samchain/econo-pairs-v1 huggingface dataset:
The August 2020 Financial Stability Report (FSR) showed that the cumulative loss of UK economic output associated with the outbreak of Covid-19 would need to be around twice as big as the Monetary Policy Committee’s central projection. 21  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  The post-crisis capital framework has proved resilient so far and we need to wait out the Covid stress before we can complete our evaluation. In the meantime, it is imperative that Basel jurisdictions implement the last part of the post-crisis reforms – what in the UK we call Basel 3.1 and elsewhere is sometimes referred to as ‘endgame Basel 3’. These reforms have nothing to do with the design of regulatory buffers and the overall Basel 3 capital resource framework built in the aftermath of the Global Financial Crisis, which was in large part all about the numerator of the capital ratio. By contrast, Basel 3.1 is about how to ensure risk weights, especially internally-modelled risk weights, are measured robustly – it’s about the robustness of measuring the denominator of the capital ratio. We should be getting on to implementing these measures consistent with the agreements we made when sitting around the Basel table. At the same time, we should not ignore the evidence that points towards issues with the original Basel 3 vision on buffer usability.

The team’s analysis shows lower lending growth for low headroom firms on average, though statistical significance across specifications is mixed. They analyse possible effects on mortgage lending, credit card lending and non-government guaranteed corporate lending separately.20 They find statistically significant evidence that low surplus banks constrained nonguaranteed corporate lending and credit card lending more than their peers during Covid-19, though the latter is based on a small number of observations. The effects on credit card and non-guaranteed corporate lending strike me as an important result. Table 2 shows the full results. Chart 4: Evolution of effective surpluses  Notes: The graph plots the growth of effective CET1 capital surpluses, calculated from public requirements. The series are indexed to 100 in 2019 Q4. The sample is divided into different quartiles based on banks’ 2019 average effective surpluses. There are 40 “low surplus” banks (i.e. those in the bottom quartile), and 79 “high surplus” banks, (i.e. those in the second and third quartiles). Banks in the top quartile are excluded for comparability purposes. In the rest of the analysis, the “pre-pandemic” period is defined as that from 2019 Q1 to 2019 Q4, and the “post-pandemic” period is from 2020 Q1 till 2020 Q4. 19 This was based on a difference-in-differences econometric strategy. With more detailed data available to them for our domestic banks, the calculation of headroom was based on granular information on surpluses to the full range of regulatory requirements – their effective surplus. They took banks at their highest level of consolidation.
However, in my opinion and that of others, the risk of such an approach is in overdoing it and thereby delaying a necessary adjustment of balance sheets and debt levels. New imbalances in other markets could then arise and the process will begin again. When the situation turns next time in other asset markets, there is a greater risk of reaching the zero-interest rate level. Many central banks have acted in this way, which may be the reason why a house price bubble has been created some time after a share price bubble. In my opinion, the economic costs in the shape of sharp fluctuations in demand are likely on average to be higher if the central bank does not take account of the effects on growth and inflation of inflated asset prices and credit expansion in its decisions. One reason for this is the high costs connected with the risk of achieving the zero-interest rate level if one waits until asset prices and indebtedness are corrected and demand is severely subdued before taking interest rate measures. Monetary policy after the stock market bubble The share price bubble at the end of the 1990s is an example of a financial imbalance that was built up despite low and stable inflation.

