samchain/econo-pairs-v1 huggingface dataset:
(h) The Contribution of the Financial System to the Economy and to Society: One of the striking features of the past several decades has been the rising share of financial services in measures of economy-wide value-added and, in tandem, rising financial sector balance sheets as a fraction of GDP in a number of economies. Sometimes this goes by the name “financialisation”. There are good reasons to think increasing financial depth is a natural feature of economies as they grow and develop. Indeed, there is a fairly well-established literature quantifying the boost to growth and productivity which arises from financial depth, especially for developing countries (Levine et al (2000)). Latterly, however, the question has been asked whether it is possible to have too much of a good thing. Some have asked why the cost of financial intermediation continues to rise and what this might signal about the efficiency of financial services as an industry (Friedman (2009), Philippon (2015)). Others have pointed to a possible U-shaped relationship between measures of financial depth and productivity and growth (Cecchetti and Kharroubi (2012), Heil (2017)). These questions have an important bearing on the contribution the financial system makes to the economy and to society. They are also meta-questions for regulatory policy. They warrant further research. (i) Financial Stability Implications of FinTech: Technologically-enabled innovation in financial services, or FinTech, has grown rapidly in recent years. The FSB’s recent report contains a useful taxonomy of such innovations (FSB (2017f)).

This highlights the importance of funding metrics which consider the overall extent to which illiquid assets are supported by unstable sources of funding. If banks are running a high degree of structural maturity transformation, this increases the risk of failure. While one could envisage a range of possible structural funding metrics, including a loan-to-deposit ratio, the Basel III NSFR is designed with these risks in mind. The NSFR speaks directly to a market failure that arises from a market-wide loss of wholesale funding, the like of which was exhibited during the crisis. In this way, it may potentially reduce the probability of damaging asset fire-sales, liquidity hoarding and contractions in lending which may otherwise result. The NSFR is also likely to complement the leverage ratio in acting as a brake on too-rapid balance sheet expansion. The leverage ratio ensures that any such expansion is supported by higher capital. The NSFR ensures any such expansion is supported by more stable funding sources. None of this is to suggest that these risks could not be met with a different, and perhaps smaller, set of regulatory constraints. Cecchetti and Kashyap (2016) have recently argued that the LCR or NSFR may be redundant as one of the constraints is always slack in their simplified bank balance sheet model. Put differently, the existing system of financial regulation may be over-identified. On the other hand, the horizon for assessing banks’ liquidity risk may matter.
In particular, there has been a shift from bank to bond funding in the last decade, with bond debt increasing from 16% to 24% of non-financial corporations’ total debt. The faster policy pass-through to bond rates than to bank rates implies faster transmission. Moreover, loan origination is contracting rapidly judging by the short lag from the first rate hike. The evidence available shows a strong econometric relationship between Bank Lending Survey (BLS) credit standards and a so-called credit impulse a couple of quarters later, and likewise between the credit impulse and GDP growth. 15 The first link in the chain – between the BLS and the credit impulse – is already evident. We should expect to see the latter link to real activity assert itself soon. Third, as regards the cash flow channel of monetary policy, we have seen a significant shift of funds between overnight deposits (with very low remuneration) and time deposits (whose remuneration is more sensitive to market interest rates). Furthermore, in net terms, money supply is decelerating rapidly, with M3 growth slowing from around 9% in September to 4% in January. Fourth, the housing sector is a key area to watch given the turnaround in financial conditions, as well as the sharp increase in house prices in some economies over the last decade. There was significant evidence of exuberance in this market in some countries before the pandemic, as has been repeatedly emphasised by the European Systemic Risk Board.

