samchain/econo-pairs-v1 huggingface dataset:
European Central Bank: Press conference – introductory statement Introductory statement by Mr Jean-Claude Trichet, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 2 September 2010. *  *  *  Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting, which was also attended by Commissioner Rehn. Based on its regular economic and monetary analyses, the Governing Council continues to view the current key ECB interest rates as appropriate. It therefore decided to leave them unchanged. Considering all the new information and analyses which have become available since our meeting on 5 August 2010, we continue to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefiting from low domestic price pressures. Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors. Looking ahead, the recovery should proceed at a moderate pace, with uncertainty still prevailing. Our monetary analysis confirms that inflationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term. The firm anchoring of inflation expectations remains of the essence.

In the UK, the Independent Commission on Banking suggested a capital surcharge of 3% of risk-weighted assets (RWA) for banks that could not be resolved. In its 2015 assessment of capital adequacy, the Financial Policy Committee estimated that capital would need to be around five percentage points higher if there was no resolution regime in place. It is also argued that resolution will not work; that while it may be a way of dealing with idiosyncratic failures, in a systemic crisis authorities will be reluctant to bail in shareholders and bank creditors. This binary distinction between idiosyncratic failure and fully blown systemic crisis seems to me oversimplistic. For sure, if we were suddenly to find ourselves pitched back into the middle of a systemic crisis, with a number of major institutions having failed or on the point of failure and a complete breakdown of trust and confidence, orderly resolution of individual banks in itself is unlikely to be able to stabilise the system as a whole. But we did not suddenly arrive in late 2008 in the midst of full blown financial crisis. Had the authorities had better, less disruptive options available over the previous 18 months to deal with a series of failing institutions, the disruptive, explosive nature of the crisis might well have been minimised. There would still have been very major losses and failures. But we would, in my view, have had a much better chance of a more orderly, less damaging correction of an overleveraged banking system.
Let me say something unusual now: I think that the banks deserve a thank you for the way in which they have sought to use forbearance. When I was Chief Cashier of the Bank of England, I was responsible for our work on the so-called London Approach whereby we seek to use our powers of persuasion to facilitate company re-financings which are in difficulty. That brought me into regular contact with the corporate loan restructuring bankers and I was always impressed by their commitment to helping companies in trouble. Sometimes the medicine could be hard, but there are many companies around today that would otherwise not be employing people. Now, I said earlier that we need to understand more not only about the size and cause of the capital gap but also how best to fill it. The choice of solutions matters because it can influence subsequent lending behaviour. It is often said that raising new capital dilutes existing shareholders. That is not really true in a literal sense if existing shareholders have written down the market value of the capital they own. But is true in the sense that it dilutes their claim on any future upside to the current market value reflecting the inevitable uncertainty about the future. This would be the effect of raising new equity. An alternative could be to raise the capital in the form of contingent equity, or “Co-Cos” for short.

Consistent with this, we can see that in their published accounts, banks are placing a fair value on some of their assets which is below the book value. 2  BIS central bankers’ speeches  This evidence, while informative, does not, for me at least, get to a conclusion on the need to add more nominal capital, or more particularly how much capital to add. To do that, we need to know more about the contribution of these various possible causes of market values of banks’ capital, and that must be the key next step in the work. On this, I would ask for the insights of banks themselves and analysts, because as I always say, I know one thing for sure, we don’t have a monopoly of wisdom, and this is a tough question. But, it is a key question, because the danger of a very slow resolution of the capital gap is that new lending to the economy is seriously restrained. This is the Japanese threat, based on the recent history of Japan, and the basis of the argument that a more aggressive approach to re-capitalising banks will create more support for new lending. Moreover, it does illustrate why we see a close interaction of the FPC’s two objectives, of resilience and growth. I need to see more evidence and analysis of why market values of banks’ capital are low before I can determine what and how much needs to be done.
12 In recognition of the serious implications of a withdrawal in correspondent banking services for growth, financial inclusion, and the stability and integrity of the financial system, the FSB is working to advance a four-point Action Plan to address the recent decline. For an update on this work see: http://www.fsb.org/2016/12/fsb-publishes-progress-report-and-2017-workplan-to-assess-and-address-thedecline-in-correspondent-banking/ 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Seizing this opportunity means considering fundamental rights such as privacy, and practical constraints such as the costs of storage and handling. Ultimately it is for governments and citizens to decide whether – and how – to ensure the benefits outweigh the costs. Third, and relatedly, there are fundamental issues around data protection to consider. Traditionally, financial institutions have sought to protect and use their own customers’ data under well-established legal and regulatory frameworks. In contrast, social media firms regularly collect and sometimes share extensive data from their users (with their consent). 13  The FinTech future envisages the gathering of a broad range of  financial and non-financial data from, and sharing across, a wider set of parties. A more intense debate can be expected about whether there are appropriate frameworks for the gathering, storing and sharing data both domestically and cross-border. Now turning to the most important financial stability risks. 4.

