samchain/econo-pairs-v1 huggingface dataset:
Instead, I would like to focus on two issues, which in the current context are very relevant from a monetary policy perspective – regardless of the structural causes underlying the weak economic growth. First, the slowdown in growth in this environment increased the risk of a self-reinforcing downward spiral. For the weak growth dynamics will not go unnoticed by economic actors: their expectations are worsening. If, for instance, a company expects demand to fall, it will be less inclined to make big investments. Secondly, ageing societies, which exist in many mature economies, not only have to cope with a shrinking labour force, but they also have to save more. This has led to a savings glut and to a shortage of safe assets. So investments are falling and savings are rising. This weakness of investment is further reinforced when public authorities invest less than is even needed to preserve the capital stock. This is a cause for concern especially where both fiscal space and demand exist. This dynamic has led to a reduction in the natural interest rate, i.e. the real rate of interest in which savings and investments are in equilibrium in an economy operating at its potential, where there is neither upward nor downward pressure on inflation. In the current environment, the ECB has brought the market rate below the level of the natural rate. The key rate since March last year has been at zero and the rate on the deposit facility at – 0.4%.

Therefore both the private and public sectors, need to intensify efforts to accelerate meaningful and effective efforts in the drive for greater financial inclusion. In Malaysia, our priorities are to enhance greater access to digital financial services, as well as to enable the underserved to benefit from increased convenience, greater efficiency and lower cost. Another important priority would be financial education for the newly banked, to ensure that new entrants into the financial system behave responsibly and do not suffer the unintended consequences of being over-indebted. For ASEAN, financial inclusion is an increasing priority because it is estimated that 260 million adults in the region still do not have access to the formal financial system, while 45 million small businesses have difficulties in accessing financing. To overcome this challenge, ASEAN Finance Ministers and Central Bank Governors in March 2015 decided to elevate financial inclusion to be a policy priority. It is our shared vision that every person and every small business in the region can participate and benefit from the opportunities that will be brought forth by greater regional integration under the ASEAN Economic Community. Conclusion Our collective efforts in advancing financial inclusion have yielded many significant achievements. The Global Findex Database 2014 will be an important contribution to more  2  BIS central bankers’ speeches  optimal and impactful financial inclusion policy making and implementation. Bank Negara Malaysia would like to congratulate the World Bank Group on this accomplishment.
Indeed, for European banks affected by the most serious operational events, this deterioration has remained over 1.25 pp of CET1 in the last five years, rising to 2.1 pp in 2018. As I mentioned in my introduction, in the case of Spain, potential costs associated with legal risks continue to contribute to operational risk at deposit institutions. The processes linked to past litigation, for example over floor clauses, have had an estimated cost for the sector of more than € billion up to June 2019. Moreover, there are other significant legal processes still pending settlement. In addition, legal risk and certain other factors relating to banks’ conduct have had a significant impact on the reputation of the banking sector, and not only in Spain. In this respect it is important to note that reputation and customer confidence are fundamental to the banking business. In consequence, and also from a purely economic standpoint, given that in the long term litigation costs are far higher than the possible benefits that some banks In 5 See I. Argimón (2017), “Decentralized multinational banks and risk taking: the Spanish experience in the crisis”, Banco de España Working Paper No. 1749. 19/29  may have obtained in the short term as a result of questionable behaviour, banks should strive to reverse this trend, providing their customers with financial products and services suited to their needs and capabilities, and also supplying the key information in a clear and transparent manner.

The fall in market interest rates has also played its part in narrowing the net interest margin, since the cost of liabilities, and especially of deposits, which are the main source of funding for Spanish banks, tends to be less sensitive to changes in market returns than the remuneration of assets. 9/29  Indeed, regarding assets, the remuneration of variable-rate loans, which make up most of the stock of outstanding credit in Spain, adjusts to the new market prices as the reference indices are updated (which generally occurs with a lag of less than one year). Further, interest rate falls also pass through to new lending, which likewise gives rise to a cut in the average remuneration of assets. Regarding liabilities, the zero level of interest rates has acted as a lower bound for the cost of deposits. The reason for this downward stickiness in the cost of deposits is that negative interest rates in these instruments could reduce the supply of funds, especially in the case of households, as they may prefer to hold cash, which has zero but not negative remuneration, rather than deposits. However, as regards other bank liabilities, such as debt securities, interest rate decreases pass through to their cost without the zero level acting as a lower bound. Indeed, the average cost of some financing instruments, such as covered bonds, fell to negative values in the summer. The impact on costs is particularly important against a background in which banks have to meet regulatory MREL requirements.
The result can be disruption to the financial intermediation function with resulting constraints on the availability of credit for households and businesses. This, in turn, can lead to further reductions in aggregate demand that put additional stress on the weakened financial system. Obviously, this is not a favorable dynamic. Financial instability can impact the conduct of monetary policy via three major channels. First, financial instability can generate a sufficiently large shock to aggregate demand that the central bank may encounter the zero lower bound constraint – the constraint that the monetary policy instrument, for example, the federal funds rate – cannot easily be pushed below zero. In such circumstances, it may not be easy to fully offset the shock through the pursuit of a more stimulative monetary policy. At the zero bound, the central bank is not powerless, and may turn to other monetary policy tools such as forward guidance and large scale asset purchases. But these tools may not be as effective as lowering the short-term rate instrument. In particular, the central bank may not be willing to use these nonconventional tools to the full extent necessary to provide the same degree of stimulus as it would provide if it could set interest rates at negative levels. That might be because of uncertainty about how nonconventional tools will work or because of the potential costs associated with the use of such tools in terms of market functioning and the risks of future financial instability.

