samchain/econo-pairs-v1 huggingface dataset:
In my opinion, American analysts who in general have a very optimistic view of a very short downturn underrate these risks. What effect will the American economy have on the Swedish economy? The question is also what effect developments in the American economy will have. If you look just at the effects on trade flows, the effect on Europe and Sweden is not so strong. Exports to the United States only account for a bit more than 2 per cent of our GDP and the American market has about the same importance for the euro area. In addition, we are affected by demand for Swedish goods from other countries reducing when their export to the United States drops. Moreover, some international companies with activities in the United States can affect household wealth in Europe as well through share prices –this applies not least to Sweden. Our “Swedish” companies are very international (Ericsson, Electrolux, Stora-Enso, Volvo, Atlas Copco, Skanska) at the same time as a large part of Swedish households’ shareholding is invested there. What conclusions should we draw then for the Swedish economy? I would like to begin by reminding that the Swedish economy is better equipped than for a very long time as regards the underlying climate for growth. We have sound and stable public finances. We have paid off our foreign debt after a number of years with a current account surplus. Inflation expectations are stable and unemployment has been considerably reduced (see Diagram 2).

High real wage increases despite moderate nominal pay increases are one factor that has undoubtedly increased the support of wage earners for the price stability objective. The fact that the price stability objective has been confirmed by law has also probably contributed to confirming confidence in the inflation target. However, the Riksbank has a pedagogical and practical problem. Monetary policy decisions are based on assessments of inflation a couple of years ahead and are focused on achieving the inflation target during that period. This means that we can often be compelled to increase the interest rate despite the actual rate of inflation at the time being under the target. In December last year, for instance, the Riksbank increased interest by 25 points despite inflation then being at 1.4 per cent. Decisions are then made on the basis of forecasts over a two-year horizon. The most important reason for not waiting until inflation actually exceeds the target is that inflation expectations would then risk accelerating since it takes up to two years before monetary policy has its full effect. And then we may – to rein in inflationary expectations again – be compelled to tighten up the economy more than we would have to have done if we had reacted earlier. The Riksbank’s way of conducting monetary policy obviously plays an important role with regard to maintaining confidence in price stability. However, we should not forget that fiscal policy also has to be conducted in a way compatible with the price stability target.
The end result is the deep suspicion which the poor would have about the entire microfinance industry. The authorities too would view microfinance as a destabilising and fraudulent element in the financial system. This leads to a credibility issue and a reputation risk in microfinance industry. Once the industry loses its reputation, it is difficult to regain the same irrespective of whatever is being done by some genuine microfinance practitioners. The damage to the industry is done by some “black sheep” who are not controllable by other genuine performers. In this manner, the quick returns are earned by “ill-willed” practitioners, but the social cost has to be borne by the entire industry. Hence, the major challenge faced by microfinance industry today is to save itself from the spurious micro-financiers. Who is a poor person? The poor are normally defined by reference to income level or calorie intake or the level of opportunities available. All these definitions represent some aspects of the poor which are important. Yet, they do not accurately depict the real nature of the poor. A poor person is a person who is unable to assess the risks faced by him and take the required mitigating measures to avoid them. The risk factor is more suitable to identify the poor, because the poor have to operate in a market which is full of risks. If he can successfully wade through the risks, he could succeed in the market as well.

If he fails, he would remain a poor forever having to depend on outside help. Greed is the killer Not many in a society would be able to correctly assess the risks faced by them. If they are unable to assess the risks, then, they cannot expect to take risk mitigating measures as well. Many reasons can be adduced to this general failure of individuals to assess risks appropriately. They may not have been taught to assess risks. Or, their risks would have been assumed by others, chiefly the government, and as a result, the moral hazard behaviour would have prompted them to take unnecessary risks. Even when they are educated and there are no opportunities for moral hazard practices, they may still take risks purely guided by their extreme greed. When the greed overtakes the rational mind, the individual may be blind to what he would get if the scheme fails. People belonging to both rich and poor categories fall into this last category. It is these people who normally fall easy prey to cunning tricksters who are planning to strip them of their wealth by making false promises. All that is necessary is to arouse, by means of a well-orchestrated marketing plan, their greed. The spurious micro-financiers use person to person contact method to outreach potential victims and lure them to leave their wealth in the hands of total strangers.
Our model captures the spirit of these dynamics, with short-run risk-taking to preserve reputation and boost returns (a credit boom) in time giving way to longer-term collective costs when the music ceases (a credit crunch). Chart 1 Price to book ratios for UK, US and European institutions(a)  Sources: Bloomberg, Thomson Datastream and Bank calculations  2.1  (a)  Chart shows the ratio of share price to book value per share. Simple averages of the ratio in each peer group are used. The chart plots the three month rolling average. (b)  Excludes Nationwide and Britannia from Major UK Banks peer group. The set up  We develop a simple framework, in the spirit of Rajan (1994), to capture these collective action failures. Rajan’s (op.cit.) model generates multiple equilibria. We use a version of the Morris and Shin (2003) “global games” framework to pin down a unique equilibrium for the coordination game among banks, which then allows an evaluation of policy options. 3  3  For other applications of the “global games” framework to banking, see inter alia, Rochet and Vives (2004) and Goldstein and Pauzner (2005). Broadly speaking, these models use the framework to pin down uniqueness in the coordination game played by the depositors of fragile banks, a la Diamond and  BIS Review 168/2010  3  The set up is as follows. Each period there is a continuum of agents, indexed by , all of whom work as financial intermediaries for a single period.