And I learned with time that the former got more from the bank because I and it knew more about them and what they needed – whether a savings product or a loan. The bank got more from them in terms of revenue and reliability (helpful given that two small banks had recently failed). Indeed, as my province was in a deep recession at the time, loyalty and understanding mattered. It could mean the difference between a restructured loan that could be repaid and a foreclosure that would bring liquidation. In short, I was at the front line of a banking value chain – one that is now being impacted across its components by FinTech. Traditional universal banks combine the customer relationship, retail and commercial deposits and lending, and a wide range of activities in wholesale money and capital markets. 2  The FSB defines FinTech as technologically-enabled financial innovation that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Diagram A: Financial Services Value Chain  Payment services traditionally relied on cash, debit and credit cards, and wire transfers. Now FinTech companies are providing domestic and cross-border payment services on significant scale through “digital wallets” or pre-funded “eMoney”. Tech firms take a slice of payment revenues and, in many cases, the totality of customer transaction data.
Because inflation remains to be one of the most exciting, most important macro-economic phenomena, tackling the life of the communities and of the separate entities and individuals in the most concrete way. We all find it important to know what are the real values that are at our disposal. What are the real values that we produce. What is the real progress of the economy, what is the real growth or decline in our income, what is the real growth or decline in our living standard and well-being. Inflation is one of the obstacles on the way to those real values, important from several viewpoints of our life and our behavior. Therefore, macroeconomic analyses are commonly based on values in real terms, i.e. values adjusted by the increase in the prices with the single objective – to obtain realistic picture of the macro-economic developments. Therefore good investment and business plans of companies, inter alia, do not miss the opportunity to grasp and incorporate the expectations about the future movement of the inflation, as they are aware that it will have an effect on their profit in the future. Therefore, labor unions are interested in inflation when they negotiate wages, therefore each of us is interested in the information about the current and future inflation, i.e. increase in the prices, when we consider what to do with our savings. Why is the Central Bank preoccupied with the inflation and its accurate measurement, perception of inflation and expectations about its movement in the future?

It is because the main objective of the monetary policy is to maintain price stability in the economy, which is considered to be the main prerequisite for acceleration of the economic activity and for accomplishing sustainable economic growth. Hence, the adequate measurement of inflation, which is an issue that has been interesting for the central banks for years, and which is even more important when inflation rates are low, is so challenging and crucial for the central banks, i.e. for the monetary policy decisions. Non-expert public listens to the information about the inflation indicators. It neither wants nor it is able to go into the numerous statistical problems when measuring inflation. However, it senses the possible discrepancies between the officially announced indicators and the real ones since that public confronts its nominal and real purchasing power on a daily basis. On the basis of that confrontation and daily market-based check-up of the official statistical information, confidence or lack of confidence in the authorized institutions is created, influencing positively or negatively the behavior of all market participants. The authorized institutions are responsible for making precise the differences between the nominal and the real aggregates, for selection of more precise statistical methods and techniques for measuring inflation, simultaneously as transparent and as understandable as possible for all market participants.
The UK government’s plans for insulating retail banking are, therefore, a central element of the plans to make the UK’s large and complex banks resolvable. The proposals in the recent Liikanen Report on the structure of EU banks are welcome in seeking to achieve the same goal. Both Vickers and Liikanen can be viewed as working with the grain of the broader international agenda on resolution regimes. But bail-in can be attractive when a distressed group does have viable parts and sufficient uninsured debts covered by the bail-in power. As the UK’s resolution authority, the Bank is working closely with the FDIC on how to operationalise this type of resolution strategy. Meanwhile, the FSB will, over the next month or so, be publishing a consultative paper on resolution-strategy planning. The prospect of taking losses via resolution gives debt holders a strong incentive to monitor banks’ risk taking. That will be a first order change for the financial system. Expose management to tail risk: payment in subordinated debt Once debt holders are unambiguously exposed to loss, the authorities need to consider whether to require management to be paid to a significant extent in subordinated debt: an idea recently endorsed by the Liikanen Committee. 6 Having managers exposed to instruments whose value depends on the survival of their firm would give them a healthy incentive to maintain a safe and sound bank. There should also be a review of the structure of remuneration for desk-level bankers – tying pay to the medium-term success of the firm.

