samchain/econo-pairs-v1 huggingface dataset:
Fernando Restoy: Challenges for the Spanish banking sector Closing address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at the XXI Meeting of the Financial Sector, organised by ABC, Deloitte and Sociedad de Tasación, Madrid, 1 April 2014. *  *  *  Good morning. Thank you, Paco, for your kind words. It’s a great pleasure for me to be with you this year for the closure of the 21st edition of the Financial Sector Meeting organised by ABC, Deloitte and Sociedad de Tasación, in which the Banco de España has traditionally taken part. The conference has had a very full day, in which the country’s main financial institutions have had their say. Allow me to bring some thoughts to the discussion on the main challenges for the banking sector ahead of the changes in the regulatory and supervisory framework and, most particularly, ahead of the banking union. 1. Introduction  Looking back, I believe such significant structural transformations as those currently sweeping the banking industry are almost unprecedented. At present, the banking sector must face a host of highly relevant changes on various fronts.

Currently, the new life insurance premiums transacted through financial advisers were still insignificant compared to the premiums transacted through agency forces and bancassurance. Any effort to improve the performance of financial advisers must include the takaful sector, which has evolved considerably over the years to become a thriving global business to complement conventional insurance. On that note, Bank Negara Malaysia has recently approved the inclusion of takaful products and services within the scope of business which can be distributed by financial advisers. The inclusion of takaful products is a significant initiative as it will allow financial advisers to capitalise on the potential for growth of the takaful sector given that the market penetration rate for takaful products is low at 7.7% and the large number of untapped Muslim population in Malaysia who are usually more inclined towards Shariah-compliant products. However, to undertake the marketing of takaful products, financial advisers’ representatives must first equip themselves with the necessary knowledge in takaful and understand the Shariah requirements and the differences between takaful and conventional products. In this regard, I commend FPAM and MFPC on their timely effort to formulate and develop Islamic-based professional qualifications in order to satisfy the growing needs among professionals within the financial advisory fraternity. FPAM, together with the Islamic Banking and Finance Institute of Malaysia has jointly developed Islamic Financial Planner module whereas MFPC has recently launched a Shariah Registered Financial Planner module.
However, just as one should be aware of the risks of financial dominance, one should be aware of the risks of fiscal dominance, even if everyone is currently in agreement that fiscal policy should not fuel inflation. The design of the monetary and fiscal policy frameworks To keep government finances stable, Sweden has a number of budgetary policy targets in the fiscal policy framework. The target for the consolidated gross debt should be 35 per cent of GDP in the medium term. The surplus target entails general government net lending amounting to one third of a per cent of GDP on average over a business cycle. There is also a so-called expenditure ceiling that sets a maximum level for how much money the government can spend each year. The government proposes a limit, and it is then Parliament that takes decisions a few years ahead. Broadly speaking, I think that this framework has worked well. It has contributed to strong confidence in fiscal policy and we have avoided large budget deficits and managed to keep government debt at low levels. This in turn has made it easier for the Riksbank to keep inflation low and stable. The stable public finances also helped us to cope relatively well during both the global financial crisis and the pandemic. 37  See Leeper (2023) who, in addition to this episode, discusses two other recent examples of fiscal dominance, one in the euro area and the other in the United States.

Work is also ongoing to define the appropriate corporate governance and prudential standards to be applied at the financial holding company level. With regard to capital requirements, whether there should be a standard capital rule for all financial holding companies is currently being reviewed. The more important consideration is to minimise excessive leveraging and ensure that the financial holding company has the necessary infrastructure to have an overall view of the risk taking activities within the group. Ladies and Gentlemen,  4  BIS Review 10/2005  It is envisaged that in a more liberalised financial system, market discipline will play a greater role in driving performance in banking institutions. In this regard, shareholders are expected to be more involved in overseeing the performance of banking institutions and the effectiveness of the board of directors and management. The policy on shareholding will therefore be enhanced to promote greater shareholder activism within banking institutions. Shareholders need to be concerned with the practices of banking institutions, particularly those which can have adverse implications on depositors' interests and on financial stability. Similarly, given the increasingly competitive environment, advancement in risk management practices and the strengthened corporate governance framework, a more flexible policy framework on lending to connected parties will be put in place. However, to prevent abuses of such flexibilities, there will be safeguards and conditions that need to be observed by banking institutions.
Among these measures are a significant increase in mortgage interest allowances, various measures to reduce debt service, and private pension fund payouts amounting to 2½% of GDP. Second, a lower real exchange rate stimulated exports, as well as the sectors that compete with imports. Third, corporate financial restructuring was delayed, and while this is negative for the long term, it delayed the side effects that often accompany such measures and which generally emerge in a temporary contraction and elevated unemployment levels. Fourth, it can be expected that, under the circumstances reigning for most of 2009, the Icelandic export business would have been at an advantage. When uncertainty paralysed the world’s consumers after the financial crisis peaked in the fall of 2008, it was simply more advantageous to export aluminium, fish, and tourism than cars and flat screens. Elevated inflation was primarily due to a lower exchange rate and more robust domestic activity than had been expected. To an extent, these effects were temporary and will be reflected, in part, in less economic activity in 2010 than would otherwise have been the case. This applies, for example, to corporate financial restructuring and, to some extent, pension savings payouts. In this context, it is important that fiscal consolidation measures will be implemented this year, while automatic fiscal stabilisers were allowed to work largely unhindered in 2009. As a result, it is assumed that GDP will contract year-on-year in 2010.

