samchain/econo-pairs-v1 huggingface dataset:
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.

Charles Bean: Central banking then and now Speech by Mr Charles Bean, Deputy Governor for Monetary Policy of the Bank of England, at the Sir Leslie Melville Lecture, Australian National University, Canberra, 12 July 2011. *  *  *  Good evening! It is a great honour to be invited here to give the tenth annual lecture dedicated to the memory of Sir Leslie Melville. As you will all know, Sir Leslie had a most distinguished career, both in academia and as a public servant. Much of his working life was spent as Chief Economic Adviser to the Commonwealth Bank, the ancestor of the Reserve Bank of Australia, where he provided advice to the Board on monetary and exchange rate policy, and also to Prime Ministers and Treasurers on economic matters more generally. In passing, I should record that Sir Leslie’s appointment was in part the result of one of the Directors of the Bank of England, Otto Niemeyer, pressurising the Commonwealth Bank to break with tradition by recruiting a professional economist! Sir Leslie also played a key role in the founding of the post-war economic order, leading the Australian delegation to the Bretton Woods conference, where he earned the fulsome praise of Maynard Keynes, followed by a stint as Australia’s Executive Director at the new international institutions. And, of course, he spent almost a decade as the second Vice-Chancellor of this University. I think you can say that was a professional life lived to the full.
To begin with, the economic data looked brighter at this point in 2010 and again in 2011, only to fade as we got into the second and third quarters of those years.1 Moreover, the United States has experienced unusually mild weather over the past few months, with the number of heating degree days in January and February about 17 percent below the average of the preceding five years. While this reduces the amount that households and businesses must spend for heating, I suspect that it temporarily boosts economic activity overall. For example, the mild weather is certainly conducive to higher than normal levels of construction activity, and we did see a surge in hours worked in that sector over the past few months. More importantly, real economic activity has yet to be strong enough on a sustained basis to make a big dent in the overall amount of slack in the U.S. economy. While it is true that growth was stronger in the fourth quarter, most of that growth was due to inventory accumulation. Growth of final sales was actually quite weak. Historically, a quarter in which inventory investment makes a significant growth contribution is typically followed by a quarter in which that growth contribution is modest or even negative. That appears to be what is shaping up for the first quarter of this year. Based on available data, current expectations are that real GDP will expand at around a 2 percent annual rate during the first quarter of 2012.

Yugoslavia, Mexico and Egypt had the advantage of being close to the critical export markets in the developed world. Honduras and Tanzania had precious metal deposits, as did several of the other Latin American and African countries. Singapore had nothing, was over-populated and had high unemployment. Many economists of the day predicted that countries in Latin America and Africa would outgrow over-populated, resource-scarce Asia. The outcome, however, was totally different. Living standards have barely risen in Honduras in the last 40 years, and have declined in Tanzania. Tito's Yugoslavia no longer exists. East Pakistan fought a war with West Pakistan and separated to become Bangladesh. Civil war and internal disorder tore up countries like Liberia, Ethiopia and Uganda. Singapore which was written off by pundits as being not viable without the Malaysian hinterland not only survived but thrived. Its GDP per capita increased more than six-fold, better than any of the other 15 countries represented in my class. Why have the growth experiences of individual countries been so disparate? Some of you might have watched the movie, "The Good, the Bad, and the Ugly", released, coincidentally, exactly 40 years ago. Set during the American Civil War, it was about three bandits who each held one clue to a hidden trove of gold coins. They did not trust each other, and wanted all the money for themselves. In the end, the "Good" bandit who put all the three clues together won.
The Bank of Japan (BoJ) responded by reducing overnight interest rates from a peak of more than 8 percent in early 1991 to ½ a percent by the fall of 1995.2 Most studies of this period suggest that policy was generally appropriate given economic forecasts at the time, but too tight relative to the actual outcomes.3 Economic forecasts for Japan – both by the official community and by private sector agents – were consistently more optimistic than the actual outturns. It is noteworthy that as late as January 1995 – on the eve of deflation – 10-year Japanese Government Bond (JGB) yields were still at 4.7 percent. With the benefit of hindsight, we now understand that the disinflationary consequences of the asset price bust and financial stress where vastly more powerful than was widely realized at the time. As we later saw in the U.S., the forces of contraction and disinflation operated through many different channels – not just directly on household wealth, for example, but also through the impact of the asset price bust on the health of financial intermediaries and the supply of credit to households and businesses. Over time, the Japanese banking system came under mounting stress. This was a slowmotion crisis, as the assets were mainly loans that were not marked-to-market. Accounting practices and regulatory forbearance allowed banks to delay charging off bad loans and recapitalizing at the cost of impairing the availability of credit to new potential borrowers. A full-blown banking crisis finally materialized in 1997.

