samchain/econo-pairs-v1 huggingface dataset:
Among the households of people employed in industries less affected by the pandemic, saving by that half of households with least saving is higher: up to 40% of their annual income. 3  Taking as an indicator of financial vulnerability of the firm the ratio between its debt and its assets (net of non-interestbearing debt), and for the vulnerability threshold a value for this ratio of 75%. 4  See P. Hernández de Cos (2021): "The challenges to the banking sector a year after the outbreak of the COVID-19 pandemic", Speech at the Observatorio de las Finanzas event organised by El Español/Invertia. 2  With a view to the future, the development of various vaccines and the start of their roll-out to the population has allowed us to discern a horizon in which this crisis is resolved. Yet uncertainty remains high, especially that arising from the course of the pandemic and the vaccination process, and the consequences of the crisis on the productive system and on agents’ behaviour. Against this background, the projections presented last Tuesday by the Banco de España continue to complement the baseline scenario with another two alternatives, with different assumptions about how the main areas of uncertainty will evolve.5 The first point of uncertainty evidently pertains to the epidemiological situation.

1  A concept constructed by subtracting those workers in a temporary employment adjustment situation from those paying social security contributions. 1  And the economic vulnerability of those working in these sectors is greater. Their income is not only on average lower, but also they have a less sound financial position: they form part of households with less accumulated saving2 and their median net wealth is 17% lower. This heterogeneity is also patent in the business sector, in particular regarding financial vulnerability. Thus, somewhat less than 15% of firms were in a vulnerable position before this crisis.3 This proportion did not vary significantly on the basis of firm size and sector of activity. Conversely, the proportion of vulnerable firms increased by an estimated 20% in 2020, with the rise more pronounced at small firms; and by sector, in hospitality, the figure would have stood at 40%. The banking sector, for its part, has shown notable resilience. Underpinning this have been the improvements both in its balance sheet quality and solvency in the past decade, and the forcefulness of the economic policies applied since the onset of the crisis.4 The CET1 capital ratio increased by 71 bp and the NPL ratio fell by 0.4 pp in 2020. But the sector’s profitability declined significantly as a result, above all, of the increase in provisions for impairment losses, more than 50% up on those in 2019.
Frankly, it has been shocking over the past year or so to discover how many medium-sized banks and building societies did not hold government bonds or other very high quality assets; or, if they did, how many did not have a regular presence in the gilt repo market or even had no capacity to repo at all. Turning up in the core secured-funding markets for the first time for years is an absolute give away of distress. All that has to change. Market-maker of Last Resort What I have said so far could be mistaken to imply that only banking markets matter. That would be misleading. The capital markets obviously matter too. Indeed, the current crisis has illustrated just what a mess can result from liquidity draining out of those markets. Market liquidity is endogenous: participants thinking that it might dry up can contribute to its doing so. In the early phases of this crisis, by virtue of holding large “trading” books that were marked to market, banks and other traders found themselves having to make very large portfolio write downs in the face of sharp rises in liquidity premia in asset markets. As highly-levered institutions, those mark-downs depleted their net worth to the point of imperilling solvency. That caused a retrenchment in the availability of credit, helping to plunge the world economy into recession, and so impairing the value of more traditional loan books, in a vicious spiral. So it would have been better if, somehow, we could have preserved the liquidity of the markets.

