samchain/econo-pairs-v1 huggingface dataset:
Hence, a broad class of ABSs may qualify as collateral, both residential- and commercial-backed securities, all sorts of consumer credit backed ABSs, cash-flow collateralised loan obligations (CLOs) and CDOs. Overall the volume of eligible ABSs constitutes approximately 60% of the entire outstanding European securitisation market. As regards the developments in the use of collateral since the start of the turmoil (see Chart 4), they show clearly that counterparties have made active use of the leeway the collateral framework provides. Quite understandably, they have economised on the use of central government bonds, which has been often almost the only collateral counterparties could still use in interbank repo markets. Instead they have brought forward less liquid collateral to the Eurosystem, including ABSs, for which primary and secondary markets have basically dried up. The annual average share of asset-backed securities pledged as collateral increased to 16 percent in 2007, up from 12 percent in 2006 and 6 percent in 2004. However, I would like to issue a note of caution here. The fact that counterparties post ABSs as collateral with the Eurosystem does by no means imply that those assets are refinanced on a one-to-one basis by us. The majority of national central banks operate with a so called “pooling system”, in which much more collateral can be deposited with the central bank than counterparties actually need to cover their outstanding credit with the Eurosystem.

To do that, trust should be rebuilt between the countries of Europe. Trust is vital. From a French perspective, how can that trust be re-created? By carrying out reforms, and France is doing that. And by reducing deficits even more? By continuing to reduce the deficit so that debt falls and France is ready when growth slows down. And by making further cuts in public spending? It is not for the ECB to tell the French government what needs to be done in detail, but what we wish is for France to have the capacity to respond economically when growth slows down and for it not to depend completely on monetary policy. 2/2  BIS central bankers' speeches
I think it merits serious consideration for more widespread adoption, irrespective of the accounting and tax treatment such reserves might attract. One key feature of such reserves is that they should be useable. That is, the markets and analysts need to accept that using such reserves to absorb write-offs when losses are high is the natural counterpart of building them up when losses are cyclically low. It is not a sign of  BIS Review 145/2008  5  weakness or of inadequate capitalisation, but of prudent management of the cyclical pattern of losses. From the point of view of market acceptability, separating cyclical reserves from more structural capital requirements seems a valuable idea. The second scheme I want to promote is growth-related capital requirements. Losses tend to be lower in the early stages of a loan’s life than when it is fully seasoned because borrowers are more certain of their own and the economy’s near-term prospects. A loan book which is growing more rapidly than average will be weighted towards such unseasoned loans, and so will appear to be performing better than a balanced portfolio of loans of different vintages. In addition, rapid growth of lending tends itself to be associated with taking on poor business – even if that is not obvious at the time it is written. Typically, rapid growth can only be achieved by drawing in marginal borrowers to the market. That is true of the banking sector as a whole.

The flow of funds into the US was re-exported to the advanced economies, especially through the growing securitisation markets, and helped finance the rapid increases in house prices in the UK (Chart 2) and many other countries. And that internationalisation of markets was reflected also in the build up in our banks of portfolios of AAA-rated securities which offered a slightly better yield than traditional bonds and many of which were based on sub-prime assets. BIS Review 145/2008  1  So when losses emerged in sub-prime market, they not only hit US banks but ricocheted through the international financial system. Much of the commentary has focused on the structured credit losses in banks’ trading books and treasuries and they have certainly been large. But equally as important was the impact on the liability side of balance sheets. Banks had not only expanded their balance sheets too far, they had in the process become reliant on wholesale funding markets which had not been tested in a downturn. In the UK, the gap between customer lending and deposits moved from zero at the turn of the century to over £ billion in 2008 H1 (Chart 3). That proved a structural weakness when investors realised that the AAA label concealed substantial and uncertain risks and withdrew from the securitisation markets. Just as the origins of the crisis lay in global imbalances its effects are also global.
But it’s one that has gained colour from the debate about derivatives. An oddly polarised debate. Overstating it somewhat: in one corner, a group contending that derivatives bring tangible benefits to civilisation. In the other, a group arguing that they have within them the seeds of severe disorder. Unsurprisingly, my take is that the truth lies somewhere in between. It is nicely illustrated by the quite extraordinary development of the credit derivatives market over the past five years or so.2  Dispersion of risk, and the price of risk Credit derivatives plainly have been used as an effective risk management tool by a number of banks and others. Contrary to some suggestions, the acid test is not especially whether banks, individually or in aggregate, have been net sellers of credit risk. Individual banks have been able to reduce concentrated loan exposures to single corporates, industries or countries. As the Telecom episode reminded everyone just a few years ago, that is really important, if elementary. Individual banks have also been able to increase their exposure to borrowers with which they do not have a lending relationship. (Indeed, some commentators suggest that it may sometimes be more effective for second-tier and smaller banks to take corporate credit exposure via the derivatives market than via participation in the lower tiers of loan syndicates.)

