samchain/econo-pairs-v1 huggingface dataset:
Greatly increased financial openness, in part associated with EU membership, has made the UK financial system larger, more complex and more exposed to shocks from abroad. These developments reinforced domestically generated vulnerabilities in the run up to the Global Financial Crisis. The UK, along with many of its main international partners, lacked the institutions and tools for managing and addressing them when they crystallised. As a result, when the crisis hit, global shocks were transmitted virulently across borders, doing great damage to the financial systems and real economies of many countries. The UK was particularly affected given its high degree of financial openness. Most recently, challenges arising from European Monetary Union (EMU) have been particularly evident. Our ties are close. 40% of our exports go to the euro area, and major UK-owned banks have financial exposures to the euro area totalling almost twice their capital, worth a quarter of UK GDP. These figures underscore the importance to the UK of further building the resilience of the euro area as part of a strengthened European Union.9 In this regard, the progress made in recent years is particularly welcome. Nonetheless, as highlighted in the European Commission’s “Five Presidents’ Report”, the euro area remains “unfinished business.”10 Actions to complete European Monetary Union should be taken with regard to their impact on all members of the European Union. From the Bank of England’s perspective, steps to ensure financial stability for those within the euro area should not impede the achievement of financial stability for those without, including the United Kingdom.

With a view to strengthening economic growth in the long term, one objective of economic policies in the immediate future must therefore be to provide the education system with mechanisms enabling affected students to obtain the qualifications necessary, despite the lack of face-to-face education. As regards the employed who have lost their jobs, it is essential that the income-support measures be complemented by active policies that prevent a loss of working skills and foster the acquisition of new ones. In this respect, it is important to note that the effectiveness of active labour market policies has traditionally been an unresolved issue in Spain. International experience shows that one way of reinforcing the effectiveness of public employment services is to equip them with the skills to provide individual guidance. For those who keep their jobs after this crisis, various initiatives geared towards improving their productivity can also be conceived. First, it is desirable to apply formulas to counter the potential cuts to training expenditure that firms may make in the short term to address their liquidity needs, given the adverse impact that such cutbacks would have on aggregate productivity further down the road.
They will probably realise that debts borrowed by developed countries are still debts and must be repaid one way or the other in the future. Moreover, excessive debt or leverage would drag down the economy sooner or later, just in the same way it did to the developing economies. It is natural that most people would prefer to get out of the indebtedness trap without the pain that would be inflicted on them when the economy undertakes the necessary fiscal consolidation and structural reforms. So it is not surprising that people would like to think that if they can find someone who is very clever to lead the government or to be in charge of the central bank, then somehow good life can return and business is back to normal once again without the painful adjustments. No one can rule out the possibility of finding a very clever person who can save the world without pain, but I suspect that it would probably not be a bad idea, and hopefully not too late, to start studying and learning from the Hong Kong recovery story after the eruption of the Asian Financial Crisis. Conclusion: Don’t mortgage our children 19. Ladies and Gentlemen, while I have talked a lot about the predicament of the developed world, it is not my intention to suggest that the developing world is all home and dry.

Funds flow to emerging economies because they are able to generate better return for savers in the developed economies. On the one hand, the emerging markets have to do their homework and preparation. But on the other hand, when things get temporarily out of balance, shouldn’t there be tools and safeguards to help them deal with situations better? The good news is there could, if all the countries here want to! BIS Review 52/2002  3
The Governor was alerted given the “almost unthinkable consequences should Barings go down: not only would the failure of the City’s leading accepting house inevitably bring down a host of other firms… but the very status of London would be threatened and thus the pre-eminence of the City as an international financial 4  centre” . Amidst much to-ing and fro-ing between the Bank of England (hereafter “the Bank”), the Treasury and Downing Street, it was becoming apparent that the crisis at Barings was one not only of liquidity but also of solvency, and that there was now a palpable loss of confidence in the institution throughout the City. The Bank alone could not afford to act as lender of last resort so eventually the Governor of the day – Lidderdale – announced the establishment of a guarantee fund for Barings; within half an hour, the City’s top institutions rushed to contribute – the likes of Raphaels £ Antony Gibbs and Brown Shipley £ apiece) and Smith Payne & Smiths, Barclays, Morgan and Hambros (each contributed £ Indeed, the  2 3 4  Kynaston, David. City of London: the history, London, Vintage Books, 2012, pp130-131 Ibid, p.131 Ibid, pp.133-134 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  leading joint-stock banks had put themselves down for £ and by mid-afternoon the fund was up to 5  £ and climbed further to £ by the following week . Barings was saved.

