samchain/econo-pairs-v1 huggingface dataset:
Consequently, thanks to the design of a general provision such as the present one, along with a tightening of the parameters that determine  BIS Review 62/2008  5  the specific provision, the Spanish banking system had the highest volume of provisions among the developed countries when the market turbulence emerged. Last lesson: on how the turbulence affects us all I have attempted to convey to you that, in Spain, banking regulation has proven to be strict, having included concern over procyclicality among its criteria for action, and that Spanish banks have properly managed the risks associated with financial developments in recent years. The absence of a subprime segment, of an originate-to-distribute model, of complex structured products and of off-balance sheet investment vehicles attest to the fact we have all done the right things. Can we afford to be complacent? I would say no, for three reasons. First, because if we have not made certain mistakes, this is largely due to the fact that our financial system has been very traditional, without sophisticated institutions such as those that have most suffered from the turbulence. Second, because, as I have already said, the Spanish economy needs to undergo adjustment in several areas, but essentially in that of residential investment. And third, because the strong interconnections within the financial system, which is today more global than ever, mean that if markets cease to function, that has negative consequences not only for those that generate the problems but for all those participating in them.

First, and as already stated, low risk premiums and very low volatility led to a strong increase in leverage on international financial markets and a big appetite for risk in the search for high yields, a tendency in which certain financial institutions in some countries participated. Also, and in relation to the foregoing, the development of a banking model focusing on the origination of loans for their subsequent distribution on the financial markets, underpinned by the securitisation of assets through certain complex structured products and by the use of off-balance sheet investment vehicles, introduced inappropriate incentives as regards the granting of financing and the subsequent management of the associated risks. In my view, it is these latter elements which explain the intensity and speed with which the turbulence has spread. Starting from this idea, I shall draw five lessons which I consider highly relevant for the future. I will then evaluate the Spanish banking system in relation to each of them in order, finally, to identify certain tasks which we should, each from our own area of responsibility, address so as to limit the adverse consequences for the Spanish economy of the international financial market turbulence. First lesson: on the originate-to-distribute model In recent years some banking systems have developed a banking model based on the origination of loans for subsequent distribution on the financial markets. This type of model has been largely underpinned by asset securitisation, a process that enables bank loans to be batched and converted into marketable products.
The growing size of international capital flows associated with globalisation of financial markets has made the analysis of monetary aggregates, for the purpose of extracting information for assessing price stability, increasingly more complex. BIS Review 149/2007  3  This brings me to discuss the third point: the implications of globalisation and of international capital flows for monetary policy. If globalisation and, specifically, cross-border capital flows can affect the dynamics of monetary aggregates, how can we conduct monetary policy? An improved shared understanding of the influence of global liquidity and cross-border capital flows on the monetary policy transmission mechanism is necessary to enhance the analysis underlying our decisions. Our role and responsibilities as central bankers remain intact in the globalised economy, but the performance of our task may be becoming more challenging. Certainly, there is a need for timely and open exchange of information among central banks and for further collaborative research efforts. Still, let me stress that the globalisation of financial markets does not affect the central role and overriding responsibility of central banks, which is to preserve price stability within their respective jurisdictions. Central banks throughout the world have been assigned responsibility for keeping domestic inflation at low and stable rates. Cross-border capital flows may affect the velocity of money, but the basic principle for anchoring monetary policy – that is the Friedman’s view that “…in the long run, inflation is always and everywhere a monetary phenomenon” – remains valid.

