samchain/econo-pairs-v1 huggingface dataset:
The weighted average yield on 10-year euro-area sovereign debt is similar to that in the UK, at close to 1%. And yet, the euro area’s fiscal deficit is half that in the UK. Its structural deficit, according to the IMF, is around one third as large. It is difficult to avoid the conclusion that, if the euro zone were a country, fiscal policy would be substantially more supportive. 15 See Blanchard, O. and Milesi-Ferretti, G.M. (2011), ibid. 16 The macro policies included in the IMF’s analysis are fiscal, credit, foreign exchange reserves, the social safety net (proxied by spending on health) and capital controls. For Germany, for example, the IMF estimate that only 0.6pp of the assessed 4.8% excess current account surplus is due to an overly tight domestic policy mix relative to other countries and a further 0.8pp is accounted for by the policy mix being too loose elsewhere. In China, the IMF analysis indicates a tightening of domestic policies is needed, which would increase the current account surplus rather than reduce it. For more detail, see the IMF’s 2016 External Sector Report, available at https://www.imf.org/external/np/pp/eng/2016/072716.pdf. 17 See the IMF 2016 External Sector Report, available at https://www.imf.org/external/np/pp/eng/2016/072716.pdf. 13  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Chart 4: Excess current account balances and policy gaps in 2015  Source: IMF July 2016 External Sector Report. Notes: The countries labelled in the chart are China (CN), Germany (DE), Japan (JP), the United Kingdom (UK) and the United States of America (US).

In this environment, the UK is running a historically large current account deficit. On the positive side, the deficit is funded in domestic currency and financial reforms have increased the resilience of the UK system, thereby making larger imbalances more sustainable. But the UK’s deficit has also been associated with markedly weak investment and latterly with rapid consumer credit growth. This is not an imbalance that is, as yet, funding its eventual resolution. Moreover, despite the large depreciation around the referendum, the extent to which the UK’s deficit has moved closer to sustainability remains an open question, one whose answer depends crucially on the outcome of the Brexit negotiations. Most fundamentally, the UK relies on the kindness of strangers at a time when risks to trade, investment, and financial fragmentation have increased. III. Potential Solutions The world economy has been here before. In the 1930s monetary policy was exhausted and fiscal policy was in abeyance. The trap was sealed by a wave of protectionist measures originating in the US and spreading to Europe. As current and capital accounts closed, stagnation ensued. What should be done to prevent history from rhyming? In the simple world of the economist, the prescription is straightforward. Deficit countries should loosen monetary policy and tighten fiscal policy. Surplus countries should do the reverse. roll up its sleeves, it could easily solve this economic Sudoku.
In some situations, it may be appropriate to take into account particularly unfavourable developments. In a period of increased cross-border labour flows, substantial technological advances, changes in competitive conditions and new trading patterns, Norway may, with our very open economy, have to accept somewhat greater variation in inflation and deviations from the target, as we have witnessed over the past two to three years. Challenges in an oil economy Petroleum revenues pose as mentioned special challenges to stabilisation policy. The experience of other countries that had received large, unexpected income from natural resources was not encouraging. The classic example is Spain’s substantial revenues from the colonisation of America in the 1600s. The historian David Landes 1 summarised the Spanish experience as follows: Landes stated that easy money is bad for a country. It is very tempting to live comfortably on this income and be less concerned about safeguarding other revenue sources. In that case, the country is poorly poised to cope with an end to easy money. 1  David Landes (1998): The Wealth and Poverty of Nations, W.W. Norton & Company, Inc., N.Y.  BIS Review 22/2006  3  The oil age in Norway has spanned 30 years and it appears that it will continue for many years ahead. Petroleum activities give Norway an economic base that is not available to many other countries. But it also presents us with many challenges. First, petroleum wealth is part of Norway’s national wealth.

