samchain/econo-pairs-v1 huggingface dataset:
The close and complex financial links between the banks also mean that a failure can have a knock on effect on the other banks in the system. Particularly problematic in this respect will be the failure of a bank which has a key position in the payment system. That is, a bank which many other banks use as their intermediary when making payments to one another. The mere rumour that such a bank is having problems can thus paralyse the payment system. A further complication is that banks are vulnerable in a special way. If confidence is shaken, deposits and other financing can usually be withdrawn at short notice. The assets can not be disposed of that easily. A bank may be forced to sell its assets at fire sale prices to meet a run; if the worst comes to the worst the bank may become insolvent. Banks are therefore very sensitive to a shift in confidence. A bank failure can thus affect the smooth functioning of the financial system. The more widespread the problem and the larger the risk of the crisis spreading through the system, the greater is the threat to financial stability – and in the end to the real economy. Clearly, the failure of a bank where a lot of people, companies and other banks have their accounts, and which is an important provider of credit and risk management tools, will normally be more problematic than the failure of a small bank.

Good cop/bad cop Speech given by Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority  Mansion House City Banquet, London 25 October 2018  I am grateful to Ivar van Hasselt and Joanna Keeble for their assistance in preparing this speech and to other colleagues for comments and contributions. 1  All speeches are available online at www.bankofengland.co.uk/speeches  Lord Mayor, Ladies and Gentlemen, Andrew and I have worked together for a long time, and we’ve often found it useful to adopt a regulatory good cop/bad cop routine. In the context of Mansion House, the rules are simple: whoever gives the shortest speech is good cop! Now Andrew I timed you just now, and with a few edits I think I can sneak in under the line… But why am I talking about the police at all? Police metaphors are dangerous, but as it happens “good cop/bad cop” is a good analogy for two different aspects of our role as regulator:   First, bad cop: areas where we need actively to insert the public interest into privately or mutually-owned firms, because some of the costs of their failure would be externalised and they therefore have an incentive to run too much risk. Here there is inherently a degree of conflict between regulator and firm – it is the way our system is set up. Capital is the most obvious example of these battlegrounds, where reasonable people with different objectives quite naturally come to different answers.
For holders of a long-term bond, however, it’s quite a tall order to expect any inflation over the course of its life to be “fully anticipated”. It would require them to know years in advance – potentially many years – that it’s coming. In the UK, the government’s conventional debt has a relatively long average maturity: close to two fifths of it was sold more than a decade ago. So in principle, if this were ever the aim of policy makers, there’d seem to be quite a bit of scope to spring “surprise” inflations (a surprise in the sense that it wasn’t foreseen when the bonds were originally sold) and reduce the real value of existing debt without any compensating rise in coupon payments. However, as we’ll see, you need relatively sizeable increases in inflation to make much of an impression on the debt. Though the dynamics are extremely drawn out, the effect is ultimately temporary, as even longterm debt needs eventually to be refinanced12. And central bank asset purchases have made it harder: because it reduces the maturity of its interest-bearing liabilities, QE actually makes the public sector’s consolidated balance sheet less susceptible to any given rise in inflation. 12  Note that this relies critically on trend GDP growth (let’s call it g) being higher than the risk-free real interest rate (r).

7  P. Aghion, P. Askenazy, N. Berman, G. Cette and L. Eymard, 2012. “Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France,” Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001–1024, October. 8  P. Aghion, D. Hémous and E. Kharroubi, 2014. “Cyclical fiscal policy, credit constraints, and industry growth,” Journal of Monetary Economics, Elsevier, vol. 62(C), pages 41–58. 9  A. Bergeaud and G. Cette and R. Lecat, 2016. “The role of production factor quality and technology diffusion in 20th century productivity growth,” Working papers 588, Banque de France. 10  C. Reinhart and K.S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573–78; Lane, Philip R. 2012. “The European Sovereign Debt Crisis.” Journal of Economic Perspectives, 26(3): 49–68. BIS central bankers’ speeches  3  impediments to the flow of resources, in particular in the labour market and in the way credit was allocated between sectors, hence revealing that a malfunctioning of the financial sector can reinforce structural weaknesses. 11 In some cases both were present at the same time. Of the uttermost importance were the structural changes targeting an improvement in the monitoring and the resilience of our financial system. Arguably the financial crisis partly resulted from excess risk taking and overinvestment in low productivity sectors. 12 The Basel 3 framework worldwide and the Single Supervisory Mechanism in the euro-zone provide new supervisory and prudential tools to mitigate these risks in the future.
In terms of how to move forward I’d like to make three brief points before I close: First, the fact that we’re all sitting here in this room is a very positive sign. That so many leaders from major firms are here today, engaged in these issues, is a symbol of how organizational culture is moving up the agenda. The second is that the Banking Standards Board survey is a terrific tool for getting a snapshot of what your organization’s culture looks like and how it’s changing over time. It goes far beyond typical engagement questionnaires and provides powerful insights into the values of employees and the characteristics of an organization.7 It’s impossible to make progress if you don’t have an accurate picture of your starting point. The third is that when it comes to culture, I encourage everyone to look beyond their own lens of expertise. The Fed couldn’t do its work without the deep knowledge of economists, lawyers, and statisticians. But the solutions to challenges related to a firm’s culture are unlikely to be found if we keep our focus narrowly trained on our own specialties. We have so much to learn from experts in psychology, ethics, and management. 3/4  BIS central bankers' speeches  That’s one reason I’ve been so looking forward to today’s panel discussion. It brings together experts from many of these fields, whose combined insights are the key to moving us all toward the business culture we want to see.

