samchain/econo-pairs-v1 huggingface dataset:
Even when a small institution fails it causes disruptions and a loss of confidence in banks in general. We have recently had bad experiences in Sweden, so if you intend to introduce risk-based supervision I advise you to do it with caution. Going one step further – how to set the boundaries between banks and other financial institutions? In my opinion, it is very important to safeguard the general public’s confidence around the concept of a bank and it must be protected by a clear definition of a bank and what it can do. In Sweden, the definition is based on the combination of a bank receiving deposits and being active in the payments system. However, a more common definition of a bank focuses on the combination of two activities, namely the receipt of deposits from the general public and the granting of credits to borrowers using these funds. In accordance with international practice, this combined activity should be a privilege of banks. Other institutions may issue deposit-like instruments in high amounts and not directed to the small savers. To highlight their different characters, such instruments should not be protected by any depositor guarantee scheme. But apart from the deposits, most bank activities might also be open to other financial institutions and vice versa. Insurance companies could sell savings products and banks could sell securities. Should you allow “financial conglomerates” mixing banks, securities companies and insurance companies in the same groups?

The public authorities must compensate for these weaknesses by implementing additional rules. For instance, the supervisors may need to require stricter rules for provisioning against loan losses, or to set a higher minimum level for bank capital. An important function of the banking system is to facilitate payments between various agents in society. This is based on the fact that bank accounts provide the basis for all payments except cash payments. Most payments are executed through the payments system infrastructure, such as the systems for large value payments, cheque clearing, securities settlement systems, stock markets, other exchanges and so on. These systems must be efficient and they must also be secure. If not, there is a risk that problems in one part of the financial system will spread to other parts, including to the banks. Many countries have neglected the need for an adequate financial safety net. The safety net includes limited but explicit depositor protection which has to be supported by the necessary legislation, institutions and procedures to conduct an orderly management, resolution or winding-up of problem banks. When bank weaknesses are identified in a country lacking a proper safety net, various problems may occur. The authorities will be reluctant to take adequate and timely remedial action since there are no clear guidelines and since they are afraid of the consequences from non-protected depositors and from other counterparts to the banks.
While the Fed raised the fed funds rate by 25 basis points in June and has signaled two more increases this year and three the next—while continuing to 4  downsize of its balance sheet—the European Central Bank extended its asset purchasing program and signaled that the benchmark rates will stay put for a while. The trade dispute between the US and China has continued to escalate. So far, the tariffs applied by the US and the reprisals have been limited, but the conflict has not subsided, and the measures adopted are already having an impact on risk perceptions, and the markets are more sensitive to them. As detailed in a Box in this Report, the effects that these measures may have on the global economy are difficult to quantify, as they depend on the number of countries that would be directly and indirectly involved, the amounts levied, the sectors affected and the time during which the higher tariffs would be applied. However, there are some qualitative dimensions and certain transmission channels common to the different possible scenarios. For the economies directly involved, there would be a negative impact due to lower external demand and greater uncertainty, which would affect local consumption and investment decisions. The size of the impact is related to the importance of trade among those directly involved and their ability to divert it to other economies.

