samchain/econo-pairs-v1 huggingface dataset:
This is progressing slowly because their income is weak and so the adjustment has to proceed mainly through the contraction of credit. Under these conditions, aggregate credit to the private sector will probably still take some time to achieve positive rates. This situation at aggregate level can and should be compatible with differing behaviours of credit to firms and to households, so as to allow financial resources to flow to those sectors in a solid position to undertake viable spending, investment and hiring projects. The results of preliminary analyses at the Banco de España indicate that such reallocation of financial resources is already taking place. However, there are still some frictions affecting most notably lending to SMEs, which as you know are particularly vulnerable to crises such as that we have witnessed. 4  BIS central bankers’ speeches  Under its remit, the Banco de España has recently adopted specific measures addressing this sector, such as the redefinition of SME for the purposes of prudential regulation or the early application of the supporting factor for capital requirements associated with SME loans. The Banco de España has also identified possible courses of action in other areas. A far-from-exhaustive list would include exploring ways of strengthening the role of the ICO, simplifying the current public framework of financial support to SMEs and, in the longer term, designing mechanisms to capture homogeneous high-quality information on the most significant aspects of SMEs’ business to make it easier for them to access bank credit.

In terms of competitiveness, progress since 2008 has been most significant. On Banco de España estimates, we will by early 2014 have regained, relative to the average of the euro area countries, all the competitiveness forgone from 2000 to 2008. These gains in competitiveness have been underpinned, above all, by the moderation of wage costs, a trend to which the labour market reform approved in early 2012 has proven conducive in respect of collective bargaining. Along the same lines, inflation has been very contained since 2009, and this has naturally contributed to the recovery in competitiveness. The export sector has shown great capacity and has notably increased its presence and sales both in the euro area and in other markets. Suffice it to say that this year, from January to August, the trade surplus, excluding energy, was almost double that of 2012, climbing from € billion to € billion. These developments have been upheld by corporate restructuring that has enabled the average value exported per company and the export base to increase. The sustained increase in the number of exporting companies over the past five years is due mainly to the growing participation of SMEs. Our trade balance with all regions has improved, with the exception of the oil-exporting countries. Spain is running a surplus both with the euro area and with the rest of the European Union.
This could foster further consolidation, including across borders, and address the problem of overcapacity in the euro area banking system. Assessing the financial stability of the euro area Beyond regular monitoring activities, financial stability analysis entails assessing the impact on the financial system of risks materialising, including risks related to international spillovers. Such assessments can also help inform the calibration of possible appropriate macroprudential policy responses. The stress-testing framework is an important analytical tool to quantitatively assess financial system vulnerabilities and risks. Stress testing exercises of the banking sector assess the sector’s resilience and how it performs under adverse circumstances, thus providing a measure of the severity of these risks. Individual bank results provide further information about banks’ potential capital needs. Stress tests can therefore show how the financial system will react when risks, such as those relating to spillovers, materialise. In order to enhance its stress-testing capacity, the ECB has invested in an analytical framework that not only tracks the resilience of the banking sector but also accounts for how it interacts with and feeds back in to the economy as a whole.8 This framework complements the EU-wide stress tests conducted under the aegis of the European Banking Authority (EBA), which are predominantly microprudential in nature. Our so-called macroprudential stress testing loosens the assumption that banks’ balance sheets are constant. As banks are hit by, say, negative (spillover) effects from the global environment, they may react by deleveraging their loan books.