Placed in this context, it is sobering to note that for Malaysia, insurance merely accounts for 1.7% of GDP and only 5.8% of financial assets. Clearly, there is significant, untapped potential for the industry to increase its broader economic impact, and feature much more prominently in Malaysia’s growth story. However, this cannot happen unless the industry steps up its game and takes a more strategic view of its role in the economy – working much more proactively across 1/4  BIS central bankers' speeches  the industry and with relevant bodies and agencies. Take insurance penetration. It has been sluggish. Over the past few years, penetration (in terms of total premiums to GDP) for the industry remained low at 4.8%. Less than 40% of Malaysian citizens own a life insurance or family takaful policy. For the working population aged between 20 and 59 years old, this is higher at about 50%. There are at least another around 8 million workingage individuals and over 700,000 micro enterprises in Malaysia that need protection. Of these around 3.7 million are from the Bottom 40 income group. Another pressing issue is the role of the industry in supporting a sustainable and comprehensive healthcare system in Malaysia. Health expenditure is around 4.6% of GDP. In fact, the Malaysian medical and health insurance market has the highest average gross medical inflation. It was around 15.4% in 2018. It is expected to continue rising.
The preference for seeking out private solutions was naturally governed by the aim to minimise the impact for taxpayers; but another determinant here was the objective to undertake the necessary reform of savings banks, which were by then subject to well-known problems of governance, it being considered that a strategy of widespread public aid could set back or make this reform more difficult. The question hanging in the air is whether the alternative of strong public aid to credit institutions in the initial phases of the crisis would ultimately have entailed a lower fiscal cost than the gradual approach opted for. But this question is, as economists would say, counterfactual, i.e. attempting to imagine the consequences – desired and undesired alike – of something that did not happen. Whatever interest this question may have, naturally the Report does not go into it, and I do not believe it is for the Banco de España to respond to it. 10/14  A second question is why some of the savings bank IPSs did not withstand the double-dip recession and had to undertake further restructuring measures as from 2012. With hindsight, the IPSs were in most cases clearly but a prior step to necessary and actual mergers, and several of these groups were evidently insufficient when faced with the second recession. Yet it should be recalled that the IPSs were an instrument that provided for the integration of savings banks and of credit cooperatives, which had less flexibility to undertake true mergers.

