samchain/econo-pairs-v1 huggingface dataset:
To facilitate a better understanding of the factors underpinning the Spanish banking system’s low profitability levels compared with the pre-crisis levels, I will now concentrate on business in Spain. This is because changes in profitability in the consolidated statements are influenced by the growing share of international exposure observed in recent years and this makes it more difficult to interpret earnings as they are affected by significant changes in composition. Also, there are only a small number of banks that have significant international exposure, which means that changes drawing on consolidated statements may not be very representative of the majority of the banking sector. The profitability data drawing on individual statements of business in Spain are also highly cyclical, even more so than those drawing on consolidated statements. This reflects the greater severity of the crisis in Spain compared with the situation in other economies to  8/13  which Spanish banks held exposures. There are also signs of a marked recovery in recent years, despite which, in 2018 both ROE and ROA were still below their pre-crisis levels. The breakdown of the return on assets shows that the main determinant of the current low level of profitability of business in Spain compared with the pre-crisis period is a narrowing of net interest income in terms of assets, or net interest margin. This narrowing was concentrated in the period 2009 to 2013, when the margin fell from 1.4% to 0.9%; since then this indicator has steadied at around 1% of total assets.

All households who have previously paid more than SEK 4,500 a year in property tax will have lower monthly costs, according to this proposal. If households choose to use the sum they save on the abolished tax to take out larger loans, it is possible that this will lead to a slightly faster increase in prices than would otherwise have been the case. If the increased opportunities to borrow were to have a full impact on house prices, the reform could push up prices by around five per cent. The price increases would probably be highest in the parts of Sweden with the higher taxation values, where they have previously paid a relatively higher tax rate. However, there are a number of factors that imply that this calculation probably overestimates the effect on prices. Firstly, the Government has been indicating for some time that it intended to lower property tax. It is therefore possible that house prices have already been affected to some extent by the decision. Secondly, the price increases could be counteracted by the higher capital gains tax. Thirdly, if households believe that the property tax will in some way be increased in the future, it is not certain that they will be prepared to increase their borrowing. As I said, it is not easy to measure the overall effects of the changed taxes. This is a subject which I believe we will have reason to discuss further in the future.
This requires a combination of financial support but with sufficient likelihood of success/ability to repay/for positive return. The low returns to some students’ experience with higher education, evidenced by high dropout and default rates, point to significant heterogeneity in outcomes for college students. An individual making the joint decision of whether to enter college and which college to enter faces a high degree of uncertainty regarding the future outcome of the educational experience. Tuition subsidies funded by state taxes and Pell grants funded by federal taxes work to distribute this risk over a wide pool of people. However, individuals with good college outcomes enjoy the private benefits that accrue to their higher-earning power. As a result, it is likely that the best type of financing arrangement would require at least some tuition payments from students. To overcome the liquidity constraint faced by families whose members are entering college, it makes sense to have a loan program. Importantly, the financial system, whether private or public, should direct scarce resources to highly-valued investments. Given the wide heterogeneity of educational outcomes by type of student and type of institution, any loan program should take careful account of the expected quality of the match between the prospective student and the educational institution. This is a type of underwriting that could be employed much more extensively in the federal student loan program, to the benefit of both borrower and lender.

However, while the available data limits deeper analysis of this issue, it seems reasonable to suspect that high college dropout rates contributed to loan repayment problems. As is well known, approximately 40 percent of college students drop out of college before finishing their degree. Among low-income students two-thirds don’t complete their degree, with rates also varying across institutions and majors. While the average wage returns to college remain high, for the substantial share of student loan borrowers who drop out of college, the net returns are likely to be small or negative. Returns are also likely to be small for those who attended a set of for-profit institutions. Enrollment at those institutions surged during the recession. While our data don’t allow us to investigate the returns for these groups of students, their especially low loan repayment rates (as reported elsewhere) are consistent with low post-college employment and earnings, suggesting that eventual returns to these educational investments may be low. The increase in defaults and decline in repayment may also reflect a change in the composition of college entrants during the recession, where even those with relatively low, or even negative returns to college, enrolled in order to qualify for grants and loans as a source of income. The individual and macroeconomic implications of growing student debt go well beyond the high default rates and may not have been sufficiently anticipated and understood.
Second, financial instability can impair the linkage between monetary policy and financial conditions. The central bank may move to a much more accommodative monetary policy stance, but this may not lead to much improvement in financial conditions. We see this clearly in spreads and risk premia during periods of financial stress. Depletion of capital in the banking system or the interaction of frictions and market failures may also lead to constraints on the availability of credit following a financial shock. As a recent U.S. example of the second issue, households with lower FICO scores have had difficulties in refinancing  1  Krishna Guha, Marc Saidenberg and others on my staff contributed to these remarks. 2  As always, what I have to say here today reflects my own views and not necessarily those of the FOMC or the Federal Reserve System. BIS central bankers’ speeches  1  their mortgages or in obtaining new mortgages to purchase a home. This stems from worries by lenders about put back risk – that such mortgages might be put back to them by Fannie Mae or Freddie Mac should the mortgages become nonperforming. For any given reduction in mortgage rates relative to normal levels, this reduces the support for the housing sector and consumption. Thus, another lesson of the crisis is that monetary policymakers need to be more attuned to how the condition of the financial system influences how monetary policy changes affect financial conditions. Third, the linkage between financial conditions and aggregate demand may also be impaired.