One can express this as, if many imperfections impact at the same time, it could lead to substantial financial imbalances. Empirical research confirms that asset prices and loans can increase substantially over a long period of time and my impression is that the mechanisms I have indicated have contributed to this. While debt and asset price levels have built up slowly over a number of years, price corrections have occurred quickly. The entire cycle from start to finish, from asset price and credit expansion until the repercussions of price falls and debt reductions have waned can take up to a decade. The IMF, for instance, reports in a study that the repercussions alone from a share price crash take on average two years to wane, while it takes approximately four years for the effects of a house price crash to fade. Can and should monetary policy subdue the growth of bubbles? Even if we as monetary policy decision-makers assess that there is reason to feel concern that debts and asset prices have been pushed up by over-optimistic households and companies, it is not selfevident whether and how this will affect the decisions. There is always some uncertainty as to whether it really is a question of an imbalance. And, as I have said, it is not easy to quantify a risk scenario, both with regard to the probability that it will occur and the effects it can have for inflation and demand.
Asia is reducing its dependence on manufactured exports as the main driver of growth, and Middle East is seeking to reduce its dependence on energy exports. Both regions are strengthening their social, transport and economic infrastructures as they diversify their economies. The examples are all around us, like India and Indonesia’s major energy and transport infrastructure plans, Bahrain’s Financial Harbour project, and Qatar’s Education City. Finally, the appetite for prosperity is unshakeable among our younger generations. Young people all across our regions can see what economic growth brings, for their families and themselves, and for their communities. Whether their quest is for material or spiritual fulfilment, young people know instinctively that economic growth and better jobs will help them fulfil their needs. They want to move ahead, to educate themselves, and to give whole communities pride in what they can achieve - in science, in business and in culture. These aspirations of our young are probably the biggest positive for our regions. They will also bring us together over the long haul. BIS Review 47/2005  1  High savings will be increasingly intermediated within Asia and the Middle East On the financial side of things, the fundamentals are also solid in both our regions. First, the supply of savings in Asia and the Middle East is higher than in any other region of the world. Savings rates in Asia are expected to remain in the region of 35-40% of GDP for some years to come.

The last observation is that goods-producing value chains are becoming more regionally concentrated. Robotization and automation made cheap labor less relevant when companies decide where to place production. This pattern is obvious in certain sectors with closely integrated supply chain for just-in-time production such as automotive, electronics, and electrical appliances. Locating production line close to the end-market also helps businesses better customize the products based on each market’s preference. Trade protectionism is undeniably one other key factor that help accelerate value chain regionalization. All these changes in value chains could be a threat to today’s businesses. Consumers are ready to switch to a competitor’s product if they find it suits their changing preferences better and quicker. A standalone service business might be disrupted by new service value chains that offers a more complete solution to the customer’s need. Rising wages in Thailand will draw production to emerging market countries with lower wages, while automation will help advanced economies draw production closer to home. But then again, for those who are prepared, this could be an opportunity. Businesses will have to think about how they could incorporate service components into their 6  products. An example of this transition is Daimler and BMW, who joined hands earlier this year to explore service-focused business models such as taxi-hailing, car sharing, parking, and EV charging. This, of course, also means that we will need to continuously reskill and upskill our workforce. 4. Digital transformation The fourth trend is digital transformation.
For business exposed to long-term risks (such as the future default experience of a buy-and-hold investment portfolio) such a short horizon can only make sense if it is based on stresses applied to transfer values – with those transfer values already reflecting the long-term nature of the risks. So the SCR is not a substitute for proper valuation of liabilities. 8. While this is an illustrative example, it is closely based on actual assets in the regime today. 9. Technically, it’s the yield on the bond that is used. 10. Data as at end-2020. 11. This is true in aggregate, though some individual firms will be impacted more or less depending on their business models. 12. This is based on data from the ‘rates up’ sensitivity tested in the Quantitative Impact Study, available at: Review of Solvency II: Quantitative Impact Study (QIS) | Bank of England 13. Longevity risk is the financial risk insurers face when policyholders live longer than expected. Off-shoring that risk means passing it on to a reinsurance firm outside the UK. 14. Our Discussion Paper can be accessed here: DP2/22 – Potential Reforms to Risk Margin and Matching Adjustment within Solvency II | Bank of England 15. For more on this exercise see: Review of Solvency II: Quantitative Impact Study (QIS) | Bank of England

