samchain/econo-pairs-v1 huggingface dataset:
In slide 3, it is denoted by the light blue area.2 Our foreign currency purchases also lead to an increase in Swiss franc liquidity, i.e. a rise in the monetary base, which is reflected on the liabilities side of the balance sheet in the bank sight deposits item. In the chart this can be seen as a red area. Thus, the SNB’s foreign exchange reserves do not represent equity, or ‘true’ assets since they are offset by liabilities. They have come about through money creation as part of measures required for monetary policy purposes. Consequently, they should be at the disposal of monetary policy at all times. For instance, when capital flows normalise sustainably, we can assume that the SNB balance sheet total can be reduced again in the long term. However, the level of SNB foreign currency investments will remain high for as long as required by monetary policy. If necessary and reasonable from a monetary policy point of view and if the benefits exceed the costs, the SNB will further expand its balance sheet in future and accept the associated risks. Modern and professional asset management at the SNB This brings me to my second question: how does the SNB handle its foreign currency investments? The short answer is that the SNB manages its foreign currency investments professionally and cost effectively. The SNB began to set up its modern asset management structure relatively early.

Unicredit Group can probably be qualified as the quintessential European cross-border banking group, with operations in 22 European countries and, amongst these 22, in 19 Central and Eastern European countries. Alessandro is also the President of the European Banking Association. The last 2 to 3 years have been especially eventful for financial integration and stability, with once in a life-time developments. After Lehman Brothers filed for bankruptcy in September 2008, the global financial system experienced unprecedented stress and policy makers had to tread unknown territory in dealing with it. BIS Review 47/2010  1  The financial crisis has raised a host of policy issues that will provide food for reflection for generations to come. I will mention a few of them to set the scene and to kick-start the discussion. The first set of issues relate to the developments in the late nineties and early 2000s. The combination of high economic growth, ample liquidity, increasing financial integration and development, and “light handed” regulation sewed the seeds of the crisis to come. I believe that a number of people and organisations, including mine, identified vulnerabilities in the financial system before the crisis erupted. Nevertheless, we did not anticipate the timing and the intensity. We should ask ourselves what we missed in the run-up to the crisis and what the lessons are for the future. Once the crisis erupted in full force, a first casualty were the money markets, which provide the oil to make the banking system run smoothly. Money markets came to an unprecedented stand-still.
The collapse of the City of Glasgow bank in 1878 shifted the debate decisively Bagehot’s way. In one sense, this failure was evidence of the power of unlimited liability: no depositor lost a penny. But 80% of the bank’s shareholders were bankrupted and many made destitute. As the Economist observed at the time, “the share lists of most of our banks exhibit a very large – almost an incredible – number of spinsters and widows”.6 Bagehot’s incentive problem was real. Public and parliamentary opinion quickly shifted. The Companies Act 1879 facilitated conversion to limited liability. Between 1849 and 1889, the number of unlimited liability British banks fell to just 2.7 Even then, some of the incentive benefits of unlimited liability were preserved. Shareholder vetting remained in bank deeds. And in place of unlimited liability, UK banks moved to a regime of extended liability. This was the contingent capital regime of its day. Extended liability typically had two elements – reserve liability and uncalled capital. Under reserve liability, existing shareholders were liable for additional capital in the event of bankruptcy. By 1884, British banks had reserve liability of around three times their paid-up capital.8 This placed them on a similar footing to US banks, which had adopted a system of double liability in 1863.9 Reserve capital was augmented by a pool of uncalled capital. This could be tapped preinsolvency at the discretion of bank management. On average between 1878 and 1913, UK banks had uncalled capital larger than their called capital (Grossman and Imai (2011)).