Across the market, reserve releases continue to run at high levels by historical standards.   Insurers may be underestimating risks, particularly on new business. For example, they may be too sanguine about catastrophe risks, such as significant weather events.   Terms and conditions are loosening.   Insurers may be tempted to expand into new lines of business with apparently more attractive returns. But these may fall outside their knowledge and expertise. Over the course of 2017, we will carry out a number of supervisory initiatives to deepen our understanding of how individual insurers are being affected by these conditions. Our overall expectation remains that firms (and their Boards) are the first line of defence and accountable for the risks written on their balance sheets, regardless of distribution channel used. Where insurers participate in delegated underwriting arrangements, we will expect them to retain the ability to understand the impact of business written through these channels on their overall risk profile. Our specific work this year includes:   Reviews of underwriting and exposure management for selected lines of business at a number of large London Market insurers. In the course of these, we will seek to understand how changes in terms and conditions are carried through to planning, reserving and capital assessment. Where these insurers delegate aspects of underwriting through broker facilities, managing general agents or other arrangements, we will also assess whether they have sufficient information and control to manage their risks effectively.
Inward migration flows are lower than in the period to summer 2008, but have not come to a complete halt. In 2009, the loss of confidence among banks also affected household mortgage financing. Banks no longer provided bridging loans. Housing turnover fell, but has now picked up again. House prices are rising after a sharp fall in the second half of 2008. Last autumn it was important to restart the housing market, which will also gradually provide the basis for a potential recovery in residential construction. However, the revival in house prices is not a positive development. The level of house prices in Norway is very high and the additional rise that has now occurred will only increase the potential fall. Developments in Norway, and to an even greater extent in other countries, show that economic policy instruments are not perfect. The interplay between credit and property prices in particular poses challenges. Interest rate setting influences this interplay only indirectly. The interest rate rises in good times when inflation is expected to increase and falls when growth and inflation moderate. The interest rate is an approximate instrument, which can be used to keep inflation in check over time and thereby stabilise output and employment. In a small, open economy such as Norway’s, the exchange rate is important for inflation and the level of activity. There is therefore little leeway for setting the interest rate specifically with a view to influencing property markets and credit growth.

Growth in public demand, stronger confidence in financial markets and low key rates are fuelling investment abroad. Even though the global economic situation now seems to have stabilised, there is still a risk of continued low growth for a fairly long period ahead. The severe downturn and fall in commodity prices has led to very low or negative consumer price inflation in many countries. Inflation is still moving down and is now negative in for instance the US, the euro area, Sweden, Japan and China. Core inflation is more stable, but has also shown a slight decline recently. The current low level of activity and high unemployment will also act as a brake on inflation in the period ahead. One characteristic of the crisis was the substantial increase in money market rates. Confidence between banks evaporated. Banks reacted by raising interest rates on loans to businesses and households. They started to turn off the lending tap. Measures implemented by central banks and governments have had a stabilising effect. The most important markets have also gradually become less disorderly, with less distrust among participants. The risk that issuers of credit will go bankrupt has diminished. Activity in money and bond markets has picked up and fluctuations are less pronounced. The situation in the interbank market has improved. The spread between money market rates and expected key rates, which is an indicator of risk premiums in the money market, has decreased. Money market premiums in Norway have also fallen. Equity markets have risen since early 2009.
The Governing Council therefore supports the implementation of the ambitious objectives described in the evaluation report.” In terms of the broader service to Spanish society we have just mentioned, let me remind you that three CEMFI faculty members currently participate in the Council of Economic Advisors of the Spanish Ministry of Economic Affairs, two have recently been appointed members of the Advisory Committee of the Ministry of Inclusion, Social Security and Migration, one is a member of the Advisory Board of the Spanish Independent Agency for Fiscal Responsibility, and another one is chair of the Scientific Committee of the Spanish State Research Agency. In addition, last December, CEMFI signed an agreement with the Ministry of Inclusion, Social Security and Migration to collaborate in the evaluation of 34 pilot projects to improve the design of poverty reduction policies. CEMFI will participate both in the design and the evaluation of the projects, and researchers will be able to use the data generated by these evaluations for the production of papers publishable in scientific journals. Carrying out these evaluations will allow CEMFI to take a qualitative leap forward, positioning itself as an academic institution of reference in the evaluation of public policies in Spain. I would like to thank Samuel Bentolila and Mónica Martínez-Bravo for leading this important initiative.