Faster clearing, especially with a balance check at initiation and immediate posting or credit at the receiving end could reduce the amount of credit involved in managing commerce or a payments business, credit that arises today from returned checks, for example. Customers that are relying more on their balances and less on float or credit may borrow less but may need to be more liquid. The possibility that future payments might rely somewhat less on a firm’s economic capital and its liquidity could also contribute to efficiency. Along with enabling innovation, technology drives new risk. Reports of denial of service attacks and data breaches have raised data security concerns across the payments industry. Concern is growing about the potential to corporate and or other bank account takeovers. Any of these disruptions has the potential for undermining confidence in the payments system, particularly given that it is difficult for end-users to assess the security of payment services. Security and resiliency have always been paramount concerns across the payments system. The impact of a significant outage or fraud on the public’s confidence may adversely impact increasingly electronic or “digital” commerce. New ways of making payments and the entry of non-traditional payments system participants create change that presents new risks and challenges to assess. The sophistication of some recent frauds introduces the potential for material risk.
With detailed contingency planning for the financial stability impacts of Brexit, UK companies can be confident of continued access to finance in an uncertain world. Reforms mean the UK financial system is working well. Net lending to private companies is been growing following six years of contraction. Corporate bond spreads are well below their long-run averages (Chart 13). And credit conditions among SMEs have been steadily improving. If the opportunities present themselves, UK corporates could readily draw on this finance as their balance sheets are in good health following a decade of de-levering to ratios amongst the lowest in advanced economies. 12  Turning now to monetary policy, the Bank operates within an established framework, anchored in the inflation target (Chart 14). The MPC set out in advance of the referendum how it would apply that framework, emphasising that the effects of the process of leaving the EU on inflation would depend on its impact on demand, supply and the exchange rate. The Committee has repeatedly stressed that, as a result, the implications for monetary policy would not be automatic. The MPC has also clearly set out its reaction function consistent with its remit. Under the exceptional circumstances Brexit entails (with an inflation overshoot driven entirely by an exchange rate depreciation caused a large fundamental shock), the Committee is required by its remit to balance a period of abovetarget inflation with a period of weaker growth.

Chart 4: Investment consistently weaker post-crises Average financial recession Cumulative change (per cent)  Average normal recession  20 15 10 5 0 -5 0  1  2  3  -10  4  5 Years  -15 -20 -25 -30 Source: Jordá, O., Schularick, M. and Taylor, A. (2013), ‘When Credit Bites Back’, Journal of Money,Credit and Banking, Vol. 45, Issue s2. Notes: The chart shows the cumulative change in per capita investment. The grey shaded area shows a 95% confidence interval around the average normal recession. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Chart 5: UK, US and euro-area capital overhangs being worked off  UK capital to output ratio  Euro area capital to output ratio Euro area trend capital to output ratio US capital to output ratio US trend capital to output ratio Per cent 340  Per cent 130  UK trend capital to output ratio  120  320  110  300  100  280  90 80  260  70  240  60  220  50 1995 1999 2003 2007 2011 2015  200 1995 1999 2003 2007 2011 2015  Sources: BEA, OECD, ONS and Bank calculations.
Svein Gjedrem: The macroprudential approach to financial stability Keynote address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the conference entitled “Monetary Policy and Financial Stability”, hosted by the Oesterreichische Nationalbank (Austrian National Bank), Vienna, 12 May 2005. Please note that the text below may differ slightly from the actual presentation. The  Charts in pdf-format can be found on the Norges Bank’s website. *  *  *  Introduction First of all I would like to thank the organisers for inviting me to this conference. It’s a great pleasure to be given the opportunity to share with you some views on financial stability issues. Financial stability has become an increasingly important objective in economic policymaking during recent decades. In the 1980s, direct regulation of credit markets and capital flows was dismantled in many countries. This has prepared the ground for an expansion of the financial system at a faster pace than other parts of the economy. In this process, the financial system has gone through important structural changes and become more complex. The instruments have become more intricate, the activities more diversified and the risks more mobile. As a result of increasing cross-industry and cross-border integration, financial systems have also become more interwoven, both nationally and internationally. In parallel with the strong growth of the financial system, we have seen more frequent instances of widespread financial distress. The resulting macroeconomic costs have often been sizeable.

Another problem is that the difference between rates on different euro countries government bonds has increased, at the same time as one can envisage substantially increasing deficits in public funds and thus an increased supply of government bonds. Concluding remarks My main messages today have thus been that so far Sweden has been able to handle the problems that the global financial crisis has caused the Swedish financial system. However, the negative consequences for the Swedish economy will be considerable over the next two years. And the global financial system needs to be reformed to reduce the likelihood of new financial crises. The new information received since the most recent monetary policy meeting at the beginning of December indicates lower growth and inflation at the end of last year than we had forecast. However, the krona has weakened further, which can lead to some inflationary impulses. But more information will have come in by the time we are to make our next monetary policy decision in early February. Not until then will I take a stance once again on the future direction for monetary policy.
As inventory de-stocking decelerated in the third quarter of 2009, the pick-up in aggregate demand led to acceleration in demand for imported goods and the contribution of net exports to quarterly growth became negative (Figure 24). External demand conditions will continue to play a critical role regarding the pace of the recovery in economic activity in the forthcoming period as well. As of December, no significant upward revision in growth forecasts for developed countries – as compared to the forecasts in October Inflation Report – is deemed necessary. Within this framework, even if the recently issued data affirm that moderate recovery in exports continues, given the current level of exports and the expected pace of global economic recovery, external demand is not expected to reach its pre-crisis levels for a long period of time (Figure 28). The weak course of external demand would restrain economic activity and employment growth through its impact on industrial production. Indicators such as capacity utilization rates and per capita hours worked across industries suggest that resource utilization remains low throughout the economy. Nevertheless, indicators of the labor market started to recover in the third quarter of 2009. Although the upward trend in unemployment rates reversed in  BIS Review 31/2010  11  seasonally adjusted terms, the unemployment rate is still quite high compared to the precrisis level (Figure 29). The mentioned recovery in unemployment rates as of the third quarter of 2009 was mainly driven by the pick-up in non-farm employment (Figure 30).

