samchain/econo-pairs-v1 huggingface dataset:
Bluntly I think we wouldn’t be doing our job if we didn’t do this – but at the same time the competition objective requires us to ride both horses at once. This is doable but it is tricky. It also raises an interesting question about the relative costs of supervising smaller firms versus higher FSCS levies to cover failures, which would merit further study. Fourth, how is technology going to affect all this? This is obviously a huge topic in its own right, and others here will touch on it so I will make only two brief comments. One, in my view the jury is still out on whether Open Banking and/or PSD2 are the gateway to a bigger change. Two, it is notable that some digital banks are making material inroads into the current account market – is this the leading edge of a bigger change, or not? Fifth, might Brexit create opportunities to move further on proportionality for smaller firms? I’ve already talked about the way in which we make the regime tougher for larger firms. This is entirely appropriate, but is not the same as saying we should have a weak prudential regime for smaller firms – indeed, I think that is the last thing we need both from a safety and soundness and a competition perspective. However, there may be a reasonable case that a simpler (simpler, not weaker) regime for small firms would advance both our safety and soundness and competition objectives.

Our new approach is designed to counter the risk that policy is too accommodating in upswings and too harsh in downturns. Two important principles stand out for me: first, that we must carry out financial regulation with an eye on conditions in the real economy, which means promoting stable and sustainable credit creation and growth; and second, we should always be prepared to look to the risks ahead, and exercise sensible judgment. The financial crisis has taught us in the most painful way of the dangers of waiting too long to take action and then being unable to prevent the worst consequences of delay. The FPC has recommended that British banks make sure their capital level is high enough to withstand future threats. Some banks will need to increase their equity capital for a given level of risk in their balance sheets. Concerns have been expressed that this change will harm lending to the UK economy. I do not agree with these concerns. Equity capital is not money that has to be stashed away for a rainy day and thus put to no good use. It is the shareholders’ stake in the company. In nonfinancial companies, shareholder capital or equity is used to finance the acquisition of assets. The same is true for banks. Equity finances the provision of loans to households and companies, and those loans are the banks’ assets. In that sense, capital supports lending by banks and does not substitute for it.
Today, however, the situation in Sweden does not resemble what happened in the second half of the 1980s. Asset prices have certainly risen strongly in recent years but credit has not grown to the same extent. It seems that, at least to date in the present upswing, Swedish banks and their customers have taken a different line on the provision of credit and borrowing. Everyone is hopefully more accustomed to a deregulated credit market than was the case in the late 1980s. Still, it is important to be alert to the future path of asset prices and credit aggregates, as well as to the underlying forces at work in the Swedish economy. Real assets prices and total lending 270  1,6  240 1,4 210 180  1,2  150 1,0 120 0,8  90 1970  1975  1980  1985  1990  1995  Ass et p rice in d ex: 1980= 10 0 (left scale) L en d in g in p e r c en t o f G D P (rig h t s cale) S ource : R iksbanke n  capital in an economy is dependent on the level of output and how this income is shared between labour and the owners of capital.

From this it follows that corporate earnings and consequently share prices should also be more stable. Another factor that may point to less marked cyclical fluctuations in the future is the transition from manufacturing to the production of services, together with the era of information technology. Thus, if the yield from share investment is more stable in the future than it has been in the past, this might warrant some downward adjustment of the expected return and thereby lead to a higher valuation. Another argument is that with more and more people saving in shares for retirement, the investment horizon has been lengthened. This category of share investor is less concerned about short-run fluctuations in share prices and that might justify a somewhat lower expected return. A third argument is that financial market developments have resulted in decreased transaction costs and less liquidity risk. There may be some truth in arguments of this type but it is still difficult to believe that the expected return has fallen as much as would be needed to justify today’s stock market valuations. Or is higher earnings growth foreseen? Let us now look at the importance of earnings growth for share valuations. We noted earlier that to justify a P/E ratio between 30 and 35, given an unchanged expected return, real earnings growth must move up from 2.5% to 4.5%. Is it reasonable to suppose that the future earnings trend will be as high as that?
2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Chart 1: Global Price Phillips Curve? Notes: Average world output gap and global core CPI inflation (PPP-weighted). Sources: CEIC, IMF, ONS, Thomson Reuters Datastream and Bank calculations. Chart 2: Price and Wage Phillips curves have flattened throughout globalisation  Source: BIS 87th Annual Report. With correlations of headline CPI inflation rates as elevated today as during the first oil shock (Chart 3a), some contend that global forces have become dominant – a conviction reinforced by the ‘missing disinflations’ in the wake of the global financial crisis  2,3  and by the current series of wage puzzles in  2  See, for example, Chapter 3 of the IMF’s WEO April 2013, ‘The dog that didn’t bark: has inflation been muzzled or was it just sleeping?’. 3 One explanation put forward for this, unrelated to globalisation, is that companies facing liquidity constraints maintained prices at higher levels than they would otherwise have done in order to preserve cash flows and remain in operation. See Gilchrist, S, Schoenle, R, Sim, J and Zakrajšek, E (2017), ‘Inflation dynamics during the financial crisis’, American Economic Review, Vol. 107, No. 3, pages 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  4  advanced economies. There are even suggestions that monetary policy frameworks should be overhauled – potentially lowering the inflation target – in response globalisation’s growing impact.