6 In this regard, the symmetry of the downward response is also an open question. Some support for this hypothesis can be found in recent developments in upstream stages of the price formation process. In particular, non-energy industrial consumer prices are still accelerating (as the flash estimate for January shows). However, industrial prod ucer prices (excluding energy) have decelerated significantly since last spring and this deceleration is rather widespread among components. In any case, the transmission and broadening of inflationary pressures is occurring at different speeds and intensities across expenditure components. Pressures on underlying inflation have so far been highly concentrated in particular expenditure items like household equipment and maintenance, transport, and activities involving more social contact. Some of their prices are more cyclically sensitive, others are more directly affected by the increase in the cost of energy, food prices or bottlenecks, while, in general, a fast pass -through has been facilitated by particularly strong demand during the pandemic (especially in the case of durable goods) and the reopening phase (notably in the case of services). These items’ prices continued increasing very strongly in December, in both year-on-year and month-onmonth terms, pointing to strong underlying inflationary pressures. 7 Excluding these items from the basket, core inflation stood at 2.8% in December, 8 with a slight upward trend that also points to an incomplete and slow pass-through.
The MA and the risk margin between them are key determinants of the balance sheet valuation of most life insurance liabilities. Both play an important role, and there are independent cases for the reform of both. We have set out our main concerns with the existing MA framework, including in the recent discussion paper (DP) we published alongside HM Treasury’s Consultation Document [7]. These can be broadly summarised as  Page 5  1. the fundamental spread (FS) does not capture all retained risks and is generally low, 2. the FS is not sensitive to differences in risks between assets and 3. the FS does not adjust to shifts in the credit environment unless a default or downgrade has occurred. We have also expressed concern regarding the size of the risk margin, and its sensitivity to low interest rates. However, given the interaction between the MA and the risk margin on balance sheets, we cannot look at potential reforms in isolation. In order to maintain transfer values in line with observed prices, the calibration of changes have to be considered as a package. Undertaken in isolation, a large cut to the risk margin would fail this simple test, and would increase the risk that an insurer’s liabilities could not be transferred to a third party if it were to fail. This would expose policyholders to an unacceptable risk and would be incompatible with the fundamental principles behind the Solvency II regime.

BIS central bankers’ speeches  1  We all agree that the Black Sea Region is increasingly becoming a priority on the international agenda. In fact, a regional approach is emerging as actors completely understand that common problems need to be addressed jointly. Over the past five years the region and the world have faced many troubled moments; fast changes have influenced the way peoples choose to look to the future. The idea of strengthening cooperation in the Black Sea Region is not new. It sprang from a paradox: although the countries in the area shared geographical proximity, they came from different historical and political backgrounds and, as a consequence, had poor or quasiinexistent economic relations. As a veteran in this field, I can give you a simple example: in the ‘90s, to reach either Baku or Tbilisi one had to fly through Vienna. In effect, in the autumn of 1997, the Governor of the Central Bank of Turkey contacted me and suggested the founding of a Governors' Club of Central Asia and Black Sea Region, with the Bank for International Settlements serving as a model. It was officially instituted on May 1st, 1998, in Istanbul, when nine countries signed the founding protocol. During the following years, thirteen more countries gradually joined our Club, now spreading from the Baltic Sea to the Pacific Ocean, from Central Asia to the centre of Europe.
Based on the Icelandic experience, a banking union makes perfect sense, but only fully for the eurozone, and even then it has to include all three elements in order to break the deadly embrace of banks and sovereigns. In the interim, I think small countries will have to impose their own prudential measures in order to defend themselves against the risks they face. Let me conclude here and give the floor to Patrick Honohan. BIS central bankers’ speeches  5

Then the energy of its single market, which we now have to push to its full potential:  Page 11 sur 14  Enabling our human capital  As you all know, there is a very strong correlation vii between growth and education. In Europe, we have some of the best education and vocational training systems – and you are the best proof of them! But there is a large human capital divide in the EU with regard to the distribution of skills. Southern EU countries, including mine, have a distribution of skills with more low-skilled people – Spain and Italy have twice as many as Sweden, as of share of the adult population – and fewer high-skilled individualsviii – France has half as many as the Netherlands or Finlandix. As education inequalities have been dramatically exacerbated during the Covid crisis, investment in education should be targeted as a priority in order both to raise human capital and reduce inequalities. On-the-job training is another factor of growth as tomorrow’s jobs will be even more changeable than today. Take the example of digital experts: “as of 2019, there were 7.8 million ICT specialists in Europe, which is far below” the requirement of 20 million experts, including “for key areas such as cybersecurity  Page 12 sur 14 or data analysis”x. Europe’s competitive advantage depends on its ability to ensure mobility through vocational education – what economists call “mobicationxi”. One word on the importance of “managerial quality” which can affect the implementation of innovative reforms inside firms.
Thus, we cannot work a monetary miracle, either legally or, above all, from a “fiduciary” perspective: any suspicion of fiscal dominance would lead to monetary mistrust, to a loss of confidence in the value of money, as observed in the past and, more recently, in certain emerging market economies. Let us be clear on this: the sharp rise in public debt is clearly the buffer mechanism that the 2/5  BIS central bankers' speeches  economy needs in the current circumstances. But it will have to be paid back in the long term and this will mean adopting a more effective management of public spending in the medium term. The central bank’s actions are conditioned by its price stability target and not by the fiscal needs of its individual member countries. To call this into question would be to jeopardise public confidence in the currency, which is one of the essential assets for guaranteeing economic prosperity. Likewise, undermining the independence of the central bank would be to diminish its power and its agility, which are precisely the strengths that protect our economy during a crisis. This is why I am placing so much emphasis on these two anchors. It is not through a somewhat rigid sense of conservatism, as suggested by a slightly lazy cliché. In the current low-inflation environment, our mandate in no way prevents us from innovating, acting, supporting the economy rapidly and powerfully. Indeed, it even creates the conditions for legitimate and efficient action.