Structuring a long-term debt requirement so that a meaningful component consists of deferred compensation held by senior management would presumably strengthen the incentives for proactive risk management. In my opinion, more research is needed into how the structure of management compensation for financial firms could incentivize good risk management and limit the appetite for excessive risk.1 Even if every jurisdiction were to successfully implement these types of initiatives and consequently reduce the default risks associated with their G-SIFIs, the risk of failure would not be fully eliminated. This means there would always be some residual risk of major disruptions to financial markets due to a disorderly default of a large financial firm. Consequently, the development and implementation of credible resolution mechanisms for G-SIFIs is the second key component of a global strategy to improve financial stability. By credible, I mean that if the situation of an impending G-SIFI default arises, the home authorities will proceed with the resolution plan, rather than give in to pressure to intervene to prevent the failure. This requires that the resolution mechanisms be capable of significantly mitigating the negative externalities associated with winding down a failing G-SIFI. Although the specifics of the resolution mechanisms will necessarily vary to some extent across jurisdictions, reflecting differences in institutional structures, legal frameworks, and regulatory regimes, the goal is common – to be able to resolve any G-SIFI regardless of its home  1  Structuring this in a way to get the incentives right is critical.
But longer-term, the challenge for all organisations is this: to put in place a more system-oriented approach to recruitment and performance management, which weighs diversity explicitly and systematically. We are not close to being there yet. This would be a leap of faith. But it would not be a leap into the unknown given the known benefits such diversity confers. Conclusion We are all Sneetches, some with stars, some without. The sooner we recognise that our minds are biased, the better placed we will be for dealing with its consequences. Diversity is a public good because it corrects our biased minds in ways which benefit society – from greater creativity and innovation to more robust and resilient decision-making, in every social setting from schoolrooms to sports fields, from companies to communities, from eco-systems to economies. This public good, like all public goods, requires an on-going investment. Society has made a real investment in identity-based diversity over the past few years. So too has the Bank. That first diversity wave is reaping significant societal rewards. There has probably never been a better time for making progress on creating that second diversity wave, one which cultivates the subtle, but as important, cognitive and socio-economic dimensions. While leopards can’t change their spots, Sneetches can change their stars.

That being the case, it is worth considering the “second wave” of diversity initiatives that might augment the first. An obvious place to start here would be the other dimensions of diversity – cognitive and experiential. The evidence suggests these confer societal benefits every bit as great as identity. Indeed, diversity of thought and experience go the very heart of decision-making diversity. Moreover, because these dimensions are less well-recognised and harder to measure, unconscious biases around them may be harder to detect and correct. That underscores the importance of purposive action to move the diversity dial in these directions. (a)  Cognitive diversity  Cognitive diversity is far from easy to define and measure. It is stored between our ears in an organ which, despite recent neuro-scientific advances, remains largely a black (or grey) box. A second reason is that it is clearly multi-faceted, including diversity of perspectives, interpretations, heuristics and predictive models. 62 It comprises not just technical problemsolving, in an IQ sense, but also social and interpersonal problem-solving, in the EQ sense. Together, these comprise an individual’s cognitive toolbox. Recognising even that this toolbox exists, and what might lie inside, is a useful first step. Work by sociologists, psychologists and neuro-scientists has, over recent decades, shone a light on these wide-ranging cognitive competencies, their implications for behaviour and their source. Yet this evidence is only now beginning to percolate into the workplace, much less into wider society. Let me give an example.
Banks have no choice but to leverage up and take bigger risk in order to meet the targets that the shareholders demand. Modern banking at crossroads 17. So where do we go from here? As I mentioned earlier, while bank regulators clearly play an important role in influencing banking operations, it is really up to the industry to decide what it can and should do to regain the trust and respect that banks once enjoyed. We should bear in mind bank regulators are a consequence of the emergence of modern banking. However, as discussed earlier, the modality and incentive system for banking were very different in the old model of banking : there was a high degree of alignment of interest between bank owners, bank management and bank customers, which has over the years been significantly eroded. 18. Again, don’t get me wrong. I am not advocating that we should go back to oldfashioned banking. It is far too difficult, if not impossible, to turn the clock back this far and to do so might mean the loss of some beneficial innovations over the years. However, there is considerable public interest in ensuring that banking, which remains the predominant channel of intermediation between savers and borrowers in our society, functions efficiently and effectively, with a high degree of professionalism and strong ethical standards. 19. It is against this backdrop that the international community, through G20, Financial Stability Board (FSB), Basel Committee on Banking Supervision (BCBS) etc.

