samchain/econo-pairs-v1 huggingface dataset:
Financial System Conference – Dublin, 2 November 2022 Financial Regulation: A French Perspective  Speech by François Villeroy de Galhau, Governor of the Banque de France  Press contact: Mark Deen (mark.deen@banque-france.fr), Déborah Guedj (deborah.guedj@banquefrance.fr)  Page 1 sur 11 Ladies and Gentlemen, I am delighted to be here in Dublin, and I would like to thank warmly Governor Gabriel Makhlouf for the invitation to speak today at this Financial System conference. I have already had the pleasure of coming here four years ago, to talk about Financial Globalisation and more specifically about current account imbalances and the resulting financial vulnerabilities. These topics have faded into the background for some time as a result of the unprecedented succession of shocks and crises. But financial stability is obviously returning to the front stage in these turbulent times, putting to the test the reforms undertaken over the last decade, but also pointing to new pockets of financial stress. Against this backdrop, I will reflect on the possible end of a favourable decade for financial regulation and financial stability (I). I will then focus on the real estate sector – so sensitive here in Ireland – as a practical study case of the progress enabled by our regulatory and macroprudential toolkit (II). I. The end of a favourable decade for financial regulation and financial stability? a. Financial regulation It has now been fifteen years since the onset of the Great financial crisis – no need to recall the social, economic and financial damage incurred. But lessons were learned.

I had the privilege of chairing the Group of Central Bank  Page 3 sur 11 Governors and Heads of Supervision (GHOS) up to the start of this year, and I would like to reiterate here its call for a “full and consistent implementation”. For Europe, this means adopting as quickly as possible, in trilogue with the Council and the European Parliament, a position as close as possible to the Commission's proposal: the proposed transitional measures – particularly regarding housing loans – must not turn into permanent exceptions; capital requirements must be applied at the consolidated group level, with no new internal barriers to the Banking Union. And all jurisdictions – including by the way the United Kingdom, where regulators rightly argue against the temptation of a race to the bottom – must effectively implement these accords by 1 January 2025 – just over two years from now. b. Financial stability Financial regulation is not an end in itself; it is “only” a means to achieve the overarching goal of financial stability. The regulation put in place over the past 15 years has proven quite effective so far: we have successfully overcome the “stress test” of the Covid crisis; it is no coincidence that it has not escalated into a financial crisis. Capital requirements have considerably bolstered the resilience of the banking sector: the CET1 ratio of the six main French banking group increased continuously from 5.8% in 2008 to 15.7% in 2021 [with the first slight decrease in June 2022 at 14.8%].
Norges Bank  Economic perspectives 2023  3  Chart 2 Bringing inflation down in the US was costly Consumer prices. Four-quarter change. Unemployment as a percentage of the labour force. Percent. 16  12  14  11  12  10  10  9  8  8  6  7  4  6  2  5  0  Unemployment (rhs) Consumer price inflation (lhs)  4 1974  1976  1978  1980  1982  1984  1986  Source: Refinitiv Datastream  It turns out that these measures are ineffective over time. It is gradually recognised that monetary policy must bear more of the responsibility. In 1979, President Jimmy Carter appoints a new Chairman of the Federal Reserve, the economist Paul Volcker. He is known as a hawk, willing to do what it takes to break the back of inflation. Under Volcker’s leadership, interest rates were raised sharply. Inflation is eventually brought under control, but at considerable cost. Between 1979 and 1982, unemployment in the US nearly doubles. At the time, Norway has a fixed exchange rate regime. And the exchange rate target and interest rates are set by the Government, not by Norges Bank. In the years after 1973, wages in Norway rise quickly and faster than among our trading partners. To prevent competitiveness from deteriorating and unemployment from rising, the Government devalues the krone. Between 1976 and 1986, the krone is devalued as many as 10 times (Chart 3).