At the moment we are sure that risks to price stability undermining are eliminated, we will apply monetary measures appropriate for the slower economic growth. Маy pressures be coming from the fiscal policy? So far, they have not, and I hope it will remain that way. The best confirmation of that are the balances in the economy. After all, exactly because of that, we had room for the so far most relaxed monetary policy without jeopardizing the stability of prices, Denar exchange rate and the banking system. Banks’ non-performing loans will decrease This year, liquidity was the biggest problem of the companies. The figures showed that the indebtedness in the real sector is huge, over Euro 5 billion, with the country’s debt to the companies being over Euro 220 million. In such circumstances, banks have reduced lending to firms to a minimum and they struggle with the growth of bad loans. Can we expect the situation to improve? In the statistics that are known to me I have not found such figures. However, when economic growth and exports slow down and budgetary payments are late, usually the liquidity of companies deteriorates. Therefore they are late in the settlement of obligations to the banks. Despite that, non-performing loans of the Macedonian banks amount to about 10 percent, which is the lowest share in the region from Slovenia to Greece. Announced debt repayments from the budget will contribute to the reduction of the debts among companies, and finally debts toward the banks.
Euroland is, of course, much bigger and more sophisticated than the emerging markets in Asia, and so the risk of Euroland being similarly overwhelmed by international finance is distinctly lower. But, seen from Asia, even for the large and sophisticated markets, the risk is not so low that it can be safely ignored. And if problems materialise, structural rigidities that inhibit adjustment may exacerbate and prolong the pain and disruption. I sense also that there are still doubts about whether Euroland will cope well with the discipline of adjustment imposed upon it by currency union and therefore be able to realise fully the potential of such a union. Let me draw your attention to an interesting and highly significant parallel between your system of a unified currency across eleven countries and Hong Kong’s currency board system fixed to the US dollar. We both depend to a very much greater degree than would otherwise be the case on internal market flexibility as a mechanism of economic adjustment. As you are aware, Hong Kong has always enjoyed a reputation as a flexible economy. It is precisely that flexibility in the labour, property and other markets that has ensured the sustainability of Hong Kong’s high rate of economic growth and currency stability over the nearly seventeen-year history of our currency board system. It is that flexibility, involving sizable and quite swift price adjustments, accompanied by a considerable degree of labour mobility within and between sectors, that has enabled Hong Kong to cope with economic shocks.

One lesson learned from the experience of the Asian financial turmoil is that if we wish to reduce the vulnerability of the small and open emerging markets in Asia to international finance we need, among other things, to build bigger markets. One way of achieving this, if not the only way, is to follow the example of Euroland and go for some form of currency union. Although the Euroland type of pre-conditions for currency union are far from being satisfied in Asia at present, with so much diversity and fragmentation in the geography, culture, stages of development and policies, this is an option that Asia can ill afford to ignore in the long run. The experience of Euroland operating with the euro is therefore something that should be watched in Asia, and is being watched in the HKMA, with keen, supportive interest. Meanwhile, one way of reducing the short-term vulnerability of small and open markets in Asia to the destabilising influence of international finance, while continuing to benefit from it, is perhaps to promote the greater and prudent use of foreign currencies in financial market activities. This is not an advertisement for “dollarisation” - quite the opposite in fact. It is a suggestion for consolidating the position of national currencies by sparing them from certain extraneous influences. This is particularly relevant to Hong Kong as an international financial centre where non-domestic financial business and movements in portfolio capital unrelated to economic developments intrinsic to Hong Kong are abundant.
In the meantime, the success of the SLGS has garnered a consensus to develop a sustainable, market-oriented platform to cater for the ongoing SME financing needs upon the phasing out of SLGS. Taking this opportunity, the Government-owned Hong Kong Mortgage Corporation launched a new SME Financing Guarantee Scheme (SFGS) on 1 January 2011 to facilitate a smooth transition from the temporary SLGS to a sustainable market-based mechanism. Operating based on prudent commercial principles, the SFGS does not require government subsidy and the scheme size can be flexibly adjusted to respond to changes in market demand. The SFGS also provides a broad range of options on the product features such as tenor, facility type, loan amount and guarantee coverage to fit the different needs of banks and SMEs. Initial market response to the SFGS has been positive, with a good participation  BIS central bankers’ speeches  1  rate from banks and an encouraging number of applications received from a broad variety of SMEs. It is expected that the SFGS will over time play an important role in helping SMEs obtain stable and sustainable financing while assisting banks in managing their risks, in particular when market conditions become volatile and uncertain. I am happy to share this experience of Hong Kong, China of how the “exit” of an extraordinary government measure has facilitated the “entry” of a long-term market-based solution for sustainable SME financing.