Overall, there has not been any major change in medium-term forecasts and the monetary policy stance, since economic activity has evolved in line with the outlook presented in the October Inflation Report. However, all the main variables affecting the short-term forecast have been subject to an upward revision. In this respect, while short-term forecasts were revised upwards significantly, there has been no major change regarding medium-term forecasts. The revised forecasts indicate that there will be no significant upside pressures on inflation, even if policy rates remain at low levels for a long period. However, as depicted in the slide, inflation is likely to display a significant increase over the next two months due to tax hikes and strong base effects (Figure 34). Moreover, the annual inflation rate may post a limited increase in the second quarter of 2010, due to the low base effect generated by the Consumer Price Index in the first half of 2009, when the downside effects of the global crisis on prices became more pronounced. Accordingly, even if inflation remains above the target for some time, parallel to the gradual phasing out impact of the tax hikes, inflation is expected to trend downwards, stabilizing at around 5 percent over the medium term. BIS Review 31/2010  15  As you may have noticed, I have frequently referred to the base effect today. The reason for this is that the base effect will influence the course of annual inflation throughout 2010 to a large extent.
Examples include the troubles encountered by banks in Finland, Norway and Sweden a decade ago and the crises that hit Asia and Latin America in the latter part of the 1990s. The Central Bank of Iceland has now built up a new organisational department, the Financial Stability Department, which has the main role of monitoring factors affecting financial stability. Twice a year the Bank publishes articles on this topic in its quarterly Monetary Bulletin, an annual main study in May and a shorter account in November. In addition, the Central Bank and Financial Supervisory Authority maintain close and productive cooperation, each seeking to ensure the security of the Icelandic financial system in its respective way. Inflation targeting To return to monetary policy itself, we should recall the joint declaration on the inflation target and changed monetary policy which was issued on March 27 by the Government and the Central Bank of Iceland. See the Central Bank of Iceland’s Monetary Bulletin 2001/2 With this declaration, the monetary framework was changed and inflation targeting was adopted, whereby the fixed exchange rate with fluctuation limits was replaced by a floating exchange rate. The inflation target was set at 2½%, measured as the twelve-month rise in the CPI. The declaration stated that if inflation deviated by more than 1½% from this target the Bank was obliged to bring it back within the tolerance limits as soon as possible.

There has been a gradual increase in support for the view that it is natural to set central banks straightforward targets which are suited to the instruments they use, and to strengthen their independence to take action and their financial independence while at the same time making firm requirements about transparency and accountability towards the government and general public. Treasury access to central bank funding was closed. Simple target-setting for central banks largely involved assigning a single main objective to monetary policy, i.e. to promote price stability, which means a low level of measured inflation. In some countries, central banks were assigned the task of defining their own main objectives, but elsewhere this was done by governments, or in cooperation between the government and the central bank. These viewpoints are reflected in central bank legislation of many countries and in the Maastricht Treaty’s provisions for the establishment and activities of the European Central Bank. Another widespread central bank objective in recent years has been to contribute to the stability of the financial system, including payments systems. Many central banks have been devoting increasingly more scope to this topic, reflecting the need which has been identified following the deregulation of international capital movements. At global level, a much higher profile has been given to active monitoring of financial activities and maintaining an active overview of various risk factors in financial systems and the economy as a whole, in order to attempt to prevent serious shocks.
The same holds true for public debt, which amounts to 85% in the euro area while it will soon cross the 100% mark in the US. Many Countries are improving their fundamentals. The primary deficit of Spain for 2011 will be around 4.7%, half that of the US and the UK. Italy will be one of the very few advanced economies to have a primary surplus, around 0.5%. The IMF has recently acknowledged, and even praized, these efforts and commitments. In short, if good fundamentals are an absolute necessity, it is not a sufficient condition. Now can we let liquidity spirals lock a country, just like a financial institution, into a bad equilibrium? We faced that question in 2009 when dealing with financial institutions. We are now facing the same question regarding sovereign risk. Our answer is twofold. First, get the fundamentals right. For European countries, it means reverting to a sustainable fiscal position which requires a significant primary surplus. And second, there is a need for a liquidity backstop to ensure that bad equilibria will not develop. Where that backstop is coming from is a key question. Unconventional monetary policies have led many central banks to purchase significant amounts of Government debt: those purchases amount to 51% of the total debt issued since 2009 in the UK, 21% in the US versus 7.5% in the euro area – where they were fully sterilized. These policy stances have contributed to giving markets an insurance against a potential dry-up in liquidity.

