help FIUs gain better insights into the role of financial and transit hubs in regional and international terrorism financing networks. Closer international cooperation Another area to ensure an effective mitigating strategy requires closer regional and global cooperation, particularly in the sharing of intelligence and technical know-how. Terrorism and terrorism financing are global issues that demand global solutions. Sharing of intelligence and expertise across borders will go a long way towards enhancing the effectiveness of our risk management framework. In this regard, the various working groups under the CTF Summits, the Financial Intelligence Consultative Group and International Community of Experts have done commendable efforts and initiatives in building capacity and sharing operational experiences in the region. This must continue to be strengthened given the challenges that we will face. Conclusion The fight against terrorism financing is an on-going battle that will continue to evolve in line with the ever-changing landscape of the financial industry. In the era of rapid technological advancements, it is essential that the financial sector’s risk management strategy remains agile in order to mitigate emerging risks.

Rapid changes in technologies, globalization and increasing competition are the challenges of the day for the business community. In the dynamic economic environment of the 1990s, business communities have been taking not only the risks of their new investments on technology, but the risk of inflation as well. In an inflationary environment, businesses and individuals end up spending more time and money either protecting themselves against inflation or trying to benefit from it. The rapidly changing environment affected not only the business decisions but the monetary polices as well. The traditional anchors for monetary policy and of central bank accountability - exchange rate targets and money aggregate targets - have fallen victim to liberalized capital mobility, inter-dynamic markets namely, by the introduction of new financial instruments, technology, financial globalization, and as a result unstable money demand. At this juncture, the role of the central banks and the framework of the monetary policy needed to be drawn more clearly. The ultimate goal of monetary policy has become reasonable price stability, which is generally understood to point the inflation at rates low enough not to affect economic decisions. Thus, the rise of an inflation targeting monetary framework is not a surprise but it is a natural reaction to a dynamically changing economic environment. Here I would like to briefly review the footsteps of inflation targeting framework. The first issue that I would like to touch on is the time-inconsistency problem in monetary policy. Monetary policy works with relatively long lags.
And certainly, my endeavor is to see that we promote these noble ideals and take the country and this institution to even higher heights, now that we have peace in this country and a lot of those hurdles that the central bank faced in the last three decades are behind us and we have to gear ourselves to promote those objectives of this institution in relatively normal circumstances in the future. To do this, we now have to assess what those three objectives of ours mean in the broader sense and I have been reaching out to some of you over the last six months in this regard. First of all, when we look at the control of inflation, I think that has been fortuitously resolved by external events. You can see that in the global markets we have falling commodity prices worldwide. The large country that has appeared in the last decade, China, has indulged in a lot of spending in the last ten years to revive the global economy and in the process, commodity prices shot up which caused no small measure of problems for us. But now, that spending boom is over and as you can see, China’s growth is slowing down. And as a consequence, we also benefit from falling commodity prices and therefore our inflation is easier to control. On the financial stability front, I would say that the banking system looks in reasonably good shape.

So we can provide that real leading edge. Our people are all over the world. Wherever you go, if you look at expatriates, Sri Lankans in any country, anywhere in the world – I have been to the Caribbean, places like Barbados, even there you find Sri Lankans. And they are doing very well in their professional endeavours. So we have to reach out to this diaspora, as I call it, and ensure that they also come and help us but already within the country, we have a sufficient pool of people who really can lead the charge, not just in-terms of raising Sri Lanka’s profile but also attracting foreign investment and other resources which will help this country provide leadership in this region in the decades ahead. So remember that it is a great challenge for all of us, this institution is going to be at the epicenter of this country’s efforts to develop itself. President Maithripala Sirisena who visited us, a few weeks ago, made it very clear that his main objective is to see that people’s incomes increase. That is his objective. He has spelt out his objective. How do we achieve that? That is where we have to sit now and brainstorm. To me the key challenge is how to raise productivity. Productivity is very important, output per capita. This is the key element that we have to utilize.
Part 1: Topology of the financial network In many important respects, the current financial crisis is cut from familiar cloth. Its genesis was the over-extension of credit, over-inflation of asset prices and over-exuberance of participants. From the South Sea bubble to the sub-prime crisis, this roll-call of excesses is familiar. Gerald Corrigan, ex-President of the New York Fed, said ahead of the crisis: “In recent years the pace of change and innovation in financial markets and institutions here and around the world has increased enormously as have the speed, volume and value of financial transactions. The period has also seen a greatly heightened degree of aggressive competition in the financial sector. All of this is taking place in the context of a legal and a regulatory framework which is increasingly outdated and ill-equipped to meet the challenges of the day. This has led to…concern that the fragility of the system has increased, in part because the degree of operational, liquidity and credit interdependency has risen sharply”. 2 Corrigan was speaking in January 1987. The crisis foretold was the October 1987 stock market crash. Plus ça change. Yet in some more fundamental respects this time’s crisis feels different – larger probably, more discontinuous, complex and interconnected certainly. There are already numerous accounts of why that might be. Here, I argue that these knife-edge dynamics can essentially be explained by two structural features of the financial network. These have developed over many years but at particular pace over the past decade.

