samchain/econo-pairs-v1 huggingface dataset:
The Small Ponds are the relatively modest financial markets of capital-importing emerging countries. Past experience suggests that as big fish enter the small pond, this can cause ripples right across the international monetary system, never more so than in today’s financially interconnected world. This paper considers the BFSP problem. It plots the evolution of the international financial network over the past quarter-century. And, within that, it assesses recent shifts in portfolio  BIS central bankers’ speeches  1  choice by international investors which may have accentuated today’s BFSP problem (Section 2). More speculatively, it then considers potential future trends in portfolio choice and assesses their implications for tomorrow’s BFSP problem (Section 3). If recent trends are continued, the BFSP problem may become more acute over time. In the race between capital market deepening in emerging markets and capital diversification in advanced economies, the latter may gain the upper hand (or foot). The BFSP problem during 2010 may have been the thin end of a sizable wedge. That, in turn, may intensify the debate on appropriate policy responses, such as the pace of capital liberalisation and the case for capital restrictions (Section 4). 2. Today’s BFSP problem  A useful panorama on financial globalisation is provided by mapping the evolution of the global financial network over time. The topology of this network provides a simple, graphical visualisation of liberalisation patterns.

A reduction in those capital market frictions would tend to lower the asset market spillover costs of the BFSP problem.   Finally, what guideposts should be provided by the international community in tackling the BFSP problem? The IMF recently began to explore such a framework (IMF (2011)). This raises a set of key questions about global financial governance. Are global financial network externalities sufficiently large to justify the international community imposing rules of the financial road? And how much driver discretion should instead be left to nation states which ultimately may bear the costs of the BFSP problem? These are big public policy questions. They are by no means new ones. If the quantitative experiments presented here are even roughly right, these questions may assume a new urgency in the period ahead. The BFSP problem is real. It may be rising. The result would be growing waves of global financial exuberance, punctuated by crashing capital busts. This roller-coaster has the potential to leave some nation states feeling queasy. They may even wish to get off. What is at stake may be more than just the future stability of the international financial system. References Barro, R J and Sala-i-Martin, X (1992), “Convergence”, Journal of Political Economy, Vol. 100 (2) pages 223–251. Dornbusch, R, Goldfajn, I and Valdés, R (1995), “Currency Crises and Collapses”, Brookings Papers on Economic Activity, Vol. 26(2), pages 219–294. French, K R and Poterba, J M (1991), “Investor Diversification and International Equity Markets”, American Economic Review, Vol. 81 (2), pages 222–226.
However, there still appears to be an institutional gap in respect of the financing of certain types of projects for which the hitherto traditional sources of funding – commercial bank loans and government budgetary resources – may not necessarily remain the ideal financing avenues in view of the new challenges facing the financial system. I firmly believe that a development or promotional bank needs to be established. Such a public sector institution would be geared to the promotion of economic activity in its wider sense complementing commercial banks. In my speech during the course of last year’s IFS annual dinner, I had made reference to the important role that the possible establishment of such a bank could play in promoting the economy and assisting the Government in social and environmental projects. Tonight I would like to elaborate further. In my view, a promotional or development bank could be instrumental in contributing to a more effective mobilisation of the substantial excess liquidity characterising the financial sector and to a more efficient deployment of certain types of Government assets, especially underutilised real estate. It should also serve as a catalyst to support the structural, economic, social and environmental policies of the Government, particularly in connection with the long term financing of priority projects.