At this juncture I should point out that, on reading these paragraphs, I am not forgetting the case of Banco Popular Español. The Report provides details on the results for this bank, and on the assessment made under the July 2012 Memorandum of Understanding with regard to our banks’ capital needs. As is known, this assessment was conducted by the consultancy firm Oliver Wyman, and its outcome was that Banco Popular evidenced capital needs in excess of € billion. But in October 2012 it was concluded that both Banco Popular, and the other institution for which capital needs have been identified, namely Ibercaja, could cover these needs by their own means, without resort to public funds and, therefore, also without transferring assets to Sareb. I believe the resolution of Banco Popular, undertaken early in June in accordance with the provisions of the 2014 European Directive, is set in a different context to that of the analysis of the crisis from 2008 to 2014, even if it is considered that the still-distant source of the problems of Banco Popular can be found in the period covered by the Report. But here I shall naturally defer to what this Commission should decide. Regarding public aid, the Report details in its various chapters the aid injected into the financial system during the crisis. This is summarised in Tables 5.5 and 5.6 (pp. 246-247).
Many economies have embarked on financial-sector reform, with the aim both of ensuring that the banking system is well capitalised and of promoting other forms of intermediation. Central banks have seen a strengthening of their capabilities and a clarification of their policies and roles. Most heartening of all, co-operation among central banks in the region has flourished. Many examples could be cited, from bilateral swap agreements to payment system linkages. 1  Zeti Akhtar Aziz: "Enhancing the Resilience and Stability of the Islamic Financial System": Governor's Keynote Address at the Islamic Financial Services Board and Institute of International Finance Conference, Kuala Lumpur, 20 November 2008. 2  BIS Review 12/2009  At the centre of this regional co-operation has been the work of EMEAP in facilitating practical co-operation in all areas of central bank activity, and particularly in surveillance and crisis management. I should add that these activities have benefited enormously from the wisdom and leadership of Governor Zeti and her colleagues. The Zeti Taskforce – the EMEAP taskforce on Regional Financial Co-operation – has laid out a comprehensive framework for enhancing central bank co-operation, which has been adopted by EMEAP as a blueprint for action. Calls were also made in the aftermath of the Asian financial crisis for a reform of the global financial architecture. Yet one of the great disappointments from those years, particularly when set against the real progress in regional co-operation, was the general absence of concrete measures on an international scale.

As Governor Zeti has persuasively argued, Islamic finance encourages business activities that generate legitimate profits, and rests on principles of fairness, shared risk and ethical practices.1 There is, I think, much for us all to reflect on in this when considering how badly things have gone wrong recently in what might be called "traditional" finance. No institution with such a long history can have escaped controversy, and BNM has had its fair share. What is interesting, however, is that perhaps the most controversial action by the Malaysian authorities in recent years – the response to the 1997-8 Asian financial crisis – has now come to be understood as appropriate and effective. At the centre of this response was the imposition of capital controls to contain speculative capital flows, stabilise the ringgit, and give the economy a breathing space. This was widely criticised internationally as a retrograde step. Yet it was a limited and temporary measure, which, along with other policies succeeded in stabilising the system and providing the conditions for economic recovery. The role of Bank Negara in promoting international understanding of this measure was crucial to its effectiveness. It is not, of course, my purpose to recommend capital controls as a general solution to financial crisis. The lesson here is that unorthodox measures can be effective, provided that they are well thought out and properly implemented.
After a quick look at the statistics, we can conclude that an average household of this type in Upplands Väsby has a total income of around SEK 44,000 a month after tax and a first mortgage of around SEK 1.75 million. A corresponding household in Luleå can be assumed to have a total income of approximately SEK 39,000 a month and a mortgage of approximately SEK 1.1 million. I am here talking about two average households without extremely high incomes or loans. The debt ratio, that is, the loan in relation to disposable income, is in this case 331 per cent for the family from Upplands Väsby and 235 per cent for the family in Luleå.17. For the family in Upplands Väsby this is just above the average in the country for households with mortgages, while the family in Luleå is well below average. At the same time, we know that it is not unusual for households to have debt ratios of 600 per cent, for example in central Stockholm. Let us therefore include one of these households in our comparison. For a similar family with two children in central Stockholm, with a total income after tax of almost SEK 55,000 per month, a loan of almost SEK 4 million entails a debt ratio of around 600 per cent. 16  According to the Financial Accounts, Swedish households’ debt currently amounts to around SEK 3,300 billion, while their disposable income amounts to a total of around SEK 1,900 billion, according to the National Accounts.

