samchain/econo-pairs-v1 huggingface dataset:
With both foreign and Swiss interest rates close to zero, the spread between euro and Swiss interest rates disappeared. This created upward pressure on the Swiss franc. A narrower interest rate differential acts like a bonus on Swiss franc holdings. The appetite for Swiss franc assets increased among both foreign and Swiss investors. In the context of a financial and debt crisis, and in a world of high geopolitical risks, a narrower interest rate differential makes the Swiss franc particularly attractive for investors. At the same time it is important to recognise that the current situation cannot be compared to that of 2011. At that time, the Swiss franc was appreciating strongly against all currencies, and, as a response, we introduced the minimum exchange rate. Now the situation is characterised by a general weakness in the euro. Thus, at the end of 2014 and the beginning of 2015, the euro lost substantial value, not just against the Swiss franc but also against other important currencies such as the US dollar and the pound sterling (cf. chart 5). In this new environment, we introduced negative interest rates to partially restore the traditional differential between interest rates on euro and Swiss franc assets. Monetary conditions were adjusted, as the monetary policy stance relative to that abroad had changed. With short-term interest rates in the euro area at zero, negative Swiss interest rates helped restore, at least partially, the pre-crisis interest rate differential.

In addition to this, they have further expanded their loss-absorbing capital base. The Swiss National Bank welcomes these measures and sees them as further steps towards achieving a sounder capital situation. Additional efforts are necessary, however, because the loss-absorbing capital of big banks is still low, given their risk profile and the considerable uncertainty in the international environment. In order for them to be better equipped to deal  BIS central bankers’ speeches  1  with a possible worsening of current economic conditions, the big banks must further improve their capital situation. They can achieve this by retaining earnings. Another measure would be to issue contingent convertible bonds or contingent capital instruments with write-off features, an essential element of the “too big to fail” regulations. They can also strengthen their capital base by accelerating the announced reduction of their risk exposure. By making use of these options, the big banks could quickly and substantially improve their capital situation. Situation of domestically focused banks Allow me now to move on to the situation of banks with a domestic focus. The capitalisation of most domestically focused banks remains good. Profitability – as measured by the ratio of gross profits to assets – dropped slightly, however; not least because of the low interest rate margins. At the same time, domestically focused banks are having to contend with two significant risk factors, namely interest rate risk, which has remained unchanged at a high level, and credit risk, which has risen further.
This success has been achieved through ambitious professional and theoretical work which is one of the Bank’s main focuses. We became aware that other central banks following the same kind of policy had noted and commented on how carefully Iceland had prepared for the introduction of inflation targeting. It is aimed to strengthen the Central Bank’s research and theoretical work still further, and it is worth pointing out that the new legislation specifically states that it should undertake economic research relating to its tasks. Inflation targeting establishes itself Inflation targeting policies have established themselves in recent years, with a correspondingly large reduction in the number of countries which apply policies based on fixed but adjustable exchange rates, or exchange rates within a fluctuation range. The reason is not least that it proved increasingly difficult to adhere to a fixed exchange rate policy in a world of deregulated capital movements. It could be said that prevailing opinion identified only two possible exchange rate options: a floating exchange rate or a completely fixed one, for example through membership of a currency union, unilateral adoption of some other currency or establishment of a currency board. The new policy has produced good results and is applied in countries including Sweden, Norway, the UK, Australia and New Zealand, along with several countries in Eastern Europe, Latin America, Asia and Africa. It can also be argued that the European Central Bank partly follows the same kind of policy.