In recent months, Malta’s HICP inflation may have been biased upwards because of methodological changes related to the measurement of tourist accommodation. Meanwhile the RPI, which is unaffected by accommodation prices, stood at 2.9%. It is the RPI that determines with a lag the COLA increase. The core RPI inflation rate, which is a good gauge of persistent inflation, stood at 2.0%. BIS central bankers’ speeches  3  On the other hand, a number of labour market indicators remain positive. As seen in Chart 8, the most recent LFS unemployment rate is 6.5%, the same as it was on average in 2007, prior to the euro area crisis. In fact, Malta’s unemployment rate is at the lower end of national unemployment rates across the euro area. Meanwhile the latest registered unemployment rate stands at 4.2%, in June. Malta has avoided the two essential sources of the Euro area crisis: the deficit ratio has been moving in the right direction while the banking model followed by the core domestic banks remained prudent. In Malta, the core banks generally rely on traditional, domestic sources of funds, specifically retail deposits. Malta’s banks remained largely unaffected by the euro area crisis, averting the need for any government assistance and avoided what in other countries became a major source of fiscal overruns and distress. Malta must position itself in a way that builds on the strengths of the economy and minimises its vulnerabilities.
In this respect, in accordance with the supervisory guidelines, any measures adopted here should not hinder measurement of actual impairment or reasonable credit risk provisioning, and should provide institutions with the incentives necessary to maintain the appropriate standards. In addition, the authorities have ruled that institutions may make effective use of their available capital buffers to absorb unexpected losses. In particular, the ECB informed that it will temporarily allow significant institutions (those under its direct supervision) to operate below the level set for certain requirements such as the capital conservation buffer, Pillar 2 guidance and the liquidity coverage ratio. The SRB clarified that it will take a forward-looking approach to monitor compliance with the minimum requirements for own funds and eligible liabilities (MREL) and that this requirement will not limit the use of the capital buffers released by the macroprudential and microprudential authorities. It was also announced that institutions will have sufficient time to subsequently restore any capital buffers used. The Banco de España notified all the institutions under its direct supervision of the different measures taken to ease capital and liquidity requirements. In addition, in our quarterly decisions, we have held the countercyclical capital buffer at 0%, indicating that we do not intend to increase it until the Spanish economy has recovered from the impact of the crisis.

This crosscountry financial fragmentation hindered common monetary policy transmission to the whole of the euro area, and even posed a threat of a repeat of the 2012 sovereign debt crisis. In this setting, in March the ECB announced the launch of a new financial asset purchase programme (PEPP) which grants it the necessary flexibility to be able to concentrate its purchases at certain moments in time or on government bonds issued in certain jurisdictions, with a view to preventing fragmentation in monetary policy transmission. The volume of purchases initially announced under the PEPP was € billion for the whole of 2020. In June the term was extended up to at least June 2021, and the volume by a further € billion, making for a total of € trillion. Today we can safely say that the PEPP has been clearly successful in curbing financial market deterioration in all euro area countries. This is particularly visible in sovereign yields, which are now close to their pre-crisis levels, but it may also be perceived in other market segments such as corporate issuance. This decline in the cost of sovereign debt has amplified the room for manoeuvre of the fiscal authorities in all euro area countries, enabling them to take unprecedented measures to sustain the income of households and firms.
There are other areas of the assessment where I am more undecided. One of the recommendations was that we should regularly take into account other operators in the infrastructure than the banks and institutions. I agree that it is important to look further afield, not just in obvious places, when trying to identify threats and shocks. We should most probably take some steps in this direction. However, there are also risks entailed in this suggestion. One strength of our method of working has been the concentration on central, systemically-important issues. If we broaden our commitments we may be forced to give up some of this depth, and what we publish may be more difficult to grasp. Some of the recommendations concerned international connections in the stability work. Increased international surveillance is one of their recommendations that we are happy to follow. The integration of financial systems is increasing all the time and requires that we raise our gaze to take in the world around us. We already have this aim, but much remains to be done. Another aspect of internationalisation that is emphasised concerns crisis management. We are encouraged to continue with our crisis management exercises, but to carry them out together with our European colleagues. This is an important issue that we discussed in more depth in the Financial Stability Report published a year ago. We observed then that an integrated financial market has positive effects on the economy as a whole, but that it entails challenges for those of us who oversee the system.