I shall confine myself to a tour of some of the international and domestic reforms of banking itself, highlighting a few questions for debate along the way. Expose debt holders to losses: resolution regimes First and foremost, we need holders of bank debt to be exposed to losses when banks fail. This is not some macho thing. If banks’ cost of debt finance does not vary with the risks they are taking, what should be an important check on the tendency to excess is badly diluted. For the financial system to be safe, we need to be able to sort out distressed commercial banking and investment banking operations without massive disturbances to the provision of services and without taxpayer solvency support. That, in a nutshell, is what is meant by making a firm “resolvable”. The economy’s payments system obviously needs commercial banks that can be resolved in an orderly way. But, in addition, the capital markets need sound intermediaries which, if they become distressed, can expire safely or whose viable parts can be resurrected. I stress that because we need to do more than ensure that the most critical services are preserved come what may. We need also to avoid the massive destruction of value that occurs when, under standard bankruptcy proceedings, a trading portfolio is liquidated in stressed market conditions and without sensitivity to spillovers to the rest of the system. We need resilient capital markets.
Think, for example, of a wage-setting mechanism allowing for sectoral differences versus one that imposes uniform wages across sectors. Second, long unemployment spells may cause permanent destruction in human capital, giving rise to the process of “hysteresis” and leading to an increase in the structural unemployment rate. The concept of “hysteresis” being identified, among the first authors, precisely by Olivier Blanchard in 1986 in a joint paper with Larry Summers. Of course, this effect may be larger if rigid labour market institutions complicate the task of finding a new job, while the literature also finds that the level of the tax wedge or the inadequate design of unemployment benefits are important drivers of structural unemployment. In addition, a protracted recession may also reduce the potential labour force by discouraging vulnerable workers from seeking a job. This effect is again not independent of policies, since there might be social and financial incentives to stay away from the labour force, and the development in the past of early retirement schemes for older workers subsidised by governments in some countries is a good example. Overall, looking at the research published, three elements of the labour market institutional setting seem particularly worth looking at as possible determinants of the different outcomes across countries: first, the legislation on types of employment contracts and unemployment protection schemes; further, the institutional design of collective bargaining; and finally, active labour market policies and labour market intermediation mechanisms.

Again, we are seeing the two-way flow of talent for the different areas of professional expertise and the workforce leading to an increasingly diversified background of employment in different parts of the world. Malaysian professionals can be found in every continent in wide ranging areas of employment. Let me turn to the participation of women in the economy. About half of the Malaysian population are women and they account for about 47% of the workforce. The representation of women at the professional, managerial and technical levels has increased from less than 30% in 1990 to about 40% currently. Such progress has been achieved given the educational opportunities that have been made available to women. Literacy rates among women is about 90% due to the countries comprehensive and inclusive education system. Female primary and secondary students account for half of total enrolment, while at the public universities, female students account for 55% of the total enrolment. It is this educational foundation which has accorded equality to women in Malaysia . It has enabled women from all walks of life and backgrounds to contribute and participate fully in Malaysia's economic prosperity. Women in Malaysia have also participated significantly in the small and medium enterprise sector of the economy. A significant number of women run family businesses makes up a large part of this sector.
And an essentially sectoral solution, where payment system overseers and securities regulators do not co-operate in an integrated way, is inappropriate. Therefore I welcome the second Giovannini Report which provides an excellent view on how efficiency gains and further risk reduction in the field of securities clearing and settlement systems should be achieved. In Switzerland as in several other countries oversight of clearing, payment and settlement systems is still work in progress. A draft of the revised National Bank Law has been submitted and is being discussed in Parliament. The revised law will presumably enter into force in May 2004. It is intended to explicitly vest the responsibility of overseeing payment systems as well as securities clearing and settlement systems with the Swiss National Bank (SNB). The revised law will thus formally express that an efficient and secure financial market infrastructure is imperative for the implementation of monetary policy and for the stability of the financial system. The inclusion of clearing and settlement systems follows from the obvious fact that, given their linkages, these market utilities are of considerable systemic importance. The SNB, however, can only fulfil this expanded mandate by closely co-operating with other authorities. Domestically the SNB will work hand-in-hand with the Swiss Federal Banking Commission (SFBC), our banking supervisor. The SNB will focus on systemic issues while the SFBC will deal with institutional aspects. This job-sharing is based on the premise that each authority will be able to make use of its comparative advantage.