It also made for a lucrative line for insurers, not least as motor cover was compulsory, though the period was also marked by a good number of insurers that failed. In response to this, the Cassell Committee on Compulsory Insurance was established in 1937. With its recommendations temporarily stalled by the onset of the Second World War, which understandably diverted Parliament briefly from the noble topic of insurance supervision, they were implemented somewhat belatedly in the form of the Insurance Companies Act 1946. Crucially, the Act strengthened the powers of the Board of Trade (later the Department of Trade and Industry, or DTI) and introduced solvency margins, with the amount being set as the greater of £ or a 34  tenth of premiums . In addition, insurers had to have at least £ in paid up share capital and the Motor Insurers’ Bureau was established to fulfil claims for victims of uninsured drivers, funded by a levy on the motor insurance industry. Despite these reforms, nine motor insurance companies failed in the period 1966-67. In typical fashion, a new piece of legislation was enacted in response. The Companies Act 1967 further strengthened the hand of the DTI, which was now empowered to refuse authorisation, impose conditions on a firm’s operation and 35  prevent control of the company from those individuals not deemed fit and proper . Thus, we see elements of a supervision regime begin to emerge which persist in the PRA to this day.
But there was not a wider market reaction at that point. It was Bernanke’s comments on May 22nd that the FOMC could begin tapering its asset purchases “in the next few meetings” which caused a widespread reassessment of risk positions. What followed was a good illustration of what can happen when there is a general sell-off. Initially asset price correlation increased and liquidity became poor across markets. Because the news related to a prospective policy tightening, risk-free yields generally rose (Chart 3), although at least some of this was a change in term premia rather than rate expectations. Equity markets fell. Some contacts described conditions as highly volatile. EME assets in particular were badly affected as leveraged investors cut their risk positions quickly in those markets (Chart 4). Eventually, as conditions settled, there was more discrimination between and within asset classes. For example, there has been much more distinction between those EMEs whose fundamentals were seen to be relatively sound and those who were seen to have challenges – in this latter group were especially those with both a large external deficit and high inflation.

Both borrowers and lenders need to be careful not to over-stretch themselves. In line with the recent FPC statement, we will be keeping a very close eye on developments, and the Bank has a range of tools that can be used in mitigation of those risks. Stage 4: the flow of credit Annual growth in the stock of lending to households and businesses has remained close to zero since mid-2012, similar to rates seen in the run-up to the launch of the FLS. But it is important to bear in mind that prior to the announcement of the FLS, the Bank judged that UK bank lending was more likely to decline than increase over the following eighteen months. The profile of lending seen to date has been broadly in line with our original expectations: the trend in household net lending has been somewhat stronger than expected before the launch of the FLS and net lending to businesses has been perhaps a little weaker. We were also conscious that the stock of credit depends on both supply and demand. We were sure that the FLS would shift supply but the demand effects were always less certain. The price elasticity for firms in particular is likely to be low. It is possible at the margin that some firms will be better able to repay or refinance loans if their borrowing costs are a bit lower, but this effect is probably small relative to the importance of expected demand for a firm’s products.
In particular, more effort is required to ensure that domestic inputs are priced competitively, and hence the need for continued wage moderation; to raise productivity levels; and to ensure faster progress towards key Lisbon Agenda objectives such as educational attainment and innovation. Measures aimed at strengthening the economy’s physical infrastructure and the quality of its human capital, a more efficient delivery of support services by the public and private sectors, and enhanced competition both in product and resource markets are crucial in this regard. This is the only way to increase the economy’s capacity to  2  BIS Review 77/2007  respond flexibly and competitively to new challenges and opportunities, and thus derive the full benefits of EMU. A high level of economic convergence and flexibility, however, are not sufficient for a successful transition to the euro. This also requires both careful logistical planning and public acceptance of the single currency. As for the former, the necessary structures have been in place for two years and they seem to be working well. At the apex stands the National Euro Changeover Committee (NECC), which has drawn up a national Master Plan. The Central Bank of Malta is represented on the Steering Committee which oversees the work of the NECC, it participates in the financial sector committee of the NECC and it is also present on a task force responsible for co-ordinating national training activities related to the euro.