If short-term traders are structurally long, their dynamic hedging may have the effect of dampening market movements, producing zones of local stability. But where, as a group, they are structurally short, their dynamic hedging can sometimes amplify price movements, increasing volatility, if the market proves illiquid under stress. While I have set this out in a rather general way, it isn’t fanciful. There are examples of it going back over nearly twenty years: some involving the explicit writing of options; some implicit writing of options; and some arising from trading strategies that mimic optionality. For example, the 1987 equity market crash was exacerbated by the prevalence of portfolio insurance, a trading strategy akin to delta hedging an option: sell when prices are falling. A dynamic variant of a ‘stop loss’. Similar strategies are now a key feature of some Principal-Protected hedge fund investments, via so-called Constant Proportion Portfolio Insurance (CPPI). To preserve the nominal principal, the ‘guarantor’ will sell units in, say, a fund of funds as its value falls, and vice versa. I guess some assumptions are made about underlying liquidity, and that these are reflected in how such strategies are effected. 2  BIS Review 50/2005  In 1994, and again in 2003, hedging the negative convexity of US mortgage-backed securities amplified the rise in dollar bond yields, with some violence.3 The underlying factors here, of course, are that US mortgage borrowers have an option to prepay, so they are long options on mortgage interest rates.
Since December 2009, the yuan has appreciated almost four percent, while this figure is much closer to ten percent for most EMEs. The comparison is even more dramatic when looking at a longer period of time. This has been achieved through massive reserve accumulation and limited financial integration. However, for measures in the foreign exchange market to have real effects – that is, on the real exchange rate, which is the relevant variable from the point of view of competitiveness – these measures need to have some support from the real side of the economy. In the case of China, this is a very high savings rate. China saves about half of its GDP and the resulting current account surplus sustains a depreciated real exchange rate. Otherwise, attempts to maintain a depreciated nominal exchange rate sooner or later lead to inflation, which is the way to achieve relative price adjustment when the nominal exchange rate is not allowed to adjust. The U.S., in turn, is undertaking an extraordinary monetary expansion. Beyond having reached the zero lower bound for the federal funds rate, unconventional measures are adding additional monetary stimulus. In particular, the massive purchase of securities implemented in the so-called QE2 program. This explains why the dollar has reached its lowest level in several decades (Figure 3), but this is not only the result of expansionary monetary policy, but also of the lack of domestic demand and of the external imbalances.

My point is rather that it is not surprising that central bank asset purchases may break with some of the regularities we have become used to. The reason is that asset purchases are monetary policy actions that can be anticipated by market participants, just like changes in key policy rates. Unlike conventional monetary policy, however, they have direct implications for the expected supply of and demand for internationally traded bonds and, hence, for the level of the exchange rate that, all other things being equal, clears the resulting capital flows. This may, at times, break the link between future expected rates and the exchange rate. This is clearly visible when we look at slide 6. The chart is based on the same methodology as the spillover chart on slide 4, but it illustrates how much, on average, of the variance in long-term bond yields in one country can be explained by the other country’s term premium and expected short-term rates respectively. 7 / 11  BIS central bankers' speeches  You can see that the moment short-term yields hit the zero lower bound, spillovers in bond markets by and large reflected term premia movements – in both directions. These spillovers may pull the exchange rate away from the path implied by expectations about the future shortterm rate. The extent of the decoupling, in turn, will depend on the expected direction, persistence and degree of international spillovers – something that is inherently difficult to project and price.
In the most recently published inflation assessments, it was assumed that the price stability target was not threatened during the forecast period despite the growth of demand being so strong that use of capacity was under strain at the end of the period. The majority view of the Executive Board was therefore that there was no reason to increase the repo rate. This assessment was based on free resources in the initial situation, good productivity growth, low price increases on certain recently deregulated areas, low import prices and finally low inflation expectations. It is not per se strange that GDP can increase as much as 3-4% for a couple of years without inflation sharply accelerating, if the use of resources is low initially. If the pattern from previous cyclical upswings was to be repeated, price pressure should now increase. However, it has proven difficult to identify any exact and very stable correlation. As I mentioned earlier great changes have taken place in the Swedish economy. While there are still considerable deficiencies in competition in many areas, it is nevertheless not probable that inflation will accelerate strongly in the next few years. An important reason for this is that the price stability target has now  BIS Review 48/2000  4  obtained such strong support that inflation expectations are not increasing despite a cyclical upswing that is stronger than for a very long time.