Frameworks are being established to identify and address the risks posed by global systemically important financial institutions. Make derivatives markets safer. Requirements are being put in place to foster central clearing, margin requirements, and mandatory reporting of OTC derivative trades. Transform shadow banking into resilient market-based finance. Oversight of shadow banking entities is being strengthened. The Financial Stability Board has been working to ensure that these internationally agreed regulatory reforms are implemented in a timely and consistent manner across the major jurisdictions. While gaps remain in some areas, implementation is generally proceeding well. It is time now to begin the important task of evaluating the impact of the reforms. In fact, the FSB is developing a conceptual framework for doing this. The framework aims to answer two questions: have the regulatory reforms been effective – are they achieving their intended outcomes? 1/7  BIS central bankers' speeches  what are the cumulative effects of the reforms – how have the various reforms interacted with one another, are they coherent, what are their larger social benefits and costs? This work is especially important in the current context: As memories of the crisis fade and the burden of regulatory reforms comes into sharper focus, the pressure to unwind the reforms will grow. It is important for the credibility of the reforms that their impact be objectively evaluated. It is also incumbent on us as regulators to be accountable for the substantial changes that we have put in place over the last eight years.
And a long period with underutilised resources may cause durable damage to the supply capacity of the economy through a variety of hysteretic mechanisms, such as skill atrophy on the part of the unemployed and foregone opportunities for learning by doing. In any case, to me this sets up a false dichotomy. There are both Keynesian and Hayekian dimensions to the post-crisis environment. A “two-handed” approach is called for, in which supportive aggregate demand policies on the one hand are complemented by policies that facilitate the necessary restructuring, particularly of the banking sector, on the other. So rigorous evaluation of the assets on banks’ balance sheets, followed by recapitalisation, should be the order of the day (see Tucker, 2013, for a similar perspective). The United States has been a model in this regard. In Europe, we have lagged a little, but are now catching up. In the United Kingdom, the Prudential Regulation Authority, at the instigation of the Bank’s Financial Policy Committee, has required several of our major banks to strengthen their capital buffers against potential losses. And, in the euro area, the European Central Bank is about to undertake an in-depth health check of banks’ balance sheets. Of course, there are some risks attached to pursuing such accommodative monetary policies. Quantitative easing can threaten future financial stability if it leads investors into excessively leveraged positions in the search for higher yields.