These findings suggest the need for a communications campaign that gives the issue of inflation perceptions priority attention, as well as for effective price monitoring mechanisms. Measures are being taken on both fronts. Inflation perceptions are being addressed in TV slots, newspaper articles and official statements. These messages will be intensified in the coming months. As far as pricing abuses are concerned, the national euro Master Plan has invited businesses to adopt dual display from January 2007 and makes it mandatory from the day the irrevocable conversion rate is fixed until the end of June 2008. The dual display of prices has gained momentum since the introduction of the Fair-pricing Agreements in Retailing (FAIR) initiative towards the end of last year as a voluntary, self-regulating mechanism whereby businesses commit to refrain from increasing prices simply as a result of the changeover. They, in turn, benefit from nationwide publicity recognising their commitment to adopt a code of conduct. 5 In addition, consumers are constantly encouraged to use the national telephone helpline not only to seek information, but also to report cases of suspected noncompliance with the guidelines. With the assistance of international experts, including the Austrian Price Commission, a Euro Observatory has also been set-up to monitor and analyse pricing trends during the changeover period. The unit is supported by 70 Euro Assistants who carry out fieldwork in towns and villages across the island.
The effects of changes in the current account on net demand for the Norwegian krone can be illustrated by adjusting the basic balance for transfers and earnings to the Petroleum Fund and oil companies’ estimated cash surplus. Even though the current account surplus is increasing from 2003 to 2004 as a result of high oil prices, the adjusted basic balance is falling. In isolation, this is contributing to a decline in demand for the Norwegian krone. The decline is due to high import growth, which is reducing the current account surplus. In the Government’s budget proposal, the use of petroleum revenues remains virtually unchanged between 2004 and 2005. In spite of this, the krone exchange rate has appreciated recently. This reflects short-term capital inflows and may indicate that foreign exchange market operators expect that the use of petroleum revenues will increase in the years ahead. Themes in foreign exchange markets shift. In periods, investor focus on stock returns feeds through to exchange rate movements. During periods of political and economic unrest, investors may choose individual currencies as a safe haven - often the Swiss franc. In the autumn of 2002, the Norwegian krone was probably also perceived as a safe haven. In addition oil prices rose as a result of the uncertainty associated with the war in Iraq. Fluctuations between major currencies also affect the krone exchange rate. In recent weeks, investors have withdrawn from the US dollar and a number of currencies have appreciated.

8  BIS Review 73/2006
And, above all, it significantly improves individuals' perception of this relationship, which may lead to incentives systems and their impact on agents' decisions in the labour market working more appropriately, reducing individuals' uncertainty over future income. In my address I have referred to the projections of various organisations on the sustainability of the system and to the reforms being applied in other European countries, summarising the content of the Research Department document that I shall send you this week. But let me conclude by highlighting the importance of the work entrusted to this Committee, especially at this current juncture where, for other reasons, economic agents are under a cloud of uncertainty. The agreement reached in Toledo whereby pension sustainability may not be used as a political battering ram is an achievement of which you should all be proud. This agreement, moreover, does not mean you should not react to the problems that may emerge in the pension system as a result of future demographic changes. On the contrary, the agreement obliges us all to examine the problems and seek solutions. I am sure you will be able to convey to the general public that these problems can be resolved if the appropriate  4  BIS Review 51/2009  measures are taken and that, moreover, if they are taken without delay, they need not be traumatic.

