samchain/econo-pairs-v1 huggingface dataset:
The high risk appetite of the domestically focused banks is, for instance, evident from the fact that mortgage lending growth at these banks continued at a robust 4%, whereas the market as a whole saw growth of around 3%. At the same time, affordability risks, which these banks take on when granting new mortgage loans to finance residential investment properties, have risen once again over the course of the year. Since many of these loans also carry considerable loan-to-value (LTV) risk, they would be particularly vulnerable in the case of a sharp increase in interest rates and a correction in real estate prices. Page 2/3  Berne, 13 December 2018 Fritz Zurbrügg  News conference  It is important that banks are in a position to bear the risks they take on. In the SNB’s opinion, this requirement is met by most domestically focused banks owing to their good capitalisation level. Capitalisation levels appropriate to the exposures incurred need to be maintained in future, too. This is particularly relevant in view of the previously mentioned granting of mortgages with high affordability risks, which increases the banks’ loss potential. Given the risks I have just described, the SNB continues to take the view that targeted measures in the area of residential investment property lending should be considered. Such measures are currently being examined. In addition, the SNB will continue to monitor developments on the mortgage and real estate markets closely, and regularly reassess the need for an adjustment of the countercyclical capital buffer. Page 3/3

), and to move over to a type of regulation based on the roles performed by different players in the stability of the system (liquidity provision, deposit-taking, market making, etc). Lastly, the G20 has set out a road map to improve accounting standards. Agreement on this point is not as broad as on the previous ones. The members of the G20 have sometimes divergent views about the role of accounting rules. In particular, one of the controversial  2  BIS Review 75/2009  points relates to mark-to-market and the scope of application of fair value accounting. Nonetheless, I observe that the G20, by asking that the accounting standard setters take greater account of financial stability constraints, implicitly acknowledges that the impact of accounting choices on the latter are not neutral. In any event, the countries agreed on three objectives: reducing the complexity of accounting standards, increasing the harmonisation of standards internationally and introducing a more forward-looking system of provisioning. The discussions at the G20 summit find a strong echo in Europe. In fact, it is no exaggeration to say that the Europeans are a driving force in the international projects I have just described. In regional terms, the report by the high level group chaired by Jacques de Larosière is a cornerstone for the new financial regulation and supervision that will emerge in Europe after the crisis. These recommendations appear highly relevant to me. They reconcile efficiency and pragmatism.
For example, the EONIA rate – the rate of unsecured overnight lending between some of the largest euro area banks – is an important first link in the chain of monetary policy transmission. Ever since the financial turmoil started in August 2007 – more than five years ago – and then became a severe crisis with the bankruptcy of Lehman Brothers one year later in  1  I wish to thank Fiona van Echelpoel, Benjamin Hanssens, Florian Heider, and Marie Hoerova, for their contributions to this speech. I remain solely responsible for the opinions contained herein. 2  CPSS report: “Strengthening repo clearing and settlement arrangements”, September 2010. BIS central bankers’ speeches  1  September 2008, money markets have not been operating smoothly. The outbreak of the financial crisis has been well documented, but it is worthwhile recalling the extent of the shocks, which are still being felt today. 3 Within a few days after the demise of Lehman Brothers on 15 September 2008, the EURIBOR-OIS spread, which had been zero a little over 12 months before, rose to a staggering 186 basis points (in the United States the spread rose to 365 basis points). In addition, cash-rich banks were apparently no longer lending to cash-poor banks. The flow of liquidity in the financial system came to a sudden stop. Prior to the bankruptcy of Lehman Brothers, banks hardly ever deposited funds at the ECB (where they earn the deposit facility rate, which at the time was 1% less than the policy rate).