The traditional answer provided by economic theory to this type of market failure is none other than “Pigouvian taxes” which equalise marginal private and social costs and cause emissions to be reduced to their socially optimal level.4 However, as we all know there is a big gap between theory and practice and, moreover, the “devil is in the detail”. This is true not only of the most technical matters, but also of the political ones. Deciding, for example, how to use the revenues raised is of crucial importance to the success of the transition to a more sustainable economy. This is so both from an economic perspective, promoting technological innovation and the adoption of clean technologies, and also from a social perspective, compensating the losers in the transition process. I will be referring to this issue later on. In my opinion, fiscal policy should play a leading role in the management of climate change, to deter the most environmentally damaging activities and to stimulate the investment needed to develop cleaner technologies and, also, to alleviate the social costs of the transition. This is the thrust of various initiatives currently under discussion. For example, those that seek to reconsider or supplement the EU emissions trading system (EU ETS) so that the price of carbon approaches that consistent with the Paris agreements. And, likewise, those designed to reduce environmentally harmful subsidies (EHS). At the same time, we should not forget the truly global dimension of the climate change challenge.
In this regard, while the Gross Domestic Product increased by 6 percent on an annual basis in the last quarter of 2009, it decreased by 4.7 percent across the year (Figure 23). Seasonally adjusted data indicate continuance of the recovery process in national income as of the second quarter of 2009 (Figure 24). Data regarding the first quarter of 2010 indicate that the rebound in Domestic Demand is gradually becoming stable and broad-based. The influence of policy rate cuts besides the hikes in public expenditures are getting more pronounced and a relatively more robust activity in sectors sensitive to domestic demand is being witnessed. In this respect, the analysis of the recovery process in industrial production indicates that besides the sectors stimulated by fiscal incentives and their intermediate input suppliers as well as the nondurable goods sector and sectors with strong links to the construction sector have been on the rebound (Figure 25). There is no significant improvement in external demand. The global growth outlook continues to dampen economic activity, particularly in sectors that are relatively more sensitive to foreign demand. Following the recent crisis, manufacturing firms that mostly serve external markets have been operating at lower capacity than local market oriented firms (Figure 26). Thus, in line with our previous forecasts, domestic demand has remained more robust than foreign demand. Yet, aggregate demand uncertainty continues to be a major concern, as inventory buildups have remained limited.

Also, early in the year we witnessed a substantial increase in issues of corporate bonds, which can be interpreted as the response to less favorable financing conditions in both the domestic and the external banking market, a situation that has lost momentum in recent months. Conclusions Monetary policy has acted aggressively to soften the impact of the global financial crisis. Although it is impossible to fully offset all the repercussions that such a severe crisis has on a small, open economy like Chile, especially with the lags that monetary policy operates, we have succeeded as a country in mitigating them substantially. We have preserved the macroeconomic stability framework, even providing room for an extraordinarily stimulating mix of macroeconomic policies. Therefore, we can now state without a doubt that, had we not adopted the stimulus actions you have seen in recent months, our country’s economy would be in considerably weaker shape and we would not be able to envision any prospects of recovery for the second half of this year. Conditions are ripe for the Chilean economy to experience a healthy recovery of output and expenditure during the second half of this year. For the economy to pick up, however, it will still require that the global uncertainty, regarding both the financial dimensions of the crisis and its effects on world activity, fades. We have seen promising signs allowing us to be hopeful, but it is premature to think that the bad news are over.
ECB (2022), "Monetary Policy decisions: Press release”, published 14 April, available at Monetary policy decisions (europa.eu). Federal Reserve (2022a), “Federal Reserve issues FOMC statement”, published on May 4, available at Federal Reserve Board - Federal Reserve issues FOMC statement. Federal Reserve (2022b), “Minutes of the Federal Open Market Committee March 15–16, 2022”, available at Minutes of the Federal Open Market Committee, March 15-16, 2022 (federalreserve.gov). Federal Reserve Bank of New York (2022), “The Global Dash for Cash: Why Sovereign Bond Market Functioning Varied across Jurisdictions in March 2020”, Staff Reports no. 1010, available at sr1010.pdf (newyorkfed.org) Federal Reserve Bank of St Louis (2019), “What Is Quantitative Tightening?”, available at What Is Quantitative Tightening? | St. Louis Fed (stlouisfed.org). 11 [19]  Forbes, K. (2021), ”Unwinding Monetary Stimulus in an Uneven Economy: Time for a New Playbook?”, speech at Jackson Hole, published on 27 August, available at Forbes_Unwinding_Stimulus_in_an_Uneven_Economy.pdf (kansascityfed.org). Forbes, K. (2022), “Central banks must reduce their balance sheets more aggressively”, debate article in the Financial Times, published on19 January, available at Central banks must reduce their balance sheets more aggressively | Financial Times (ft.com). Gustafsson, P. (2022), “An event study of the effects of asset purchases on financial prices during the pandemic”, Staff memo, March, Sveriges Riksbank, available at An event study of the effects of asset purchases on financial prices during the pandemic (riksbank.se). P. Gustafsson and T. von Brömsen (2021), “Coronavirus pandemic: The Riksbank's measures and financial developments during spring and summer 2020”, Economic Review, No.