This naturally served to temper the degree of exuberant risk-taking. Partners or managers in a bank were in for the long haul, with their investments and family wealth tied into the firm until retirement. So it was not just their next year’s bonus that was at risk. This evident “alignment of interest” between the bank owners or managers and the bank’s customers and creditors clearly helped promote trust. 8. That said, although some US investment banks only moved from the partnership to public ownership model in the past 25 years, it is the case that other commercial banks have been structured as public joint stock banks with limited liability since the 19th century. So if limited liability has existed for two hundred years, in at least commercial banking, with the attendant potential “agency” risks (i.e. shareholders with limited skin in the game and managers with relatively little capital invested), what else has been at work to create the problems which so vividly surfaced in the Global Financial Crisis? What has changed: bank management 9. First, bank employees’ time horizons have shifted. By this I mean that in the past employees, for a variety of reasons, tended to be much more “stable” in the sense of their ties to a given employer. An employee might join a bank, work their way steadily up through its ranks and then, on retirement after 30 or 40 years of service, receive a pension from the bank.
This has strengthened banks' earnings situation in areas outside of the real estate business, thereby enabling banks affected by the credit crisis to compensate part of their losses. If the  2  Benchmark index of credit default swaps (CDS) on US securities covered by commercial mortgage-backed securities (commercial MBS), 2-2006 vintage with AAA rating. Source: Markit. 3  "Delinquency Rate on Credit Card Loans (All Commercial Banks)", USA. Source: Federal Reserve. BIS Review 150/2007  3  general economic environment were to deteriorate, this previous important source of stability would be adversely affected. Nevertheless, we must stress that the banks are still operating in a stable real economic environment, and that economic data from Europe, Latin America and Asia continue to provide evidence of robust growth momentum. What can be learned from the current crisis? How can we ensure that the kind of market turmoil we are experiencing at present can be avoided in the future, or at least does not occur on this kind of scale? And how can we make sure that the banking sector will be in a position to emerge from comparable or even worse disruptions unscathed? Once again we need to stress that definitive conclusions cannot yet be drawn because the current crisis has not yet been overcome. However, as initial provisional lessons from the crisis, the following points seem particularly important to me. First, banks need to improve their transparency on a sustainable basis.

Specialised features of these assets affect both how easily they can be sold or restructured, and how attractive they may be to other market participants. Bespoke and sometimes innovative features of some of these assets may increase uncertainty around this. Since Solvency II was implemented, the range of asset types in MA portfolios has expanded substantially, including increased investments in a wide variety of illiquid loans and other forms of private credit. We estimate that annuity firms’ holdings of assets other than corporate or UK government debt has grown, from around 15% of assets backing annuities at the end of 2014, to around 45% of MA portfolios at the end of 2020[3]. The PRA is attuned to the merits of these investments, both in terms of risk diversification for firms, and for the real economy of the UK. It is in that spirit that the PRA has worked with the BPA sector over the last six years or so to  Page 6  support the safe growth of more diverse MA portfolios than was the case when the MA requirements were drafted. Indeed, there is now a very wide range of assets in firms’ MA portfolios as shown in Chart 3. However, all assets are not equal in terms of the MA they generate with, for example, Chart 4 indicates that current investments in student accommodation benefit from almost double the MA of current infrastructure holdings.