samchain/econo-pairs-v1 huggingface dataset:
6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Chart 2: Different types of financial constraints experienced over the past five years  0  2  4  % of businesses  All firms - with too little investment 6  8  10  12  14  16  18  20  All firms - with the appropriate level of investment  90  All firms - all investment levels  80  Small firms - with too little investment  70  Small firms - with the appropriate level of investment Small firms - all investment levels  60 50 40 30 20 10 0  Received full amount  Expected rejection  Cost of funds  Maturity  Collateral  Source: Bank of England Finance and Investment Decisions Survey. a) Constraints are identified from the following questions: Question 19: “If your business applied for any form of external finance for investment over the past year, what was the outcome? External finance refers to bank loans, equity issuance, debt securities and other financial liabilities.” (Received 100%) Question 22: “Looking back over the past 5 years, how far do you agree with the following statements?” Expected rejection: I do not want to apply for external finance as I believe I would be turned down (agree). Cost of funds: I do not want to apply for external finance as I believe it is too expensive (agree). Maturity: I am able to borrow at the maturity I need (disagree).

Other obstacles to investment  The picture is, however, more complex than simply one of firms that underinvest having difficulty in raising external funds for investment. Of the firms in the survey that said they had invested too little, most cited other financial and non-financial obstacles as well. The most important of these was constraints on using internal rather than external funds – ie using profits – for investment rather than for distribution to shareholders or purchasing financial assets (including M&A). Nearly 70% of the firms who said they had underinvested, cited lack of internal funds for investment as an obstacle. Over 60% judged distribution to shareholders and purchasing financial assets as the most important use of internally generated funds. In fact, only a quarter of all firms prioritised using their internally generated funds for investment purposes (Chart 3). Three-quarters of firms put investment behind distribution to shareholders and investment in financial assets when assessing the most important use of internally generated funds. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Chart 3: Most important uses of internal funds % of businesses 35  Firms with too little investment Firms with appropriate levels of investment All firms  30  25  20  15  10  5  0 Funding investment  Purchasing financial assets (including M&A)  Distributing to shareholders / owners  Keeping as cash balances  Notes: Question 17: ‘When you think about using internal funds what do you generally prioritise?’.
Dealers de-risked their balance sheets rapidly as the crisis hit, and this reminds us that their capacity and willingness to stand in the way of major market moves (akin to catching a falling knife) was always constrained. 6 And all of this happened before any new regulations were put in place. Last on this point, it is worth recalling the background to the large increase in inventories from around 2002/04. Here, regulation does appear to have played a role, and not a good one. The first amendment to the Basel I capital standard came in the mid 1990s in the form of the so-called Market Risk Amendment. It enabled a substantial reduction in the capital held against trading book assets such as inventories, to a level that could be less than 1% of those assets. To illustrate this point, here is a quote from the FSA’s report into the failure of RBS. “The capital regime was more deficient, moreover, in respect of the trading books of the banks ….. the acquisition of ABN AMRO meant that RBS’s trading book assets almost doubled between end 2006 and end 2007. The low risk weights assigned to trading assets suggested that only £ billion of core tier 1 capital was held to cover potential trading losses which might result from assets carried at around £ billion on the firm’s balance sheet. In fact, in 2008 losses of £ billion arose in the credit trading area along (a subset of total trading book assets).

