samchain/econo-pairs-v1 huggingface dataset:
There is little risk that its owners will make substantial withdrawals from the Fund over short periods. Other funds or individual investors may for various reasons have to reduce their holdings or pull out of capital markets at an unfavourable time. This may be because the investments are leveraged or that a fund is subject to regulatory constraints or simply that a long-term strategy is influenced by short-term assessments. In addition to its large size and long future life, the Fund is not earmarked for particular obligations unlike traditional pension funds. As a result, the Fund has a higher risk-bearing  4  BIS Review 45/2008  capacity than other comparable funds. The Pension Fund can thus a larger extent invest in financial instruments that may vary more in value, but provide a higher expected return, which in practice means investing in equities. The allocation to equities will now increase from 40 to 60 per cent. If returns vary across different markets and market segments, spreading investments can improve the trade-off between risk and return. This is why the Fund is expanding its portfolio, not only in terms of its geographic exposure, but also the depth of its investments in individual markets. The Fund’s strategy results in a very broad market exposure. This limits the Fund’s exposure to large losses on individual investments or group of investments that are influenced by the same or closely related risk factors. Losses on individual investments or main groups of investments will offset each other in a well diversified portfolio.

Household saving is negative and over time households must be expected to seek to redress their financial imbalances. Interest rate developments and a weaker housing market will probably have a dampening impact on demand for goods and services and push up saving. On the upside, we expect sharp growth in government spending, with a marked increase in government purchases of goods and services. Petroleum investment is projected to remain high. Current information nonetheless points towards somewhat slower growth further into 2008. In the monetary policy reports, the results of this assessment are presented in the form of this chart, which shows the baseline scenarios for the interest rate, inflation and capacity utilisation in the economy. Monetary Policy Report 1/08 noted that the outlook and the balance of risks suggest that in the near term the interest rate should be set somewhat higher than projected in Monetary Policy Report 3/07. The prospect of higher price and cost inflation will in the short term more than outweigh the effects of weaker growth in the world economy. There is considerable uncertainty surrounding the projections. The projections for inflation, output, the interest rate and other variables are based on our assessment of the current economic situation and our perception of the functioning of the economy. The uncertainty surrounding the projections for the interest rate, inflation and capacity utilisation is illustrated by fan charts. The wider the fan charts are, the more uncertain the projections are.
The exercise only considers the direct effects of tightening, and abstracts from any indirect effects via, for example, the exchange rate or incomplete pass-through. Source: Bank of England, ONS, Bloomberg Finance L.P. and Bank calculations. Summary and conclusion One often hears that real incomes are lower “because of” inflation. In some ways the opposite is closer to the truth: (domestic) inflation is higher because of (external) hits to real incomes. The economy has been hit by severe real shocks. The pandemic raised the global demand for goods and reduced their supply; Russia has cut back severely its supply of gas to Europe. These have had dramatic effects on relative prices (Chart 12 shows the dispersion of inflation rates across the components of the CPI). In particular, import prices have risen significantly compared with the price of UK output. This has unavoidably depressed real incomes: the volume of output may have just about recovered to pre-Covid levels but its consumption value has not. Bank of England  Page 20  Chart 12: There have been big shifts in relative prices within the CPI Standard deviation of annual inflation rates across the 85 CPI items 20 18 16 14 12 10 8 6 4 2 0  20 18 16 14 12 10 8 6 4 2 0  96  98  00  02  04  06  08  10  12  14  16  18  20  22  Source: ONS and Bank calculations.