Here we seek to make the financial system more resilient. This is the world of risk management, prudential standards, liquidity standards, resilience of payment  6  BIS Review 36/2005  systems etc. It can involve the promotion of codes and standards over a wide field ranging from accounting to improving legal certainty, and management of countries’ external balance sheets. Decision making about priorities is particularly challenging because we cannot be clear ex-ante how well the mitigation techniques will work, and we often need to rely on others to implement them. In addition we need to ask whether we are the right party to act. We also need to think about the relevance of our activities to our mandate – or “must dos”. In some areas, for example payment systems – one of our “must dos” – it is clear that we have a responsibility to reduce risks. In this case the questions we need to answer relate to the degree, methods and resource implications. But in other areas whether we should act is less clear cut. What particular contributions can we make and are there any areas where we can sensibly act alone? We need to ascertain areas where we can achieve results both domestically with HMT and FSA, and internationally with organisations such as the Basel Committee, the Committee on Payment and Settlement Systems and the Financial Stability Forum. Perhaps I can mention one area to which the challenge process suggests we should devote considerable resources – global institutional liquidity.
The task might however be easier for commodity exporters: their macroeconomic risks are clear, highly concentrated and hedging products are readily available on financial markets. Issues Impact on asset prices Under what conditions can sovereign asset management go hand in hand with orderly functioning of the financial markets? Large foreign reserve holdings are already seen to have an impact on asset prices. The strong preference for safety and liquidity in official reserves, combined with the fast increase in reserve assets, has often been given as an explanation for what Alan Greenspan first called a conundrum, namely the persistently low level of long-term interest rates. For instance, Warnock and Warnock 5 estimated that, under the hypothesis of “no foreign official flows into U.S. government bonds in 2005”, the 10-year Treasury yield would have been 90 basis points higher. Several alternative estimates exist and there are significant differences between them. But they consistently conclude at least some impact on long-term interest rates. As SWFs hold portfolios with higher risk/return profiles than the usual FX reserve management funds, many market economists predict that their development will result in additional demand for high-risk asset classes like equities and lower demand for low-risk assets classes like short-term government securities. This could in theory lead to an increase in bond yields (partly reversing the prior impact of official reserve accumulation) as well as a decrease in the equity risk premium.

We will have many opportunities during the course of this work to discuss with the Committee on Finance how we can develop and improve our analyses. BIS central bankers’ speeches  3
So it is logical to expect stabilization, and perhaps reduction of the level of banks’ bad loans. Banks which have huge excess liquidity, have reservations regarding lending to companies, and they locate the reason in the emphasized risks. Is the placement of those funds in Treasury bills and Central Bank bills a solution, even at the cost of a decline in the economy? The monetary policy is trying to trigger a certain behavior of the banks which it considers is appropriate at a particular time. But banks independently manage excess liquidity and it is their decision whether more will be placed in the form of loans or in risk-free securities. At the beginning of the second quarter, with several measures we released substantial excess liquidity placed in CB bills over the level that we considered it was necessary to be maintained. It is a fact that banks placed only a small part of that surplus in loans. One of the reasons is certainly the perception of banks for increased risks in the domestic and global economy. But just as important, if not even more important reason are the corporate strategies of the banking groups in the Euro area that are owners of the Macedonian banks. Some of these banking groups have serious problems in their home countries. Although their banks in Macedonia have excellent capitalization and record liquidity, they must implement the strategy of their foreign parent banks, which due to the insufficient capital, refrain from lending in all countries where they are present.