A further important similarity between the emerging market experience and that of the peripheral euro area countries is that the external debt is denominated in a currency which the national authorities do not completely control. In emerging markets, so-called “original sin” – that is, a lack of credibility created by poor macroeconomic discipline in the past – implied that external debt was overwhelmingly denominated in US dollars. 8 In the euro area, debt is denominated in euros. Although this is obviously the currency of euro area countries, the single monetary policy aims at price stability across the euro area and thus cannot take account of national priorities deriving from fiscal or financial weaknesses in peripheral countries. By implication, neither in the emerging markets nor in the euro area periphery can the real value of the external debt burden be eroded by inflation or devaluation. Any attempt to devalue would simply raise the domestic burden of the external debt. Of course, this was precisely the point: by issuing debt in a currency which they could not control, the national authorities in the euro area “tied their own hands”. Before the crisis, they obtained a credibility gain that would lower overall funding costs and thus reduced the probability of a crisis. But when a crisis occurs, the external value of the debt burden cannot be reduced by devaluation. Differences between euro area and EME experiences While many of the experiences of the euro area periphery and the EMEs are similar, there are also important differences.
We must all be able to pay our bills in a secure manner, preferably also in a simple and speedy manner, i.e. we must know that the  BIS Review 51/2002  1  party to which we are sending money actually receives it. There are many countries in the world where this does not function and this is as much of an obstacle to development as when roads and railways do not function. The banks are the institutions that handle the major part of the payments. It is because they are so important to the financial sector that they are subject to such comprehensive legislation and that they are the companies most closely monitored by Finansinspektionen (the Swedish Financial Supervisory Authority). We may have views on how the banks should set charges, handle their customers and so on, but without them our lives would certainly be more complicated. In this context it is worth noting how much IT in a broad sense has helped the banks to develop and simply means of payment. It is not so long ago that one received a weekly wage in the form of a brown envelope containing banknotes, handed out on a Friday afternoon. Nowadays our wages are paid directly into our bank accounts and we receive notice of this in a bank statement. Nor do we have to go very far to pay our bills; we can sit at our desks and fill out giro forms or - even easier - pay through the computer.

According to rating agency assessments, the big banks’ intrinsic financial soundness improved significantly last year. However, two aspects should be borne in mind when assessing the big banks’ situation: First, their exposure to credit and market risk relative to their capital remains considerable. Although credit quality abroad has improved slightly, it still remains at historically low levels, particularly in the US and Europe. In view of this, lower-than-expected economic growth or a deepening of the debt crisis in Europe could potentially lead to a further deterioration in the creditworthiness of individual countries. Yet, the big banks’ exposures to sovereign debt in  BIS central bankers’ speeches  1  peripheral euro area countries are only moderate. Should the debt problems in the already vulnerable international banking system or in other sovereigns become amplified, however, these banks could face considerable losses. Second, the big banks’ economic capital situation is less comfortable than their very high regulatory capital ratios under Basel II might suggest. A considerable portion of both institutions’ regulatory capital is made up of capital components that proved to be not fully loss-absorbing during the recent crisis. These include, for instance, deferred tax assets, which are only realised if a bank is profitable, or certain hybrid Tier 1 capital instruments, which only become loss-absorbing in the event of bankruptcy. Thus, such capital components will no longer be recognised under Basel III and will be phased out by 2019. The transition period granted to banks gives them sufficient time to meet the new requirements.
Now that Sweden’s economy seems to be moving into a stronger phase, in large measure as a result of higher domestic activity, it is of the utmost importance that we do not land in a situation with wage drift and overheating as a consequence of an unduly expansionary fiscal stance. Against this background, I shall be talking today about the conditions for monetary policy and its interaction with fiscal policy and labour market developments. 1  BIS Review 77/1999  Interaction with fiscal policy Fiscal policy affects the chances of success in monetary policy in various ways: via its impact on general confidence in monetary policy, via short-run effects on demand and by modifying the longterm conditions for economic growth and low inflation. Let me begin with credibility. If the direction of fiscal policy is perceived as being unsustainable in the longer run, economic policy’s overall focus on low inflation and stable growth is liable to be questioned. Few industrialised countries have experienced this as recently and tangibly as Sweden. The massive budget deficits in the early 1990s, with rapidly accumulating government debt, made Sweden’s economic future uncertain and pushed interest rates up. With the consolidation of government finances, however, and the long-term ambitions for fiscal policy that the Government, supported by the Riksdag (Sweden’s Parliament), has presented, confidence has improved.