21 Banks earn a return from providing liquidity services, and so make a trade-off in deciding how much liquidity risk to run. But, because of the spillover effects from bank failures, the overall social cost of banks’ liquidity risks crystallising can be considerably greater than the costs for the individual banks themselves. Regulation by the micro-prudential authorities has been the primary tool for dealing with that issue. There is currently a very important, and long overdue, international debate about how to improve the regulation of liquidity. I want to dwell today on just one important element of this debate. This concerns whether or not the assets counted by prudential regulators as part of a bank’s liquidity buffer should be defined to include all of the assets held by the bank that are eligible in the operations/facilities of the central banks to which the bank has access. Some argue that they should. The Bank of England would regard that as a big mistake. For the reasons I have described, the collateral eligible at most central banks goes way beyond securities that can be relied upon in stressed conditions to be liquid in private markets (whether outright or repo). So if they all counted as core-liquidity for regulatory purposes, banks would in effect be liberated from having to hold a buffer of low-yielding assets that they could confidently use in the market before they turned to us.
I am therefore most thankful that the Thai Bankers’ Association has invoked this noble tradition, with the intent of giving it a permanent legacy. This year marks the second year of the new tradition, and I have taken this opportunity to ask all members of the Board of Directors of banks to join us. I would like to extend my deepest appreciation and thank you for being here with us. Ladies and gentlemen, I have specifically requested that members of the Board of directors be present here today as I would like to have the opportunity to directly share with you some thoughts and understanding. I believe these would be valuable in enhancing your role as Board members. First of all, let me say that I empathise with you for the significant changes and adjustments which bank directors have had to make since the crisis. On top of that, the Bank of Thailand has also issued regulations which put further burden on your oversight responsibility. These can easily irritate directors especially in light of the heavy responsibility which you undoubtedly carry given your prominent role in Thai society. The intention was not to add to the burden of the Board, but simply to ensure that the Board can fully carry out its duty of care. I would therefore like to take this opportunity to address the key duties and responsibilities of directors.

We at the Riksbank has also used one such model to better understand the interplay between the two policy areas – mainly because macroprudential policy could have effects on economic activity that monetary policy may need to take into account.10 The conclusion from this exercise so far is that there are no easy answers and that the benefits of coordination may vary, depending on which shocks are driving the economy and making the authorities take action. How have the roles been allocated in reality? So how have different countries in reality chosen to organise monetary policy and macroprudential policy? As usual, it is difficult to draw straight lines between theory and reality. One country that comes fairly close to model A with regard to coordination is the United Kingdom, where the Bank of England has been given responsibility for macroprudential policy. The decisions on monetary policy and macroprudential policy are taken by two different committees in the bank, the Monetary Policy Committee and the Financial Policy Committee, which is more in line with model B, but there is nevertheless an explicit aim to coordinate, for instance, in the way the committees are composed.11 In Sweden we have chosen a solution that in institutional terms is closer to B, in the sense that Finansinspektionen has been given the main responsibility for macroprudential policy tools. Now, I do not believe that the differences in the practical solutions chosen in different countries should be exaggerated.
In an environment of low inflation, solid economic growth and low unemployment, a conflict may arise between inflation considerations and considerations relating to the real economy. In that situation, we would be less worried about low inflation than if real economic prospects were also weak. We can then choose to bring inflation up to target over a longer horizon, particularly if interest rates are already low and there are signs that financial imbalances are building up. With flexible inflation targeting, monetary policy can make an important contribution to stabilising the economy. When the economy is exposed to shocks, we can respond rapidly by adjusting the policy rate, as we did in 2008 and 2014. Nevertheless, monetary policy cannot assume primary responsibility for output and employment. The level of economic activity depends on overall economic policy, including wage and income formation, the tax and social security system and the functioning of the labour market. Monetary policy is only one component of this framework. 14  Norway as a financial investor  Norges Bank  While high public debt has made it difficult for many countries to cope with a downturn, Norway has been in a fortunate position. We have built up one of the world’s largest sovereign wealth funds. It has provided us with fiscal space both during the financial crisis and in the wake of the fall in oil prices in 2014. The first transfer of close to NOK 2 billion was made to an account at Norges Bank in 1996.