A regime which inadequately evaluated trading book risks was, therefore, fundamental to RBS’s failure.” (FSA (2011)). I do not doubt that the reversal of this capital treatment of trading books has had an impact on dealer inventory levels by increasing the capital intensity. But I don’t accept that the fairly ephemeral position that emerged shortly before the crisis was fit for purpose or sustainable. What are we therefore doing about the fragility of market liquidity and the risks to both financial stability and the state of the real economy that arise from it? First, we are working hard to understand better these risks and how they could manifest themselves. As the Bank of England’s Financial Policy Committee stated at the end of March, our concern is that investment allocations and the pricing of some securities “may presume that asset sales can be performed in an environment of continuous market liquidity.” (FPC (2015)). We are: gathering better data and thus building a greater understanding of the channels through which market liquidity can affect financial stability and economic activity; establishing a better understanding of how asset managers form their strategies for managing liquidity in their funds in normal and stressed conditions (taking into account any increase that might  6  6  Fender and Lewrick (2015) note that “when market volatility rises, standard risk assessment models will signal a market-maker inventory has become riskier. That may prompt the market-maker to further trim its holdings.
Thus, before the summer, the restructuring of the banking system should be complete, save for a legal reform allowing savings banks to obtain high-quality capital on the market, to meet the new Basel standards. The government has the agreement of Spain’s main opposition party for the successful passage of this legal reform through Parliament. The restructuring and reform of the financial system, along with the budgetary adjustment, the public pension reform and the labour market reform, are the most urgent measures needed to restore confidence in the Spanish economy, and, as such, should be passed before the summer recess. But the process must not stop there, as further measures are needed to stimulate the recovery in growth and the modernisation of the Spanish economy. Vital tasks remain, such as: educational reform; the modernisation of general government and the removal of overlaps between the different tiers of government; guiding investment in infrastructure towards projects that enhance the competitiveness of Spanish firms; privatising or streamlining public corporations; increasing competition in network industries and particularly in energy; promoting collective bargaining agreements in the private sector that raise the competitiveness of the Spanish economy and thus create employment, etc. And not only at national or central government level, but also among regional and local governments, trade unions, employers’ associations and other economic and social agents. At this point in time, we must all face up to our responsibilities, with the corresponding costs and sacrifices.

We must, moreover, act with the urgency demanded by our responsibilities as active members of the common European project in defence of stability and the success of this project. The report I present today is specifically geared to contribute to this task. From spring last year, the economic indicators offered signs that the world economy was emerging from the most critical phase of the gravest real and financial crisis since the Great Depression. Progress since along the path to recovery has been much more evident in the emerging economies, for which the latest projections indicate growth rates above 6% for 2010. By contrast, the developed countries’ economies are recovering at a considerably less dynamic rate, of around 2%. This turnaround confirms that the rapid and energetic economic policy action to support financial systems, to stimulate demand and to sustain confidence was pivotal in halting a spiral of recession and financial instability which, had it continued, would have undoubtedly had disastrous consequences for the world economy. Halting this recessionary spiral was crucial for placing the world economy once again on a path of sustained output and employment growth. But if the incipient recovery – still subject to considerable uncertainty and risks – is to take root, further measures on various fronts will be needed. The bulk of the measures adopted to check the accelerated economic and financial downturn were exceptional. Accordingly, they have to be withdrawn.
The men of Eidsvoll needed a bank that could provide credit in Norway. Norges Bank quickly became an important lender. It was not until the latter half of the 1800s that a private banking system truly came into being. Norges Bank acquired its present-day role of the bankers’ bank and lender of last resort. With private banking came banking crises. The 1899 crash in Christiania triggered the first serious banking crisis in Norway. A real estate bubble in the capital burst and house prices  4  BIS central bankers’ speeches  plummeted. It took more than 100 years for real house prices in Oslo to return to their precrash level.4 Banks play a key role in the payments system and channel credit from savers to investors. If the flow of credit seizes up, problems will rapidly spread through the entire economy, as witnessed during the latest financial crisis. A robust banking system is of benefit to us all. Banks are now adapting to new capital requirements. On top of the new capital requirements is a countercyclical capital buffer. The countercyclical capital buffer will vary over time. It will be increased when financial imbalances build up. In the event of economic stress and large bank losses, banks will be able to draw down the buffer. Chart 7: Key policy rate and bank lending rates Even if the key policy rate is low, interest rates on loans to households and enterprises are not particularly low.