Because of the infamous “long and variable” lags between changes in interest rates and their impact on inflation, the MPC does not yet have much of a track record in terms of inflation outturns. But since the target given to the MPC is for inflation, let me start there. Between June 1997 and March 1999 (the latest month for which inflation has been published) RPIX inflation averaged 2.7%. During that period, inflation ranged from a low of 2.4% to a high of 3.2%. Over the past nine months it has remained within 0.2 percentage points of the target, a remarkable degree of stability. It is most unlikely that inflation can remain, month-by-month, as close to the target as that. Unexpected movements in the exchange rate, oil or other commodity prices, indirect tax rates or a multitude of other influences could all lead to divergences of inflation from target. Because of the lags I mentioned earlier, it would take the MPC some time to bring inflation back to the target level. What matters, however, is not relatively small month-to-month movements in the inflation rate, but the expectation that inflation will average 22% over a number of years. As part of the arrangements for accountability, the Governor, on behalf of the MPC, is required to write an open letter to the Chancellor whenever inflation deviates by more than a percentage point from the target.
As with a number of regulatory requirements, the resolution strategy for a firm can change as a bank grows and matures, from the use of the Bank Insolvency Procedure for small firms, up to Bail-in for the largest banks. For the latter, there are Operational Continuity requirements and the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) that must be met, and for which firms must plan well in advance. 9  Technically this is cancelling the permission to carry out regulated activities granted by the PRA under Part 4A of the Financial Services and Markets Act 2000 (as amended). 8  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  8  This year the Bank will review the calibration of MREL, and the compliance date, prior to setting end-state MREL. I mention this because the Bank will take account of changes in the UK regulatory framework over the past few years as well as firms’ experience in issuing liabilities to meet their interim MREL requirements. So watch this space. I can also confirm that the Bank’s Financial Policy Committee and Prudential Regulation Committee intend to conduct a review of the UK leverage ratio framework in light of revised international standards and the nature of the relationship with the EU going forward. And let me add that I am very much aware of how these two policies interact. Moving mountains? Today’s draft Supervisory Statement is designed to deliver a clear map from the bottom of the regulatory mountain to the top.

These products were viewed as “safe” since, after all, the funds were only exposed for a short period of time, and in the case of repo, they were secured by collateral. On the demand side, setting aside any possible instabilities in this funding source, it was more profitable to use shorter-term funds to finance longer-term assets. In fact, the growing reliance on short-term wholesale funding to finance longer-term assets increased liquidity and maturity mismatch risk in the financial system. This was particularly dangerous because many of the assets being financed were structured-credit products, some of which were opaque, difficult to value and illiquid. In periods of market stress, these features increase the run risk by funding providers. BIS central bankers’ speeches  1  Short-term funding of longer-term assets is inherently unstable, especially in the presence of information and coordination problems. It can be rational for a funding provider to supply funds on a short-term basis, reasoning that it can exit if there is any uncertainty over the firm’s continued ability to roll over its funding from other sources. But, if the use of short-term funding becomes sufficiently widespread, the firm’s roll-over risk increases. In this situation, there is a strong incentive for each lender to “run” early if there is any uncertainty that could undermine the borrower’s ability to continue to roll over its funding from other sources.
Zeti Akhtar Aziz: Emerging trends in Asia and their implications for Malaysia Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the The Asian Banker Summit 2003, “Post-Asian Financial Crisis: Securing Financial Stability”, Kuala Lumpur, 16 September 2003. *  *  *  Ladies and gentlemen As we advance into the 21st Century, sustainable performance demands resilience to the economic cycle, resilience to unstable market conditions and overall resilience in an environment of rapid change. To prosper in this new environment, we need to have the capacity to withstand the entire business cycle, to survive the increased volatility in the financial markets and to have the capacity and agility to adjust to the changes taking place. Sustainable performance is key in achieving long-term relevance and success. To achieve this, it is important to look beyond the short-term perspective and build the capacity and the resilience to meet the new challenges that are emerging in this new environment. It is my honour and pleasure to be invited to this Asian Banker’s Summit 2003. Let me join the organisers in welcoming you to Kuala Lumpur. It was exactly five years since the countries in East Asia have emerged from the financial crisis, when stability in the financial markets was restored and the economic recovery resumed. Asia has now emerged as the fastest growing region. Despite a more difficult external environment, the Asian region has demonstrated resilience.