Petroleum and luck is, however, not the whole story behind the high per capita income in Norway. We have also been successful in seizing the opportunities that have been offered by changing international environments. The foundations for the Norwegian welfare state were established some two hundred years back in history. Long-term economic developments The Napoleonic Wars, which tormented Europe in the early 19th century, brought some great changes to the face of Europe. Norway took this opportunity to adopt a constitution and establish a number of central governmental institutions, including a central bank. Norway was severely hit by the economic crisis that followed the war, and around 1820 Norway’s GDP per capita was lower than in many comparable countries. In the second half of the 1820s, a new period of economic expansion started. The upturn gathered momentum from the middle of the century. An event which had a considerable impact on Norwegian shipping and economic history took place in 1849 when England repealed all navigation acts regulating the right to transport goods to and from England and its colonies. BIS Review 22/2006  1  This new and more competition-friendly trade environment spurred a rapid build-up of the Norwegian commercial fleet. Norway suddenly became a major exporter of services. As the chart shows, the tonnage of the Norwegian commercial fleet increased almost six-fold from 1850 to 1880. By 1880, Norway had built up the world’s third largest commercial fleet.
It started being phased in at the start of 2015 and reaches full application by 2018. The LCR consequently makes short-term funding less attractive to banks and holding HQLA more attractive. The requirement to meet this ratio is likely to be a contributory factor in market volatility around reporting dates. The NSFR is designed to reduce bank reliance on short-term wholesale funding relative to more stable sources of funding. It penalises short-term funding, including repos of shorter maturity than one year, particularly those under six months. The NSFR also penalises matched book transactions, since the negative impact of the reverse repo leg more than offsets the positive impact of the repo leg. Overall, the impact from the NSFR on short-term repo is reckoned to be lower supply, reducing volumes and increasing the price. The leverage ratio, which has been implemented in the United States for some time, is a deliberately simplified way to assess banks’ riskiness. Traditional bank capital ratios are calculated as capital over risk-weighted assets. The leverage ratio is calculated approximately as capital over total assets, with no attempt to employ risk weights. This is important for the repo market because sovereign bonds typically attract a zero risk weight. As such, carrying out repo as a large volume, low margin activity is threatened by the leverage ratio. Although the exact parameters of the leverage ratio regulations have not been 2/5  BIS central bankers' speeches  finalised, euro area banks are required to report leverage ratios.

Given the higher relative penalty given to holding sovereign bonds under the leverage ratio as opposed to the capital ratio, it is expected to increase the cost of banks’ repo, and reduce incentives for money market arbitrage and market making.2 Reduced incentives for arbitrage and market making in turn affect market liquidity and can lead to greater periods of uncertainty. Furthermore, since European banks are required to report average month-end positions, there are increasing signs of market stress at month-end dates. The leverage ratio contains provisions for netting of offsetting cash positions when they are with the same counterparty and settled through the same system. This has resulted in a much greater use of central counterparties (CCPs). The use of CCPs has been strongly supported by authorities and brings benefits in terms of smooth market functioning, as well as for individual institutions. Eurosystem contacts report a wide difference in the pricing of trades cleared bilaterally and those cleared through CCPs – sometimes in the tens of basis points. CCPs, however, are also important for repo markets for a different reason. The increased volume of derivative trades centrally cleared at CCPs due to new regulations such as EMIR, as well as sporadic bouts of volatility, means that those institutions tend to hold significant quantities of cash. Placing that cash as unsecured deposits would represent wrong-way risk for CCPs as the collapse of a significant financial institution would create significant market volatility at the same time as potentially the loss of some of the unsecured deposits.
There were in fact transitional regulations that initially meant that the banks were not able to calculate so liberally, but these were the regulations that would apply in the longer term and thus those that the banks and investors, and often the authorities, primarily focused on. Given that the banks, in Sweden and in other countries, only needed a small amount of capital, and given that it was often assumed that they were backed by government guarantees, it was highly profitable for them to take substantial risks. The banks themselves carried only a small part of these risks, while it turned out that the banks’ customers and the taxpayers had to carry the major part. In several countries – Spain, Ireland and Denmark for example, in addition to the United States – we have seen how substantial falls in the prices of the banks' assets, mainly in the form of mortgages, have led to major economic problems. The point is that the risk capital that the banks and their shareholders provide is limited to the value of the share capital. But society’s risks are greater than this. A mainstream assessment in economic research is that a national crisis in the financial system costs the economy around 60 per cent of GDP. In Sweden, this would be equivalent to over SEK 2 000 billion, or  BIS central bankers’ speeches  1  more than SEK 200 000 per Swede.