However, if developments in the real economy are to be satisfactory over time, real wage growth must be adapted to underlying productivity growth. A precondition for countering a possible downturn by means of monetary policy easing is slower growth in labour costs. Monetary policy cannot prevent an increase in unemployment that is caused by a significantly higher rate of growth in labour costs in Norway compared with other countries. Nor can an expansionary fiscal policy counter a cost-driven rise in unemployment. Growth in real wages is far higher than the underlying growth in productivity. If higher costs cannot be 1 passed on to customers, earnings decline and the wage share increases . Many businesses will have to adjust their workforces to maintain profitability. This leads to a fall in employment and increased productivity. For some companies, this may be a prerequisite for maintaining operations in Norway. The alternative is to close down or relocate production to another country. While the wage share has risen sharply in manufacturing, it has remained fairly stable in other industries. Import firms have wider margins, suggesting that the appreciation of the krone has not fully benefited customers. We also know that employment in some service industries has fallen. Many companies in the service sector have adjusted their workforces to maintain profitability. To some extent, higher costs can also be passed on to customers through higher prices in this sector. Manufacturing employment is declining.
On one hand, in the aftermath of the 2008–2009 crisis the main central banks of the world had to adopt unconventional policies to cheer up their ailing economies, flooding the world with unprecedented levels of liquidity and thus increasing the price of financial assets. Today, the start of the US monetary policy normalization is around the corner, which will intensify the divergence with other developed economies whose cycles are behind. Meanwhile, after years of seemingly endless increases in commodity prices, we have seen the so-called super cycle of commodities wear out, and with it, the boom of investment and income that we experienced for the better part of the past decade. These two situations pose major challenges to emerging economies and Chile in particular. In the short term, it is very likely that we will see increased financial volatility, including unusual fluctuations in the exchange rate. This may complicate the inflation outlook, at least in the short term, as inflation is closely linked to fluctuations in the nominal exchange rate over short periods. The effects of these situations of increased volatility on the inflation trajectory at longer terms, which certainly are more important for monetary policy, are difficult to predict, as they depend on many factors, such as the cyclical state of the economy and expectations, which we carefully assess when making our decisions. Certainly these are not the only challenges that these transitions face us with.

Third, getting a handle on – and where necessary – regulating, the risks in the so called “shadow banking” system: the ecosystem of non-bank financial firms that perform a similar role in credit intermediation to that played by the banking sector. And fourth, and perhaps most important, making sure that no institution, no matter how large, how complex, how international in its activities or to put it simply, no matter how systemic, is “too big to be allowed to fail”. Because if financial institutions can make themselves too big to fail, if they can ensure that if and when they get into trouble the taxpayer will have no option but to bail them out if, as the economists put it, they can ensure that their profits and their pay are private but if it all goes wrong the losses are “socialised” then history teaches us that this is exactly what they will do. III. What has been achieved? So, in these four key areas, what has been achieved? The inputs have certainly been impressive. From a standing start in 2009 the Financial Stability Board has driven the regulatory reform programme. Under the FSB, around 25 groups have been set up to run around 15 major workstreams.
Still, it is worth mentioning that recent quarters’ indicators show a slight decline in the percentage of loans that cover a high portion of the property’s value, the Bank Lending Survey reports somewhat tightened credit standards and the business cycle has resulted in a slower pace of total lending growth, although mortgage credit shows a smoother trend. I cannot stress too much how important it is for the agents involved to consider when making their investment and financing decisions that the future behavior of prices might take a detour away from recent trends. Household borrowing risks remain stable. Total household debt rose a little in the last quarter of 2013. In banking debt, there continues to be a shift in composition towards middle to upper income, with faster growth in borrowed amounts than in the number of debtors. Repayment indicators for both bank and non-bank providers show no major change, probably because of a change in composition of the consumer portfolio or because a milder impact of the business cycle on the labor market. Banks have been gradually reducing growth in commercial credit and, while less, also consumer credit, reacting to the economic slowdown. Indicators also show a reduction in the exposure to the most pro-cyclical sectors, which has been visible in stable aggregate default levels in both portfolios. Banks’ profitability increased somewhat in the past few quarters, while their capitalization levels have remained stable.

But mindful of the old Chinese proverb that ‘He who lives by the crystal ball will die from eating broken glass’ I will stick to interpreting what’s happening in the economy right now. I’ll focus on two issues: first, what’s happening to inflation? And second, why has unemployment risen? Over the past couple of years, the headline rate of inflation has been pushed about by sharp movements in energy prices. Back in the autumn of 2004, CPI inflation was closer to 1% than the 2% target. A year later it had risen to 2.5%. It then fell back below target until the spring of this year, when it moved back up to around its present level of just below 2.5%. The first spike in inflation above the target – in the autumn of 2005 - corresponds with the very sharp rise in petrol prices around the time of hurricane Katrina. The second upward movement corresponds with the big jump in domestic gas and electricity prices this spring. This autumn petrol prices have fallen back sharply from their August peak. But CPI inflation has scarcely changed. Why? The simplest explanation is that the recorded inflation rate is still being boosted by high utility prices, and the effect of lower petrol prices has been partly offset by high seasonal food prices and the introduction of university tuition fees. Any broader-based pick up in inflation has been relatively small. Of course, life is not quite that simple.
But at the same time, the programs implemented in 2008–2009 have lost their efficacy, and the authorities are taking a more cautionary stance. Today, China needs to rearrange its economy, and although events in Europe have caught China flatfooted with respect to its economic reforms, part of the adjustment to slower shortterm growth is necessary and partly inevitable. A significant impulse to public expenditure and investment will only be observed if there is a significant deterioration of external conditions. Overall, the Chinese economy faces important challenges in the short run. These could introduce fluctuations in commodity prices that threaten to expose the weaknesses of countries in the region whose recent growth has come almost exclusively from increased expenditure financed by the Chinese boom. In particular, it is especially important at this point that the region work hard to maintain the health of its fiscal and external accounts. Thank you. BIS central bankers’ speeches  5

