samchain/econo-pairs-v1 huggingface dataset:
The monetary base has thus increased by around 300 per cent. In simpler economic models one usually assume that there is a fixed relationship between the monetary base and the money supply. 2 The question that has been discussed is whether the large increase in the monetary base could give rise to rapid inflation. But for this to happen the money volume in society must also increase, that is, as well as the monetary base increasing, the general public’s deposits in the banks must increase. This could happen if the increase in the monetary base leads to the banks increasing their credit granting to the general public and if this in turn leads to the general public depositing more money with the banks. In the prevailing economic downturn this has not been the case. The banks have tightened their credit granting, while demand for credit has declined, particularly from companies. A more reasonable interpretation of what has happened is that the banks have increased their demand for liquid reserves in the Riksbank. Put simply, one can say that the bank system as a whole has borrowed as much from the Riksbank as it is willing to invest as a deposit with the Riksbank. Thus, the ratio between the monetary base demanded and the money supply has increased, or in other words what is known as the credit multiplier has  2  Money supply here refers to the general public’s holdings of banknotes and coins and the general public’s deposits with the banks.

During the crisis the banks experienced problems with funding in foreign currency, particularly dollars. The Riksbank therefore lent dollars to the Swedish banks, partly funded through the currency reserve. 10  BIS Review 160/2009  Thirdly, Sweden has international commitments through, for instance, the IMF to be able to support other countries in crisis with loans in foreign currency. These commitments have increased substantially during the crisis. The Riksbank has established swap agreements with the central banks in Iceland, Latvia and Estonia, to be able to provide loans in foreign currency to stabilise the financial situation in these countries. Moreover, the Riksbank has increased its commitments to the IMF. All in all, international commitments have increased by more than SEK 50 billion in connection with the crisis and they may increase further. Prior to the financial crisis the gold and foreign currency reserve amounted to around SEK 200 billion, and then accounted for more or less all of the Riksbank's assets. The foreign currency reserve has been strengthened this year. The Riksbank has borrowed a further amount in foreign currency through the Swedish National Debt Office, totalling the equivalent of around SEK 100 billion. Some of the foreign currency reserve has been lent out during the crisis and the value in Swedish kronor has been affected by the depreciation in the krona. The size of the foreign currency reserve has thus varied during the crisis (Figure 11).
It is notable that the market requires very different levels of return for assets with the same rating – under the current rules all of this difference is deemed to be risk-free and can be recognised as capital up-front, but it is quite plausible that some of it reflects other risks such as operational ones. Third: the assumption that market moves tell us nothing about credit risk. Under the current system, when the market sells off assets there is approximately zero impact on insurers because the sell-off is treated as being driven solely by liquidity concerns. In other words, when the prices of assets drop in the market the assumption is that there is no information in this about the outlook for future losses. Now in broad terms this is in fact a feature of the regime, not a bug – we want insurers to be able to ride out market shocks, and it is safe for them to do so as long as they have the right cash coming in to meet their commitments to pensioners and other policyholders. However, the current construct is at the most generous possible extreme of the assumptions that can be made in this area; contrary to this assumption, it may sometimes be the case that asset prices are falling because new information has arrived in the market that does indicate that future losses are going to be higher than previously expected – or at the very least that uncertainty over future losses has increased.

Page 1  Solvency II: Striking the balance − speech by Sam Woods Given at Bank of England Webinar  Page 2  Published on 08 July 2022  Sam Woods talks about reforms to the regulation of insurance providers. He says the key aims of the reforms are to make the insurance sector work better for the UK economy and to safeguard policyholders. Speech Introduction The UK’s post-Brexit review of insurance regulation is entering a critical phase, with important decisions shortly to come for us, government and Parliament. With that in mind I thought it would be useful to highlight some of the key points from the Prudential Regulation Authority’s (PRA’s) perspective, while HM Treasury’s current consultation on Solvency II is ongoing, with a particular focus on the main point of contention between us and parts of the industry. My main message is this. Following Brexit we have a once-in-a-generation opportunity to reshape insurance regulation to work better for the UK. We can do this while loosening parts of the regime which were over-calibrated by the EU and making it easier for insurers to invest in a wider range of assets, but we also need to strengthen it in one area in order to avoid risks to the millions of current and future pensioners who rely on insurers for their retirement income. The combined effect of these changes should support the government’s objectives for competitiveness, growth and investment in the economy.
The dual objective of PEPP  5/7  BIS central bankers' speeches  To enhance the effectiveness of our asset purchases, the PEPP has to be operationalised in a way that it meets the described dual objective. The PEPP is not an interventionist programme where we stand on the sidelines when conditions are calm and enter the market only in times of market disturbances. It rather resembles a two-staged pyramid. At the basis, there is a constant flow of purchases that reaches out to all eligible market segments. In the sovereign space, these purchases are guided by the ECB’s capital key. This is the “stance” element of PEPP. It seeks to create financial conditions that are consistent with our inflation aim. The upper part of the pyramid is its flexibility. This element responds to the challenges posed by the pandemic to market functioning and the smooth transmission of our policy to all parts of the euro area. The first granular breakdown of our PEPP purchases, published last week, highlights this particular aspect of our reaction function. It stresses the three dimensions of flexibility in the PEPP. First, in the sovereign space, monthly purchases in all jurisdictions will exceed the “basis” flow if we observe a general tightening of financial conditions across countries, unusually high volatility or poor liquidity. In this case, we frontload purchases, following the ECB’s capital key. Second, we raise the share of purchases above the capital key in countries facing severe risks of fragmentation.