But this reliance on the demand from the developed markets is likely to decrease over time, as rapid economic growth within the region promises to provide a sustainable impetus, helped by the dismantling of trade barriers and the establishment of free trade agreements within the region. This high and increasing degree of trade integration and regional interdependence has clearly not been matched by a corresponding degree of financial and monetary integration. It is, of course, arguable whether there is a need for such correlation or causal relationship, and if so, whether the market can be relied upon to produce the optimum arrangements in due course without official sector involvement. My view is that monetary integration is desirable and, given the role of the state in the monetary system, cannot be achieved by market forces. I hope that, looking at the matter from a European perspective, you agree with me. The fact of the matter is that diversity or fragmentation leads to individual vulnerability, and interdependence is synonymous with contagion, particularly financial contagion. This is notwithstanding the low degree of financial integration and varying degrees of financial openness. The ingenuity of the financial community can be relied upon to establish financial linkages, where there is none officially allowed, through which what appears to be unmanageable financial risks can be managed and, consequently, financial contagion can be readily transmitted. The emerging markets of Asia provide fertile ground for financial innovation.
For example, the combination of a cold winter and a dry summer contributed to a 26 percent rise in electricity prices, as measured by the consumer price index, in 2018. Negative supply shocks thus lead to lower output but higher inflation. This poses a dilemma for monetary policy. Should the policy rate be raised to curb inflation? Or should it be lowered to stimulate the economy? Chart: Quarterly growth Norway, autumn 2018 With our flexible inflation targeting regime, we will not usually change the policy rate if a supply shock is transient. One example is the decline in agricultural production in Norway in 2018 as a result of an unusually hot and dry summer. Production fell by 40 percent in the third quarter. Even though Norway’s agricultural sector is small, the fall in production led to a decline in economic 2/7  BIS central bankers' speeches  growth between the second and third quarter. We assessed the decline as transient, and the policy rate was not changed. However, if such an event leads to a persistent rise in inflation in the next round, this may affect the policy rate. So far, more unstable weather has only had short-term effects on output, employment and inflation in Norway and other advanced economies. Wide fluctuations have been observed in food and energy prices in particular1, but there have up to now been few instances of physical climate change influencing macroeconomic developments in these countries.

Risk premiums on projects that do not meet green standards should reflect the higher risk associated with these projects. Similarly, discounts should not be given for so-called green projects unless there are financial reasons for doing so. A green investment does not necessarily involve lower financial risk. In order to identify and adapt to their own climate risk, banks depend on relevant disclosure by 4/7  BIS central bankers' speeches  the companies in their lending portfolios. Accurately pricing risk is difficult without information about the level of the borrower’s exposure. For banks, transition risk is also a source of financing risk. There is growing interest in climate risk among financial investors, including those providing credit to banks. The perception that some banks are particularly exposed to transition risk may have implications for banks’ funding costs and access to funding. Thus, just as banks should identify climate risk in their own lending portfolios, they must be prepared for their own investors to demand improved disclosure of climate-related financial risk. The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are in the process of becoming normative. Banks play a vital role in the intermediation of credit to households and businesses. Problems in the banking sector can quickly have negative consequences for the wider economy. Large credit losses or difficulties obtaining funding can have ripple effects in the form of lower lending to households and businesses. Transition risk may therefore contribute to systemic risk.