In trend prices, in 2012 the current account would post a deficit of somewhat less than 6% of GDP, not very different from that of 2011. We foresee y-o-y CPI inflation hovering around 4% well into the second half of this year, to later converge to 3% and remain there until the end of the projection horizon, this time the first quarter of 2014. Y-o-y changes in core measures will continue to rise in the coming months, and will converge to 3% more slowly than the CPI (figure 1). BIS central bankers’ speeches  3  This foreseen trajectory is based on the assumption that the propagation of supply shocks to other prices will occur according to historic patterns. It also assumes that wages will be adjusted on the bases of productivity and the inflation target, and that the RER will not change much. On the fiscal side, the baseline scenario estimates that the structural deficit will converge to 1% of GDP towards the end of the current Administration, as announced by the authority and in conformity with the Fiscal Responsibility Act. Finally, it uses as a working assumption that the MPR will follow a path comparable to the one that can be derived from the prices of financial assets observed at the statistical cutoff of this Report (figure 2). The baseline scenario reflects the events that the Board believes to be the most likely to occur with the information at hand at the statistical cutoff date of the Report.
The rapid expansion in activity in these economies has inevitably put pressure on the global price of energy and other raw materials, whose supply is relatively fixed at least in the short run. That is showing up in rising inflation world wide (Chart 5). So is it right to conclude, as some have, that the path of inflation is determined abroad? Certainly commodity prices have an effect in the short run. But it is domestic monetary policy – the decisions that the Monetary Policy Committee take each month, together with the overarching framework that defines our target – that determines the path UK inflation in the medium-run. The MPC will continue to assess the balance between the risks of higher inflation from the commodity cost shock and the downside risks to output (and to inflation in the medium term) from the credit crunch. But I can assure you that we will do whatever it takes to bring inflation back to target in the medium term.

One of the main motivations for this rapid research effort is the swiftly decreasing use of cash. Just some two per cent of the money supply is now created directly by the central bank in Sweden, for instance. But even the avant-garde Swedes consider the e-krona a complement of cash, not a fully-fledged substitute. The potential advantages of distributed ledger technology and central bank digital currency are the following: more efficient payment systems, direct and more efficient conduct of monetary policy (perhaps even practically enabling helicopter drop of money) and, if implemented on a sufficiently large scale, an end to the need to run costly deposit insurance schemes. But will central bank digital currency become a complete alternative to cash one day? I’m not sure. Many questions remain: anonymity, susceptibility to cybercrime and IT issues. But above all those, a key issue arises: the problem of competition. Will the central bank change into a direct competitor to commercial banks? Will it serve as a “bank of last resort” for all deposits in bad times? Should it also provide credit to the real economy? Might it become a real monobank, like the ones we saw a few decades ago in former socialist countries? What would the entire money-creation process look like? These questions are too important to rush around. So far it seems to me like social engineering to talk about abolishing cash fully and issuing digital currency instead.
Accordingly, the mandatory documentation to be given to the borrower before signing is regulated, and the customer’s right to advice from the notary public is indicated. It is also sought to avoid certain perverse incentives. Limits have been set on the remuneration policy for staff who evaluate solvency and market the loans, with a further requirement that such staff should have certified minimum knowledge in this field. In protecting customers by ensuring that qualified staff inform them of all details sufficiently in advance, that the contractual clauses applied are clear and comprehensible, that the product is actually suited to their needs and that there are no hidden costs, the law is in fact conducive to legal certainty and significantly reduces the risks of litigiousness. I have previously stated that customer protection, far from disadvantaging banks’ functioning and profitability, is a core element of any viable and sustainable bank business model in the long term. In economic terms, the cost of litigiousness and its terrible effect on the entire sector’s reputation clearly far outweigh any hypothetical benefit that individual banks could have obtained through controversial practices. That leads me to the second feature I referred to previously, namely the oversight of conduct, and the consideration of conduct risk within the prudential regulatory framework and the business model with customers. Non-financial risk The regulation of bank conduct follows a mixed approach in Spain.