We are again at a similar junction. A wide array of economic indicators now suggest that growth in the U.S. has picked up and is widely expected to be around 3 percent during the second half of 2014 and in 2015. These forecasts seem quite reasonable to me and are consistent with views I have expressed in the past. Various “headwinds” have been impeding economic activity, but some of these forces have gradually subsided, allowing the substantially improved underlying fundamentals to exert themselves more forcefully. For example, fiscal restraint, which was a big factor last year, has subsided and is likely to disappear altogether next year. Credit availability has also improved, reflecting healthier bank balance sheets and improving job and income prospects for prospective borrowers. In addition, the excess supply of housing built up over the boom of the previous decade has been worked off, and both home prices and rents suggest that the supply of housing is not keeping pace with demand. This has allowed supportive financial market conditions, spurred, in part, by a very accommodative monetary policy, to shine through. As a result, aggregate household net worth has climbed relative to income and consumer balance sheets are healthier. On the business side, financial markets conditions suggest that risk aversion has subsided, leading to some firming in business investment spending. All of these developments help boost the confidence of consumers and businesses that this consensus forecast will in fact unfold.
I would like to emphasise once again that this is a question of a forecast for the future development of the repo rate. Forecasts are, as we know, always uncertain and new information and changed circumstances can lead to assessments changing. The new interest rate assumption does not entail any commitment on the part of the Riksbank that the repo rate will actually follow a particular path. Nor does this involve a new way of conducting monetary policy. BIS Review 6/2007  5  When we chose to replace the assumption of a constant repo rate with an assumption based on market expectations, we took a large step towards increased openness and clarity. Now we are taking a further step in the same direction. I hope that this will enable us to become even better at explaining to the general public how we reason when making our monetary policy decisions. Thank you! List of references Alsterlind, J. and Dillén, H., “Monetary policy expectations and forward premia”, Sveriges Riksbank Economic Review 2, 2005. Archer, D. (2005), “Central-bank communication and the publication of interest rate projections”, article presented at the Riksbank’s conference “Inflation targeting: implementation, communication and effectiveness”, June 2005. Blinder, A., (2006), “Monetary Policy Today: Sixteen Questions and about Twelve Answers”, paper presented at the Banco de España Conference on “Central Banks in the 21st Century, Madrid, June 8-9, 2006. van der Cruijsen, C. and M., Demertzis (2005).”The impact of central bank transparency on inflation expectations”, Working Paper no. 031/2005, De Nederlandsche Bank, 2005.