One of these factors is that economic agents look to the future when they make decisions about consumption and investments, wages and prices, and want to take account of economic policy not only as it is today, but also as they expect it to be tomorrow and in the future. This is particularly evident in foreign exchange and financial markets, where exchange and interest rates are influenced when participants shift large amounts partly on the basis of their expectations concerning economic policy and economic developments. Financial market expectations concerning economic policy are entirely different today from what they were 20-30 years ago. Behaviour can change from being very rational to herd behaviour. The issues that receive attention, and that govern movements in exchange and interest rates, change. It is thus important that the authorities do not sow doubt, but on the contrary act in a long-term and predictable manner. The authorities must be credible and inspire confidence. There must be a good match between the stated objectives of economic policy and what is actually done to achieve them. This is the most important reason why the implementation of monetary policy has been delegated to the central bank in Norway,  1  Cf. Official Norwegian Report (NOU) 1973:36 (price problems). BIS Review 50/2002  1  as has been the case in other comparable countries. In Norway, the responsibility for interest rate decisions was delegated to Norges Bank in 1986. The other factor is the special challenges to stabilisation policy posed by petroleum revenues.
Anecdotal evidence suggests that a surge in demand for OATi originated from banks, which tried to hedge against this new regulation. An insufficient outstanding amount of French inflation linkers relative to the overall demand for hedging purposes led to an upward pressure on the prices of other euro area linkers (Greece and Italy). To conclude this point, all these biases are likely to be small, but they add together, potentially in a non-systematic way. They are also likely to vary over time. It is therefore difficult to smooth out all these noises to get a good proxy of inflation expectations over the medium to long-term. Two main lessons may be drawn from the existence of the various premia and biases affecting the break-even inflation rates. First, it may be more informative to focus on the changes in the break-even rates rather than on their levels. This is however at a cost since the level by itself conveys relevant information for the central bank. Second, break-even inflation rate may provide interesting information as regards long-term inflation expectations, although it is necessary to cross-check against other inflation expectations’ measures. This leads me to my third and final point. 3. Other useful indicators of expected inflation  Inflation-indexed bonds are not the sole financial instrument to provide information on long-term expectations of inflation, as similar information can be extracted from inflation-linked swaps. The market for inflation-linked swaps has developed rapidly since 2002 in the euro area.

Second, inflation expectations may be used by policy makers to gain information about the setting of short-term interest rates, whereas changes in the nominal yield curve, on their own are of no use. An increase in long-term nominal interest rates may be driven by a rise in the long-term expected inflation rate or a rise in the inflation risk premium, but it may also reflect an increase in long-term real interest rates, driven by some real factors. The two first movements could justify a change in the monetary policy stance, once the nature of the underlying shock and its likely duration have been clearly identified, but such a change may be inappropriate in the last case. Third, information on long-term inflation expectations can provide monetary authorities with a measure of the credibility of their commitment to price stability. The existence of a market for inflation-indexed securities may provide central banks with very useful information, since it may then enable them to identify whether changes in nominal yields mainly reflect changes in the expected long-term inflation rate or rather whether they are due to changes in real yields.
Even though neither the changes nor amounts involved were large, there is little doubt that they had some effect and prompted a new marketing drive by the banks. In a climate of rapidly growing disposable income, house prices began to soar again. The Central Bank has emphasised the need to change the public sector mortgage credit system but has not stated an official view as to how this should be done. Nonetheless, immediate reforms are vital to give monetary policy more leverage over the mortgage loan market. Another important consideration is that whatever mortgage loan arrangements that are developed should provide a solid foundation for the domestic bond market. The Central Bank has been making these points for several years with little result. International agencies have agreed that a review of the role of the HFF is long overdue. Particular mention may be made of the IMF, most recently this summer. The Fund’s reports show that its analysts have striven to make an in-depth study of mortgage credit arrangements in Iceland. In its Article IV Consultation report published in June, the IMF claimed that a higher policy rate than otherwise had been needed as a result of the HFF’s activities. It should be added that one reason for the limited success in keeping the lid on inflation has been an enormous increase in disposable income in 2006 and 2007, driven by both wage rises and tax cuts. These factors and others have fuelled domestic demand and thereby inflationary pressures.