47  Chart 13: UK increasingly integrated in onward EU supply chains  Notes: The chart shows how much of the value added by the UK in exports to the EU / other countries that is subsequently re-exported. Sources: Credit Suisse and World Input-Output Database (2016 release). Retaining some of these positions may be challenging as evidence indicates that trade in intermediates appears to be more sensitive to trade costs such as tariffs. Given that proximity also appears to be more important for trade in intermediates than for trade in final goods,  48  international substitutes for European  buyers of UK intermediates, as well as European suppliers of intermediates into UK supply chains, may be more difficult to source. These effects and the experience of the past 30 years prompt the question: if globalisation is disinflationary, won’t Brexit be inflationary? Certainly, this process of de-integration can be expected to steepen the Phillips Curve given disruptions to in-bound value chains from Europe and reduced contestability of UK labour and product markets. In addition, the reallocation of capital to suit new trade arrangements will take time, weighing on growth of the economy’s supply capacity while it proceeds. Moreover, any increase in tariffs on UK imports, or increases in the cost of imports due to broader access restrictions, would cause the Phillips Curve to shift up temporarily as those higher costs are passed through the supply chain. These inflationary effects may be reinforced by developments in the labour market.
5  More recently, we have accelerated monetary policy normalisation At the last Governing Council meeting held in early September, we decided to raise the key ECB interest rates by 75 bp, the sharpest increase in the history of the euro, and announced that we expect to continue to raise interest rates over the next several meetings to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. So why did we opt for a 75 bp increase? To understand the rationale behind this decision, let me first explain the nature of our inflation target and how we assess its attainment in practice. As I have said, our objective is to achieve inflation rates of 2% over the medium term. The medium-term orientation means that rather than basing our decisions on the latest inflation figure, or even on the inflation that we expect for the coming months or quarters, we base them on our projections for the medium term, i.e. over a two or three-year horizon. This is because our actions affect inflation very gradually, reaching their maximum impact after about two years. What’s more, even if our actions passed through to inflation more immediately, for certain kinds of shocks – such as adverse supply-side shocks which push inflation and activity in opposite directions – forcing inflation to converge to 2% too quickly, could be undesirable due to the outsize impact on activity and employment that this would entail.