13 Trade repositories provide a comprehensive overview of the transactions in the markets they serve, which contributes to better risk management, public supervision and oversight as well as market discipline. The ECB actively supports the current work to develop such a central database for the EU repo market. 14 It could be established in a joint effort by public authorities and the financial industry. b)  Collateral optimisation  Let me now turn to the second point on collateral optimisation. As recognised in the CPSS report, the “efficient and flexible use of collateral facilitates market participants’ collateral management and can contribute to the development of liquidity and smoothly functioning repo markets”. This was considered to hold true for repo markets in normal times as well as allowing an enhancement of the resilience of repo markets in times of stress. The need for efficient and flexible use of collateral facilities has even become  12  See, for instance, D. Duffie and H. Zhu, “Does a Central Clearing Counterparty Reduce Counterparty Risk?”, Review of Asset Pricing Studies, Vol. 1, Issue 1, December 2011. 13  Trade repositories are central databases that compile and aggregate data across various execution and clearing venues. 14  See Vítor Constâncio, Introductory remarks to the ECB workshop – Repo market and securities lending: towards an EU database, 3 December 2012, see https://www.ecb.int/press/key/date/2012/ html/sp121203.en.html. BIS central bankers’ speeches  5  greater in the past couple of years, taking into account the generally increasing demands for collateral assets coming from various quarters.
In my remarks, I am going to focus only on the set of unconventional monetary policies that are relevant today in an environment in which central banks are constrained from lowering their policy rate any further due to the zero lower bound. I will not discuss the type of extraordinary interventions that occurred at the height of the financial crisis.1 A starting point is that the independence of the central bank with respect to its budget supports its overall independence. The Federal Reserve’s traditional monetary policy framework has helped to assure this budgetary independence. The liability side of our balance sheet consisted primarily of currency and reserve balances on which we did not pay any interest. The asset side consisted primarily of Treasury securities. There was no meaningful credit risk and the interest rate risk was limited because assets were generally held to maturity. This, combined with the zero cost of the Fed’s liabilities, resulted in the Federal Reserve turning over a large amount of earnings to the Treasury each year after covering all of its operating costs and retaining a small portion of its earnings to maintain a level of surplus capital equal to the amount of capital paid-in by member banks. Thus, one key question is how this budgetary independence might be threatened through the use of unconventional monetary policies. After all, some of these policies do have implications for the Federal Reserve’s remittances to the Treasury and, thus, could conceivably create a potential threat to the Federal Reserve’s budgetary independence.

Providing a forecast for the policy rate by itself does not create any budget or reputational risk for the Federal Reserve, so I generally do not see the first form of forward guidance as posing much risk to central bank independence.2 The second form of forward guidance – pre-commitment to a policy rate path – could create more risk for the central bank. In particular, consider a scenario in which the central bank decided to increase monetary accommodation by committing to maintain a low short-term interest rate for a long time even if this commitment resulted in inflation overshooting the central bank’s objective in the future. I could see how this could create a potential threat to the central bank’s independence. That is because the commitment could force the central bank in the future to conduct monetary policy in a way that was inconsistent with the inflation portion of its mandate. Although this second form of forward guidance could create greater risk for the central bank with respect to its future independence, this is not a policy that has been adopted by the Federal Reserve. There are implementation challenges with this approach. In particular, it is difficult for a monetary policy committee today to institutionally bind future monetary policy committees to follow actions that could conflict with their objectives in the future. Without such a credible forward commitment, such policies would likely be ineffective in affecting expectations in the manner needed to provide additional monetary policy accommodation.
What has been agreed on with the SSM – within the framework of Target operating models (TOM) – in relation to the relocation of staff and assets has to be implemented at once and in any event before the end of this year. Regarding CCPs, equivalence decisions by the Commission will ensure continuity of access to UK CCPs after 31 December 2020, until 30 June 2022. Beyond this transition, it is key to address the financial stability risks stemming from an excessive dependence on UK CCPs. The 18 month limited equivalence decision aims to give market participants the time needed to reduce their exposure to UK CCPs that are systemically important for the Union. This timeframe will also be used by ESMA to conduct a comprehensive review of the systemic importance of UK CCPs to the Union as foreseen by EMIR 2.2. This will include a fully reasoned assessment whether some of the clearing services are of such substantial systemic importance that the CCP should for euro-denominated activities be relocated on the continent. Considering the size and the concentration of some of these clearing services, betting on the status quo would be a losing 1/4  BIS central bankers' speeches  proposition, including for clearing members: a swift relocation is in the interest of all participants and relies as such on the attractiveness of the clearing offer that EU CCPs are encouraged to build in order to help the emergence of a new liquidity pool.