In the long run, the industry as a whole has a clear interest in informed, responsible and  2  BIS Review 24/2007  capable consumers. As past experience, whether in Malaysia or abroad, has invariably shown, the irresponsible and unfair treatment of consumers is damaging to the consumer, damaging to the firm, and damaging to the reputation of the industry. The Bank is encouraged by the high level of commitment shown by some insurers towards significantly improving their market conduct practices. Nevertheless, much more can be achieved across the industry to address overly aggressive sales practices that result in unsuitable products being sold to consumers. Bank Negara is investing significantly in raising the level of financial capability among consumers through initiatives under the Consumer Education Programme. Additional focus has been given to this task with the setting up of the Consumer and Market Conduct Department. But this is an extensive task, for which a significant improvement in the level of financial literacy among across a widereaching spectrum of consumers may only be seen in the next generation of consumers. It is, therefore, important now that insurers take their responsibility for the fair treatment of consumers seriously. In particular, we would like to see a far greater interest by the Board and senior management in improving selling practices, as well as the quality of disclosures and advice provided to consumers.
Lessons and unresolved issues Before making my final remarks, let me mention briefly some of what I consider the main lessons and unresolved issues in relation to both the Icelandic banking crisis and cross-border banking more generally. •  The risks in cross-border banking were underestimated, especially the crosscurrency part. 10  •  The crisis had significant elements of a run on cross-border banking. In Iceland’s case, a partial run on deposits in foreign branches and subsidiaries also contributed. •  Sizeable cross-border banking operations in small countries with their own currency are too risky. •  The EU architecture for cross-border banking is profoundly flawed, as it allowed free flow of capital and banking services with domestic safety nets and crisis management. •  Either we regress (de-globalisation and the death of branches) or we move towards EU supervision, deposit insurance, crisis management and resolution regimes for cross-border banks. 10  Researchers at the BIS have done an excellent work in throwing light on this aspect. See for instance McCauley, Robert M. and Patrick McGuire, (2009). “Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging”, BIS Quarterly Review, December 2009; Baba, Naohiko, and Frank Packer, (2009). “From turmoil to crises: Dislocations in the FX swap market before and after the failure of Lehman Brothers”, Journal of International Money and Finance, 28, 1350–1374; and McGuire, Patrick, and Götz von Peter, (2009). “The US dollar shortage in global banking and the international policy response”, BIS Working Papers, No. 291.

It also allows firms to leverage existing capabilities and so avoid unnecessary compliance costs. There is no one size fits all approach for banks to demonstrate their resolvability; banks themselves are best placed to understand what they need to implement in order to ensure an orderly resolution process, keeping their preparations under review as they grow and change over time. We expect firms’ boards and senior management to take responsibility for their own resolvability, and to satisfy themselves that, if the worst were to happen, they could be resolved effectively. For resolution credibility means effectively executing what we say we will do. The presence of a credible resolution regime supports our aims, meaning that we can be more confident that if a firm does need to exit, it can do so in a way which minimises contagion and disruption. The RAF strengthens our confidence in these plans, by embedding increased accountability and setting strong expectations of firms and their boards. Firms which are already at, or aspire to reach, a level such that their exit would cause an unacceptable level of disruption should factor our resolvability requirements into their business plans – as with any other regulatory requirement.
It is likely that more information will have come in by then and we will have to update our forecasts. Monetary policy Monetary policy is expansionary Since the financial crisis worsened last autumn, monetary policy has been aimed at moderating the depth of the economic recession following in the wake of the crisis. The repo rate was cut from 4.75 per cent in September 2008 to an all-time low of 0.25 per cent in July 2009. The Riksbank has also supplied the banks with liquidity to counteract the negative effects of the financial crisis. In this section I shall discuss in slightly greater detail our reasoning at the most recent monetary policy meeting, and the risks I see of developments being better or worse than we forecast. In July we cut the repo rate from 0.50 to 0.25 per cent. The economic recession appeared likely to be deeper than the Riksbank had earlier forecast and we were expecting GDP growth to be slow over the coming years. Resource utilisation would therefore remain low throughout the entire forecast period. At the same time, the forecasts for underlying inflation were close to the inflation target of 2 per cent. We therefore considered that the repo rate probably needed to remain at this low level until autumn 2010 (see Figure 22). We also decided to grant loans to the banks of SEK 100 billion, with a twelve-month maturity and at a fixed interest rate.