Overall, the economy in the euro area stagnated. As in the last monetary policy assessment, we assume that the global economy will continue to recover slowly. This will be driven by globally expansionary monetary policy and strong domestic demand in the emerging economies. In the euro area and the US, developments are likely to be more subdued. Here we assume that the European financial and sovereign debt crisis will gradually ease. However, risks in this respect remain high. In particular, the difficult situation in Greece and Spain has already led to a significant deterioration in the  BIS central bankers’ speeches  1  confidence of households and companies in the euro area. As a result, the economic situation remains vulnerable. These high risks are also affecting the financial markets. Following a temporary recovery at the beginning of the year, the situation on the financial markets at present is again tense. A substantial correction has taken place on the share markets. By contrast, investments perceived to be safe, such as US, German or UK government bonds, recorded all-time low yields and correspondingly high price gains. Real yields on these investments are in negative territory for most maturities, measured in terms of inflation expectations. In addition, interest rates on money markets are at record-low levels worldwide. Swiss economic outlook In Switzerland, real GDP rose faster than expected in the first quarter.
However, ensuring that the payment system functions efficiently is also a fairly general definition that requires further precision. To become more specific, it is necessary to define what characterises an efficient payment system. I intend to discuss two characteristics here that I perceive to be the most central – price stability and financial stability. Price stability An important component of an efficient payment system is that economic agents have confidence that the value of the means of payment will remain stable over time, that is in practice that inflation will be low and stable. One usually expresses this as there being a nominal anchor that prevents inflation and inflation expectations from drifting off. If households and companies are confident that the general price level will not change very much, they are better able to plan for the future and need not put effort  1  See, for instance, Santomero, A.M., S. Viotti and A. Vredin, (2001), "Challenges for Central Banking: An Introduction”, in Santomero, A.M., S. Viotti and A. Vredin (ed. ), Challenges for Central Banking, Kluwer Academic Publishers. BIS Review 52/2006  1  into finding ways of protecting themselves against inflation, but can focus on more productive activities. Another argument for keeping inflation low focuses on the role of price formation as a signalling system. When inflation is low and stable it is easier for economic agents to distinguish changes in relative prices and to adjust their decisions regarding consumption, saving, work and investment accordingly.

The whole point of allowing monetary policy decisions to be made by a group of people and not one  BIS Review 134/2010  5  individual can be summarised in the expression “many heads are better than one”. And this would not apply if we all thought in the same way, if we were all clones. Then one single decision-maker would be sufficient. It may be worth pointing out that the fact that we have been publishing our own forecast for the repo rate for a few years now has probably meant that it becomes more noticeable when we disagree. The repo rate path makes it necessary to have a deeper and more long-term discussion than if we were just making a decision on whether or not the current repo rate should be changed. My impression is that the repo rate path has increased the quality of the monetary policy discussion both internally and outside of the Riksbank. But it also means that, to put it simply, we have more to disagree on. The fact that members of a monetary policy committee have different backgrounds, experiences and knowledge means that they approach an interest rate decision from slightly different directions, and they analyse and argue in slightly different ways. These differences do make demands that one must find some form of “common denominator” in the monetary policy discussion so that members do not talk at cross-purposes.
In contrast, a new U.S. Treasury repo reference rate will be based on actual transactions in a deep and liquid market, and is designed to be compliant with new principles set forth by the International Organization of Securities Commissions.7 In the foreign-exchange market, bad incentives helped encourage rate rigging at particular rate-fixing times. Reforms were subsequently introduced, including recommendations from the Financial Stability Board’s Report on Foreign Exchange Benchmarks and the recent publication of the FX Global Code, developed by central banks and market participants.8 The creation of millions of unauthorized accounts at Wells Fargo also reflected bad incentives. Bank employees were compensated on sales volume with aggressive crossselling targets without customers actually receiving beneficial services. In response, the Federal Reserve Board entered into a consent cease-and-desist order with Wells Fargo that requires the firm to improve its governance and risk management processes. These recent cases were particularly disturbing in terms of their scale and flagrancy, and—in the case of the rate-rigging scandals—the collusion by employees across firms. I am particularly struck by the fact that manipulation of the foreign exchange market occurred even after the LIBOR scandal was well known. These episodes underscore the tremendous power that incentives have to influence and distort behavior, potentially leading to massive damage to bank cultures, reputations, and finances.