On the infrastructure aspect, data is a critical issue. The data that could be collected at this time would be biased since the economic conditions are not normal. Nevertheless, we still need to start building up the database. In many countries, such a challenge is tackled with the cooperation between the financial institutions and the regulators. For example, in a number of countries, developed countries in fact, regulators plays crucial coordination role in supporting the built-up of the database system, in educating and knowledge transfer. The Bank of Thailand will be more than happy to play this role. Turning now to the second major challenge for the financial institutions, the intensified domestic and foreign competition brought about by liberalization, globalization and technology. Banks also experience competition from non-bank financial institutions, with the traditional financial firms and their business line becoming blurred by conventional wisdom. We also see such strategy as M&A across similar financial firms, or between financial firms and non-financial firms such as IT  BIS Review 87/2001  1  providers. In the meantime, outsourcing and franchising of technology, most notably through the venders for risk management software or solution have also exploded as a phenomenon. While the picture is still evolving so fast and future landscape hard to forecast, financial institutions find themselves stepping more and more into a less familiar territory, and tremendous efforts must be put in to survive the intense competition and dynamism. At the same time, attention must be diverted to deal with preparation for the New Accord.
The infrastructure to support credit default swaps, the building blocks of many of these new products, is developing rapidly thanks to the initiative of the FSA and the New York Fed but there is still some way to go. Competition between financial firms to establish positions in these new and fast growing markets is also rising. The business risk not just of losing profits this year but of being left behind in the longer term by competitors looms large at the moment. And compensation structures that strongly reward financial performance are also influencing risk-taking. 4 There is a tendency for rewards from generating “excess returns” to far outstrip the penalties for poor performance. This intensifies the need to stay ahead of, or keep up with, the pack and stretches risk management systems in the process. The more aggressively management pursues short term shareholder value in the form of rates of return on equity, the greater the motivation to build leverage to meet its targets. Balance sheets have been growing strongly (Chart 5). In markets where a 20% return on capital is seen as disappointing, we are seeing efforts to emulate the business models of others and take on more risk through both proprietary trading (in fairly liquid markets) and principal position taking (in illiquid investments). The history of financial crises is replete with injudicious attempts to “keep up with the Joneses”.

It is shorter, more selective and clearer on what we think is important and what isn’t. Of course it is not difficult to draw up a long list of possible “triggers” for changes in sentiment in markets. Avian flu or worsening strife in the Middle East are two obvious ones at the moment. What we have tried to do in the new FSR is to identify the features of the economy and the structure of financial markets which could lead an initial shock to turn into a crisis. We set out six main sources of vulnerability. Two of these vulnerabilities are features of the global economy: unusually low premia for bearing risk and the large financial imbalances among major economies. Two relate to the balance sheets of the non-financial sector: rapid leveraging of some parts of the corporate sector and high UK household debt. And two arise from structural dependencies within the financial system: the rising systemic importance of large complex financial institutions (or LCFIs for short) and the heavy dependence of financial institutions on some elements of market infrastructure. In each case the probability of the risk materialising is small but non negligible.
In this way such an institution can serve to unlock further the financial potential available to spur competitiveness and economic growth without adding to the debt burden of the government. The funding model is based on the repayment of loans and thus is on a sustainable path separate from that of the national debt. This is why such loans raised by such institutions are not captured under the Maastricht criteria of debt to GDP ratios. However, such an institution has to be managed and administered in a prudent and responsible manner. 8  BIS central bankers’ speeches  The Central Bank has been looking more thoroughly into this matter and intends to put forward its submissions to the Government with respect to the rationale and feasibility regarding the setting up of such an institution. Conclusion: The importance of sustainability At a time of recession in Malta’s export markets, the preservation of competitiveness is a must, in order to sustain continuing economic growth. In today’s world, economic sustainability requires the adaptation to an evolving external environment and allows the continued improvement of the standard of living without jeopardizing that of future generations. In the eventual post-recession world, many of Malta’s competitors will have gone through a restructuring process and would pose an even stronger challenge. Sustainability has three dimensions. First, a sustainable financial system requires a prudent business model on the part of the banks and other financial institutions and a vigilant oversight of these institutions.