However, despite improvements in growth witnessed since 1999, significant reductions in poverty will not occur without a significant increase in growth rates to above 7% on a sustained basis. One of the ways in which growth can be scaled up is through the employment of the vast African resources for the development of the continent. Prior to the global financial and economic crisis, the African continent experienced a surge in investment flows in many sectors including mining, manufacturing, tourism, transport and construction. This inflow of foreign capital helped to finance the development registered in Africa over the past decade. The inflow of foreign capital coupled with high prices of commodities on the global market led to high international reserve accumulation in most commodity exporting countries, including those in Africa. However, following the global financial and economic crisis the accumulation of international reserves declined as commodity prices plunged and foreign capital inflows, both private and public slowed significantly or were reversed. This has had a negative impact on the availability of resources to finance Africa’s development. The challenge going forward is recovering, maintaining and sustaining the economic gains and macroeconomic stability that African countries experienced before the crisis hit. In view of the anticipated reduction in aid flows and foreign direct investment, African countries need to give domestic savings mobilisation as much attention as the other foreign sources of development finance.
In addition, measures of underlying inflation also remain elevated and well above our 2 percent longer-run goal. For example, after declining earlier in 2022, the New York Fed's Multivariate Core Trend has been hovering around 3-3/4 percent for the past few months.1 Similarly, both the Dallas Fed's trimmed-mean PCE inflation rate and core inflation that excludes food and energy prices averaged around 3-3/4 percent over the past six months. So, our work is not yet done. Inflation is still well above our 2 percent target, and it is critically important that we reach that goal. Supply and Demand Misalignment To help illustrate how tighter monetary policy is working to reduce inflation, I like to use an analogy inspired by a mechanism that consists of different gears.2 In this case, I'll hearken back to a time before rechargeable batteries, and even before quartz, to the age of the mechanical watch. Our watch represents the economy, and its gears are different sectors. Some gears spin quickly; others turn slowly. They need to turn at the right speed to keep time accurately-or, in this example, to maintain balance in the economy. The gears are propelled by supply and demand, which act as the mainspring of our watch. But they have been misaligned since the onset of the pandemic. At first, when people were home and factories were shuttered, demand shifted strongly from services to goods, which were scarce due to supply-chain bottlenecks.

The sum effect of these behaviours is that we inadvertently imported the NDF volatility into the onshore market. Given the importance of this, let me dwell a little further on the dynamics of the situation. The offshore market, which is driven by speculative interest, lacks the onshore market’s diverse spectrum of market participants and information. This was notably mentioned by the Federal Reserve Bank of New York paper in May 2005, that an estimated 60 to 80 percent of NDF volume is generated by speculative interest. Because of this, NDF tends to promote herd behavior which compounds the lack of two-way market liquidity. Prices may move rapidly in one direction or another driven purely by fickle sentiment, as well as leveraged positions taken on by the speculators, making them inherently unsuitable to represent an efficient and objective price discovery process for the ringgit. Compounding this further, the offshore NDF markets are highly opaque and information on these markets can only be gleaned through the BIS’ triennial survey and other sources such as through mandatory reporting of derivatives and swap data repositories on US financial institutions. Actions by BNM/the market With increasing concern over the offshore market negative spill-over impacts, BNM has taken a broad spectrum of actions to reduce the speculative and damaging influence of NDF activities. Because of the estimated volume and its opaqueness, the NDF market clearly has the potential to undermine the integrity and financial stability of the onshore market.
Foreign participation in the Thai bond market decreased from a peak of 13 percent to the current level of around 10 percent of total outstanding public sector bond. The strong local institutional investor base was able to pick up from where foreigners left. Despite foreigners exiting the Thai bond market, total portfolio outflows last year (2014) amounted to a mere 1 percent of our international reserves. A flexible exchange rate, a relatively balanced external position and a modest external exposure, altogether acting as the first line of defence, contributed to the success. The Bank of Thailand is also equipped with comprehensive policy tools, along with ample international reserves, that can be used as a backstop to deal with disruptive capital flows and to  1  Examples of anti-corruption measures are 1) the Construction Sector Transparency Initiative (CosT) which promotes transparency in state enterprise projects and 2) Integrity Pacts which oversee purchase plans of government and state enterprise projects. Among the big projects already implemented are 1) Suvarnabhumi Airport Phase II 2) the Blue Line metro extension, and 3) Bangkok NGV bus purchase plan. 2  Total corporate debt / total corporate equity. 2  BIS central bankers’ speeches  safeguard financial stability. In fact, these are our multiple lines of defence available at our disposal. Ladies and gentlemen, We, should not be under the illusion, however, that good fundamentals can be taken for granted. In fact, the slowdown of economic growth in the recent years pinpoints to structural problems, holding back the economy.