A good example of this was Law 2/2011 on Sustainable Economy, which marked a milestone on the road towards advanced regulation of conduct. For example, this legislation includes for the first time so-called “responsible lending” and modernises claims services. Several European Directives addressing this field have also been approved. Banco de España Circular 5/2012, which replaced Circular 8/1990, includes all these features. I honestly believe that the current rules accurately regulate transparency obligations regarding bank products and services both in the pre-contractual stage and over the life of the operation. Evidently, in parallel with these regulatory developments, there have been most significant changes in society, public opinion and jurisprudence, especially in the past decade. Our supervisory framework has also evolved. Now, in addition to focusing on formal compliance with conduct obligations, it also envisages the management and mitigation of these risks by banks and their incorporation into the business model. I shall briefly refer to these aspects today. But I will also broach the need to enhance customers’ financial knowledge. In my view, this is a key element of which little mention is usually made. The cost of litigiousness Clearly, the changes in customer safeguard regulations and in jurisprudence mean that what was appropriate in the past has ceased to be so today. Undoubtedly, banks have acted questionably; but to be completely fair, we should acknowledge that the legal playing field on which banks operate has changed significantly.
As long as it remains the case, it raises questions about whether the lessons from the crisis have truly been learned. Races in financial sector pay can also be tackled, albeit indirectly, by placing restrictions on leverage and by avoiding linking remuneration to return on equity targets. Restrictions on cash distributions by banks to shareholders and staff can also help. This has been a favoured recommendation of the FPC over the past six months, as a means of bolstering UK banks’ capital defences against risks in the euro-area. In response, there is some evidence of UK banks having modestly reduced cash distributions to staff in 2011. A more direct approach to tackling pay races would be to set remuneration codes. This can be justified as a regulatory means of leaning against excessive risk-taking incentives – incentives which might be fanned by remunerating in equity.31 These have already been developed by the Financial Stability Board internationally and by the FSA in the UK. They specify, for example, maximum ratios of cash distribution and minimum periods of pay deferral. Yet whether these codes go far enough in aligning pay and performance, in equating risk and return, is an open question. For example, consider the issue of pay horizons. Bonuses are typically set on an annual cycle, with deferral or claw-back for maybe three or four years if guidelines are followed. But this return cycle is materially shorter than the typical risk cycle. The risk cycle might last perhaps 20 years.

Ruin is the destination to which all men rush, each pursuing his own best interest in a society that believes in the freedom of the  1  Byatt et al (2001). 2  Science News (1983). 3  Frank (2011). 4  Ridley (1993). BIS central bankers’ speeches  1  commons”.5 Therein lies the tragedy, the market failure. This situation is made more, not less, tragic by unbridled competition. The tragedy of the commons is one example of an age-old problem of military arms races. The incentives of individual players, and outcomes for society, are much the same as in commons tragedies. Individual country incentives are to increase military might, to leapfrog opponents to improve national security. But this game of leapfrog is a Red Queen Race. The quest for national safety results in a steady rise in military spending and a steady fall in both societal and national security. The common good is jeopardised. These arms-race dynamics, and commons tragedies, have a history in economics too. It is not just plumage that is conspicuous. As Thorstein Veblen set out at the end of the 19th century, so too is consumption.6 Some goods serve as a signal of social standing: they are positional. Not everyone can have the apartment which is closest to the sea. As in other arms races, the equilibrium is a sub-optimal one – a competitive shopping war in which everyone conspicuously over-spends. And so it is with economic behaviour more generally.
Sukhdave Singh: Global economic outlook and financial landscape – what has changed since the global financial crisis? Special address by Dr Sukhdave Singh, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 18th Malaysian Banking Summit “Global Economic Outlook and Financial Landscape: What Has Changed Since the Global Financial Crisis?”, Kuala Lumpur, 20 June 2014. *  *  *  I would like to thank ASLI for the invitation to address you today. Given that I am speaking right before your lunch, I do realise that I have been cast into the role of an appetiser and therefore, that I should be brief so that you can quickly get on to the main course. I plan to briefly go over the state of the global economy and its implications for the Malaysian economy. The news here is largely good. However, there are a number of concerns that could impact the quality and sustainability of growth going forward, and I will also discuss these. Global economic outlook and the changing financial landscape The good news is that after five years of rather turbulent conditions and what has been a rather bumpy economic ride, the global economy seems to be finally on the verge of sustained growth. The key to this development is the improved growth conditions that have emerged in many of the advanced economies (AEs), economies that were at the heart of the crisis.