The evolution of policy in Japan, in turn, has been informed, in part, by the experience of the U.S. and other nations. So what have we learned to date? Let me highlight six key points. First, and most importantly, managing expectations is critical in the execution of monetary policy at the zero bound. This includes expectations about the central bank’s objectives for inflation and the economy, and expectations about how the central bank will use its tools in the future to achieve these goals. Second, in managing expectations, good communication is essential. Expectations will not be well anchored when communications are muddled or inconsistent, or when a central bank acts in ways that are not consistent with its guidance. Third, actions speak louder than words alone. Thus, there is an important role for asset purchases that ease financial conditions to support growth and keep inflation expectations well anchored. Fourth, the policy instruments interact so that policy as a whole exceeds the sum of its parts. Fifth, at the zero lower bound, risk management becomes extremely important. In particular, because the costs of getting stuck in a liquidity trap with chronic deflation are high, a central bank should put substantial weight on avoiding this outcome. Sixth, the constraints imposed by the zero bound limit what monetary policy can accomplish by itself. This increases the importance of complementary fiscal, financial, and structural policy actions. Credible fiscal policies, actions to ensure a healthy financial system, and structural reforms that lift the potential for growth are very important.
The lack of clarity about the capitalization plan announced for the Spanish banking industry, its difficulties to meet the fiscal targets given the gloomy growth outlook and its impact on its sovereign debt are still cause for concern. Similarly, apprehensions have increased about other countries in the region, such as Italy, because of the bulk of its public debt and its slow growth. The coupling of risk premiums in Spain, Italy and France provides evidence of this risk. Also possible is a reversal of current tensions, for instance if there are agreements favoring compliance with the adjustment measures agreed or new announcements of support by economic authorities in the zone, 4  BIS central bankers’ speeches  that could buy time to advance in the necessary structural changes. The outcome of yesterday’s elections in Greece where the winner was the political option whose program is more in line with the country staying in the Eurozone, mitigates somewhat the eventuality of a Greek default triggering a crisis in the rest of the Eurozone. However, it is still premature to draw any conclusions. But undoubtedly the coming days will bring important news and we must be watchful of its effects on our economy. Additionally, other events will bring new information. More detail about the capitalization plan of Spain’s banks and the EC meeting later in the month may shed some light on new bailout measures. Other risks have to do with world growth prospects beyond the Eurozone.