In formal terms, the General Council may only severe a member of the Executive Board from his or her appointment if “…he no longer meets the requirements which are made on him to be able to carry out his duties or if he has been guilty of serious misconduct.” 2 The legislation strengthens the Riksbank’s independence and credibility for monetary policy. For example, it should not be possible for those in power to be able to groundlessly dismiss a member of the Executive Board for the purpose of appointing their “own” decision-makers. As the question of accountability is stated in law, it is not actually the Riksbank’s task to take a stand on how this should be achieved. However, what we can do – and also strive for – is to create the best possible conditions for accountability. We do this by being as open and clear as we can. This makes it easier for outsiders to critically examine how monetary policy is conducted and how well we live up to our principles. 1  Sveriges Riksbank Act (1983:1385), Chapter 8, Article 1. 2  The Instrument of Government, Chapter 9, Article 13. 4  BIS Review 62/2007  There are also certain formal requirements for providing information to our principal. Our tasks include, for instance, presenting a written report on monetary policy to the Riksdag Committee on Finance at least twice a year. In connection with this, the Committee also holds a hearing with the Riksbank Governor.
The alternative business model for banking is to retreat from the street, but to seek new ways to nurture generalised, or anonymous, trust on the part of the public. Technology may be a great enabler here, allowing a customised and personalised service even if it is not a person actually delivering it. Indeed, it is striking that it is often technology companies that are towards the top of the industry trust league table. I am a long-standing supporter of alternative business models for banking, ones which connect end-savers and end-borrowers directly, peer-to-peer. Their offering to consumers is often a different one, challenging both the product and the pricing of incumbents. It is disruptive innovation. Many of these challengers are growing fast and have high levels of customer satisfaction. Innovation never occurs in a straight line, nor without bumps, but these new entrants bring welcome diversity to the banking market. Whatever business model is adopted, success will hinge on whether the public have faith in banks pursuing a purpose aligned with their needs, that they are fulfilling their fiduciary function. There is a mountain to climb on this front, not just for banking but for business generally. If not at an all-time low, public trust in big business is plumbing the depths. And the chorus of criticism of business is not confined to the general public. It is shared by politicians, academics, investors and indeed sometimes by companies themselves.

They occupy a position in the top right hand corner, with levels of complexity higher-even than commercial bank annual reports. This suggests the vast majority of the Bank’s publications may be inaccessible to the vast majority of the general public. Having assessed my own speeches, including this one, the conclusion is much the same. They, too, are likely to be impenetrable to most. These linguistic issues are not merely matters of careful drafting. They are important at a substantive level when it comes to building social capital, accreting generalised trust, closing the Great Divide. Plainly, there is further still for us all to go, myself very much included, in simplifying our communications to enable us to speak clearly to those we serve. Set-piece communications, in the form of written reports and speeches, are only one aspect. There are different methods and media which can be used to reach different audiences using different voices. Last year’s Open Forum was an example of such an initiative. 64 The Bank’s  63  Results from a poll conducted by Populus for the Bank of England in March 2016 of around 2,000 adults. 64  For further details, please see Bank of England Open Forum (2015). BIS central bankers’ speeches  15  enhanced public understanding programme is another. A third would be to seek different means of engaging more directly with the general public around the country.
A third adverse side-effect was that workers did not always benefit, fully or immediately, from technologically-induced gains in companies’ productivity and profitability. In the early stages of each industrial revolution, wages tended not to rise in line with productivity, causing labour’s share of the national income pie to fall. 29  This, too, tended to add to popular discontent and damage social cohesion. Labour’s  income share has also fallen in a number of advanced economies over the past few decades. 30  A final side-effect is that periods of technological transition were often lengthy as well as painful. In the first Industrial Revolution, many displaced workers had still to find alternative work by the middle of the th  19 century, with income inequality running high and labour’s share falling. This period is known by historians as “Engel’s pause”. 31  Subsequent industrial revolutions have seen similar, if less long-lived,  pauses. If economic hardship is widespread and social cohesion damaged, a societal response is needed. One such response is the creation of new pieces of social infrastructure – in other words, institution building. Each industrial revolution saw a surge in such institution-building, to cushion the adverse side-effects of technological change on jobs and pay. In this way, the recessionary hit to workers and the economy could be shortened or dampened. Broadly speaking, two such sets of institution emerged. One set equipped workers with the new skills they needed to thrive in a new jobs environment.

Sarah Dahlgren: More resilient, better managed, less complex – strengthening FMUs and linkages in the system Remarks by Ms Sarah Dahlgren, Executive Vice President of the Financial Institution Supervision Group of the Federal Reserve Bank of New York, at the Securities Industry and Financial Markets Association Conference, Boca Raton, Florida, 29 April 2014. *  *  *  Good morning and thank you for inviting me to your Annual Operations Conference. This event brings together an important cross-section of market participants – and looking at the attendance, I think there is good representation of nearly every important part of the financial system in the audience. Today, I am going to talk about the progress that the industry has made to address weaknesses identified through the financial crisis and to build resilience to future shocks. I will also offer some observations on areas of remaining challenges, particularly as we focus on the interconnections between and among various market participants. As always, my remarks today reflect my own views and not necessarily those of the Federal Reserve System. It’s hard to believe that it’s been over five years since the onset of the worst part of the financial crisis – and I’m not sure whether it feels longer or shorter than that! But one thing I’m certain of is that a lot has changed in those five years, including fundamental changes in rules and regulations, as well as substantive changes in how firms and the system are structured and operate.
From the point of view of the FSB, the possibility of conducting an orderly resolution of a failing cross-border financial institution is an important element in finding a solution to the “too big to fail” and “too big to rescue” issues. Effective communication between the relevant  2  BIS Review 167/2009  supervisory authorities as well as forward-looking elaboration of emergency procedures are indispensible in this process. Internationally recognised regulations for the dissolution of systemically important institutions that can be enforced under any jurisdiction are no doubt a splendid objective. In the real world, however, different national regulations will continue to exist in this field. From our point of view, reciprocal recognition of national regulations that are mutually compatible, and the associated adjustment of structures and processes, are a more realistic objective. The second element proposed by the FSB is to supplement the increased capital and liquidity requirements with various measures that address the organisational structures of systemically important financial institutions. Measures of this kind could, for instance, create the possibility of extracting operations that were important for the economy and liquidating the remaining operations. The third element in the solution envisaged by the FSB is a financial market infrastructure whose design ensures that, as far as possible, it minimises destabilising effects in the event of a bank collapse. Central counterparties can play a special role in this respect.