By 2050, it is estimated that climate change losses could cost Asia more than a quarter (25.6%) of 2019 GDP.2 4 Insurers are important partners in helping governments and businesses manage physical and transition risks. The FM Global Centre's testing and research on how properties can be impacted by fire, floods and natural hazards at varying levels of intensity, can provide valuable data insights. These data insights can support the development of ex-ante climate risk insurance solutions for businesses in the region. It goes to the heart of insurance solutions – which should increasingly focus on ex-ante risk reduction and loss prevention, beyond just ex-post risk financing. The Centre will also provide hands-on loss prevention education to businesses and individuals, through interactive simulation labs and learning areas. 1/3  BIS - Central bankers' speeches  5 The insurance industry can also play an important role in empowering the development of the green economy in Asia. Singapore, for instance, as part of our energy decarbonisation, aims to quadruple solar energy deployment by 2025. This shift towards renewable energy means that traditional insurance solutions for fossil fuel-based power generation need to adapt to meet the risk financing needs of renewables, or a hybrid energy mix of renewables and fossil-fuel based energy generation. We see more insurers in Singapore, including FM Global, offering insurance covers for solar, onshore wind power generation and batteries, protecting against the risk of fire, natural hazards, and machinery breakdown.
We do see increased interest in cross border investments from within our region, particularly in the financial sector. With respect to the need to mobilize domestic savings, Africa certainly needs to expand the reach of the financial sector and to make the financial sector more efficient. In Zambia, the majority of the population does not have access to financial products. The Bank of Zambia has therefore made advancing financial inclusion as one of its strategic objectives. Zambia has a very low population density and there are many areas that are currently not served by any financial institution. Reaching these areas will require the application of technology and the concept of branchless banking. To facilitate such innovation, a robust regulatory regime governing the payment system has been implemented with the enactment of the National Payment Systems Act in 2007. In this regard, Zambia is learning a lot from the advances made in countries such as Uganda and Kenya, where cell phone technology has expanded the reach of financial services and products. On its part the Zambian Government is also taking concrete steps to enhance the application of Information and Communication Technology across the broad spread of Government services and the private sector. How can we build better and more resilient institutions that boost confidence in the benefits of a market economy and can act as strong anchors of inflation expectations?

Evidence from the Bank’s Decision Maker Panel survey indicates that drag took 3-4% off business investment last year. That effect persists, though it has not intensified. As the Committee has repeatedly stressed, how the economy evolves will depend on how these expectations change as Brexit progresses. On the one hand, increased caution could drag on demand. On the other, if there is progress towards the new, deep and special partnership the government is seeking, a boom in investment and potentially consumption could be unlocked, boosting output. From a monetary policy perspective, the Bank is ready for Brexit. The MPC is well-prepared for whichever path the economy takes. We have the tools we need. We will be prudent not passive. We will respond to 20  All speeches are available online at www.bankofengland.co.uk/speeches  20  any change in the outlook in these exceptional circumstances to bring inflation sustainably back to target while supporting jobs and activity, consistent with our remit. Our guidance means that those who follow us will be better able to anticipate our actions. It will make those actions more powerful. And it will help households and businesses consume, save, hire and invest with confidence as the UK determines its path forward. Thank you. 21  All speeches are available online at www.bankofengland.co.uk/speeches  21  Appendix Frequently, the economy experiences shocks that drive inflation and output in the same direction. These shocks to aggregate demand can include variations in government consumption, households’ desire to consume, or business’ desire to invest.
The twelve-month change of the total PCE deflator was just 0.3 percent in February, with the core PCE deflator at just 1.4 percent. Despite these low readings, my expectation is that inflation will begin to firm later this year. Importantly, most of the impact from the decline in energy prices that has weighed down overall inflation is likely over. Although the appreciation of the dollar may cause some further softness in import prices, the continued decline in resource slack as the economy expands should push in the opposite direction. We are already seeing some firming in rent inflation as rental vacancy rates have returned to more normal levels and employment and income growth have strengthened. Longer-term household inflation expectations have been well maintained through this period of very low inflation as shown in our Survey of Consumer Expectations. This should reinforce the effect of a higher level of overall resource utilization in slowly pushing inflation back towards the FOMC’s 2 percent objective. Monetary policy As the FOMC has consistently communicated, decisions on monetary policy, such as the timing of lift-off will, depend on how the economic outlook evolves – in particular with respect to the labor market and inflation. As I have discussed, the labor market has improved substantially over the past few years and I expect to see inflation begin to firm later this year.