the interest terms at which  BIS Review 95/2001  1  financial institutions can borrow short-term capital from them, central banks can influence the volume and price of liquidity in the financial system. Central Bank interest rate decisions have an impact on short- and long-term interest rates, financial system liquidity, money in circulation and bank lending, exchange rates of currencies, other asset prices and, last but not least, market participants’ expectations about the future development of all these factors. All this, in turn, influences consumption and investment decisions of individuals and businesses, and thereby aggregate demand. The impact in individual areas can vary greatly from one time to the next. The new Central Bank Act The previous Central Bank Act dated from 1986 and was drafted over the period 1981 to 1984. It was a product of its time and did not reflect the perspectives that later established themselves. In the early 1990s the then Minister of Commerce appointed a committee to review the Central Bank Act, chaired by Professor Ágúst Einarsson, the current Dean of the Faculty of Economics and Business Administration. Following the committee’s work the Minister of Commerce proposed a bill to parliament for a new Central Bank Act which entailed sweeping changes from the 1986 Act, including what are now considered to be many of the necessary elements of central bank legislation. However, the bill was not adopted by parliament.
Second, net settlement systems have been abandoned in favour of real-time settlement, in which each transaction is recorded immediately and permanently, rather than transactions being netted, for example, at the end of the day. It now appears to be generally accepted that settlement systems, where the central bank provides settlement services, should be real-time systems. In light of this, in 1997 the Central Bank began in co-operation with financial institutions a review of domestic settlement systems with the view of bringing them into line with best international practice. The aim is to establish a real-time settlement system in 1999. The operation of a real-time settlement BIS Review 42/1998  -8-  system will be a precondition for participation in the European Central Bank’s TARGET settlement system should it become available. Financial System Stability Securing the sound operation of financial institutions is a task of steadily growing importance for the Central Bank. By law, the Central Bank is required to protect the monetary system and support sound money and securities transactions. Central banks pursue this task in a variety of ways. They carefully follow those macroeconomic developments, which impact money flows and thus the profitability of financial institutions. Securing payment and settlement systems is a central bank task across the world. Central banks are also lenders of last resort to financial institutions and need to be prepared to lend resources in excess of what would normally be required.

Besides, as Fintech was experiencing significant growth and was becoming a promising lever, the first measure to undertake was to introduce mobile payment, considering the high mobile phone penetration rate, which reaches 130 percent and allows coverage of almost the whole population. To  this  end,  we  have  developed,  together  with  the  National  Telecommunications Regulatory Agency, a national low-cost, secure, interoperable and real-time mobile payment solution. This offer is to be provided not only by banks and telecom operators, but also by payment institutions which formed an alternative network, and which we had begun to license based on strict specifications. 3  However, the adherence of retail merchants, necessary for a large-scale deployment of this solution, is still low, as that many of them still operate in the informal sector. Subsequently, we were prompted to collaborate with the Ministry of Finance in order to introduce tax incentives in the 2020 Finance Act. Today, we are rather optimistic. These incentives, combined with communication and awareness-raising efforts, will hopefully give a new impetus to this solution and contribute to a greater integration into the formal economy and to a reduced use of cash. Mobile payment has undoubtedly been one of the main levers of financial inclusion in Morocco, but certainly not the only one. We have also strived towards turning microfinance and micro insurance into channels of inclusion. To this end, the applicable amending legal texts have been finalized and are in the process of being approved.
It is not possible for an outsider to take in the size of the holes in the banks' balance sheets as a result of bad credit; it is probably not possible for the Japanese authorities to see this either. However, all of this must eventually rise to the surface, just as it did in Sweden during the finance crisis. It remains to be seen whether the new administration will bring problems in the finance sector closer to a solution. In Sweden we can of course be pleased that the stock exchange has made a slight recovery during April, although it is too early to conclude that the lowest level has been reached. The stock exchange tends to jump the gun a few times before it really takes off. There is still great uncertainty on the financial markets. At the same time, many of the recent signals regarding economic activity have been distinctly negative. A fall in the inflow of orders and weaker production growth are reported in the telecommunications and motor vehicle industries, for instance. Exports and investment are declining. 2  BIS Review 34/2001  Household sector consumption and expectations for the future are also showing a downturn. The number of newly registered vacancies on the labour market is giving negative indications, although employment is still rising. The inflation figures turned out to be higher than expected, both with regard to the consumer price index and underlying inflation.