To meet its stability objectives in periods of financial instability, the monetary policymaker must probably put more emphasis on high-frequency financial markets information than he would otherwise do, because in normal times regular flows of macroeconomic statistics more or less suffice to form a correct assessment of the outlook. Special communication efforts are also required. One big challenge for communication in times of stress is to make the public understand that short-term liquidity management can be completely separate from the definition of the monetary policy stance with a medium-term perspective. As I have already pointed out 1 , a standard result in economic theory (William Poole’s paper from 1970) states that, when demand for central bank money is uncertain, then it is optimal to stabilise the short-term interest rate, letting money supply adjust endogenously. That is precisely what has happened in the euro area over the last half year. Indeed, the bulk of liquidity injections since last August was merely an attempt to align the  1  Cf. C. Noyer, “No moral hazard: the banks are doing their job”, Financial Times, 18 September 2007. BIS Review 15/2008  3  timing and maturity of the liquidity supply with a changing demand within the reserve maintenance periods, in order to stabilize the very short-term interest rate on the interbank market.
The future challenges will arise, on one hand, from the international financial crisis, a phenomenon affecting all European banks; and, on the other, from the weak macroeconomic situation, which has global dimensions, but also elements particular to Spain. Both forces are going to affect the income statement, and therefore the ability to generate profits which, as we all know, are banks’ first line of defence against future problems. In the first place, banks are already suffering difficulties arising from the international financial crisis and, in particular, the consequences of the closure of financing markets. In this regard, the particular structure of the liabilities of Spanish banks, characterised by a broad deposit base and debt with mostly medium and long-term maturities, together with the plans recently approved by the Spanish parliament in coordination with other EU countries, mitigates the problem, but does not make it disappear. The cost of financing will certainly not be the same as that prevailing prior to the summer of 2007, when investors began to rapidly reassess the risk of financial instruments. Even if the wholesale markets gradually re-open, it is highly unlikely that the differentials required by the various products will return to their exceptionally low pre-crisis levels. 6  BIS Review 133/2008  Greater competition among banks to attract deposits, and the fact that they are replacing lower-remunerated sight deposits with time deposits, will also put pressure on the financial costs Spanish banks have to bear.

Since December 2009, the yuan has appreciated almost four percent, while this figure is much closer to ten percent for most EMEs. The comparison is even more dramatic when looking at a longer period of time. This has been achieved through massive reserve accumulation and limited financial integration. However, for measures in the foreign exchange market to have real effects – that is, on the real exchange rate, which is the relevant variable from the point of view of competitiveness – these measures need to have some support from the real side of the economy. In the case of China, this is a very high savings rate. China saves about half of its GDP and the resulting current account surplus sustains a depreciated real exchange rate. Otherwise, attempts to maintain a depreciated nominal exchange rate sooner or later lead to inflation, which is the way to achieve relative price adjustment when the nominal exchange rate is not allowed to adjust. The U.S., in turn, is undertaking an extraordinary monetary expansion. Beyond having reached the zero lower bound for the federal funds rate, unconventional measures are adding additional monetary stimulus. In particular, the massive purchase of securities implemented in the so-called QE2 program. This explains why the dollar has reached its lowest level in several decades (Figure 3), but this is not only the result of expansionary monetary policy, but also of the lack of domestic demand and of the external imbalances.
The Swiss Federal Banking Commission (SFBC) – as the authority with responsibility for this area – is currently in the process of spelling out in detail what measures will be needed in the area of capital adequacy requirements. Careful planning will be particularly important with respect to implementation of the new measures. First of all, the current crisis has to be seen through. The appropriate measures then need to be introduced progressively over a number of years. In this project, the SFBC can count on the full support of the SNB, in the interests of securing a long-term strengthening of the Swiss financial system. 2  BIS Review 80/2008

But, as a French and European citizen, I cannot help and feel proud of having one the two main currencies in the world. In sum, benefits of the euro include a high degree of credibility of monetary policy reflected in the level of long-term interest rates; diminished exchange rate volatility; completion of the single market and encouragement to cross-border trade. None of this, of course, can be taken for granted. Benign conditions currently prevailing on financial markets can be reversed. Shocks may be coming, which would impact negatively European economies. Despite some signs of cooling, imbalances are still building up, especially in the housing sector, fuelled by a dynamic expansion of credit, although in no way comparable to those in some other developed economies. But I have the strong conviction that we are fully equipped to deal with any contingency, and, provided the necessary structural reforms are undertaken, keep the economy on a path of growth and stability. BIS Review 51/2007  1  2)  How have those successes been achieved? A lot comes, in my view, from the institutional and operational framework in which monetary policy is developed and implemented. The independence of the ECB and of the 13 participating NCBs is enshrined in the Treaty. They are institutionally, operationally and financially independent from European Community institutions and national governments. We have a clear and transparent definition of price stability: inflation below but close to 2% over the medium-term. The monetary policy framework of the Eurosystem is “medium-term” oriented.
In financial law, the accession countries need to satisfy a number of provisions of the Treaty which have been applicable to the EU Member States since before the establishment of the ECB and the start of the third stage of EMU. In particular, statutory provisions providing credit facilities for public entities with a national central bank have to be revoked, together with provisions providing access for public entities to funds from credit institutions on terms which are not market-oriented. Moreover, capital movements need to be liberalised and statutory obstacles to the freedom of capital movements removed. BIS Review 84/2001  3  Some of these changes may be difficult to introduce before accession, and several accession countries will only achieve full compliance at a later stage when accession is imminent. In the area of banking law, more immediate progress has been achieved. For instance, several accession countries have introduced completely new banking legislation, aiming at compliance with the standards for EU financial markets in accordance with EU Directives relating to credit institutions. A similar need for legal implementation pertains to the areas of capital markets and payment and securities settlement systems, but in these fields further changes are required. Finally, the reduction of risks related to central bank operations also requires a legally sound collateral regime, which provides legally effective arrangements not only for repurchase and pledge transactions, but also in relation to insolvency proceedings. Again, this is a technically difficult area where the accession countries still need to catch-up with EU standards.