During the previous discussions I had the opportunity to point out that these questions had been raised at least twenty years before, and they have been answered repeatedly, even in the last months and weeks. For example, just a few months ago the Economic and Social Council to the National Assembly approved an analysis about the implications of Bulgaria's euro area accession for the economic development, inflation and incomes in the country. This analysis was conducted at the request of the Speaker of the National Assembly and was brought to the attention of the members of Parliament. Let me highlight that by law the Economic and Social Council is a consultative body expressing the will of civil society organisations regarding the economic and social development, with its members representing trade unions, employers, industry organisations, organisations of pensioners, the socially weak and the disabled, women's organisations, as well as distinguished independent scientists who are specialists on the issues of the economic and social policy. The conclusion made by the Economic and Social Council, which represents such a wide variety of civil society organisations, is that the benefits from Bulgaria's euro area membership far outweigh the risks and costs. 1/5  BIS - Central bankers' speeches  Quite recently, a collective monograph 'Challenges facing the Bulgarian economy on its way to euro area membership' was published by Sofia University to mark the 120th anniversary of the Department of Economics within the Faculty of Economics of Sofia University – the oldest department of economics in Bulgaria.
The Central Bank’s decision to liquidate the bank was challenged in the Court of Appeal which quashed the Central Bank decision on the ground that the Central Bank had not followed the due procedure given in the Banking Act. Finally, the Government as a part of political decision in the interest of depositors bailed out the bank by vesting the bank with a new state bank set up for the purpose. If the Central Bank was conscious of its responsibilities, it could have resorted to a different path to resolve the bank at the very early stage. World over, central banks are blamed for delayed action, not effective to resolve problems. World over, regulators fall behind the market although they are expected to correct the market. Regulators are burdened with laws, procedures and bureaucracy and lack of latest market information. They work for office hours. However, market participants work 24 hours and are innovative for regulatory arbitrage. The human greed supported with moral hazard of regulation creates bubbles cyclically leading to financial and economic crises from time to time. The regulators and politicians create new laws, but they fail to prevent the next bubble. As a person being in both regulator and markets, I will do a lot of work to address this 6  BIS central bankers’ speeches  universal issue hopefully. However, as financial regulators cannot control the greed, financial bubbles and crises are to happen. Finally, the Central Bank independence is the confusing and very technical subject. No Central Bank is divine.

For example, the Central Bank is a respondent in all court cases recently filed in connection with unauthorized and failed investment schemes as the petitioners are of the view that the Central Bank is responsible for the loss of investors’ money. Let me therefore elaborate on Central Bank functions. First, the issue of currency Central banking is a concept originated from the issue of currency. In the evolution of money, private banks started issuing their own bank notes, initially based on their gold holding and later as their own liabilities. The bank in which the public placed the highest trust started operating as a central bank in the market. Later in the history, legislation was brought to empower the Central Bank to print bank notes or currency which function as the intermediary between all economic transactions. Currency in issue at present in Sri Lanka is about  2  BIS central bankers’ speeches  Rs. 422 billion and is a liability of the Central Bank, even as it is an asset to the rest of us. The Central Bank is prepared to pay against any currency note in any other value of legal tender preferred by the public. The Central Bank maintains a cash counter for this. In order to protect the public trust in currency, the Central Bank primarily undertakes two actions. First, it attempts to issue currency notes with intrinsic material security making it difficult for counterfeiting and designs are chosen to facilitate easy recognition of different currency notes by people including the blind.
Since the economic expansion began in 1992, annual output growth has averaged just less than 3% while the rate of inflation has averaged just under 2 ½%. The number of people in employment last year(on the LFS measure) continued to rise fairly steadily to an all-time high; the number of unemployed people fell to below one million (on the claimant count measure) for the first time since December 1975, and the rate of unemployment fell to its lowest in more than 25 years in the United Kingdom as a whole, and to its lowest for more than 20 years in every individual region. But, my Lord Mayor, even if – as I at least continue to believe – we are living on an island, that does not make us immune from developments abroad. In particular, we are bound to be affected by current developments in the United States, both directly, and indirectly, through the knock-on effects on third countries, with those effects on the Eurozone particularly important for us. By this time last year it had become clear that, even on the most optimistic view of improving underlying productivity – as the application of new information and communications technologies spread through the American economy – the rate of growth in the US, of over 5%, was unsustainable in the light of increasing domestic and external imbalances. The pace of US domestic demand growth needed to slow – as of course it has.

Long periods of strong growth in debt, asset prices and investment may be a source of subsequent instability and problems in the financial system. We have observed this phenomenon both in Norway and in other countries. When optimism turns to pessimism, the financial system can come under pressure. However, it is not possible to determine with any certainty the value of debt, asset prices and investment that may constitute an unacceptable risk in this context. The pace of growth in household borrowing cannot be sustained over time. It would probably be wise for both borrowers and lenders to acknowledge that the root of subsequent problems, and demanding corrections, is often to be found during such periods. Thank you for your attention. 6/6