In Hong Kong, China, for instance, SMEs account for 98% of business establishments and employ nearly half of the total workforce. They provide a broad range of employment opportunities and play an important role in reducing urban poverty. It is no exaggeration to say that when SMEs thrive, the economy prospers. This is also true vice versa. SMEs are particularly vulnerable to economic downturns, as banks often reduce their lending to the SME sector due to credit concerns. The exceptional severity of the credit crunch during the global financial crisis has therefore posed great challenges to the SMEs. In response, the Government of Hong Kong, China swiftly rolled out a temporary $ bn Special Loan Guarantee Scheme (SLGS) in December 2008 to alleviate the difficulty of SMEs in obtaining bank finance and the potential surge in unemployment due to the closing down of SMEs. Together with other short-term government stimulus measures, the SLGS has been successful in supporting the SMEs to sail through this once-in-a-century crisis and limit the potential knock-on impact on the economy. Unemployment rate increased by a modest 2.3 percentage point to peak at 5.5% in September 2009. This compares with the 4.3 percentage-point increase during the Asian financial crisis when no such temporary SME support measures were available. The economy contracted briefly by 2.7% in 2009 and rebounded strongly the following year to achieve 6.8% growth. As economic conditions improved and market liquidity normalised, the Government exited from this emergency measure and ceased to receive new applications of SLGS after end2010.
These credit exposures with some sign of impairment may, in turn, be more vulnerable to the materialisation of the risks stemming from the current context. Accordingly, they should be monitored with particular care, and any potential losses must be recognised early and appropriately. The Spanish banking industry’s profitability improved substantially in 2021. Specifically, return on assets (ROA) stood at 0.7% (compared with -0.2% in 2020 and 0.5% in 2019). Extraordinary items,7 which were negative in 2020 and positive in 2021, had the largest impact on profitability. Excluding extraordinaries, ROA stood at 0.57%, a similar level to 7  In 2021 extraordinary gains were recognised as a result of two mergers € billion in total), the spin-off of an insurance company € billion) and restructuring costs at the two main banks € billion). In 2020, extraordinary items included negative adjustments to the goodwill of the two banks with the largest international presence € billion), an adjustment for deferred tax assets € billion), restructuring costs at one bank € billion) and capital gains on the sale of business lines € billion). 9  2019 (0.63%). The main driver of this improvement was the reduction in impairment losses, which fell by 43.5% compared with 2020 to stand at levels slightly below those in the two years prior to the pandemic. The recovery in profit was widespread across the main countries where Spanish banks pursue significant international business, and also extended to other European banks. Profitability continued to recover in early 2022.