As it becomes clearer that the international environment really is improving, and that external demand really is picking up, then we can look forward to better balanced and generally stronger growth in our own economy. That will in due course mean that domestic demand growth - and consumer demand growth in particular - will need to moderate if we are to avoid a build up of inflationary pressure. But let me be quite clear - that's not a warning, still less is it a threat, as some more excitable commentators suggested earlier this year. It is - as I explained elsewhere recently - essentially a matter of arithmetic! It's quite possible, even quite likely, that the necessary moderation of consumer demand - and I emphasise the word moderation - will come about of its own accord, given the gradual increase in unemployment we are currently seeing, and the build up of household debt. And provided it does not happen too abruptly, that would be the best possible outcome. But if consumer spending were not to moderate of its own accord, we would, in the context of strengthening external demand, clearly need at some point to consider raising interest rates to bring that moderation about. I don't suggest that the timing of any such move is imminent - that would obviously depend upon the timing and the strength of the recovery abroad.
10  BIS Review 15/2010  Property taxes account for about two per cent of GDP in OECD countries. In Norway, the share is slightly higher than a half per cent. 5 It would be reasonable to introduce property tax rates and revenues on a par with that of other countries. This would generate additional annual tax revenues of around NOK 35 billion. 6  5  The tax on housing can be regarded as neutral when the return on housing investment relative to other investments is the same as it would have been without tax. In that case, mortgage interest deductibility must be matched by taxation of ownership and use of a dwelling. With a tax rate of 28 per cent and a mortgage rate of 7 per cent, this requires an annual tax that at the margin comes to about 2 per cent of the value of the dwelling. Denmark has a property tax at about this level. 6  A fully neutral taxation of property in relation to other capital will generate considerably higher tax revenues, cf. National Budget for 2010, Table 4.8, p. 124. BIS Review 15/2010  11  When evaluating the tax system, an increase in property taxes will be matched by a reduction in the tax on labour and entrepreneurship. As shown in the menu of options in the chart, an increase in property taxes will provide a basis for reducing the tax on ordinary income.

A businessman who owes more than he owns should be honest about it, she says. “… But what do you want [the businessman] to do?” asks Tjælde. “ To lay all his cards on the table, and so ruin both himself and the others? … In that case we should see a thousand failures every year, and fortunes lost one after the other everywhere! No, you have a level head, Valborg, but your ideas are narrow.” And this play by Bjørnson was written in 1875. Three imbalances in the world economy The financial crisis triggered the largest decline in output in advanced economies since the Second World War. The financial crisis erupted after a period of substantial debt accumulation among households and banks, combined with a real estate boom in the US and in some European countries. There were numerous examples of creative accounting as practised by Bjørnson’s businessman, Tjælde. The bubble burst, but extensive government measures helped put banking systems more or less back on their feet. Interest rates are close to zero in advanced economies, and governments have increased purchases of goods and services and reduced taxes. Many emerging market economies are exhibiting vigorous growth. But imbalances are building up, making the recovery fragile. 1  Bjørnstjerne Bjørnson, Three Dramas. The Editor – The Bankrupt – The King. 2009. This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever.
Bond prices are stretched as investors seem to have become less concerned about their safety. The picture in the UK bond market has an added nuance. Equity prices for UK-focussed companies have underperformed international equity markets as investors have factored in perceived lower, and downside risks to, future growth. 7  And yet, sterling corporate bond markets are stretched like other bond markets. 8  To get a better read on how stretched, we need to account for the lengthening over time in the average duration of sterling corporate bonds and the fall in the average credit rating (which other things equal should raise risk premia). When we do that, we see that the joint compensation investors are demanding for interest rate and credit risk is… …zero. There is an inconsistency. If investors are confident in risk-free rates remaining low because they see downside risks to the economy, it seems odd that that they should at the same time be demanding less, rather than more, compensation for credit risk. There’s more than a flavour of interest rate cake having and credit risk cake eating. The picture in parts of the UK commercial property market is similar. At the UK-wide level, commercial property prices rest on persistently low interest rates but at the same time, they’re factoring in typical rental growth prospects and degree of uncertainty around them. 7  UK government bond yields have also fallen relative to other sovereigns.