Iceland would join the euro area once it fulfils all the convergence criteria. At that point, the Central Bank of Iceland would become part of the Eurosystem, its governor would have a seat at the table of the ECB’s Governing Council, and Iceland’s economy would be considered in taking monetary policy decisions for the enlarged euro area as a whole. Thank you very much for your attention. 6  BIS Review 17/2008
Europe is once again standing at a crossroads. The 2007–2008 global financial crisis and the 2011 sovereign debt crisis in the euro area have left a legacy of foregone growth, high unemployment, and massive public debts. On top of that, Europe’s security has been directly affected by the scourge of terrorism that targets our population and our values, and moreover we have not yet found lasting solutions to the refugee crisis. And yet, despite all these challenges, support for the euro and the European Union is still high: according to the Eurobarometer survey, 72% of euro area citizens support the euro, the highest level since 20042, and more than half of EU citizens feel attached to the European Union3. The clearest signs of this continued support for the European project – despite Brexit, beyond Brexit – are the recent defeats of the nationalist parties and their euroscepticism in a number of European countries. Whenever the temptation of reverting to nationalism arises, we should remember Tommaso Padoa-Schioppa: he liked to remind us that the founding fathers of the European Union – among whom Robert Schuman, Konrad Adenauer and Alcide de Gasperi – shared the same motto: “never again a war among us.” In the very uncertain world of 2017, and with the dangerous hesitations of the new American administration, this is sadly very relevant: peace remains the first European promise. This is the reason why our common responsibility is to persevere along the path of European integration. But we cannot continue as before. People expect concrete results.

Europe is lagging far behind in this area: such financing only represents 68% of GDP in the euro area compared with 128% in the United States in the fourth quarter of 2016. Creating the Financing Union would magnify the impact of national reforms: whereas they foster firms’ willingness to invest, the Financing Union would foster firm s ’ ability to invest, and they would together foster microeconomic dynamics and competitiveness. 5/8  BIS central bankers' speeches  The efforts so far are going in the right direction, but work should now be accelerated. The building blocks already exist: the Juncker investment plan; the Capital Markets Union (CMU), which supports the diversification of private financing; and the Banking Union, which tackles the fragmentation issue. These initiatives have to be brought together into the FUII in order to go beyond administrative or bureaucratic borders, create synergies, and therefore give new impetus to this agenda. Think for instance of a real European venture capital. To be more concrete, progress towards a Financing Union for Investment and Innovation requires fleshing out proposals in four key areas: First, completing the Banking Union. This means, as a priority, finalising the Banking Union’s second pillar, namely the single resolution. Within a strong Banking Union framework, banks in the euro area will thus be able to engage in cross-border consolidations on a sound and safe basis and therefore contribute to further reducing financial fragmentation. This also includes harmonising insolvency regimes for businesses.
Experience has shown that enhanced financial integration has, on the whole, resulted in higher growth and greater convergence among economies. Admittedly, not all sectors have gained in this process; there have also been losers in practically all countries involved. Nevertheless, the benefits of liberalisation have exceeded its costs. The call for a return raised by some voices therefore seems inappropriate. On looking ahead, the path and success of the liberalisation process will depend on how the effects of inequality gaps within and between countries, and the effects of increasing volatility on financial markets, are dealt with. Securities: demand and supply Integrated capital markets operate primarily on the basis of supply of, and demand for, securities. This has not always been the case. Bank deposits and loans used to play a much more significant role. Yet with deregulation and the rise of institutional investors, securities have become the central tool of capital allocation. The United States’ strong net import of capital illustrates this fact. Let’s have a look at some figures 3 taken from an IMF report . The net foreign purchase of US long-term securities almost doubled between 1995 and 2000, rising from USD 232 billion to USD 456 billion. Taking a closer look reveals some interesting facts. During the same period, the net foreign purchase of corporate bonds and stocks increased by 3 and 15 times, reaching USD 182 and 175 billion respectively. The net foreign purchase of corporate securities amounted to 30% of the entire net purchase of US long-term securities in 1995.