I am doubtful whether a further easing of monetary policy in this group of countries would be able to help move the yield curve in the desired direction. It could actually have the opposite effect - if investors perceived it as heralding a weak euro. In any event, given the current level of short-term interest rates, monetary policy’s margin for manoeuvre is extremely limited. It is possible that the level of real long-term interest rates in Europe reflects, partially at least, that of real interest rates worldwide. Europe has no influence over that effect. BIS Review 67/1997  -3-  Europe can, however, have an influence on the effect which comes from the constant increase in public sector indebtedness in our countries. As a reminder, between the end of 1991 and the end of 1996 the general government debt rose from around 56 to above 73% of GDP for the European Union as a whole. This development, together with the worry that it might not yet have run its course, are not likely - to say the least - to lead to a fall in real interest rates. Nor do they create the climate of confidence necessary for consumers and investors to modify their current prudent behaviour. On the other hand, the certainty that governments are tackling the underlying causes of the public deficits which are responsible for the constant increase in the debt burden could well bring about such a change in behaviour.
To understand the handling of a crisis, it is useful to know which factors generated the problems. Hence, my narrative will include the events that led up to the crisis in Sweden. I will also comment on the developments in Asia, with some emphasis on Korea. Having sketched this background, I will turn to the actual handling of crises, explaining why we found certain types of solutions useful in Sweden - leaving it to you to consider whether the same might apply to some extent to your country. 2. Background The macroeconomy First, let me say a few words about the macroeconomic background to the crisis in Sweden. There are both similarities and differences between Sweden and Asia. In the following I will touch on some of them. It should also be remembered that substantial differences also exist between the Asian countries. One common factor is the fixed exchange rate. In Sweden this led to high levels of foreign borrowing, particularly in the private sector. In addition it made it difficult to counter the gradual overheating of the economy by applying contractive monetary measures - raising interest rates tended to increase capital inflows which, to the extent they were monetised, further contributed to the overheating. Following the deregulation of the domestic financial market, the crisis in Sweden was also preceded by a rapid expansion of credit; in the course of five years, private borrowing grew from 85 to 135 % of GDP.

In our case, some things, such as financial deregulation, were achieved during the 1980s (although obviously not enough) and supported demand when this was already strong. Later on, when the economy was on its way down, tax changes were implemented that encouraged saving. To this should be added the mistake I have already mentioned, of not liberalising outward capital flows at the same time as the domestic credit market is deregulated. BIS Review 65/1998  -4-  The crisis culminated in the fall of 1992, when for a few days repo rates were raised to 500 per cent in the vain hope of stemming currency outflows. Interest rate hikes and other contractive measures for defending the fixed exchange rate in the midst of European currency turmoil further exacerbated the economic downturn and added to the banks’ loan losses. All in all, in the three years from 1991 to 1993, Sweden’s GDP fell by a total of around 6 per cent. Before the financial crisis had even been recognised in the summer of 1992, production had probably already fallen by 2-3 per cent. It is my impression that the process in these respects has been quite different in Asia, perhaps apart from Thailand. Growth did not drop much before the crisis. More important were the direct contagion effects, particularly via financial markets. Other “triggers” were political, such as uncertainty caused by upcoming elections, and perceived balance of payments problems. In many respects the process - once it had started - was also more rapid in Asia.
One thing that makes my job even more interesting is that New York has some roles unique within the Fed. For example, the New York Fed is the Reserve Bank charged with implementing monetary policy. This means that at the direction of the FOMC, we buy and sell Treasury securities. We are also the eyes and ears of the Fed on Wall Street, and we supervise many of the largest financial institutions in the country. We operate Fedwire® – the conduit for large money transfers between banks. And, we provide banking services to the U.S. Treasury, and central banks and governments from around the world. Finally, I must mention that the New York Fed’s district could be the most diverse in the System: ranging from the urban density of New York City to the forested sparseness of the northern Adirondacks, to here in the Caribbean island of Puerto Rico. All in all, there is a lot to keep my colleagues and me quite busy – even in normal times. U.S. economic outlook Now, what is the outlook for economic activity, employment and inflation on the mainland? In particular, what are the areas of vulnerability that we should be most concerned about? I am pleased to say that the economic outlook for the mainland has improved in the past six months. Despite this, we are still very far away from achieving our dual mandate of maximum sustainable employment and price stability. Faster progress toward these objectives would be very welcome.