After all, misaligned incentives contributed greatly to the financial crisis and continue to affect bank conduct and behavior.2 Today, I will address this issue of incentives, with emphasis on the complementary roles of regulation, supervision, and bank culture. Each of these is necessary to ensure that we have a robust and resilient financial system not just today, but also in the future. Progress since the financial crisis The financial crisis was a watershed event that exposed severe deficiencies in the financial system—including the inadequacy of bank capital and liquidity buffers, poor risk management and internal controls, and bad bank cultures. Many financial firms took on an excessive amount of risk and did not always act in ways consistent with the interests of their customers or the broader public. The crisis revealed woeful shortcomings in many of these elements, with terrible consequences for the economy and millions of people. Over the past decade, the official sector and the financial industry have made considerable progress in addressing these problems. The banking system is much sounder and more resilient as a result, in a number of ways. First, systemically important banks are much safer.3 They have much bigger liquidity and capital buffers, and the quality of capital is much improved. Moreover, the capital regime now has a forward-looking element in which annual stress tests examine banks’ ability to withstand losses under severely adverse economic conditions and constrain the amount of capital that can be returned to shareholders via dividends and share repurchases.
So pursuing a strategy of monetary accommodation will be in the interests of savers in the medium-term, even if it feels like the opposite in the short-run. We should all want to see sufficient growth such that interest rates can start to rise. 4  BIS central bankers’ speeches  Taking all that together, my policy vote has been driven by the need to continue supporting the required real adjustments – which still have much to work through – but cautiously, so as not to risk inflation expectations becoming de-anchored. My personal view is that faster growth in the near-term might actually help keep inflation down for a while as productivity growth picks up. Eventually, however, reductions in the degree of spare capacity in the economy should bring domestic inflationary pressures back to normal, so it will be important that other factors influencing inflation do not remain elevated. The MPC is committed to getting inflation back to around the 2% target – which it will in due course, in the absence of further shocks and if we are careful with policy. Monetary accommodation should generally be helpful to balance sheet rebuilding, but there are limits. For example, I am not convinced that a further reduction in interest rates would stimulate demand at this stage. Cuts in interest rates work in part by encouraging spending (or investment) at the expense of saving.

The household sector, of course, has people in many different circumstances, so one can’t tell a single story. But, subject to the vagaries of data revisions, it appears that people on average are saving much more than they were pre-crisis. Some may be trying to reduce debt levels; some saving to fill holes in expected pensions; some for university tuition fees and some in response to heightened uncertainty about future employment. Meanwhile, many of those who want to leverage up – such as first-time house buyers – are having to save for a larger deposit than they would have done pre-crisis. Consumption growth has been very muted: in 2012 it grew at less than half its average rate in the pre-crisis decade. And the level of consumption remains about 4% below its pre-crisis peak. One possible household reaction to lower expected incomes is for people to try and work harder, and certainly to avoid unemployment if at all possible. This means being willing to  2  BIS central bankers’ speeches  stay in (or find) work even though the benefits from that – real wages – are being squeezed. Labour market participation – the number of people in work or actively seeking employment – has held up well since the 2008/09 recession; this contrasts with previous recessions when workers were discouraged from the labour market and the participation rate fell sharply.
Moreover, will the enlarged EU capital market suck in capital from Asia to Europe? In the first four months of this year, for example, BIS Review 95/1998  -3-  Japanese net purchases of European securities totalled $ billion, while net sales of bonds and stocks in Asia totalled $ billion. Extended diversion of capital to Europe would undermine Asia’s growth prospects as well as Hong Kong’s position as an international financial centre. This could also happen if the European banks are tempted to consolidate their business in Asia to focus their efforts on their enlarged home market. This is not the occasion to be pessimistic. Overall, I believe that the euro will be a good thing for Europe and for the world economy. But as with any major change in the world financial architecture, Hong Kong will need to monitor developments closely and respond quickly to emerging threats as well as opportunities. Let me now turn to the HKMA’s regulatory response to the euro in Hong Kong. First, banks in Hong Kong need to be prepared to handle and account for the euro, particularly during the awkward transitional period before the legacy currencies disappear entirely. If they are not ready, many of the potential benefits of the euro for Hong Kong will simply not materialize.

Mr. Carse looks at the importance of the euro for Hong Kong Speech by the Deputy Chief Executive of the Hong Kong Monetary Authority, Mr. David Carse, at a Seminar on the euro, held in Hong Kong on 9/11/98. Introduction Ladies and gentlemen, I am very pleased to be here this morning to speak at this seminar on the euro organized by the Vocational Training Council in conjunction with the British Consulate-General and the Hong Kong Institute of Bankers. With the introduction of the euro less than two months away, this is obviously a good time to hold such a seminar. It is also fitting to hold it in Hong Kong where our fixed exchange rate system gives us a natural sympathy for its logical extension, the single currency. We are fortunate to have a number of experts on the euro here today to give us the benefit of their views, including my former colleague from the Bank of England, John Townend. My role in the seminar is to say a few words on the importance of the euro for Hong Kong. I will also take the opportunity to brief you on some of the regulatory steps which we have been taking to prepare for the euro. The introduction of the euro is a truly momentous change in the global economic and financial landscape. It is not simply a change of currency for the participating countries, though that in itself is a major event.