Indeed, some sort of an intellectual vogue is flourishing, which contends that, in light of past experiences, any banking crisis is bound to have severe adverse economic consequences. You have those, the optimists, who predict a Swedishtype of crisis. And you have those, the pessimists, who allude to Japan's "lost decade". If referring to the past is of any use, it is precisely to learn from past errors. As a result, any comparison is bound to be misleading. Not only is today’s economic situation critically different. It is also addressed very differently. Let me insist on one key difference, which has to do with policy reactions to the crisis. They have been extraordinarily rapid, massive and vigorous. We have learnt from past crises, especially from the long adjustment Japan has been through after the burst of the asset price bubble in the late 80s. Let me also mention that macroeconomic policy instruments are available and could be used should output decline dramatically. The outlook for financial regulation A major consequence of the crisis already apparent is the growing consensus around the need for a fundamental review of the foundations of financial regulation. The crisis has also rekindled concerns about the structure of supervision. As you know, at the French President’s instigation, huge efforts are made to think about what is termed now a “new Bretton Woods”. Beyond these ambitious words, I do believe it to be useful to take a fresh look at the existing financial regulation.
From August to the end of February the DMBs had disbursed 14,500 mortgage loans, for a total of 158 b.kr. In the opposite direction, pension funds’ loans to members contracted over the same period by 6 b.kr. and lending by the HFF by 59 b.kr. The transfer of mortgage lending to the banking system is beneficial and will strengthen it in the long run. However, the timing of this development during a strong expansionary phase is inappropriate. Given the way that events have unfolded, a review of the role of the Housing Financing Fund and the legislation governing it has become very necessary. Excluding their direct foreign operations, the DMBs’ foreign debt amounted to 1,200 b.kr. at the end of January, and had grown by 561 b.kr. over the previous twelve months. The lion’s share of this debt is long-term, which is a great improvement from the times when the banks were overdependent on short-term borrowing for their funding. Their foreign assets have grown as well, but not in pace with their debts. Foreign assets of DMBs amounted to 590 b.kr. at the end of January, having grown by 312 b.kr. over the previous twelve months. Iceland’s external debt, which is largely comprised of the banks’ foreign debts, is one of the weakest links in its economy. All the agencies that issue sovereign ratings for Iceland identify this as a risk and warn that increased indebtedness could lead to a downgrading of its credit ratings. The banks therefore bear a great responsibility in this respect.

Implementation of the investment policy  Our investment policy has not fundamentally changed with the new Act. The monetary reserves continue to constitute core assets for monetary policy. They allow the National Bank to exert an influence on the Swiss franc exchange rate in exceptional situations and are available as an internationally accepted means of payment in a crisis situation. This presupposes a minimum degree of liquidity of these assets. Moreover, monetary reserves enhance the credibility of monetary policy and foster confidence in the Swiss franc. The security of these investments and growth of the monetary reserves in step with the development of the Swiss economy is an important consideration in this context. This is why monetary reserves ought to provide an adequate return, while taking into account the monetary policy restrictions. It is the aim of our investment policy to strike an optimal balance between the criteria of liquidity, security, and return. We assess and regularly review the National Bank’s liquidity requirements - i.e. its need for easily realisable and hence easily accessible assets - on the basis of our experience and taking due account of the current situation. Given the Bank’s large portfolio holdings in US dollar and euro government bonds, the liquidity requirements are currently more than met. This creates a certain amount of leeway for investing in instruments that are less liquid but generate a higher return. The investment criterion “security” must be seen in the context of the monetary reserves as a whole.
Exceptionally and at least during the crisis, then, consideration should be given to the possibility of introducing a simple and permanent employment-promoting contract, that can be used for all new hires and under an unemployment protection regime that does not discourage recruitment. But the possible urgent measures I have outlined should not sideline either far-reaching reforms of our labour institutions or other major structural reforms that the Spanish economy needs. Indeed, the strength and sustainability of the recovery will largely hinge on the scope and rapid application of such reforms. Further, if they are tackled in sufficient depth, the excesses committed in the past decade will be avoided and the resources available may be assigned to more productive uses. Many proposals have been made in this connection, but I shall only mention those I consider important. One aspect of paramount importance is the development of the rental market. And this is not only because it would notably increase the possibility of matching job supply and demand, but also because it would contribute to providing an outlet for unsold housing and to reducing rental costs in a setting in which housing may not be readily affordable. To do this it would be necessary, first, to ensure that the various measures adopted to improve legal security for owners are actually effective; and, further, to liberalise certain features of the current legislation, such as those relating to contract length. Measures in the so-called network industries are likewise necessary.