Table 2 Net foreign purchase of US long-term securities Government bonds  Governmentsponsored 1 agency bonds  Corporate bonds  Corporate stocks  Total  1995  134,115  28,729  57,853  11,240  231,937  1996  232,241  41,723  83,743  12,511  370,218  1997  184,171  49,853  84,358  69,597  387,979  1998  49,039  56,802  121,930  50,020  277,791  1999  –9,953  92,200  160,392  107,522  350,161  2000  –53,790  152,841  182,403  174,890  456,344  1  Includes bonds issued by U.S. government corporations and federal agencies. Source: IMF. Central banks around the world have been a driving force behind the trend toward collateralisation. First, they have been relying increasingly on repo transactions to implement their monetary policy. Like many of its peers, the Swiss National Bank, which traditionally operated exclusively on the basis of foreign exchange swaps, now steers the liquidity supply primarily through repo transactions. Second, central banks typically grant intraday credits, which are relevant for smoothing settlement in payment systems, against collateral. Intraday repos have been available from the Swiss National Bank since 1999, on demand and at zero interest. The trend toward collateralisation creates additional business opportunities for providers of financial market infrastructure, but it also increases their systemic relevance.
Jean-Pierre Roth: Global and Swiss economic outlook Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 10 December 2009. *  *  *  By and large, our assessment of the economic and monetary situation is the same as in September 2009, with economic and financial developments running according to expectations. Risks remain significant, and for this reason we are maintaining our expansionary monetary policy. Global economic outlook Before I address the outlook for the Swiss economy, allow me to briefly examine economic developments at the international level, since they affect the outlook for Switzerland. Signs of a recovery in global economic activity gathered strength during the second half of 2009. The ongoing normalisation of conditions on the interbank and financial markets, together with the monetary and fiscal stimuli, supported a recovery in production, especially in the manufacturing industry. However, the legacy of the crisis still weighs heavily. The economic rebound of the past few months is largely the result of public sector intervention, and is not yet anchored firmly enough. Except in emerging Asia, the rebound has only partly redressed the losses sustained in 2008 and early 2009. Capacity utilisation rates are still generally low, and access to bank lending remains difficult in some countries. Moreover, both the labour market situation and the need to restore savings levels are weighing on household consumer spending.

On the other hand, having tightened its monetary policy sooner and more strongly than its peers, Turkey has become one of the few economies that have offered a substantial real interest rate since the beginning of 2021. Along with a better current account balance, risk premiums affecting borrowing costs will also continue to improve as we make progress in our efforts on inflation and reserve accumulation. In addition, as of May 2021, short-term external debt is down USD 25.7 billion from USD 144.9 billion to USD 119.2 billion thanks to our recent work on compiling debt statistics. This will have positive implications for our external debt indicators. Some developed countries have large external debts and many have high budget deficits, but their risk premiums and policy rates remain low. Due to fiscal, monetary and financial policy responses to the pandemic and its negative effects on households and the corporate sector, indebtedness rates have surged in many countries. Amounting to USD 289 trillion globally, debt exceeded 360% of the world’s income (GDP). In the coming months, both public and private sector indebtedness will become a growing issue worldwide. In this context, among sectors of the economy, the public sector and households have a very high debt burden across advanced economies. In terms of indebtedness, Turkey diverges quite positively from advanced economies in all categories. Compared to other developing countries, I can say that Turkey is in a relatively good position in terms of public and household indebtedness.
We must invest abroad in order to safeguard our petroleum wealth and maintain a broad-based business sector. This will also be the case if we should decide to reform our pension system in the future, with a larger component of public or private fund-based schemes. Risk diversification also favours the investment of capital abroad. The state is already a dominant owner in many of Norway's largest companies. Future government tax revenues will also largely depend on the growth potential of the Norwegian economy. The safest investment an individual or a small firm can make is to deposit their money in a bank. The return on bank deposits may be low, but for small amounts it is safe. The central government cannot, however, safeguard its capital by depositing tens of billions of kroner in banks. Investments can be made in two main types of instruments: bonds and equities. The international bond market is about the same size as the equity market. Government bonds are a relatively safe investment, but the return is low. Long-term interest rates in the US and Europe are currently around 4 per cent. New investments will thus achieve an annual real rate of return of 1½-2 per cent. By way of comparison, the authorities have based their use of  petroleum revenues over the central government budget on the assumption that the Petroleum Fund can achieve a long-term real return of 4 per cent. It is unlikely that this rate of return will be achieved if we only invest in bonds.