Given the particular importance of the banking sector, with two big banks which hold a key position in the domestic loan and deposit market, the “too big to fail” and “too big to rescue” issues have particular significance for Switzerland. Consequently, we need to be very conscious of the fact that measures may be needed over and above any international standard. For this reason we are dependent upon political support in order to make our financial system more resistant and more stable with regard to the “too big to fail” and the “too big to rescue” issues. If this succeeds, the competitive position of the Swiss banking sector will be reinforced in the long-term as a result of increased safety, reliability and credibility. The fact that the Swiss Federal Council has appointed a commission of experts on the subject of “too big to fail” is an important step, which we welcome. The willingness of the big banks to participate actively in elaborating solutions to the “too big to fail” and “too big to rescue” issues is also welcome. These latest developments clearly show how urgent the problems are. Ladies and gentlemen, if we do not manage to fundamentally reform the financial system, it is to be feared that a future crisis of even greater dimensions will trigger such a strong protectionist and regulatory reaction that the damage done will extend even to the market economy to which we owe our prosperity. We owe it to future generations to take action against this danger.
Since the creation of the PRA we’ve authorised 22 new start-up banks, and five in 1  Prudential Regulation Authority (2020), Consultation Paper 9/20: Non-systemic UK Banks: The Prudential Regulation Authority’s approach to new and growing banks – https://www.bankofengland.co.uk/prudential-regulation/publication/2020/new-and-growing-banks 2 See https://www.gov.uk/government/publications/ring-fencing-information/ring-fencing-information 3 Under the Financial Services and Markets Act 2000 (as amended), the PRA has two primary objectives: i) a general objective, to promote the safety and soundness of the firms we regulate; and ii) an objective specific to our regulation of insurers, to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders. The PRA’s secondary objective is to act, so far as is reasonably possible, in a way that facilitates effective competition in the markets for services provided by the firms we regulate when they carry on regulated activities. See Prudential Regulation Authority (2018), The PRA’s approach to banking supervision, (October) 4 See https://www.bankofengland.co.uk/prudential-regulation/new-bank-start-up-unit. The approach to setting up a new bank has been broken down into different stages to help lower the barriers to entry. This includes early engagement with the regulator in the ‘preapplication stage’ and a ‘mobilisation’ stage where a bank authorised with restrictions is subject to less onerous requirements than a mature bank, allowing it time to secure further investment and build its capabilities before it becomes a fully functioning bank.

All of that should mean that firms face a more balanced choice between incurring the costs of specialist climbing equipment to climb a particularly steep bit of the mountain and strolling up a somewhat gentler hill instead. The mountain guide The consultation we’ve launched today introduces a new Supervisory Statement to make it much clearer how our expectations change over time for banks as they grow from ‘new’ to ‘mature’. Whilst most of this reflects how we have supervised firms in practice over the past few years, we have brought it all together for the first time so that the mountain path ahead is clear to you all. I won’t set out the entire supervisory regime now. But I did want to draw your attention to three changes introduced by the CP, all relating to capital, and which are designed to deliver a clear path from being a new bank at base camp to being established and on the way to the summit.   First, we are proposing to update how we calculate the capital buffer requirement for new banks. To date this has been based on an unspecified wind down cost calculation. But interpretation by banks has (understandably) been inconsistent, so we are proposing to move to a clear and consistent policy of setting the buffer as six months of operating expenses. This should be enough to allow banks time to find alternative sources of capital or to change their business model if investor support is lost.