The remaining risk is due primarily to foreign banks’ króna deposits and the old banks’ deposits. However, before the controls on these deposits can be lifted in full, it is necessary to channel as much of this capital as possible into long-term investments and structure the winding-up of the old banks so as not to jeopardise exchange rate stability. Although conditions in the global financial markets are still difficult, they are better overall than they were a year ago, not to mention two years ago. But the fiscal problems faced by Greece, Ireland, Portugal, and Spain have contributed to investor flight to the relative safety of low-yielding markets. The Icelandic Government is faced with the intricate task of demonstrating that Iceland is a better target for investment than other indebted European countries. The progress made under the IMF programme is gradually laying the foundation for enhanced confidence, but the programme will only be successful if we adhere to its objectives. Funds lying in wait in the shelter of low-yielding markets will eventually seek more bountiful shores. When the flight to safety begins to subside and investors begin to seek out better returns, the Icelandic authorities must be ready to direct their attention to Iceland. BIS Review 138/2010  3  The existence of capital controls and their proposed removal represents a problem for both the Monetary Policy Committee and those who trade in the bond market.
8  Chart 9: The importance of SMEs  99.8  99.8  99.8  99.8  80  99.8  99.8  99.8 99.7  79.4  75.9 67.6  69.8  68.3  73.7 65.5  66.3  74.8  69.5  74.4  60  99.7  50  99.7  99.7  99.7  78.2  70  Macedonia  99.8  Share of number of employees in total in 2015, enterprises employing less than 250 persons (in %)  90  Croatia  Share of number of enterprises in total in 2015, enterprises employing less than 250 persons (in %)  99.9  40  99.6  30 99.6  20 10  EU28  Bulgaria  Slovenia  Romania  Poland  Hungary  Czech Republic  Lithuania  Estonia  European Union EU28  SEE  Share of value added at factor cost in total in 2015, enterprises employing less than 250 persons (in %) 68.3  60  64.5  64.4 55.1  53.0  51.1  52.2  Romania  70.0  70  CEE  Source: Eurostat and SSO of RM. Poland  75.6  Baltics  SEE  Hungary  80  Macedonia  Croatia  Bulgaria  European Union  Slovenia  Romania  Hungary  Czech Republic  Poland CEE  Czech Republic  Baltics  Lithuania  Latvia  Estonia Source: Eurostat.

Latvia  0  99.5  64.5 58.5  55.9  50 40 30 20 10  Baltics  CEE  EU28  Macedonia  Croatia  Bulgaria  European Union  Slovenia  Lithuania  Latvia  Estonia  0  SEE  Source: Eurostat. To depict more closely the state of the SMEs and the own perception of their business environment, in the next section we will focus on the results of the Survey on the Access to Finance of Enterprises (SAFE survey of the EC and the ECB). The Survey itself pinpoints the concentration of SMEs in trade and services (around 70% on average, both for the EU and the region), with many of the companies not having export of goods and services in their total turnover (around half of surveyed companies). The survey data also indicate that SMEs from the EU and the region face rather similar challenges in terms of the main perceived obstacles in doing their business. Finding customers and availability of skilled labor seem to be the main issues of the SMEs from the European Union and from the region. Thus, 7-8% of the companies perceives access to financing as the most important current problem, but there are countries, Macedonia in particular, where this percentage is higher (13%), and with a similar weight compared to most of the other obstacles7.