To sum up the international picture: over the past year, growth prospects have been lowered for all the large advanced regions. In Europe, activity is likely to decline this year owing to debt problems and fiscal tightening. Unemployment is on the rise. Fiscal and monetary policy space is limited, or virtually exhausted. Many countries must tighten fiscal policy to reduce debt to a sustainable level. Central banks have responded by communicating that interest rates will be held low for an extended period. And they have stretched the limits of monetary policy to counteract a deeper and more persistent downturn. Chart: GDP growth The economic situation in our external surrounding environment stands in contrast to that of Norway. Domestic activity is particularly high in the oil industry and construction sector, and both employment and the supply of labour are on the increase. Unemployment remains low and stable. Public finances are healthy. Norway’s terms of trade are favourable, with high export prices and low import prices. At the same time, house prices and household debt are still rising. Nonetheless, the Norwegian economy is not unaffected by the turbulence abroad. Developments in Europe and a strong krone exchange rate are adversely affecting some Norwegian export industries, such as the paper, metal, and furniture industries. While other countries have used nontraditional instruments, we have managed to come through by using our main instrument – the key policy rate – which is now 1.5 per cent.
It is our duty to do so because the effectiveness of each function influences that of the others. In other words, we have to maximise our impact by working together. BIS central bankers’ speeches  3  That imperative is the core of our new strategic plan which stresses that our contribution to the public good will be greatest if we work as One Bank. Complementarities might be operational, arising when putting two functions together is more efficient by allowing faster decision making in a crisis, improving the coherence of communication, or taking advantage of the common skills, information or analyses required to operate the policies.6 Or they might be economic, arising when there are strong interactions in the way the policies have their effect, or when one policy affects another. It then makes more sense to have them operated by one institution so that shared analysis and information leads to consistency of decision making and so that trade-offs between objectives can be managed effectively, and in a timely manner, to achieve better outcomes. There are strong complementarities between all four of the core functions of the Bank: monetary policy, markets, macroprudential policy and microprudential regulation.7 Each affects overall monetary and financial conditions and therefore has the capacity to affect the achievement of both monetary and financial stability. They in turn help maintain confidence in the currency, which we also support by issuing high-quality banknotes that people can use with confidence.

That tension between monetary and financial stability is best managed in a coordinated way in a single institution. The use of macroprudential tools can decrease the need for monetary policy to be diverted from managing the business cycle towards managing the credit cycle. This enhances the credibility of the inflation target. That in turn may reduce the need for sharp or persistent moves in interest rates, which themselves might threaten financial stability. Similarly, macroprudential policy can more effectively focus on its primary goal of systemic stability by recognising that, while it affects the economic cycle, it is not suited to managing it. Instead its effects on the economic cycle should – like fiscal policy – be taken into account in setting monetary policy, which is the primary and most effective tool of demand management. Taken together with the synergies from sharing information and analysis, these are strong arguments for operating monetary policy and prudential policy in the same institution. In the short time the Bank has been responsible for both, we have already seen the benefits of operating them in a coordinated way. For example, our forward guidance framework for monetary policy reflects a clear division of responsibilities. Although monetary policy has an important role to play in mitigating financial stability risks, it does so only as a last line of defence. This is important because vulnerabilities can emerge from a long period of unusually low interest rates, as complacency sets in about the future path of policy and asset prices.