We have built economic institutions that allow us to reach substantial levels of growth, and the necessary tools to mitigate any adverse shocks facing our economy. But we are not immune. In the globalized world of today, any change in conditions is rapidly propagated to other economies. The movements in financial markets that I mentioned a while ago are proof of this. Trying to isolate ourselves from the rest of the world would be not only useless, but harmful in the long run. The important thing is for us to have the capacity to shield ourselves from negative events and, when necessary, to take action to reduce their effects on our country. We already did so when the Lehman Brothers crisis hit in 2008. We couldn’t prevent the global recession from affecting our economy, but we did succeed in fostering a fast, sustainable recovery from 2009 onwards. In any case, our domestic macroeconomic situation has varied in these four years. Today, inflation is at 3 percent, GDP is growing at near-trend rates and the MPR is in a neutral range. This provides room to respond with monetary policy if necessary, although the timing and magnitude of the measures will have to be evaluated with special prudence and in light of the actual effects of external developments on our economy. Our financial system, meanwhile, has been solid and resilient to sudden changes in the international economy.
The sensitivity of wages to the cyclical situation has stepped up since mid-2012 which, in principle, suggests the labour market is functioning more in step with developments in the economy and the clearly declining trend of inflation. Indeed, in September the consumer price index posted a year-onyear rate of 0.3%, resuming a favourable difference vis-à-vis our European partners. The excessive dependence of the Spanish economy on the construction sector in the previous expansion no doubt entailed a factor of vulnerability. From the onset of the crisis in 2008, the deterioration of this sector was continuous; from then to the second quarter of this year, its real value added posted a cumulative decline of more than 40%, far higher than that recorded by the market economy as a whole, which did not exceed 10%. A major challenge facing the Spanish economy today is to have other industries, other than construction, take up the baton in terms of the creation of value added. And here, too, there are positive signs in recent quarters. The industrial sector achieved moderately positive growth in the second quarter, helped no doubt by the sound performance of exports. And the same occurred with the services sector. Despite the containment of labour costs and while bearing in mind that the data show a less adverse trend in unemployment, this is the most serious of our macroeconomic imbalances and that showing most resistance to correction.

There are promising signs, among business and regulatory sectors, that there is a growing space for captives to play a role. It is important that we move forward to harness this potential, responsibly and thoughtfully. 4/4  BIS central bankers' speeches
In the area of transparency, commercial banks since August this year have had to announce at the end of each month their NPL level, penalties and fines imposed by the authorities and the related lending. Public and stakeholders’ opinions are thereby used to augment the new supervision and examination process we are installing with the help of the OCC and the FDIC. In terms of bad banks, I expect that by the time I get back, or soon after I get back, the disposal of all intervened banks will be complete. In terms of bad clients, since on the afternoon I left for the Annual Meetings of the World Bank and IMF, the contract for the transfer into the government-run Asset Management Company of some 12 billion dollars of assets was signed and the Cabinet had also approved the covered asset pool arrangement for another intervened bank for a further 5 billion dollars. I expect that the NPL at the end of this year will be in the teens - a quite manageable level compared to the high of 48% at the beginning of the year. On the average, banks are now back into the positive spread, actually of 1.28% last month, which is low by traditional standards and still not profitable but still over half of the spread that we expect banks to be operating in under the new competitive and transparent conditions that we will see in the future.

In this respect, banks are now allowed to close branches freely and also are free to decide opening and closing hours. We are working on the rules on the free opening of branches, being quite far ahead in this, and we expect to announce it, certainly within the next two to three months, whereby lending conditions tied to branch opening are probably going to be removed. This initiative is undertaken under the concept that banking services coverage is now adequate and we need not force banks any longer to do things for social reasons. Competition between service providers will probably lead to better results than government directed banking. We have now also agreed on the rules for internet banking, defined as the traditional counter service banking using e-commerce technology. Our idea is simple in that what could be done over the counter will be allowed over the internet. The similarity in service even goes so far as that we will not allow pro-active selling in the internet but that it must be passive in the same way that we require that selling of non-banking services over bank counters must be passive. In terms of e-commerce, what that means is that logos of non-bank service suppliers in the bank’s web must not be on the main page. Transactions with the suppliers must be done by transferring into the supplier’s web rather than on the bank’s web services and, of course, the bank’s client, must log in. The banks may not push their services onto their clients’ computers.
BIS central bankers’ speeches  1  What are we doing? There is still a great deal of work being done to finish the Basel III framework. The capital standards are now largely settled, with the exception of some technical work on issues like exposures to central counterparties (CCPs). As I noted earlier, the LCR has also been finalised – albeit again with some final technical details to be resolved. But there are other parts of the Basel framework which we are currently working to flesh out and make operational. Major projects currently under way include: •  finalising the specification of the leverage ratio, and associated disclosure requirements;  •  reviewing the Net Stable Funding Ratio (NSFR), which addresses the longer-term structure of bank debt and complements the short-term focus of the LCR;  •  completing the review of the trading book capital requirements. This entails an evaluation of the design of the market risk regulatory regime as well as weaknesses in risk measurement under the framework’s internal models-based and standardised approaches;  •  enhancing the treatment of securitisations to make capital requirements more prudent and risk-sensitive. We are also reviewing ways to reduce mechanistic reliance on external credit ratings and to reduce current cliff effects in capital requirements;  •  strengthening standards to limit excessive and opaque risk-taking through over-thecounter (OTC) derivatives and to reduce systemic risk posed by OTC derivatives transactions, markets and practices.