Our physical presence gives us the opportunity to better engage with and learn from our communities. Our mission is to make the U.S. economy stronger and the financial system more stable for all segments of society, and supporting local economies is a key part of that. The New York Fed is proud to be an anchor institution of New York City, and we want the city-and all of its people-to thrive. I'd like to share a bit more about why having these discussions is so important for the future of this city and for us here at the New York Fed. And with that, I must give the standard Fed disclaimer that the views I express are my own and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. The City's Present and Future Native New Yorker John Jay Chapman once said, "The present in New York is so powerful that the past is lost." You can feel that powerful reality when you walk the streets today. Indeed, this city was once an epicenter of the pandemic: we were hit early, and we were hit hard. The virus spread rapidly, leading to widespread hospitalizations and a devastating death toll. During the initial months of the pandemic, one out of five jobs in the city disappeared. In the restaurant industry in particular, 70 percent of jobs were lost. Other industries, such as retail and even health care, experienced outsized losses as well.
If these institutions could be resolved easily, so that the systemic consequences of their failure were limited, efficiency considerations could perhaps be set to one side. Or, put in Weitzman’s terms, the social benefits of cutting banks down to size would be low. But crisis experience has demonstrated that the apparatus does not currently exist to resolve safely these institutions. There are no examples during this crisis of financial institutions  38  Laeven and Levine (2007); see also Schmid and Walter (2009) for recent US evidence. 39  Robinson (1934). 40  Christakis and Fowler (2009). 41  Dunbar (1993). 12  BIS Review 40/2010  beyond $ billion being resolved without serious systemic spillovers. 42 Instead, those in trouble have been bailed-out. The same 145 institutions account for over 90% of the support offered by governments during the course of the crisis. In the light of the crisis, and in the language of Weitzman, the marginal social benefits of restrictions could be greater than the marginal private costs. The maximum efficient scale of banking may lie below the maximum resolvable scale. A large part of the effort of the international community over the past few years has been directed at increasing the maximum resolvable scale of banks – for example, through improved resolution regimes and living wills. 43 If successful, that effort would shift the balance of the Weitzman cost/benefit calculus in the direction of bigger banks; it could help achieve the modularity, robustness and better aligned incentives which restrictions otherwise deliver.

Finally, the Riegle-Neal Act of 1994, which took effect in 1997, largely lifted restrictions on interstate branching for both domestic BHCs and foreign banks. The rationale for this change of heart was a mirror-image of the 1920s. Large banks convinced politicians of the high private costs of restrictions, which inhibited the efficiency of their offering to the public. In Weitzman’s framework, private costs trumped social benefits. The effects of the removal of interstate restrictions were dramatic. The average size of US banks, relative to GDP, has risen roughly threefold over the past 20 years (Chart 1). Too-bigto-fail was reborn in a new guise. The US Banking Act (1933) was co-sponsored by Senator Carter Glass and Representative Henry Steagall – hence “Glass-Steagall”. It prevented commercial banks from conducting most types of securities business, including principal trading, underwriting and securities lending. It also banned investment banks from taking deposits. The key functions of commercial and investment banking were effectively prised apart. The Act was motivated by stability concerns in the light of the Great Depression. The stock market boom of the 1920s had been fuelled by cheap credit from the banks. The stock market crash of 1929 brought that, and a great many US banks, to a shuddering halt. Among many banks, net losses on securities were as great as losses on loans. These losses transmitted to the real economy through a collapse in lending, whose stock halved between 1929 and 1933.