With this in mind, the European Commission is reviewing the European fiscal rule framework. In my view the framework needs to be simplified, by establishing an expenditure growth rule and a debt-to-GDP ratio anchor, and countries’ capacity to build up fiscal buffers in good times for use in crises needs to be reinforced. In the case of Spain, shoring up the sustainability of public finances calls for a medium-term fiscal policy strategy. This should involve immediately setting out a multi-year fiscal consolidation plan for implementation once the economic impact of the pandemic and of the war in Ukraine has been overcome. The plan should have broad political consensus and be accompanied by an efficiency review of public spending and the tax system, including all tiers of general government. In addition to the medium and long-term benefits of such a strategy, defining the plan early on would generate greater certainty and trust in public policies, which is particularly important against the backdrop of the monetary policy normalisation I have described. In any event, the course of the war in Ukraine and the subsequent sanctions and retaliatory measures have laid bare the EU’s vulnerabilities and dependencies in key sectors, such as energy, as well as the disparities between Member States in their exposure to such tensions. A challenge of this magnitude underlines the importance of a joint response to common risks. The response to the war in Ukraine must, once again, be more Europe.
It is interesting to note that Mark Carney, the Governor of the Bank of Canada, is convinced that Canadian banks, which are also subject to a leverage ratio, are “healthier than their international peers” because “their leverage is markedly lower”. 20 Given these positive effects of a leverage ratio, what are the arguments against it? In my view, there are three potential short-comings. They are the treatment of off-balance-sheet exposures, pro-cyclicality, and banks’ profitability. Let me briefly address these in turn. •  Off-balance-sheet exposures: To obtain the leverage ratio, capital is divided by total assets. Obviously, such a simple calculation fails to take into account off-balancesheet items. The introduction of a leverage ratio could therefore encourage banks to build up large off-balance-sheet exposures. There are two responses to this potential problem. First, this is precisely why it is important that a leverage ratio only  17  G20, “Declaration of the Summit on Financial Markets and the World Economy”, 15 November 2008. 18  See “Observations on Risk Management Practices During the Recent Market Turbulence”, Senior Supervisors Group, March 2008. 19  See, e.g., Arturo Estrella, Sangkyun Park, and Stavros Peristiani (2000): “Capital Ratios as Predictors of Bank Failure”, Federal Reserve Bank of New York Economic Policy Review. 20  Mark Carney, “Building Continuous Markets”, Remarks to the Canada – United Kingdom Chamber of Commerce, London, 19 November 2008. BIS Review 158/2008  5  be used as a supplement to Basel II.

Preparatory work in the EU The preparatory work is in full swing in all the EU institutions as well as in the member states. The EMU project will not founder on technical aspects. In May 1995 the Commission presented a green paper on the practical arrangements for a changeover to the single currency. At the Madrid meeting that year the European Council adopted the scenario for the changeover, specifying dates for the central decisions. The Council confirmed that Stage Three of EMU is to start on 1st January 1999. The decision on which countries will participate in the euro area is to be made as early as possible in 1998 (probably February--April) on the basis of which countries fulfil the convergence criteria in respect of statistics for 1997. Euro banknotes and coins are to be in circulation by January 2002 at the latest. BIS Review 14/1997  -3-  The preparatory work last year was dominated by two issues: one was what is now called the growth and stability pact and the other was the nature of the relationship between the euro and the currencies outside the euro area. A common factor in these matters is the question of maintaining stability once EMU has been established. 1. Growth and stability pact Without specific restrictions, participation in the euro area would make it easier for a country to implement an expansionary budget policy.
In terms of downside risks, these include the risk that growth abroad disappoints and the risk of further disruptions to the supply of oil and higher oil prices. On the inflation front, the overall rate of increase of consumer prices, as measured by the 12-month change of the price index for personal consumption expenditures slowed to 2.3 percent in February from a recent peak of 2.9 percent last September. Even though the recent rise of gasoline prices mentioned above could interrupt this pattern, we expect this moderation of overall inflation to resume later this year. While the underlying core inflation rate, that strips out volatile food and energy prices, has been somewhat higher than expected a few months back, it appears that the annual rate of core inflation1 has peaked and we expect it to begin to decline later this year.2 Finally, inflation expectations, which play an important role in the inflation process, remain well anchored. By this I mean that people expect that the rate of inflation will continue to be relatively low for some time to come. Regional economic conditions So how is the recovery proceeding in the state and region? As I mentioned, the New York Fed produces indexes that help us track economic activity in the region. Based on these measures, the economic recovery that began in New York State in late 2009 has continued through early 2012, and even gained some momentum.