A few years later, a group of researchers: Rafael Anes, Carlos Fernández Pulgar, Diego Mateo del Peral, Pedro Tedde and Gabriel Tortella, undertook a far-reaching project on the history of the Spanish banking system. The result was La banca española en la Restauración, published in 1974. Since then, a number of books have been published by the Bank of Spain, sometimes in collaboration with commercial editors. To mention just two of these books: El Servicio de Estudios del Banco de España, 1930-2000; and Un siglo de historia del sistema financiero español (in Spanish and English). Moreover, the early history of the Bank has been covered by three volumes written by Tedde de Lorca: El Banco de San Carlos (1782-1829); El Banco Español de San Fernando, 1829-1856; and El Banco de España y el Estado liberal, 1847-1874. The Banco de España has also shown its interest in Spanish economic history through its annual research grants programme, financing the collection of Estudios de Historia Económica (or, in Banco de España parlance, “the red books”). There are now 72 of these studies, the first ones dating back to 1980. The aim of the Banco de España with this collection is to disseminate economic history papers written by its own staff or by researchers to whom it has awarded grants, in order “to enhance knowledge of Spanish economic history, paying particular attention to quantitative aspects”.
And it has also enabled the growing incorporation of the population (particularly the female population) into the labour market to be compatible with further cuts in the unemployment rate, which stood at 8.5% on average in 2006, the lowest level since the late 1970s and practically on a par with the euro area average rate. The behaviour of employment denotes changes of some depth in the Spanish labour market, such as the marked fall in the structural unemployment rate, which may be interpreted as an increase in the scope available for generating employment without wage pressures arising. The counterpart to an employment-intensive growth pattern has been modest increases in actual productivity. It is difficult to offer an accurate diagnosis of the reasons for this, given the difficulties of measuring and estimating productivity in the presence of significant structural changes, such as the composition effects arising from the concentration of growth in sectors that are relatively less dynamic productivity-wise. But what are possibly being reflected here are shortcomings in the quality of factors of production and in the characteristics of the business sector. BIS Review 67/2007  3  That said, the responsiveness of supply is not proving sufficient to counter the pressure of expenditure on price formation. On one hand, compensation per employee quickened somewhat in 2006, but to a lesser extent than did wage settlements, as a result of the changes in composition and the factors boosting labour market flexibility that I referred to earlier.

It should also be acknowledged that the build-up over time of new European financial regulations, even though they have been beneficial to European financial intermediaries and institutions, has posed an organisational challenge to institutions. It is thus not surprising that they have called on Brussels to contain the rate at which new regulations are promulgated. All European regulators and supervisors, including the European Commission, agree on the need for the thoroughgoing implementation of approved regulations. But we also agree on the advisability of avoiding new regulations in the coming years. The Banco de España has sought, as far as possible, to limit the attendant costs, whether through unifying accounting criteria for reporting to the market, for prudential purposes and for calculating tax bases, through the convergence of our criteria with those demanded by other supervisors, such as the so-called national discretion clauses in Basel II, or through our circulars, i.e. specific regulations that provide institutions with the necessary legal certainty. But new financial regulations cannot be dispensed with indefinitely, since it is quite possible that the very dynamics of European market integration will entail the need for new regulations in specific fields. Indeed, new reforms may even prove appropriate for Spanish institutions. For example, the fragmentation of deposit guarantee arrangements in Europe, in terms of financing, structure and organisation, might warrant a new Directive, which in turn would level the playing field, given the greater rigour of the Spanish system.
Given this, it does not appear entirely unnatural for fiscal policy to support monetary policy in exceptional circumstances with regard to maintaining confidence in the inflation target – and thereby ensuring that the central bank's policy rate can continue to be an effective tool in the future. Conditioning of monetary policy a possible route? An area that we as central bank have control over, and where we could possibly become more effective, is our communication of future monetary policy. Although we have been publishing a forecast for the repo rate for many years now,  10 For a more detailed discussion of the Riksbank’s monetary policy toolbox, see Ingves (2020). 11 Moreover, ideas have recently been put forward with regard to fiscal policy being a more effective stabilisation  policy tool than monetary policy in some situations, in that fiscal policy measures can more directly target individual sectors of the economy where the problems are greatest, see Woodford (2020). 12 See, for example, Sims (2016). This idea has also been put forward earlier in the Swedish debate, see Borg (2003). 7 [15]  we have to acknowledge that our forecasts during the past decade have systematically overestimated how quickly the interest rate can be raised. We have not been alone in this overestimation – the market forecasts have looked fairly similar (Figure 6). They were better than the Riksbank's during the period 2011-2013, but the pattern is essentially the same – substantial overestimates and inaccurate forecasts.