If the substantial optimism regarding the future that is reflected, for instance, in the development in savings proves partially unwarranted, the problems may become even more difficult to handle at a later stage. Although the focus is on the USA at the moment, concern over developments in Japan has increased recently. Here there appear to be both severe problems in the real economy and in the finance sector, as well as political difficulties in dealing with these problems. In the insurance sector there are a number of major life insurance companies that are insolvent in the technical sense, as they have promised pensioners a return that they are unable to deliver. A large part of the insurance companies' assets are of course traditionally invested in low-yield treasury bonds. The Japanese 10-year bond rate is currently around one and one-third per cent. The Bank of Japan has declared that it intends to continue with its zero interest rate policy for the foreseeable future and the market expects to see prices falling rather than otherwise during the coming year. If interest rates and inflation were to gradually rise, which at the moment does not appear likely, this would of course further erode the value of Japanese pension money, as the bonds stock in the insurance companies would fall in value.
10  6  One quarter of the total debts are in the County of Stockholm, one sixth in the County of Västra Götaland, one seventh in the County of Skåne and one third in the rest of the country. BIS central bankers’ speeches  Chart 4. Debt ratios for households with mortgages in different municipalities Per cent 500 450 400 350 300 250 200 150 100 50 0 Stockholm  Gothenburg  Malmö  Others  Source: The Riksbank  Young people are most highly indebted, but older people also have high debt ratios I would also like to take this opportunity to say something about how the debts are distributed per age group. It is sometimes claimed that it is mostly younger people that are highly indebted. This is also confirmed by the Riksbank’s credit data. However, we also note that indebtedness is actually rather high in the older age groups (see Chart 5). In other words it is not only “young yuppies in central Stockholm” that have large debts but also their grandparents living in small towns and villages in other parts of the country. Chart 5.

Aligning the operational framework of monetary policy to European standards is another challenging objective the central bank faces. Obviously, I am talking about the still high reserve requirement ratios (given the need to contain credit expansion, foreign currency lending in particular, during the economic boom) and the relatively large width of the interest rate corridor (initially warranted by the imperative of cooling off speculative capital inflows and domestic currency appreciation). The NBR has capitalised, in the past two years, on the window of opportunity provided by the favourable macroeconomic and financial background to rectify the situation to a large extent, yet the process needs to be continued until reaching the prevailing levels across the EU. Looking ahead, it is essential that the NBR identify, as it has until now, the right timing for the upcoming stages of the alignment process to unfold  2  BIS central bankers’ speeches  without impairing the smooth functioning of the markets and without deteriorating key indicators for investor sentiment or, more generally, public perception. I will end my brief overview on the economic state of play in Romania by expressing my hope that this event will turn out to be the beginning of a lucrative and mutually beneficial partnership. BIS central bankers’ speeches  3
However, this provision does not prohibit Norges Bank from purchasing government bonds in the secondary market. Nevertheless, there is much to suggest that the purchase of government bonds is not an option as a policy instrument for Norges Bank. There a number of reasons for this. As I mentioned previously, floating-rate loans dominate the Norwegian credit market. Unlike other countries, the level of long-term interest rates in itself has little effect on credit demand in Norway. If government bond purchases do not affect future short-term interest rate expectations either, the effect on Norway’s wider economy will be limited. Studies in other countries do not provide an unequivocal answer as to whether the bond purchases have had the strongest impact through a fall in the expected policy rate or through lower term premiums on long-term 4/9  BIS central bankers' speeches  government bonds. We have seen in earlier periods that fluctuations in Norwegian government bond yields do not necessarily influence other interest rates. There were signs of strong demand for Norwegian government bonds during the euro crisis between 2011 and 2012. Government bond yields fell fairly sharply in this period, primarily as a result of lower term premiums, but did not feed through to any great extent to the interest rates that are important for banks’ funding costs. Chart: Yields on government bonds, swaps and covered bonds Other countries’ government bond yields play an important role as a reference for other interest rates, which is not the case for Norway.

12  9 8 7 6 5 4 3 2 1 0  EES December 2009 December 2009 Report March 2010 Report (*)  (*) Estimated using average financial asset prices over the last 2 weeks up to 29 March 2010. Source: Central Bank of Chile. BIS Review 61/2010  13
As a result, an attempt to prick a bubble may lead to an intervention that puts a halt to “a good boom” which would have pushed the economy towards a higher level of development. The cost of such unwarranted interventions in the form of foregone growth could be substantial.5 How to deal with the cyclical dimension of systemic risk – a macroprudential approach The immense cost of the global crisis has led to a thorough rethinking of this traditional view on financial regulation and macroeconomic policy. For instance, estimates have been provided suggesting that the cumulated output loss incurred by the recent crisis could amount to 90% of 2009 world GDP.6 Naturally enough, the afore-mentioned approach of “benign neglect” is no longer seen as an acceptable way to deal with potential excesses building up through the financial cycle. Given that the cost of inaction when imbalances develop in the credit market can be huge, a more precautionary approach is indispensable (slide 3). In general, its goal should be, first, to enhance the resilience of the financial system to adverse shocks, and second – to the extent possible – to try and preventively contain the build-up of systemic risk. This is the thrust of the macroprudential approach. For instance, in order to address the root cause of cyclical systemic risk directly, the goal of this approach should be to reduce the procyclicality of financial agents’ behaviour. Can we hope to achieve this with monetary policy instruments, or do we need new specifically designed instruments?