The Japanese economy has been in a deflationary recession for a long period. Chart 4. Krone exchange rate and the interest rate differential Per cent  Index  5  90  Interest rate differential (left-hand scale)  4  95  3  100  2  105  Krone exchange rate,TWI (right-hand scale)  1  110  0  115  1999  2000  2001  2002  2003  Source: Norges Bank  In recent years, the krone exchange rate has shadowed the difference between Norwegian and foreign short-term rates. This is why the krone has appreciated to its current strong level. In addition, high oil prices have had an influence. The effect of the interest rate differential on the krone has been intensified by conditions in capital markets. Investors have been favouring carry trades. Risk premiums in major currency markets have been low, which seems to indicate that investors have been less prone to speculate in exchange rate fluctuations. Chart 5. Krone exchange rate and US equity prices 110  1500  105  1300  100  Krone exchange rate (left-hand scale) Equity prices (right-hand scale)  1100  900  95  1999  2000  2001  2002  Sources: EcoWin and Norges Bank  As equity prices fell, investors started seeking alternative vehicles. This made the krone market more attractive. The krone appreciated at the same time that foreign stock markets and domestic equity prices fell. Bonds and other interest-bearing securities have been of particular interest.
The Federal Reserve took a decision on a policy rate and then implemented it in the form of open market operations that increased or decreased the volume of reserves the banks held in accounts at the central bank until the market rate coincided with the decided interest rate level. 3 [16]  It is a long time, however, since the textbook model was an applicable description of monetary policy in Sweden. 3 There is little cash use and the cash reserves of commercial banks are therefore only negligible. Furthermore, there is no requirement in Sweden for commercial banks to hold liquidity at the Riksbank in proportion to their deposits. 4 Put simply, one can say that there is no monetary base in Sweden. 5 In other words, the Riksbank does not conduct monetary policy by changing “the amount of money” in the economy. Instead, the Riksbank determines “the price of money” by directly setting the interest rate on certain financial assets. 6 These assets are either deposits or lending from the Riksbank to commercial banks depending on how much liquidity there is in the system. If there is a surplus of liquidity in the economy, banks will have credit balances on the Riksbank’s balance sheet in the same way as when they are forced to hold liquidity reserves in accordance with the textbook model. The major difference from the textbook model is that the Riksbank pays the market rate on the reserves.

commercial banks’ claims on the Riksbank, amounts to SEK 435 billion. The liquidity surplus would therefore be about SEK 70 billion even if the entire bond portfolio was sold. 17 Another argument sometimes put forward in favour of large bond holdings is that the central bank’s purchases would increase the supply of safe assets in the economy, and that there is otherwise a shortage of such assets. 18 The Riksbank’s bond purchases result in that government bonds with a specific maturity disappear from the market and are replaced by Riksbank certificates with a maturity of one week. 19 The Riksbank then takes over some of the maturity transformation that the market otherwise tries to achieve on its own, and helps to reduce the interest rate risk in the outstanding portfolio of government securities. This argument isn’t particularly convincing either. If it is considered important to have short maturity on the national debt in normal times, this should be dealt with when the government bonds are issued, and it is then a question for the National Debt Office. Furthermore, the conversion from government securities to Riksbank assets does not seem to increase the supply of safe assets in Sweden; the interest rate on (short-term) government securities is lower than the repo rate which means that the market price of government bonds is higher than the price of Riksbank certificates with the same maturity.
There is anecdotal evidence that some large HLIs are becoming less willing to supply information to their counterparties as memories of the LTCM saga are fading. It is thus important that regulators continue to promote the introduction of suitable supervisory incentives that would encourage continued compliance with sound risk management practices by the financial institutions. Secondly, these proposals may not be sufficient to resolve the problem faced by smaller and open markets. Even with reduced overall leverage, HLIs could still build large foreign exchange positions relative to these markets. It might also be possible for HLIs to build up potentially destabilising  3  BIS Review 24/2000  positions in smaller markets while remaining inside internal limits on leverage and/or liquidity risk. Enhanced risk management cannot therefore be relied upon, in isolation, to alleviate the problem. A second proposal to enhance market stability is to improve transparency and disclosure to make markets work better. There have been two major international initiatives in this respect, one at the firm level and one at the market level. At the firm level, there is the Multidisciplinary Working Group on Enhanced Disclosure, chaired by Peter Fisher of the Federal Reserve Bank of New York, which has developed a disclosure template for individual firms to voluntarily disclose their risk exposures. This initiative is breaking new ground, as it is the first time that the private sector would be providing more information about their risk exposures.

Is Tsipras the good cop and Varoufakis the bad cop? What do you make of the changes in the negotiating team? I only know that both were elected on the same electoral platform. It’s a matter of forms and substance, and sometimes the substance is more readily accepted if the forms are improved. Would it be a good idea, as being mooted by Tsipras, to hold a referendum on the bailout measures? As a central banker, it’s not for me to give advice to a prime minister on how to manage his democracy. Papandreou tried and was prevented … Looking back, would it have helped in 2011? There are also those who say that, had we looked closer at the statistics a number of years back, we would have saved ourselves all these discussions … How far back in time do you go? The best way of sharing sovereignty among European countries is by sticking to the rules. In 2011, when asked about the consequences of a “Grexit”, you said it would be “chaos”. Do you still believe this to be the case? At this moment I don’t wish to engage in speculations. The clock has ticked forward but perhaps we can still achieve a positive outcome. Many people believe that the euro area could now withstand such a shock. My main working hypothesis is not the worst outcome.