According to a recent study by the British Think Tank New Financial, it will take the lead in the EU in 14 of 30 sectors studied2. This polycentric structure would improve the circulation of the abundant savings in the euro area – a surplus amounting to EUR 360 billion last year – channelling them towards financing needs on the continent. Besides, euro area businesses have been lacking equity financing for many years now. The Capital Markets Union – and what I more broadly call a “Financing Union for Investment and Innovation” – is even more essential given the prospect of Brexit. European governments all agree in principle; but so far it remains a blind spot in the recovery strategy. Let us at last turn words into action. II. Preparing Europe payments for the digital currency age Payments are not a usual topic for Europlace and distinguished financial forums. Indeed, they used to be considered as technical, back-office and even boring stuff. But a revolution is underway, and if we collectively miss it, it would mean a massive disintermediation of banks in the two key assets linked to payments: daily customer relations, and personal data. And it would also mean a major loss of sovereignty for Europe. To this day, the coexistence and complementarity of central bank and commercial bank money as settlement assets has structured the payment landscape. Yet this structure is increasingly being questioned.
The severity of the recession might appear to tilt the argument in favour of “leaning”, but the question still arises as to how effective such a policy would have been in restraining the boom in credit and property prices and at what cost to activity. Together with colleagues from the Bank (Bean et al, 2010), I recently attempted to investigate this question using simple vector autoregressive models of the US and UK economies. I will refer you to the paper for the details, but Table 1 shows the results of counterfactual simulations of a pretty aggressive “leaning against the wind” policy, in which the policy rate is held around 200 basis points higher over the 2003–2006 period. The simulations suggest that the peak in real house prices would have been about 7½% lower in the United States and some 20% lower in the United Kingdom. The impact on the stock of credit is, though, more modest: just 3–4% lower by the end of 2006. Moreover, the cumulative impact on activity is considerable, with output around 3% lower by the time the crisis begins. Clearly, then, the terms of trade for controlling the risks to financial stability through monetary policy alone do not look very favourable: even substantially higher interest rates over a sustained period would not have prevented the crisis. A similar conclusion is reached by Bernanke (2010) and Carmen Reinhart and Vince Reinhart (2011).

Moreover, restricting domestic credit expansion will not serve if the cross-border activities of banks result in their most vulnerable exposures originating overseas. That, of course, was the case in the present crisis, where the main losses to UK and European banks arose from holdings of securities linked to the behaviour of the US housing market. On top of that, a unilateral increase in interest rates may well end up having a perverse effect on credit growth, because it sucks in capital flows from abroad to take advantage of the interest differential, so boosting the real exchange rate and adding to the supply of funding to the banking sector. The obvious conclusion is that one needs to look to other instruments – so-called macroprudential regulation – which act directly against the expansion in credit during the upswing and limit the contraction in any bust; in other words they stabilise the supply of intermediation schedule, XS. Given our earlier discussion, an obvious way to do this is by raising capital requirements on banks, thus improving their resilience, during the upswing of the credit cycle and reducing them during the subsequent downswing, allowing banks to maintain the supply of financial services. The new Basel III agreement on capital and liquidity regulation makes specific provision for such a countercyclical capital buffer of up to 2.5% of risk-weighted assets on top of the increased base Core Tier 1 capital ratio of 7%, i.e. a potential increase in capital requirements of more than a third.
23 A “Brexit break” could also be associated with a material depreciation of sterling, putting upward pressure on inflation. In this case, the appropriate reaction of monetary policy would be ambiguous, and it is possible that tightening, rather than loosening, may be warranted. 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  rates is fully priced in between now and late-2019. Forward rates only reach 1% by 2023 and, remarkably, never reach 2%. Given these expectations, any rise in interest rates in the immediate period ahead would come as a surprise to financial markets and, perhaps to a lesser extent, consumers and businesses. Because people dislike nasty surprises, this increases the chances of an outsized response in spending or in asset prices, perhaps even one which catalysed a “Brexit break”. This is a risk which, even if it is remote, is not easily dismissed. Taken together, these factors – real, nominal, financial - make the case for maintaining the MPC’s current, accommodative, monetary policy stance. And, until recently, it was those factors which weighed most heavily with me when framing my own view on the appropriate monetary policy stance. The Case for Tightening One of the keys to good policymaking is regular and critical self-examination of your arguments. This devil’s advocacy can help expose soft spots in your policy judgement, especially at times when the data and the risks around the economy may be altering.