In addition, the effect on credit momentum of the other measures announced by the Federal Council in June 2012, namely the revision of the risk-weighting and the self-regulation rules, remains to be seen.16 Taking these issues into consideration, the SNB decided in August 2012 not to issue an immediate proposal to the Federal Council for activation of the CCB. It will reassess the situation regularly. The second key question pertaining to the functioning of the CCB is whether it is an effective instrument to strengthen the resilience of the financial system and thus help to limit negative spillovers (slide 7). The impact of higher capital ratios and more provisions on the resilience of banks is self-evident. This is also the case from a system-wide perspective. To assess the effectiveness of the CCB in strengthening resilience, we can draw some lessons from historical experience, namely the Swiss real estate crisis in the early 1990s. Internal calculations suggest that, had the proposed CCB regime been in place in the run-up to that crisis, the resilience of the system as a whole would have increased significantly. From an aggregate perspective, this additional capital would have absorbed a large portion of the losses that were reported as a result of the crisis. The third key question is: To what extent the CCB is able to contain the build-up of excesses? 13  IMF (2011), Drehmann et al (2011). 14  Namely, domestic mortgage volume indicators and domestic residential real estate price indicators.
Asian Institute of International Financial Law, 2009, "Assessing Asian Financial Cooperation and Integration", Working Paper No. 5, March. Aziz, Zeti A., 2007, "Asia is Moving Forward: Ten Years after the Crisis", Prepared for the ADB International Symposium in Manila. Aziz, Zeti A., 2009, "Lessons Learned from the Asian Crisis and the Resilience of Asia's Financial System during Current Crisis", Speech delivered at the Wrap-up Conference of the BIS Asian Research Programme on the "International Financial Crisis and Policy Challenges in Asia and the Pacific" in Shanghai, China. Baele, L, A Ferrando, P Hordahl, E Krylova and C Monnet, 2004, "Measuring Financial Integration in the Euro Area", ECB Occasional Papers, No. 14, April. Centre for Economic Policy Research (CEPR), 1999, "Financial Integration and Asset Returns", Discussion Paper No. 2282, November. CLSA, 2002, "The Real Pacific Century - Asia's Billion Boomers", September. Downer, Alexander, 2003, "Population Change in Asia and the Pacific: Implications for Development Policy", Speech delivered at International Monetary Fund (IMF), 2002, "Chapter 3: Trade and Financial Integration", World Economic Outlook: Trade and Finance, September. Kwan, C. H., 2002, "The Rise of China and Asia's Flying-Geese Pattern of Economic Development: An Empirical Analysis Based on US Import Statistics", REITI Discussion Series 02-E-009. BIS Review 130/2009  13  Maddison, Angus, 2001, "The World Economy: A Millennial Perspective", Organisation for Economic Co-operation and Development (OECD) Ohno, Kenichi, 2002, "The East Asian Experience of Economic Development and Cooperation", Prepared for the World Bank Summit on Sustainable Development.

For example: •  their financial markets are typically more volatile than those in advanced economies, and so is their GDP growth, which at the same time is higher on average than in advanced economies;  •  these countries are also typically experiencing stronger credit growth, as their financial sectors are in the process of catch-up;  •  they usually have lower credit ratings and shallower government bond markets, which in some cases implies a lack of high quality liquid assets, a lack of adequate collateral etc. Saying that, I must stress that this difference does not apply to some; my country is a testimony to this;  •  the countries face a whole range of home-host issues, as many globally significant financial institutions operate branches or subsidiaries in those countries. These are just examples of features which could possibly interact with the Basel III framework in emerging economies in a way that was not originally intended. As I see from the topics covered by your workstream, you touch on all these aspects, so there is a chance  2  BIS central bankers’ speeches  that the paper that will emerge out of your contributions and out of the discussions you will have today will be useful for regulators in EMSEs and for the Basel Committee on Banking Supervision as well. Hopefully, today’s workshop will help you with this.