Slide 1  1  4  BIS central bankers’ speeches  Slide 2  Dynamism During the Reform Process Dovernment pushing infrastructure and investment projects  Anti-corruption measures delaying government spending and investment  3  Slide 3  Thailand Profile 1997  2005 2014E  Inflation  5.6%  4.5%  1.9%  Current Account  9.3  -7.6  8.6  NPL  42.9%  10%  2.3%  D/E Ratio of corporate sector  5.1  1.3  1.3  Household Debt  n/a  54%  85%  Public Debt  42%  51%  46%  (Billion USD)  (% of total loan)  (% of GDP) (% of GDP)  Note: 2014 numbers as estimated; NPL as of Q2, 1998  BIS central bankers’ speeches  5  Slide 4  Reform Efforts: National Reform Council  DECENTRALIZATION  EQUALITY  ANTI-CORRUtTION  INTRA-REGIONAL COatLEaENTARITY  Slide 5  State-owned Financial Institutions (SFIs) in Thailand Ministry of Finance tolicy-maker  hwner  Bank of Thailand wegulator  SFIs  6  BIS central bankers’ speeches  Slide 7  15 YeMrs of HnflMtion TMrgeting (HT) % 10 8 6  Headline Inflation 4.4% Pre-HT  2.6% Post-HT  Transparent  Clear target  deliberation  Independence  process  4 2  tolicy  0  Credibility  -2  1985 1990 1995 2000 2005 2010  Monetary policy target for 2015 : Headline inflation 2.5 ± 1.5% (annual average)  BIS central bankers’ speeches  7
If there are adverse side-effects, then an alternative drug can be called upon – macro-prudential policies. These are an important new addition to the central bank armoury. When risks are localised – say in the UK housing market – macro-prudential measures can act like a targeted lightning strike. The Bank’s Financial Policy Committee (FPC) is discussing these risks. I will not, tonight, steal their lightning. But if risk-taking becomes broadly-based, a broadly-based response may at some stage be appropriate – a rumble of thunder rather than a strike of lightning. The case for doing so is stronger, the greater the chances of an asymmetric asset price response – a sharp snapback in volatility and asset prices – which could imperil recovery.9 The MPC’s guidance gives monetary policy a role as a last line of defence if macro-prudential actions cannot contain these risks. As they evolve, the MPC and FPC will need to assess these risks carefully. The monetary policy stance Faced with these uncertainties, what would be a prudent course for monetary policy in the period ahead? The first thing to say is that there is consensus across the MPC on three key elements of our monetary strategy: that any rate rise need not be immediate, that when rate rises come they are intended to be gradual and that interest rates in the medium-term are likely to be somewhat lower than their historical average. This message appears to have largely been understood by financial markets.

In my view, a greater degree of convergence in the underlying regulation which applies to financial institutions and markets will provide us with an excellent basis for making progress on other aspects. Let me refer to some initiatives that have been taken in this respect. Of course, the first initiative that I must mention is that of International Financial Reporting Standards (IFRS). Given the importance of accounting data as the basis of information flows, the development and application of these standards is providing a valuable opportunity to enhance the efficiency and comparability of information, especially on an international basis. Indeed, with effect from 1 January 2005, all EU listed companies have been required by law to use IFRS for their consolidated financial statements. The significance of this development should not be underestimated. It means that market participants and other interested parties should be able to compare and contrast information relating to companies in different jurisdictions on a like-for-like basis, and thereby make more informed decisions. Common accounting standards increase transparency and comparability for investors, thus promoting greater cross border investment. And let me give you a less direct, but nonetheless important example of a regulatory convergence initiative, from my perspective as Chairman of the Basel Committee on Banking Supervision. As you may well be aware, at the end of the nineties, we embarked on a review of the so-called “Basel Accord”, an agreement reached back in 1988 to determine minimum regulatory capital requirements for international banks.