Riksbank's asset holdings – no purchases beyond 2022 Nominal amounts, SEK billion 500 400  300 200 100 0 2015  2018  2021  Government bonds Covered bonds Treasury bills  2024  2027  2030  2033  Corporate bonds Municipal bonds  Note. Quarterly data. The figure shows a technical projection of the Riksbank's asset holdings if no reinvestments are made after 2022. Source: The Riksbank. 19 [19]
Like you, I recognize the need for small and medium-sized enterprises to retain access to credit at reasonable and fair prices. Access to credit matters not just because credit can enable small businesses to grow, but more because small businesses enable the whole economy to grow. This is true not just for the “Mittelstand” in Germany, but also of entrepreneurial ventures around the world. In the United States, for example, small businesses traditionally create the majority of new jobs, invent a large proportion of all new technologies, and are responsible for nearly 40% of our gross national product. Preview I know that you are deeply interested in the steps that the Basel Committee is taking to ensure that small businesses continue to enjoy fair and open access to credit, and I am pleased to share with you the good progress that the Committee has achieved since the release of the Second Consultative Paper in January 2001. I’ll begin with an overview of the importance of regulatory capital to the stability of the banking systems – and that of the economy – and how the Committee’s current efforts will reinforce that stability. Second, I’ll discuss some changes that are of particular interest to banks that lend to smaller businesses and to owners of small and medium-sized enterprises as well. I would like to close by giving you some insight into the process and the timeframe that is guiding our work to complete the impact studies and to move toward release of the final Consultative Paper.

If these issues are left unresolved, the image of the industry will be severely dented. In charting the way forward, two imperatives in capacity building are worth thinking. One, we need a pool of high-calibre leaders who are equipped with the right skills to resolve challenges and sustain the momentum of the industry’s progress. Also critical is the creation of an efficient system of succession planning to groom future leaders that will take the corporation and the industry to the next level of progress. Two, is for leaders to be supported by a team of dedicated and diverse talents. The leaders of tomorrow would most likely face challenges that are much more challenging than what we had faced before. They need to be flexible and adaptable to the new operating environment,  BIS central bankers’ speeches  1  new business regulation and able to communicate well. The issue confronting the industry however is in attracting the right talents who are committed to make insurance and takaful a career of choice. Talent is a scarce commodity. The industry needs to be competitive in its remuneration package. The salary package at the entry level must be attractive enough to get the right talent. The financial services sector is not the only competitor for the insurance and takaful industry but other sectors within the economy as well.
There is now a growing body of evidence on the very damaging impact of financial crises on the productive capacity of economies. Third, we should not imagine that there is some recent halcyon world of banks supporting the real economy to which we can quickly return if the regulatory straitjacket is loosened. The system was badly distorted in the long run up to the crisis. The post crisis world requires a major adjustment in bank business models. This is not some unintended consequence of overzealous regulation. It is a necessary, if painful adjustment to a new reality. Some numbers from the UK illustrate this point starkly. In the long upswing of the credit cycle, the stock of domestic lending by UK banks in the UK grew enormously from 95% in 1997 to 170% of GDP in 2008. The stock of non-property lending to companies as a proportion of GDP, however, grew only modestly from 19% in 1997 to 23% in 2008. Meanwhile, mortgage lending increased from 45% to 70% of GDP; lending to real estate tripled from 5% to 15% of GDP; and lending to the UK non-bank financial sector – including institutions like hedge funds, securities dealers and insurance companies – shot up from 25% of GDP to 60%. And these numbers do not count the explosion in UK-owned banks’ overseas exposures which more than quadrupled between the end of the 1990s and 2008.

The underlying causes of this phenomenon are interactions, feedback loops and amplifiers that exist within the financial system that can act as turbo chargers in both directions;  •  the aim of macroprudential authorities should be to prevent these dynamics from driving up financial stability risks in good times and driving the system down in bad times. That requires not only setting the overall framework of standards and regulation in the right place to address systemic risk; it requires also adjusting the framework in response to the buildup of risk as the turbo chargers inherent in the financial system begin to kick in; and  •  a recognition that what distinguishes “macroprudential” from “microprudential” and from “macroeconomic” is its objective of financial system stability rather than the instruments it deploys. Macroprudential authorities like the FPC use many of the same instruments as microprudential regulators such as bank capital standards. And in the very final resort, monetary policy may need to be used to counter financial stability risk. But the objective of ensuring the financial system as a whole is stable is different to the objective of promoting the safety and soundness of individual firms or that inflation is kept at target. With the benefit of hindsight, policymakers and regulators should all have paid a great deal more attention to these ideas in the early years of the century while the great financial crisis was in the making.