How governments deal with this income disparity will not only be reflected in social and political outcomes, but also economic ones as it is the low and middle income groups that have the highest marginal propensity to consume. Similarly, a lack of success in dealing with the high youth unemployment in the crisis affected economies could have lasting consequences and put these young people on a permanently lower earnings path, further contributing to both income inequality and weaker growth. 4  BIS central bankers’ speeches  To conclude, let me summarise my key message: Economically, things are looking better than they have been in a long time. However, the legacy of the crisis remains and will remain with us for some time yet. And this will continue to cloud the outlook and will be a concern and challenge to policymakers as they try to steer the global economy out of the crisis on to a more sustained and sustainable growth path. BIS central bankers’ speeches  5
1/6  BIS - Central bankers' speeches  What I have just described relates to the use of our central bank assets to deliver monetary policy goals. The liability side of our balance sheet is key to monetary policy setting too, through the setting of interest rates. But our liabilities also play a key Financial Stability role, since the level of reserve account balances held by banks at the central bank is a crucial part of their holdings of liquidity. Before the financial crisis, the level of liquid assets, including reserves, was much too low, and this contributed to the scale of the financial crisis. Let me now draw the next set of conclusions and propositions. Both sides of the central bank balance sheet matter for our dual objectives of monetary and financial stability. What is less often said is that post financial crisis, irrespective of QE, a larger central bank balance sheet would have been needed to restore the safe stock of reserves and liquidity buffers. It follows, therefore, that we will not shrink central bank balance sheets to what they were pre-crisis. But at the moment we don't know with any precision where that level of reserves will be, or what the composition of the assets backing those reserves will be. One factor bearing on the equilibrium reserve level question depends on the future mix of banks' liquidity protections, as measured by the Liquidity Coverage Ratio. Take the major UK banks as an example.

Looking ahead, inflation rates are likely to stay clearly above 2% over the coming months. Thereafter, on the basis of the path implied by futures markets for oil prices, inflation rates should fall below 2% in 2012. This pattern reflects the expectation of relatively stable wage growth developments in the context of moderate economic growth. The September 2011 ECB staff macroeconomic projections for the euro area embody these considerations and foresee annual HICP inflation in a range between 2.5% and 2.7% for 2011 and between 1.2% and 2.2% for 2012. In comparison with the June 2011 Eurosystem staff macroeconomic projections, the range for HICP inflation in 2011 remains unchanged, while the range for 2012 is slightly narrower. It is necessary to recall that the staff projections are conditional on a number of purely technical assumptions. The Governing Council views the risks to the medium-term outlook for price developments as being broadly balanced. On the upside, the main risks relate to the possibility of higher than assumed increases in oil and non-oil commodity prices as well as increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally. Turning to the monetary analysis, the annual growth rate of M3 was 2.0% in July 2011, after 1.9% in June. The annual growth rate of loans to the private sector was 2.4% in July, after 2.5% in June.
International financial crises that started in Thailand in 1997, in Russia in 1998 and in Brazil in 1999 and subsequently spread over to other countries in the region and even as far as to other continents, may serve as an example. Frederic Mishkin gives other examples of threats posed by globalization. 14 Financial liberalisation reduces the number of instruments which discipline the banking activities. This has led to credit booms in many countries, often financed by foreign entities and in foreign currencies. Credit booms have thus become a frequent source of banking crises. 15 Banking crises, on the other hand, have generated significant costs for the economy, inter alia, through the necessity of liquidity injections to some banks or through limiting the supply of loans to companies. Increased share of foreign capital in local financial markets raises their sensitivity to the developments on foreign markets. For instance, an increase in interest rates in another country may cause an outflow of short-term capital, and in consequence lead to an increase in interests rates and a decrease in liquidity on a local market. Banks operating on the global financial market are subject to higher competition, also due to the fact that investors compare the banks’ performance results on an ongoing basis. As noticed by Raghuram Rajan, banks nowadays focus more than ever on maintaining their income on a high level, at the cost of assuming higher risk. 16 Financial instruments traded by banks are becoming increasingly complex and thus less liquid and carrying higher risk.

36 If the financial markets come to the view that the investment risk premium for American debt securities has increased, the outflow of capital from this market – or even decreased capital inflows – may lead to a fall in bond prices, i.e. to a sharp increase in long-term interest rates, a slowdown on the housing market, depreciation of the dollar and, as a result, stagnation or even recession, which may be observed globally. In order to mitigate the probability of such a scenario, structural reforms should be implemented in many countries. The US should substantially reduce its budget deficit and – via a reform of the pension system and the healthcare system – increase the household savings rate. In the EU and Japan a series of structural reforms should be accelerated to raise the flexibility and competitiveness of the labour market and the market of goods and services. In the Asian countries, and first of all in China, the exchange rate regime needs to be made more flexible, which should be preceded by the reforms that would strengthen the financial system, also via a greater openness to foreign capital inflows. At present, it is difficult to assess the likelihood of the scenario involving a serious slowdown in the global growth; nevertheless, implementation of necessary reforms proceeds slowly. Should monetary policy take into account speculative bubbles? The globalization process is a great challenge for central banks and financial market regulators.