On behalf of the Supervisory Board I would like to thank Lilja Steinþórsdóttir for our pleasant work together. In her place, the Supervisory Board appointed Stefán Svavarsson Chief Auditor. Financial institutions compete fiercely for talented employees, which is not surprising given the pace at which the Icelandic banks’ activities have expanded. It is vital for the Central Bank to have as capable employees as possible in its service. It must take prevailing conditions into account to ensure that this is the case. On the Supervisory Board in 2006, Ólafur G. Einarsson resigned from the post of Chairman which he held since 1998. Helgi S. Guðmundsson was elected Chairman in his place. On behalf of the Supervisory Board I would like to thank Ólafur G. Einarsson for his particularly successful leadership during his years as chairman. The Supervisory Board held 22 meetings during the year. I would like to thank the members of the Supervisory Board for their pleasant cooperation and fine work. I also thank the Board of Governors and employees of the Bank for their very good work during the year and fruitful collaboration with the Supervisory Board. 2  BIS Review 34/2007
It also has the ability to make Recommendations within the Bank, to HMT and to any other person, with a view to achieving its statutory objectives. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  The post-crisis reforms embody the lesson of that: keep up… …with the risks the system faces. And with the shape of the system as it shifts. To keep the system capable of serving in the bad times as well as the good. Today – declaring my obvious conflict of interest – I want to look back to consider how, over five years, we’ve got the system to a place where it can serve the economy in bad times as well as good. And then I want to look ahead, to the macro trends of Brexit, borrowing and the unbundling of banking and the challenges they present to keeping up. Looking back, we have largely corrected the fault lines that underlay the crisis. In particular, the banking system has been strengthened. Not everyone agreed it should be strengthened so much. But it was obvious that it needed to happen. The economic costs of major banks getting into distress are vast. So they must be able to withstand – and keep lending through – even very severe and rare economic events. That’s why we stress test them to economic scenarios more severe than the financial crisis. It’s why the largest banks must fund themselves with 10 times more capital than they did before the crisis.

There is no rule book that’s good for all seasons, let alone all time. So the new system hardwired in the duty to look up and out and to adapt. The financial crisis had laid bare a failure to do that across advanced economies. Regulation hadn’t kept pace with the risks the system faced, from over-inflated housing and financial markets in the United States to a commercial real estate boom in the UK. Nor had it kept pace with the way the system worked; with securitisation, SIVs and CDS. The result is worth etching in our collective memory. A near collapse of the financial system and a sideswiping of the global economy of epic scale. In the UK alone, a million more people unemployed. And lost income over time equivalent to a bill of £ for every person in Britain. 3  1  The Bank of England’s Financial Policy Committee identifies, monitors and takes action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC is not authorised to take action that is “likely to have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term”. 2 The FPC has specific powers of Direction over the Prudential Regulation Authority and Financial Conduct Authority and the ability to make Recommendations (including on a ‘comply or explain’ basis) to both authorities.
For monetary policy, however, they are akin to a series of persistent positive supply shocks that may force central banks into action should these shocks cause a more general and broad-based reappraisal by the public of the medium-term inflation outlook.21  Greening monetary policy implementation So, the implications for the conduct of monetary policy could be substantial. The question, then, is whether central banks themselves should be doing more to prevent climate change in the first place.22 Some argue we have an obligation to act, since the EU Treaty states that “without prejudice to its primary objective, the ECB shall support the general economic policies in the Union”, which include a high level of protection and improvement of the quality of the environment, and mandates environmental protection requirements to be integrated into the definition and implementation of the Union's policies and activities.23 Certainly, the protection of the environment is not the only transversal objective assigned to EU institutions and hence to the ECB. Under the Treaty one could equally ask, for example, why the ECB should not promote industries that promise the strongest employment growth, irrespective of their ecological footprint.24 But equally importantly, the ECB is subject to the Treaty requirement to “act in accordance with the principle of an open market economy with free competition”. In the end, the Treaty grants the ECB a high degree of independence and it enjoys broad discretion in implementing its policies.

17 This is despite oil price shocks having had on average much less impact on the economy, largely thanks to the  8/9  BIS central bankers' speeches  enhanced credibility central banks have gained over time. See, for example, Choi et al. (2017), “Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies”, IMF Working Paper No 17/196. 18 See, for example, Bielen et al. (2017), “The Future of Power Markets in a Low Marginal Cost World”, Resources  for the Future Working Paper 17–26; and Archer, C. and M. Z. Jacobson (2005), “Evaluation of global wind power”, Journal of Geophysical Research, Vol. 110, pp. 1-20. 19 See, for example, the Platform for Climate Adaptation and Risk Reduction on www.placard-network.eu. 20 Google, for example, managed to reduce its energy consumption by more than a third by optimising its cooling  system through artificial intelligence controlled systems. 21 On the positive side, however, the associated increase in the economy’s trend growth rate will help lift the  natural rate of interest, thereby increasing the policy space available for central banks to manage fluctuations in the business cycle. See also Cœuré, B. (2018), “Scars that never were? Potential output and slack after the crisis”, speech at the CEPII 40th Anniversary Conference, Paris, 12 April. 22 See the European Parliament resolution of 29 May 2018 on sustainable finance (2018/2007(INI)). 23 See Articles 11 and 127(1) TFEU and Article 3 TEU.