The problem that loomed around this time a year ago is a thing of the past and terms in the secondary market are more favourable again. The Central Bank underlines that global market conditions can take a sudden turn for the worse and it is important to be on the alert and prepared for such a contingency. The current episode of ample liquidity and lower interest rates which has been ideal for risk-seeking investors may change unexpectedly. Short-term interest rates have been rising in most markets recently and capital costs are no longer so favourable. The Icelandic banks are better equipped for such a reversal than a year ago, because experience has taught them to extend and disperse their borrowing, and build up substantial liquid reserves in foreign currency. In 2006 the spotlight was on the banks’ liquidity risk. Now that this risk has ebbed, the focus has shifted to credit risk and the potential impact of higher interest rates and a depreciation of the króna. Amidst the turbulence of 2006, the banks slowed down their credit growth and expansion of their balance sheets. No major foreign financial companies were acquired and equity exposures were reduced. Nonetheless, it is natural to consider their credit risk and vulnerability towards a fall in asset prices. Icelandic households’ debts with credit institutions have soared in recent years, especially averageincome and young households.
This is, in my view, the best way to allow banks to play their full role in the economy and ensure a fair deal for businesses and consumers. Recently, we have signed an MOU with the Competition and Consumer Protection Commission aimed at enhancing the competition arrangements in the banking sector. We hope to strengthen capacity to tackle anti-competitive behaviour in the sector. I would therefore, like to encourage you to start viewing these areas as an intricate part of your overall business strategies in order to enable us as an industry to consolidate the gains so far achieved. Ladies and gentlemen, let me acknowledge the commitments that the Bankers Association has made in the revised Code of Banking Practice relating to the provision of “No Frills Account” to certain segments of our population. As the central bank we will be interested to receive information on how you are performing in this important area for financial inclusion. On our part, we have issued a “Practice Note” to assist commercial banks overcome some of the Know Your Customer challenges faced with when dealing with some segments of our society. Chairperson, let me conclude by reiterating the important role that a healthy and stable financial system plays in an economy. This objective cannot be achieved by the Bank of Zambia alone but through collective efforts including the Government and yourselves. My expectations are that although the role of Chairperson has changed, the Association will remain true and steadfast to its values and objectives.

On top of this, the agency that would be operating the fund – presumably the European supervisory agency – would also have the power to reconstruct banks. Efficient supervision and crisis management may also warrant arrangements for prompt corrective action and structured early interventions. As far as I know, most EU countries lack the rules on how to handle large bank failures, which means it would also be very positive from a point of view of contingency planning and reducing moral hazard. With a strong legal framework, the EU would be able to let investors in even the largest banks take full financial responsibility. When it comes to crisis management, coordination of emergency liquidity assistance is also imperative. Today, there are some legal uncertainties remaining for national central banks considering providing cross-border liquidity support. One example of the effects of this is that differences in national lists of eligible collateral will probably lead to gaming situations. A more centralised lender-oflast-resort function is probably necessary. Here it can be noted that the Treaty does allow for a more prominent role for the ECB in this respect than it presently has. However, a number of problems remain to be solved first. Even in the presence of burden sharing arrangements for crisis resolution, one would have to come up with ways to avoid gaming of collateral. Merely extending the list of eligible collateral for emergency liquidity assistance will not do the trick.