Let us assume that alternative A means that it is the central bank that accounts for both monetary policy and macroprudential policy (instead of the central bank and the financial supervisory authority coordinating them). If the central bank fails to stabilise the financial cycle, some argue that this could also jeopardise confidence in the bank’s ability to attain its traditional price stability target.9 It is therefore  6  The example is taken from Bryant, Henderson and Becker (2012). 7  Here one should regard the task as being to ensure that the financial cycle does not “go off the rails” rather than keeping it completely stable all of the time. In Figure 1, for instance, measures would need to be taken in connection with the last financial cycle, but not with the first. 8  See, for example, Svensson (2011). 9  See, for example, Smets (2013). 4  BIS central bankers’ speeches  better that another authority than the central bank should have responsibility for stabilising the financial cycle. That coordination is in theory preferable does not say anything about how great the benefits may be in practice. To illustrate the quantitative links between monetary policy and macroprudential policy, we need the help of macroeconomic models based on data for the specific country. Such models are currently being developed within several central banks.
We try to do our work as best as we can, which is to ensure price stability in the euro area. And I don’t think we have to be negative 1/2  BIS central bankers' speeches  about Europe. Not everything is going very well. There are plenty of things which don’t work well and which need to be improved. But what would we say to the millions of eastern Europeans who have returned to prosperity thanks to Europe, if Europe didn’t exist today? What would we say to the millions of French people who work in companies which are exporting to Europe? And when you travel round the world, Europe is admired. Why? Because it is a prosperous region, but also because it is a place of security, and of social protection. Europe is one of the few places in the world where, if you go to hospital, you won’t be asked for your credit card. That’s what we need to safeguard, but we need to safeguard it together, as Europeans. Emmanuel Macron wants a euro area budget and greater solidarity between the Member States. Will that be achieved soon? It’s necessary because the Member States have to regain budgetary firepower. It would not be reasonable to expect the European Central Bank to sort out all of Europe’s economic problems indefinitely. Economic capacity and budgetary capacity have to be recreated. But that won’t happen overnight; French ideas won’t be imposed on Europe by magic, it will be a long discussion.

The longer we conduct these policies, the longer the rates will remain low and these risks will exist. That shows how urgent it is to have growth policies which do not rely mainly on monetary policy. A full mix of policies would be healthier from this point of view, since they would not create financial stability risks. We are closely following this and at the moment we see no financial bubbles at euro area level. There are some small, worrying signs in some countries. In France, for example, corporate debt is rising very quickly. But there is nothing that would justify the ECB withdrawing its support for growth. Monetary policy supports growth and job creation. For that reason we won’t be withdrawing support now. Let’s talk about Europe, about its construction. It’s the issue that’s stirring up anger. Jean-Baptiste Duval of the Huffington Post would like to ask a question on that. “Europe was a great success”, you said in [your interview with] Le Journal du Dimanche, but what exactly are you talking about? About the “no” in the 2005 referendum, wonderfully ignored? About the support for Greece, just like a hangman’s rope? Or the return of nationalist flames in the United Kingdom and in eastern Europe? Joking aside, Benoît Cœuré, do you live in an ivory tower in Frankfurt, or do you know things that Europeans are unaware of? Do you know things that Europeans are unaware of? No, we don’t know things that Europeans are unaware of.
Today it is appropriate to reflect on the motives that prompted the ECB to adopt these measures, to review their progress and, lastly, to analyse the financial and macroeconomic impact they have had, both in Spain and in the euro area overall. COVID-19 emerged in the euro area in a setting of low inflation and broad monetary stimulus, with policy rates at all-time lows, new net purchases of assets under the asset purchase programme (APP) and a schedule set for the targeted longer-term refinancing operations (TLTROs-III). From the outset, the ECB faced three significant pandemic-related challenges: first, the need to stabilise financial markets throughout the euro area, to head off cross-country financial fragmentation; second, to protect the supply of bank credit, which is especially important for funding for households and SMEs; and third, to endeavour to neutralise the downward pressures on inflation stemming from the COVID-19 crisis, in accordance with the ECB’s price stability mandate enshrined in the EU treaties. Against this backdrop, the ECB adopted a series of measures that may be grouped into two main blocks: first, those designed to encourage the supply of bank credit to the real economy; and second, those relating to the asset purchase programmes. Taking the first block, the ECB approved a broad raft of measures to provide liquidity to banks so that they, in turn, were able to ensure access to credit for households and firms. These included, in particular, the improvements to the conditions of the TLTROs-III.

Jean-Claude Trichet: Interview in Il Sole 24 Ore Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in Il Sole 24 Ore, conducted by Mr Beda Romano and published on 9 April 2010. *  *  *  Il Sole 24 Ore: Greece is in dire straits as it struggles with a huge public debt and a fall in competitiveness. Some market players and newspaper commentators see Italy as being the next in line to experience a financial crisis in the euro zone. Trichet: Of course, Italy is not at all in the same situation of Greece. Your country has shown resilience in this difficult period. In particular it was able to contain its yearly budget deficit and it has committed to get back to a sustainable situation according to the European rules. The ECB strongly encourages it to implement rigorously this programme. This said, the current crisis has demonstrated that all 16 countries of the euro zone must work hard, in a determined and efficient way, in order to make their economies more flexible and elevate their growth potential thanks to determined structural reforms. Improving labour productivity in particular is good for export growth and job creation. If this had been done more efficiently in the last years better results would have been attained in Italy as well as in the euro area as a whole.