Meanwhile, the amount of money that households need to service their debt (for mortgages, cars, credit cards) has fallen sharply to levels that prevailed during the mid-1990s. Debt service has been pushed lower by a combination of debt repayment, refinancing at lower interest rates and debt write-offs. Financial institutions have strengthened their balance sheets by retaining earnings and by issuing equity. Bank lending standards, while still tight, have begun to ease somewhat. As a result, some measures of bank credit are beginning to expand again. Second, monetary policy and fiscal policy have provided support to the recovery. On the monetary policy side, we at the Fed have maintained unusually low levels of short-term interest rates and engaged in large-scale asset purchases. These measures have fostered a sharp improvement in financial market conditions. On the fiscal side (that is, government spending and taxation), the economy has been supported by the shift in policy to help support growth. In particular, the temporary reduction in payroll taxes could have a strong impact on growth during the first part of this year. Third – and very much linked to the topic of this meeting – is growth abroad. Much of the rest of the world – especially the emerging market economies – have been growing strongly. This growth has led to an increase in the demand for U.S.-made goods and services. Over the four quarters of 2010, real, or inflation-adjusted, exports rose 9.2 percent. All told, real exports accounted for about 40 percent real GDP growth in 2010.
The Riksbank in a democracy When Sweden became a member of the European Union and the Government signed the so-called Maastricht Treaty, this entailed, among other things, acceptance of the requirement that the Riksbank was to have an independent position in relation to the Government and the Riksdag. However, many regarded it as a controversial demand, not least in the Swedish trade union movement and within social democracy. It is hardly surprising that there were strong reactions in many places as an independent central bank is a quite new and unfamiliar element in Swedish public administration. It meant that the conduct of monetary policy should be delegated to an authority that was only restricted by legislation. This procedure can be most closely compared with the independent interpretation of laws by the courts. 1  BIS Review 44/2000  However, on closer inspection of the content of the new law and the practice established since then, it can probably be said that the reactions and concerns were exaggerated. Mention is often made in general discussion of, for instance, “the independence of the Riksbank”, which may call to mind an organisation that can carry out its policy wholly without control and parliamentary supervision. In fact, in my view, what is involved is rather more a sensible arrangement, where the objective of monetary policy, stable prices, has been established by law.

However, at the global scale, between systems of different areas, it is more complex, in particular when several currencies are involved. Central banks through their operational role could look for ways to contribute to the emergence of a solution to promote faster, more reliable and less costly payment solutions. Conclusion To conclude, let me underline that technological innovations create opportunities and risks, and therefore challenges, not only for financial intermediares but also for public authorities. Central Bankers and Supervisors can and should contribute to meet those challenges. To that end, we  should have an open-minded approach and develop an in-depth understanding of innovations currently spreading through the financial sector. This is critical for our capacity to help delivering a sound, adapted and updated regulatory framework supporting innovation, mitigating adequately their inherent risks. This is also critical for our capacity to adapt the performance of the different roles we play to fulfil our financial stability mandate. This is the reason why we are, at the Banque de France and the ACPR, determined and ready to further engage with innovators, be they financial sector incumbents or new comers, observe the ecosystem, test and learn. Thank you for your attention. 4/4  BIS central bankers' speeches
Mr. Yam looks at Asian banking in a regional and global context Address by the Chief Executive of the Hong Kong Monetary Authority, Mr. Joseph C.K. Yam, at the ADB-IIF Forum on Developing Asian Financial Markets held in Fukuoka, Japan, on 10/5/97. I am pleased to be here this morning to address you on the subject of Asian banking in a regional and global context. I will be speaking particularly about banks in the East Asia region. The importance of banking stability 2. There is increasing international recognition of the importance of a sound banking system in promoting macroeconomic stability, sustainable economic growth and the efficient intermediation between savings and investment. The last few months have seen a series of initiatives by international financial institutions and groupings to devise principles, standards and strategies for the promotion of financial stability. While these initiatives have been directed principally at emerging markets, they also have application to the more developed markets which have been by no means immune from banking problems in recent years. A number of Asian economies, including Hong Kong, have participated in this work. This is a practical recognition that the setting of international regulatory standards must be a broadly-based process, in keeping with the global nature of today’s financial markets. 3. I do not need to belabour the point about the debilitating and disruptive effects which banking problems can have on economic and monetary management. The need to restore the capital of failed banks can impose a heavy fiscal burden.

Banks need therefore to develop a broadly-based lending business where the borrower’s ability to repay is the first consideration and collateral is there as the second line of defence. More generally, it will usually be sensible for banks to try to diversify their business into areas which offer the ability to earn fee income and thus reduce their  BIS Review 55/1997  -6-  dependence on the interest-rate cycle. I hasten to add, however, that this should only be done if the necessary systems and controls are in place. 27. In some cases, the changes required by banks to meet the challenges of a more competitive environment may be too great for them to meet on their own. Mergers may be required to produce fewer and stronger banks, and I am aware that in some countries this process is being given official encouragement. 28. This points to the fact that the regulators also have their part to play in encouraging the process of change in banks. While the prime responsibility for prudent management of banks does rest with the banks themselves, the authorities do have a role to play in ensuring that effective systems of supervision are in place. These should include incentives to discourage the excessive taking of risk by banks, including that owners should be required to have a significant amount of capital at risk and to bear the losses should a bank fail.