Már Guðmundsson: Sovereign risk – a world without risk-free assets? Remarks by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, in a policy panel at a seminar on “Sovereign risk – a world without risk-free assets?”, Bank for International Settlements, Basel, 8–9 January 2013. *  *  *  I would like to cover three issues in my remarks. First, I will reflect a bit on the title of the seminar and some of the more specific questions directed at this panel. Second, I will discuss the nexus between sovereign risk and banking fragility, using Iceland as a case study – after all, the Icelandic experience is probably the reason that I am taking part in this interesting seminar in the first place. Third, and again with reference to the Icelandic case, I will reflect on the connection between sovereign ratings of advanced countries and actual sovereign defaults. The title of this seminar is Sovereign risk: a world without risk-free assets? As has been repeatedly pointed out, there is, strictly speaking, no such thing. The default probabilities of even the strongest sovereigns are not zero, and they increase as the horizon gets longer. Furthermore, the real income stream of nominal government bonds is uncertain.
There are also analysts who say that the interest rate cuts made by the US central bank, the Federal Reserve, have contributed to the price rises. 1 In recent years, portfolio investment in commodities appears to have become an increasingly common means of diversifying and spreading risks. The expected return on many other types of asset has declined and inflation has begun to rise in many areas. As this has occurred, real assets such as commodities have appeared to be a good and safe investment – a “safe haven”. This has reinforced the price rises. Demand from emerging markets – a more long-term driving force There are a number of interacting explanations as to why commodity prices have risen so sharply. It is hardly possible to say exactly how important each of them has been. However, one can say with some certainty that the persistence of the different driving forces differs somewhat. 1  See, for instance, Feldstein, M. “Enough With the Interest Rate Cuts”, the Wall Street Journal, 15 April, 2008 and Frankel, J. “The Effect of Monetary Policy on Real Commodity Prices”, NBER Working Paper No. 12713, 2006. 2  BIS Review 57/2008  What I mean more specifically is that demand for commodities from emerging markets may well have pushed up and may also continue to push up prices more persistently than the other explanatory factors. After all, the emerging economies are undergoing a structural transformation, which will probably be under way for a long time.

Improving the state of the labor market, removing rigid labor market regulations, reducing the tax wedge, and more importantly enhancing the human capital through education reforms are essential to accelerate the growth rate of the economy on a sustainable basis. Second, Turkey is a net commodity importer in contrast to Latin American countries and South Africa. We need to import in excess of 35 billion USD worth of oil and natural gas each year, almost 5% of our GDP. Looking at the composition of the foreign trade, you can see that our imports are mainly commodities and intermediate goods, whereas industrial goods cover more than 90% of our total exports. Therefore, promoting Turkey's competitiveness is the key to her future success. 2  BIS Review 32/2008  Third, high domestic savings rate, which is high in emerging countries in Asia, is quite low in Turkey. It is around 20%. We need to attract foreign savings to finance investments. It is not surprising to observe a strong and direct positive relationship in Turkey between growth rate and current account deficit. Of course, the upward trend in energy prices has also contributed to the widening of the current account deficit to 5.8% in 2007. The current account deficit is a structural problem and a source of vulnerability. However, Turkey did not have difficulty in its financing in the last 6 years. In fact, the quality of foreign capital flows has improved sharply.