First, particularly where OTC markets predominate, a central bank can bring together market participants to discuss and address issues collectively. There is a rich history of collaboration between the official sector, the academic community, and industry participants to analyze existing issues, identify emerging risks, and develop guidance for financial markets. Over time, the New York Fed has led a number of such efforts. For example, the OTC Derivatives Supervisors Group addressed emerging risks of inadequate infrastructure for the growing credit derivatives markets. The New York Fed and the Board of Governors convened the Alternative Reference Rates Committee, which is currently working to identify a set of alternate reference interest rates for financial products and contracts that are more firmly based on transactions from a robust underlying market and that comply with international standards. 6, 7 Similarly, the U.K. official sector worked with a panel of market participants in developing the recommendations in the Fair and Effective Markets Review. The New York Fed also sponsors two industry groups that have long-term missions focused on best practices. The TMPG is, as you know, a group of market professionals committed to supporting the integrity and efficiency of the U.S. Treasury, agency debt, and agency MBS markets. To that end, the Group develops guidance to promote market liquidity and transparency, robust control environments, efficient market clearing, and managing large positions with care. 8 The New York FXC examines similar issues in the FX market.
Maintaining high levels of government debt over time represents an important source of vulnerability for Spain and leaves less fiscal space in the event of possible future crises. In the coming years, public indebtedness will remain very close to or even exceed current levels, unless an ambitious fiscal adjustment plan is implemented. Specifically, various simulations indicate that if no fiscal adjustment is made in Spain in the coming years, the pressure exerted by population ageing on public expenditure will drive up the government debt-to-GDP ratio. Conversely, under an alternative scenario in which a consolidation effort is made – one consistent with maintaining the structural primary balance envisaged in the Banco de España’s latest macroeconomic projections for 2024 –, the government debt ratio will stand at levels close to 120% of GDP in the coming decades. Should there be a greater fiscal adjustment, for example if the structural primary balance improves by 0.5 pp of potential output each year until reaching equilibrium – a path more consistent with the Stability and Growth Pact rules –, public debt could fall to 82% of GDP by 2040. Were this adjustment also accompanied by an ambitious package of structural reforms, the government debt ratio could be around 79% of GDP by 2040. In this context, the sustainability of Spanish public finances needs to be bolstered in the medium term. To this end, a multi-annual fiscal consolidation plan will have to be carefully designed, and rigorously implemented once the Spanish economy is firmly set on a course of recovery.

In addition, it also includes the recommendations that, in the Banco de España's view, it would be desirable to implement, to tackle these challenges. Indeed, such an interaction of research and policy is even more pressing in the current juncture, characterised as it is by a highly uncertain context and the need to address important structural challenges, which I will elaborate on next. Let me now comment briefly on the main challenges that lie ahead for the Spanish economy, which are also the backbone of the programme of this conference. As we all know, the Spanish economy was one of those most severely hit by the effects of the pandemic. And the recovery after the most acute phase of the COVID-19 pandemic has been tempered by supply chain disruptions and, in the second half of 2021, by higher energy commodity prices, which were further exacerbated by the Russian invasion of Ukraine in late February this year. Overall, in 2022 Q1, GDP in Spain was still 3.3 pp below its prepandemic level, while in the euro area it stood 0.5 pp above its pre-crisis mark. According to our latest projections, published last June, in the absence of any new shocks or an escalation of the war in Ukraine, the Spanish economy is projected to follow a gradual recovery path – one that could reach pre-pandemic GDP levels in the final stretch of 2023. That said, these projections are surrounded by extraordinarily high uncertainty, in particular related to developments in the war in Ukraine.
This is an important area which will provide all those of us involved in financial sector oversight with major challenges for years to come. Increasingly active players are the hedge funds, employing alternative investment techniques and attracting a multitude of investors searching for higher yields. They often operate globally on the strength of the derivatised and securitised world. There has been a dramatic growth in hedge funds: data suggest that the past eight years alone have seen the value of assets rise by nearly 450%. Many of them are unregulated in a prudential sense, and are typically characterised by large proprietary positions, sometimes with an emphasis on unconventional assets and arbitrage positions. The complex and diverse operations of hedge funds can help to arbitrage away pricing mistakes, and to integrate financial markets. But they also raise new questions for financial stability oversight. The areas we need to look at are quite wide. There is of course the opacity aspect - what are the underlying concentrations hedge funds hold? But there are also other questions. How leveraged are they? Do lenders to them understand the risks that they are taking? And what is the potential impact of confidence and liquidity if they don’t? And what would happen if the new investors in hedge funds became disillusioned by their performance. Would it trigger an exodus and cause markets to go “one way”?

And well managed banks have indeed been able to weather the shocks - a real positive from the point of view of financial stability oversight. But on the other hand the added vulnerabilities too are real. So I do not find it surprising that there are calls for public policy response. The consequences of liberalisation and the derivatised world of enhanced risk transfer are indeed formidable. There is the breakdown of the old barriers; with unfamiliar and new players operating in often unfamiliar territory; uncertainty over concentrations of risk and with a more difficult or unpredictable set of behaviours; and newly created networks whose failure could be catastrophic. Spotting threats is tougher: and there is a premium on intelligence from a broader network to cover a multitude of new transmission channels. The tension between globalised players in a world of national supervisors needs to be managed. But let me not leave you with the impression that we are deterred by the task. On the contrary challenging certainly, but hopeless certainly not. After all, the market place itself has to act prudently; to judge potential behaviour of counterparties; to improve risk management techniques; to understand where concentrations of risks reside and what their dangers are. If firms fail to do so they go out of business. And as for the public authorities, we all know the maxim or guiding prayer “Lord let there be failures: but let them be small ones”. No better way of encouraging market discipline!