This has included enhancing access to the unserved sectors as well as the introduction of highly innovative delivery channels such as retail outlets and post offices as third-party agents to widen the outreach of financial services. These have worked in tandem to ensure that all members of society, including the most vulnerable groups, have the opportunity to participate in the formal financial system. Concurrently, continuous efforts are being undertaken to promote consumer protection and education, in  2  BIS central bankers’ speeches  order to ensure fair and responsible market practices and conduct, and that consumers are better equipped with the necessary financial knowledge to make informed decisions. Recognising that the development of the financial sector also depends on the availability of high quality and skilled talent, focus was accorded to the development of human capital through the introduction of institutional arrangements to provide comprehensive education and learning programmes for the financial services industry. Towards this objective, the Central Bank oversaw the establishment of differentiated platforms to meet the diverse needs of financial services professionals, from the entry to middle management, specialist and leadership levels. These include the setting up of programmes and institutions such as the Financial Sector Talent Enrichment Programme, the ICLIF Leadership and Governance Centre and INCEIF, the global university of Islamic finance.
While US deposit-taking institutions may continue to engage in market-making activities, European Union and UK proposals would make it necessary for some separation of these lines of business. And there are various legal formulas to ring-fence the different activities, ranging from mandatory total separation in the United States to the obligation to create financially independent subsidiaries within the same group in the proposal being discussed in the European Union. There are indeed doubts, which the Banco de España considers reasonable, about the advisability of implementing these initiatives, at least under their current design. First, interaction with the other regulatory processes under way should be carefully analysed. The objectives of the structural measures largely coincide with those of the FSB’s work on the treatment of systemic banks. Second, consideration should be given to the consistency of the reforms proposed at the international level. In this respect, the new structural reform measures should be prevented from introducing unwarranted differences in the treatment of similar activities. Accordingly, the debate on these types of measures should be global in scale rather than national or regional, possibly taking place within the framework of the FSB discussions. There is also a risk that divergences in structural reform models may lead to a greater fragmentation – or, if you will, to a certain re-nationalisation – of financial activity. 4  BIS central bankers’ speeches  Lastly, the possible implications of these measures for the structure of the financial system should be taken into account.

Andrew Sentance: Let it grow – how monetary policy can support sustainable economic growth Speech by Mr Andrew Sentance, External Member of the Monetary Policy Committee of the Bank of England, at the Confederation of British Industry (CBI) East of England Annual Lunch, Horringer, Bury St Edmunds, Suffolk, 22 March 2011. All speeches are available online at www.bankofengland.co.uk/publications/speeches. *  *  *  I would like to thank Tomasz Wieladek and Adrian Chiu for research assistance and I am also grateful for helpful comments from other colleagues. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. Good afternoon, ladies and gentlemen. I am delighted to have the opportunity to address this year’s CBI East of England annual lunch. In my time as a member of the Monetary Policy Committee, I have particularly appreciated the opportunity to talk to businesses and business groups around the UK. As an economist with strong roots in the business world, I place great weight on the input that the MPC receives from the business community, which we get from a wide variety of sources – including business surveys and the reports from the Bank’s Agents. But there is no substitute for visiting individual companies and meeting business groups to gauge economic sentiment at the grass roots level around the country.
  Second, resolution frameworks have to be established, to ensure that all banks, however complex or large, can be resolved in an efficient and safe manner. Such frameworks may involve the simplification of firm structures and the design of “bailin” mechanisms, where creditors are forced to absorb losses when a bank is close to failure2.   Third, G-SIFIs will face more intensive supervisory oversight, guided by an enhanced set of core principles for effective banking supervision. Singapore’s regulatory approach Many jurisdictions are now considering their responses to the FSB and Basel Committee recommendations. MAS’ regulatory approach is guided by three principles: (i)  First, we must maintain the high standards of financial regulation which have become associated with Singapore. Maintaining high regulatory standards is completely compatible with fostering a vibrant financial sector. Being a wellregulated, trusted and stable financial centre is a source of advantage for Singapore. It provides confidence for banks to operate in Singapore and for customers to transact with banks here. 2  “Bail-in” is the process where bank debt in failing firms is forcibly converted into equity. This is intended to make it possible to rapidly recapitalise a bank such that it can continue in business without an equity injection from taxpayers. 2  BIS central bankers’ speeches  (ii)  Second, our rules must be risk-appropriate. International standards must sometimes be enhanced to be appropriate for Singapore’s context. They must be targeted to address well-defined risks or concerns that could have systemic implications.

The conduct of monetary policy in Norway, as in many other countries, is delegated to the central bank with an objective of low and stable inflation. The inflation target can be seen as an answer to the problems raised by Kydland and Prescott. However, inflation targeting probably places greater demands on our understanding of the way the economy functions than earlier. Macroeconomic models are useful tools that can combine our empirical and theoretical insights. But models cannot provide definitive answers to all the questions that we as decision-makers face on a daily basis. Nor can they reduce the uncertainty surrounding economic developments. Therefore, it is necessary to analyse the economy from different angles. We must also look out the window, we must be pragmatic and we must exercise discretion. BIS Review 4/2005  7