To put the recent pace of growth into perspective, we believe that the economy’s long-run sustainable growth rate – what economists call the potential growth rate – is around a 2 ¼ percent annual rate. We need sustained growth above that rate to absorb the still  BIS central bankers’ speeches  3  substantial amount of unused productive capacity. Thus, our recent growth rates are barely keeping up with our potential. Even though the unemployment rate has declined sharply from 9 percent last September to 8.2 percent in March, it is still unacceptably high. In addition, many other measures of the labor market remain weak. The labor force participation rate, the percentage of people employed, and the total number of hours worked in the economy all dropped sharply during the recession and remain well below their pre-recession levels, even taking into account the impact of demographic shifts. Also, it appears that productivity growth has slumped recently. Although that means that a given amount of growth translates into bigger employment gains, it certainly is not an unmitigated positive development. Also, we cannot lose sight of the fact that the economy still faces significant headwinds and that there are some meaningful downside risks. In the headwinds department, I would include the run-up in gasoline prices mentioned earlier because that will sap purchasing power, the continued impediments to a strong recovery from ongoing weakness in the housing sector, and fiscal drag at the federal and state and local levels.
Bandid Nijathaworn: Financial developments and the Thai banking sector Keynote address by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Third Euromoney Thailand Investment Forum, Bangkok, 10 June 2009. *  *  *  Thank you and Good morning First let me thank Euromoney for the invitation. It is an honour to be speaking to you today. For the last few years that I have been coming to this forum to speak, I find the session to be very useful as it provides an excellent opportunity for us at the Bank of Thailand to interact and share our views with investors on Thailand’s current issues, including our policies. So, it is a pleasure to be here this morning. My topic today is about financial developments and the Thai banking sector. Given the limitations of time, I want to focus my remark today on two issues. The first is the short-term issue about the current economic and financial conditions, and the policy response that we have had in trying to strengthen the process of recovery. Next, I will speak on the mediumterm issue of financial sector reform, beginning with how we see the new or the post-crisis financial landscape emerging and our plan to respond to these changes in the context of our financial sector Master Plan. First, the current conditions. Latest economic data in Thailand continues to show deterioration in economic activities as evidenced by the estimated decline of 7.1 percent in this year’s first quarter GDP growth.

Additionally, quantitative objectives for reducing the level of non-performing loans should be included in your institution’s annual work plans for 2014;  b)  Evaluating and selecting new loan applications in a professional fashion. Indeed, credit demand remains weak; however, this exists and must be viewed in terms of its potential for growth in the future. In this regard, the banking industry should  BIS central bankers’ speeches  1  strengthen its analysis to steer lending toward those sectors of the economy with high development potentials. Priority should also be given to launching banking products that boost credit demand from small and medium-sized enterprises, mitigating credit risk through portfolio diversification and improving the stable return on bank lending; c)  Reducing lending costs. I refer to the interest rate applied to lek loans. To our opinion, it has inadequately reflected both the key interest rate trend and our expectations. From the decrease in the interest rates applied to government borrowing, we understand that the inert moves in the cost of lending reflect the risk premia the banking industry imposes when lending to the private sector.
This helps spread lending capacity across the country, further contributing to balanced growth and a sustained economic expansion. Trade Good domestic policy cannot, on its own, guarantee balanced growth in an open economy like the UK’s. Our fortunes are also tied to those of our trading partners. In recent years those fortunes have been modest. Demand from the UK’s traditional markets, such as Europe, is a staggering 25% below a continuation of its pre-crisis trend. This is because the UK relies heavily on the slow-growing advanced economies (Chart 1). In contrast, the Commonwealth countries, which account for only a tenth of UK exports, have grown over three percentage points faster on average each year than our major trading partners between 2008–13. The need to diversify trade to faster-growing economies in the Commonwealth and emerging markets is clear. This will require both the continued initiative of UK businesses and a determined trade strategy. In short, we all need to be inspired by another great Scottish figure, David Hume. Hume brilliantly showed that free trade was beneficial to all; that it acquainted nations “with the pleasures of luxury, and the profits of commerce”, spurring them on “to further improvements in every branch of domestic and foreign trade.” 2 His ideas helped usher in the first great era of globalisation during the 19th century. In this wave, the British economy grew twice as fast as during the preceding century (Table 1).

International trade and demand for investment in particular continue to be subdued. Inflationary pressure abroad also remains low. Although higher energy prices are currently resulting in a marked increase in inflation, core inflation remains at a low level in a number of countries and central banks are thus maintaining their expansionary monetary policy course. Among advanced economies, the economic cycle has progressed furthest in the US. Thirdquarter GDP growth in the US was again significantly above potential. Private consumption was once more the driving force. The situation on the labour market continued to improve as well; the US economy has now almost reached full employment. This is also reflected in more robust real wage growth. Inflation is now close to the target set by the US Federal Reserve. Against this backdrop, the Federal Reserve decided yesterday to raise its key interest rate by 25 basis points. This move is confirmation that – in the Federal Reserve’s view – the world’s largest economy is gradually emerging from a protracted period of crisis. The other major economic areas also recorded favourable economic activity in the third quarter. The euro area and Japan continued to register moderate growth, while in China, growth remained strong thanks to a variety of fiscal measures. In the UK, the economic impact of the Brexit decision has so far proved less pronounced than originally feared. However, the country’s economic performance is still expected to be impaired by this outcome in the coming quarters.