11  The rising cost of Tier 2 debt owes, at least in part, to smaller banks issuing these instruments to comply with MREL resolution requirements. This factor may have had an important impact, given that MREL requirements are binding from 1 January 2022 and banks must reach the required levels. 12  The balance of bank deposits held by the resident private sector in Spain rose by 4.1% in 2021, compared with growth of 8.9% in 2020. In March 2022, deposits increased by 5.1% year-on-year, compared with rates of over 7% in the same month a year earlier. 13  In 2021, the cost of capital increased over the first ten months of the year, from 6.4% at December 2020 to 10.8% at October 2021, and then fell back over the last two months, standing at 8.1% at year-end. Thus, the average cost of capital for the full year was 8.8%, in any case below the sector’s ROE. 14  So far this year the cost of capital has continued to fall, to 7.3% in March and 6.9% in April, below the ROE for 2022 Q1 (11.7%). 15  The CET1 ratio and its denominator (risk-weighted assets (RWAs)) recorded similar declines (0.9% for CET1 and 1.1% for RWAs), so the ratio rose by barely 2 basis points (bp) to 13.3% at end-2021. 11  Indeed, at December 2021, the leverage ratio of Spain’s significant banks (5.7%) was only slightly below the European average (6%).
Thomas Jordan: Low interest rates – blessing or curse? Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the Delegiertenversammlung des HEV Schweiz, Säntis, 19 June 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Monetary policy uses low interest rates to try and stimulate demand as a way of combating the economic crisis. The property market is an important transmission channel in this regard, as low mortgage rates provide direct relief to home owners and tenants in the form of lower interest payments and rents. This provides households with greater room for manoeuvre in consumption and investment. This in turn boosts overall economic demand and economic growth. However, despite these direct positive effects, a low level of interest rates can also pose medium-term risks for the stability of the Swiss property market, and hence the financial system. The past has repeatedly shown that prolonged periods of low interest rates can lead to speculation on property markets, and to declining standards in mortgage lending. The challenge in today’s difficult environment is how to boost the economy through low interest rates without creating medium-term risks for the stability of the financial system and the property market. Responsible behaviour on the part of home owners, combined with bank discipline when granting loans, can contain these risks. Households should buy property only if they would also be able to afford it if interest rates increased.

But the impact of this weak pay on companies’ costs has been offset by businesses appearing to hold onto more staff than warranted by the lower level of output. The corollary of the resilience in employment has been a sharp drop in labour productivity. As a result, growth in labour costs per unit of output has remained relatively firm, although it has fallen back as productivity has begun to recover. Companies that have spare capacity within their business should be able to use these underutilised resources to increase output relatively cheaply. As such, spare capacity within  4  4  See Benito et al (2010) for a discussion of the impact of the financial crisis on supply. BIS Review 122/2010  companies should, at the margin, push down costs and prices. But reports from our network of Agents suggest that some companies responded to the sharp fall in output by temporarily decommissioning some of their capacity in order to reduce their cost base. 5 Companies mothballed production lines; cut back on capital leases; reduced the number of shifts and so on. Although it is perhaps most natural to think of this mothballing behaviour in the context of manufacturing, it was also apparent within the services sector. It was relatively commonplace for professional services companies to encourage staff to take sabbaticals at much reduced pay. Aircraft were taken out of service. Shops were left empty. This type of adjustment has helped UK industry to withstand the effect of the recession.
But the down side risk which all of us should be aware of is the possibility that the global financial market may then become segmented into regional blocs which may result in more competition and friction, rather than co-operation. 11. On the form of monetary co-operation, there is a wide spectrum of experience on the basis of current practice. There is on the one extreme the simple exchange of information and expertise amongst monetary authorities helpful to the management of the domestic monetary system generally, covering the whole range of central banking functions in the management of the currency, the supervision of financial institutions, the development of the financial infrastructure, the management of foreign reserves, etc. On the other extreme, there is monetary co-operation to the extent of achieving monetary union or integration. 12. In between the two extremes there are arrangements for policy co-ordination at the macro level initiated on the realization of increasing international, particularly regional, economic interdependence. There are also the more focused schemes for mutual assistance in the provision of liquidity to facilitate effective monetary management, which may or may not involve the assumption of credit risks between governments. There have also been considerable efforts spent in supervisory co-operation towards the standardization of supervisory practices in order to promote international financial stability, again in recognition of the possibility of the damaging contagion effect of financial crises across financial systems.

Jean-Pierre Danthine: Swiss banks from a financial stability perspective Introductory remarks by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the media news conference of the Swiss National Bank, Berne, 20 June 2013. *  *  *  As my colleague Thomas Jordan has explained, economic and financial conditions for the Swiss banking sector continue to be challenging. Against this background, I would like to examine the situation at Swiss banks from a financial stability perspective, looking first at the big banks and then moving on to a discussion of domestically focused banks. Big banks: strengthening resilience Over the past year, the Swiss big banks have substantially improved their capital situation. Risk-weighted capital ratios have been raised markedly, and both banks are now very well placed in an international peer comparison. Moreover, with its capital-building, Credit Suisse has also raised its leverage ratio considerably. Measured in terms of loss-absorbing capital – defined as Common Equity Tier 1 capital plus high-trigger contingent capital instruments – leverage ratios at the big banks are now at roughly the same level. However, given the prevailing risks in the environment and the losses incurred in the recent crisis, the SNB still considers current leverage ratios at the Swiss big banks to be low. In addition, a number of comparative studies imply that, in terms of leverage ratios, UBS and Credit Suisse are currently below the international average.