If the Central Bank had not maintained a tight monetary stance and not raised the policy rate as it has done, it is almost certain that the economy would be swept into a familiar spiral of inflation, currency depreciation and wage rises, benefitting no one but harming us all, as historical experience has taught us. One of the fiercest critics of Central Bank monetary policy has been the Confederation of Employers. They have dismissed the Bank’s monetary policy as having no effect, while claiming that inflation excluding the housing component of the CPI has been only 2½% for some time, and then infer that monetary policy has had no impact on that development, however they manage to reach that conclusion. The Confederation of Employers has suggested monetary policy reforms along the following broad lines: First, to relax the inflation target; second, to remove house prices from the target CPI; and third, to impose a corridor for Iceland’s policy rate differential with abroad, e.g. the European Central Bank. The Central Bank does not consider that any of these proposals would improve monetary policy implementation. On the contrary. Easing the inflation target is highly inadvisable. That would probably drive up inflation expectations of households and businesses and anchor inflation at a higher rate than would be tolerated in neighbouring economies, with correspondingly bad consequences. We should not set less ambitious goals than others. The Central Bank has previously declared its firm support for including house prices in the CPI on which the inflation target is based.
We must all continue doing all we can to emerge from the current situation. Today, however, I wanted to pause and look beyond the crisis. For one thing, we do not know how deep and long it may be. But what is certain is that this crisis will end. We are certain we will finally emerge from it. This is not wishful thinking, but an empirical regularity. The economy has worked this way at least since the time Joseph interpreted the Pharaoh's dream about lean and fat cows. I wanted to focus today on the future of the Spanish economy because the essentially macroeconomic dimension of the current crisis makes us forget certain things: that our main problems are structural; that our chief task is to improve and boost productivity; that we ought to seize the moment to reform our regulations and institutions; and because whatever we do to improve productivity does not run counter to exiting the crisis but, quite on the contrary, may help us emerge more rapidly from it. To conclude, let me reiterate what I said earlier. If I’ve talked of only one area of structural reform, namely labour reform, it is because I think it is the most important one for relaunching corporate start-ups and reducing unemployment. But is it not the only area of reform, and nor are others less necessary.

Only when board directors understand that they are accountable not only to shareholders but also to customers and society more broadly through the regulatory agency can we be confident that effective governance and internal controls will be put in place. In short, banks need to own the common goal and to promote the appropriate culture, values and practices across the firm, which are to put the safety of the bank and the interest of depositors and customers ahead of the banks’ own commercial interests, just as the old fashioned bankers did in the past. Only when this happens will bank managers and employees change their mindset from “what can we get away with” to “what is the right thing to do”. Only when this happens can the banking industry regain the trust and respect that bankers used to enjoy in the not so distant past. 22. I am a pragmatist and not blind to the challenges that lie ahead in achieving what I have just described. However, I am also an optimist. Looking to the owners of banks, whilst shareholding may be diverse, there are “clusters” of shareholders, such as pension funds and sophisticated institutional investors, who understand that short-termism tends to produce negative outcomes over time and as such should be prepared to counter such tendency.
The level of investment is assumed to remain high next year, before declining somewhat the following year when Ormen Lange and Snøhvit are scheduled for completion. No plans have so far been adopted for new projects of a similar size, but continued high oil prices are expected to contribute to high investment both in exploration and in fields in operation in the years ahead. There are prospects of strong growth in the Government Pension Fund-Global. Given our assumption for oil price developments ahead (oil futures), spending in line with the expected real return on the Fund implies that the structural, non-oil deficit may increase by close to NOK 15 billion at 2006 prices in both 2008 and 2009. With a period of strong expansion in the Norwegian economy, somewhat lower petroleum revenue spending will be in line with the fiscal rule. Our projections are based on the assumption that fiscal policy will generate some stimulus to total demand and output in 2008 and 2009, but somewhat less than the expected return on the Fund would imply. Economic growth in Sweden, the UK and the euro area is high. Economic developments in China and India remain strong. GDP growth in the US and Japan has slowed. Consumer price inflation among a number of our trading partners is high as a result of rising energy prices, but the increase in prices for other goods and services remains moderate. Continued solid growth among our trading partners is in prospect.

As global capacity utilisation increases to a more normal level, demand for Norwegian exports might remain buoyant. A growing number of export enterprises are facing capacity constraints, particularly in the production of metals and refined petroleum products. Export growth in the years ahead will probably occur in industries such as the engineering and shipbuilding industries. Production growth is now high in these sectors, and employment is rising after declining for several years. High growth in the global economy has also pushed up prices for non-oil commodities. Rising commodity prices and buoyant activity in markets that are important for Norway have generated growth impulses to the Norwegian economy. Since May this year, commodity prices have varied  BIS Review 80/2006  3  widely, but on the whole edged up since end-June. International equity markets have stabilised since the turbulence in May, and have edged up since the previous monetary policy meeting. The benchmark index on the Oslo Stock Exchange is now about 15 per cent higher than at the beginning of the year. Interest rates are still low among many of our trading partners, in spite of the increases in several countries as a result of rising energy prices and higher consumer price inflation. In the US, there are now expectations that the rate tightening cycle is nearing an end, and that the policy rate will be lowered in the course of next summer. A rise in key rates is expected over the next year in the euro area, Sweden, the UK, Australia, Japan and Switzerland.