As you know, the Toledo Pact has already been in place for more than 13 years. Over that period demographic and, until recently, macroeconomic developments made for a significant improvement in the Social Security system's financial position. Since the signing of the Pact, the Spanish population has grown strongly by more than 6 million, most of whom immigrants. Immigration has been significant not only in terms of volume but also of its composition, insofar as it tends to be concentrated in the younger age groups. In parallel, macroeconomic developments enabled this strong growth in population to be absorbed by the labour market. Notable in this connection was not only the contribution of the foreign population but also the significant role played by female nationals progressively joining the labour market. These developments occurred against a background of very low growth in the number of pensioners as retirement was centred on the generations born during the Spanish Civil War and the post-war period. As a result, Social Security registrations far outgrew pensions in recent years, which explains how the Social Security system ran growing surpluses, rising to 1.3% of GDP in 2007. These surpluses were assigned, in part, to the Reserve Fund, which reached a significant size of close to 5% of GDP at the end of 2008. In the past year, however, the impact of the economic crisis has also been felt in the Social Security accounts, meaning there has been a rapid deterioration in this surplus, which could even disappear within a year.
That would provide gone-concern loss-absorbency for new improved resolution regimes to draw on. A still richer Accord might include instruments that aid recovery by converting into equity in the face of meaningful but not life-threatening losses. This approach moves away from seeing runnable short-term wholesale debt as a source of discipline on banks, to instead seeing longer-term bonds as providing a mass de manoeuvre for recapitalising distressed banks. Not all forms of leverage are the same. But no static regime can ever be enough. If they were, crises would not recur. That is why the new macroprudential authorities, such as the Bank of England’s FPC, will be able temporarily to adjust capital requirements when circumstances warrant. I have stressed that it is oversimplistic to think of macroprudential interventions to improve capital adequacy as always inevitably leading to higher funding costs and tighter credit conditions. It will depend upon the prevailing circumstances: whether the banks started out with solid balance sheets, what the market knows and thinks. The FPC will need to be transparent in order to build understanding of its actions. 15  I worry about the withering away of a market for bankers’ acceptances; claims by one company on another, but guaranteed by one or more banks, and historically eligible for discount at central banks. As I have said before, corporate treasurers, bankers and central banks could usefully work together on this.

The depreciation of the euro has also contributed to easing financing conditions. At its meeting on 3 September 2015, the Governing Council of the ECB expressed its readiness and ability, if required, to allow for more accommodation in its monetary policy stance. To this end, it could – if considered necessary – use the flexibility already embedded in the purchase programme to increase its size and extend its duration or modify its composition. The Spanish economy To conclude, I would like to briefly discuss the Spanish economy and its outlook. During 2015 the Spanish economy has been in what we could call a “virtuous triangle”, by simultaneously meeting three conditions: robust inflation-free growth, job creation and an external surplus. In 2015 we are going to achieve GDP growth of more than 3%, a negative average annual inflation rate, a current account surplus of more than 1 pp of GDP, and growth in employment and social security registrations, prompting expectations of an unemployment rate of less than 20% of the labour force by end-2016. However, the degree of uncertainty in economic projections has widened notably in recent months and the risks of slippage have risen owing to the downturn in the outlook for global growth. However, the Spanish economy is in a position to meet these challenges. The reforms implemented to date promote economic recovery and contribute to increasing Spain’s resilience in the face of exogenous shocks.
The rate of increase in both household borrowing and house prices is lower now than it was last spring5, while forward-looking indicators such as SEB’s housing indicator and SBAB’s estate agents survey point towards lower rates of increase in the future. However, the statistical base is still fairly uncertain and it is too early to talk of a break in trend. Our experiences and international experiences show that it is difficult, if not very difficult, to make accurate forecasts of housing prices. However, it is clear that the current development, with increases of a good 10 per cent a year, cannot be regarded as sustainable in the long term. On the other hand, I do not believe that a fall in house prices on a broader scale is a particularly likely scenario, although this could happen here and there in certain regions. The most probable scenario is that house prices will continue to rise, albeit at a slower rate than they have done in recent years. Are there any risks with this development? As household debts have increased, the question has been raised as to whether the household sector is borrowing too heavily and what the effects would be on the banks’ loan losses if the macro economy were to develop unfavourably. Given that the Swedish household sector’s total debts currently amount to almost 140 per cent of disposable incomes, which is a few percentage points higher than immediately prior to the bank crisis, this is a reasonable question (Figure 5).

The Riksbank has collected data on thousands of individual households’ finances from Statistics Sweden for several years now. These statistics show that the households with the largest debts also have the highest incomes and the largest wealth. We have also examined what would happen to households’ ability to pay if unemployment or interest rates were to rise. The overall assessment is that households at present cannot cause loan losses to such an extent that the stability of the banking system would be threatened. However, even if the household sector’s ability to pay on the whole is good, there is of course a risk that individual households will borrow too much and may experience payment problems. With regard to financial stability, I see no serious risks in the growing household indebtedness and rising property prices. Are there any risks with regard to the inflation target? This question is slightly more difficult to answer. How developments in the asset markets, such as the housing market, will affect monetary policy for a central bank with an inflation target is a subject debated all over the world by academics and economic decision-makers. The problem can be formulated roughly as follows: The increases we have seen in household indebtedness are not sustainable in the long term; household debts cannot grow twice as fast as incomes over long periods of time.