Can you explain the ECB’s assessment of how inflation is developing? Looking at incoming data, I would say that data are more or less in line with our expectations. But this has to be seen in a context where we had repeatedly overestimated future inflation rates. In the last years, we have repeatedly lengthened the horizon over which we would get back close to 2 percent. Mechanically updated projections suggest that the risk is present that we may again have to extend this horizon. And even if it’s slightly, it’s a repetition of a past pattern. And then you go into the question of credibility of monetary policy. BIS central bankers’ speeches  1  If you observe for example, that the price people are ready to pay for protection against inflation is zero, or very low, that’s not necessarily a good signal, as it suggests that they are not convinced there’ll be inflation. And that could be related to scepticism about the ability of the central bank to influence inflation even five years ahead – which would be quite serious. You cannot just reject that. Markets might be signalling that there could be some second round effects related to the fall in oil prices. Inflation expectations would then be hit at some point. Finally they could also reflect a very pessimistic view on the future, and that’s the more secular stagnation scenario where the falls of oil prices would be more the reflection of deep structural problems in the global economy.
Otherwise, such differences might become a source of financial fragmentation in their own right. Neither of these criteria is easy to fulfil. As the experience with Lehman Brothers has demonstrated, failures of large, integrated financial institutions can have devastating consequences for economic stability. Risks of contagion from one institution to entire financial sectors greatly complicate any effort to establish a more symmetric risk and rewardstructure for banks. Harmonising financial sector policies across countries in turn requires substantial operational and legislative efforts, given that national institutions have evolved separately and are now heterogeneous in many regards. All these difficulties can be addressed and, in fact, they are being addressed by European policy-makers. In particular, the recent initiatives at European level comprise several crucial steps to achieving a more incentive-compatible as well as a more integrated and coherent framework among countries. Let me elaborate on several concrete elements. The first step is the establishment of a Single Supervisory Mechanism (SSM). The SSM aims to ensure that all supervisory decisions about euro area banks are taken in a consistent and stringent manner, independently of the country in which it is located. Once fully effective, this will reassure markets that all banks face the same scrutiny and thus will counteract financial market fragmentation in the euro area. Moreover, by delegating supervisory decisions from the country to the euro area level it facilitates the internalisation of cross-country spill-overs, thus allowing for more efficient outcomes.

By the end of 2008, the problems of banking sectors – in the US, Europe and elsewhere – and the need for massive deleveraging had become apparent. At the same time, the interbank market was severely disrupted, and so was the transmission of monetary policy impulses to the real economy. The measures adopted by the Eurosystem were geared at restoring the functioning of its transmission mechanism, and at supporting the continued availability of credit to households and non-financial firms. As a result of increasing tensions in the sovereign debt markets since 2010, the situation of the euro area financial sector worsened. Doubts about the sustainability of sovereign debt levels in some countries of the euro area led to significantly increased levels of sovereign bond spreads. This, in turn, also led to higher interest rates in the private debt markets of the affected countries. It became apparent that the health of the national banking sector was often closely intertwined with the health of the local sovereign: funding problems in the banking sector and weak fiscal positions mutually reinforced each other. Significant heterogeneity emerges when looking at changes in the bank balance sheet items in different countries of the euro area, primarily concerning changes in deposits and in credit growth.
BIS central bankers’ speeches  9  Figure 4 Lending interest rates (1) (2) (percent) 18  40  12  30  6  20  0  10 02  04  06  08  10  14  12  (1) Weighted average rates for all operations performed each month. (2) Dashed horizontal lines show ten-year average for each series. (3) Interest rates on credits in UFs. Source: Central Bank of Chile based on SBIF data. Figure 5 Sovereign risk premiums in emerging economies (1) (2) (basis points) 300  Latin 300 America (3)  250  250 Europe (4)  200  200  150  150 Asia (5)  100  100 Chile  50 13  14  50  15  (1) The dotted vertical line marks the statistical cutoff date for the September 2015 MP Report. (2) Measured by 5-year CDS premiums. Simple average of countries in each region. (3) Includes Brazil, Colombia, Mexico, Panama and Peru. (4) Includes Bulgaria, Croatia, the Czech Republic, Hungary and Turkey. (5) Includes China, Indonesia, Malaysia, the Philippines and Thailand. Source: Bloomberg.