No immediate consequences have been felt so far in the US debt market which remains the most liquid one and the ultimate benchmark for assessing risk. However, a pervasive uncertainty has been created, which might be responsible for the decline in confidence that has occurred over the last weeks. In Europe, on the contrary, sovereign credit risk has had immediate and dramatic consequences. It is difficult to foresee how, in the longer run, markets will assess debt sustainability. BIS central bankers’ speeches  1  But let me challenge some current analyses about debt sustainability in Europe. –  First competitiveness. In the UK, for instance, the effective real exchange rate has depreciated by 23% over the last four years and its exports have grown by a healthy 15%, year-to-year over the first semester of 2011. But Italy, Spain and Greece have done better, with exports growing respectively by 16%, 19% and 37% over the same period, with, of course, no internal exchange rate adjustment. Linking competitiveness with exchange rate depreciation is therefore too simplistic. Improving competitiveness can be achieved by proper domestic reforms with a lasting result. –  Second, the euro is the only major currency area with its external accounts in balance, which is a strong guarantee of long-term solvency. –  Third, the euro area’s aggregate budget deficit will stand at around 4.1% in 2011, less than half that of the UK or the US.
My remarks today will focus on the vast potential of the Islamic bond market in the economic development process, in its role in ensuring financial stability and its role in promoting greater financial integration in the global financial system. I would also like to take this opportunity to share with you Malaysia's experience in the development of this market. The Malaysian sukuk market has now evolved into one of the world's largest Islamic bond market. Immense role of sukuk market in the economic development The financing requirements for economic development are immense. The bond market is key to meeting these funding needs for both the public and private sectors. This is particularly important for emerging market economies. In the Middle East and in Asia , two of the fastest growing regions in the global economy are taking place following privatisation and implementation of infrastructure projects. Asia alone will be spending an estimated USD1 trillion on infrastructure over the next five years, while infrastructure requirements in the Middle East are estimated to be USD500 billion over the same period. The challenge is to put in place an intermediation system that will channel the surplus savings in both these regions into productive investments. It is in this context that the Islamic capital market, in particular the sukuk market will serve as an important avenue to efficiently mobilise longer term funds to meet these funding requirements.

The growth in the sukuk market also reflects the commitment and combined efforts of the Malaysian government and regulators. There is a clear articulation of the vision and policies to drive the local Islamic capital market. This is reinforced by the implementation of a strong legal, regulatory and tax framework. Bank Negara Malaysia and the Securities Commission have worked closely on a sequence of vital blueprints: the 10-year Financial Sector Master Plan, the 10-year Capital Market Master Plan and the Islamic securities guidelines. The government has reaffirmed all these plans and initiatives with the announcement of a range of tax measures in the 2006 budget. Another important aspect of the development of the sukuk market is the development of the other key components of the Islamic financial system, the money market, banking, and takaful sectors. The various components are able to meet the different requirements of the economy including the differentiated tenor for which the funds are required. This includes providing stable long-term funds for large investments and development projects. These would allow for a balanced allocation of financial and economic resources within the economy, diversifying the risks through the Islamic financial system, and enhancing its flexibilities to adjust, thus strengthening its resilience. As Malaysia moves to a more liberalised and globalised Islamic capital market, the role of the industry in advancing the Islamic financial system becomes increasingly important. The role of the industry has been important in spearheading product innovation, branding, profiling, promotion and marketing of the Islamic capital market products and services.