In addition, despite that the economic recovery of developed countries has consolidated, the situation in some key emerging trading partners has worsened. The difficulties now facing emerging economies stem from the major changes observed in the global economy, especially the end of the commodity price boom. One must recognize, however, that the impact of these changes on each economy hinges on how well each one prepared to face them during the good years. Many countries incubated weaknesses that are now hampering their adjustment processes: high current-account deficits, fiscal mismatches and increased corporate debt – part of which is denominated in foreign currency and not properly hedged – , are some of the elements that make the adjustment more complex and risky. Of course, there are also strengths. In particular, many emerging economies and countries in the region have better monetary policy frameworks in place to confront these challenges. Independent central banks with clearly defined objectives, flexible exchange rates, and an appropriate level of reserves, are key lines of defense. 6  BIS central bankers’ speeches  Chile stands out in these issues. Our net public debt is nearly zero, because we saved during the copper price bonanza. Our financial system is a well regulated one and shows no significant weaknesses. The actions of the Central Bank have provided room for a significant adjustment of relative prices and, although at the expense of higher inflation, expectations have remained well anchored, a clear signal of the market credibility of our commitment to keep inflation low and stable.
One of the things that changed in 1979, of course, was the leadership of the Fed. The actions of Paul Volcker and his colleagues on the FOMC in the years that followed brought an end to the “great inflation” and changed the history of U.S. monetary policy. The Fed was aided in meeting this challenge by the greater public awareness of the costs of high inflation and by a substantial improvement in knowledge among policymakers and academics about inflation dynamics and how monetary policy can be best directed at achieving the objectives of sustainable growth and price stability. But the achievements of the 1980s in delivering substantially lower rates of inflation were principally achievements of the Fed. And good monetary policy decisions under the leadership of Alan Greenspan seem to deserve a substantial part of the credit for the remarkable record of economic performance that the U.S. economy has been able to sustain since. Although the legal framework of the U.S. central bank has not changed since 1978, the conduct of monetary policy and the way the Fed communicates about monetary policy has changed considerably. A few of the most important changes are worth noting. In 1994, the FOMC began for the first time to publicly announce the target for the Fed funds rate and to explain the basis for any change in the target. Prior to 1994, the market was left to discern the Fed’s operating target from the signals conveyed by open market operations.

In 1999, the Fed adapted its post-meeting statement to communicate more information about the outlook for the economy and the implications for monetary policy by disclosing a so-called bias. In December 2004, the FOMC decided to advance the release of the minutes to a date three weeks after the meeting, and in doing so provided a more timely picture of the FOMC’s rationale for its decision, its view of the economic outlook and the implications for monetary policy going forward. In January 2005, the FOMC added a year to its semiannual public forecast of the outlook for growth and inflation, and by extending the horizon the forecast, provided greater insight into the inflation preferences of members of the committee. These changes in the transparency of the conduct of U.S. monetary policy have been motivated by a judgment that monetary policy works more effectively if the central bank is more explicit about its objectives, about its view of the outlook for growth and inflation, and about the framework it uses to make policy choices. Since monetary policy operates through its effects not just on the overnight inter-bank rate but on expectation about the future path of that rate and other asset prices, greater disclosure about the Fed’s forecast and the rationale for its decisions should help financial market prices reflect more accurately the future stance of monetary policy and make monetary policy more effective.
Monetary policy did not get traction quickly, in part because the authorities were worried that producing higher real interest rates to stem the decline in the exchange rate and offer a higher return to attract flows back into the country would exacerbate the confidence problem, by causing a deeper contraction in growth. BIS Review 91/2006  1  In some cases, a history of high inflation, fiscal profligacy or default magnified the difficulty of restoring confidence. In almost every case, this dynamic was exacerbated by political conditions, a looming election or leadership succession that raised uncertainty about the competence and credibility of future economic policy. Things look dramatically different today. If you compare an aggregate or typical emerging market balance sheet today with the equivalent from a decade ago, the improvement is striking in a number of dimensions. Current account balances have gone from substantially negative to positive. External debt has fallen as a share of GDP. Reserves have grown to remarkable heights and are now a substantial multiple of short-term external debt, annual external debt service, or other traditional metrics of the scale of potential claims on reserves. Public debt burdens are higher, but the composition of debt is less risky, with longer maturities, a greater share denominated in the currency of the sovereign, and more fixed rather than floating interest debt.

But, some of this progress was undoubtedly facilitated by the relatively favorable economic and financial conditions of the global economy and only time will tell whether it will prove robust in circumstances of greater macro adversity. Of course, these broad trends in balance conditions mask substantial differences across countries. There is wide dispersion around the typical or average balance sheet I have described, and some important areas of vulnerability remain. Many countries still face daunting fiscal problems and are only beginning to be able to issue debt in their own currency at longer maturities. The political consensus that provided support for these improvements looks vulnerable to challenge in many countries. For a  2  BIS Review 91/2006  number of countries, improving financial strength will have to remain at the top of the hierarchy of policy priorities. And even where progress has been most impressive it could be eroded quickly. Where progress has been made in reducing important sources of financial instability, policymakers in emerging markets have the opportunity to focus more effort on reforms that can help achieve and sustain higher growth in the future and on developing an institutional infrastructure strong enough to serve as the foundation for further integration into the global economy. This shift in focus brings with it of course a daunting array of complex economic policy challenges.