samchain/econo-pairs-v1 huggingface dataset:
An awareness of, and responsiveness to, the needs of the customer, whether saver or borrower. A focus on longterm relationship-building, often starting from the earliest age. A recognition of the benefits of mutualising both risks and returns. In short, the importance of banks being built, first and foremost, on trust. The crisis of trust From the past, then, to the present. A year ago almost to the day, the investment bank Lehman Brothers filed for bankruptcy in the United States. Activity across the globe, financial and non-financial, froze. Recently, there are indications of some thawing. But a year on, many economies around the world remain mired in recession. What explains the severity of this crisis and how much longer can it be expected to last? 4  See E.J. Cleary (1965), “The Building Society Movement”, Elek Books. See also S.J. Price (1958), “Building Societies, their origin and history”, Franey and Company. 5  S.J. Price (1958), “Building Societies: Their Origin and History”, Franey and Company. 2  BIS Review 108/2009  The words “credit crunch” contain the seeds of an explanation. In Latin, credit means trust. So credit crunch is, in essence, a breakdown in trust. Between different parties at different times, that loss of trust has been the root cause of the devastating impact felt globally since the credit crunch began. It also explains why the road to recovery in credit, and thus in the real economy, may be long and winding.

5  See the Annex for brief explanations. BIS Review 44/2007  3  hold tranches of other CDOs, which hold LBO debt of all types as well as asset-backed securities bundling together household loans. (The diagram may, or may not, help!) What is going on here? One possible explanation is that capital might be being allocated to wherever its cost is cheapest for a particular desired risk profile. That optimisation involves comparing the capital charges applied by regulators to regulated institutions; and by rating agencies to various types of vehicle (SIVs, CPDCs, CDOs, monolines etc). The “smart money” seems to be assembling its own portfolio of vehicles, so that it can choose from a menu of where to book transactions. One of the drivers is commonly referred to by practitioners as “ratings arbitrage”. Another was of course Basel I, which triggered the securitisation of high-quality credits, and for quite a few years fuelled a ballooning of vehicles whose existence depended on commercial banks providing zero-capital-weighted “liquidity” lines. Basel II will change all of that. Indeed, if central banks are to understand how the global financial system fits together, we will need to fathom the reconfiguration that Basel II prompts, including the potential for risk transfers between banks adopting different steps on the ladder of Standard, Foundation, Advanced approaches that it makes available.
In Sweden, we have several historical examples of successful coordination on the payment market. In 1925, the public-owned Postgirot was formed to answer the need for more efficient mediation of payments via cashless payments by giro transfer. As this was a social need, a publicly owned solution was created to facilitate the required coordination. In the 1950s, the banks then formed their own version in the form of Bankgirot, in which standardised paper forms facilitated the management of payments between banks. In more modern times, the Swedish banks have also collaborated over withdrawals from ATMs and purchases with debit cards, to give two examples. They have also established a joint system for Bank ID and, a few years ago, the mobile application Swish 18, to which the largest Swedish banks are connected. The Swedish banks have been able to take continual advantage of the benefits of coordination to which economies of scale give rise. Again, this is something that we perhaps do not give too much thought to, but in many other countries these activities do not work anything like as smoothly. There, for example, it can be difficult or expensive to withdraw money from another bank’s ATM. In Sweden, the Riksbank provides, like the central banks of other countries, a central payment system so that the banks can exchange money with each other. Allow me to explain in a little more detail what this means, before going on to discuss the challenges we must consider for the future.

The most recent estimate we have for Sweden puts the total cost of executing payments at just below 1 per cent of GDP per year. 17  Account-based payments require a network of intermediaries and technical systems Unlike when we use cash, using the money we have in our accounts as a means of payment requires a relatively advanced technical infrastructure. This is because the purchaser's money or credit needs to be verified, payment instructions need to be sent and so on. A transfer must also be arranged between the banks of the purchaser and the seller. At present, this usually takes time, often a day and sometimes more. This means that risks arise for the parties involved in the transaction. As consumers, however, we do not normally notice that payments take time and that risks arise. 16 See, for example, Rochet, J.-C. and J. Tirole. (2003) “Platform Competition in Two-Sided Markets” Journal of the European Economic Association 1(4). 17 The total cost includes both the private and the social cost. See Segendorf, B. L. and Jansson, T. (2012) ”The cost of consumer payments in Sweden”. Sveriges Riksbank Working Paper Series No. 262. Similar costs have been calculated for other EU countries (see Schmiedel, H, Kostova, G. and Ruttenberg, W. 2012. ”The social and private costs of retail payment instruments”. Occasional Paper Series 137. ECB. 6 [15]  As I mentioned previously, positive network externalities are something that characterises the payment market. This means that there are efficiency gains to be made by using coordination.
In fact, as you know, the result of the European Council meeting some days back was, I would venture to say, most satisfactory. First, agreement was reached on the EU multiyear budget for 2021-2027, the negotiations for which had faced many difficulties in recent months, for an amount of € billion. Further, a recovery fund (Next Generation EU) has been created. This is additional to the budget and introduces a pan-European recovery financing framework that is unprecedented in the history of the EU. This fund will be financed by the European Commission’s recourse, on behalf of the Union, to the capital markets, for a maximum amount of € billion between 2021 and 2026, i.e. it is temporary in nature. The funds will be assigned to tackle the consequences of the COVID-19 crisis, both through loans to the Member States (48% of the total) and through direct transfers (essentially the remaining 52%). The gradual amortisation of this debt will run to 2058, through new EU own resources. To swiftly mobilise the aid, which will take the form of investment project financing and structural reforms, in areas such as research, progress in digitalisation and combating climate change, the European Commission will, before the European Council’s October meeting, submit proposals on how to accelerate and smooth procedures in the Member States.

For this response to be effective, it must be accompanied by national economic policy responses befitting the European action and the challenges we face. This response calls for the following: to maintain the support of fiscal policy to the economy, on a temporary basis, focusing on the groups of firms, sectors and individuals most affected and with a design that allows for the structural adjustments needed; to convert the European funds into a fiscal impulse that accompanies and steers the recovery effort of our productive system; to urgently implement an ambitious, comprehensive, lasting and assessable strategy of reforms that tackles the structural challenges of our economy; and, finally, to design a medium-term fiscal consolidation programme, for gradual implementation once the economic crisis caused by the pandemic is behind us, that ensures the sustainability of our public finances and enables fiscal buffers to be built up for use in future recessionary episodes. The future well-being of our country depends on an economic policy strategy that combines these principles. Thus, as I have stressed on other occasions, there should in my opinion be a high degree of consensus among the various political, economic and social agents regarding the guiding principles of this strategy, so that the foundations on which our growth rests are predictable and lasting. Thank you. 12
Inflation-targeting central banks usually publish inflation reports or monetary policy reports, but there are major differences in the frequency of publication, horizons and assumptions for projections as well as the contents in general.6 In the UK, economic developments receive broad coverage. The Bank makes projections two years ahead, but only for developments in GDP and prices. Sweden has a two-year horizon for the inflation target. The inflation report does not discuss the monetary policy stance. Instead, this is presented in the published minutes from the monetary policy meetings. The inflation report contains relatively detailed prognoses. In all inflation-targeting countries, with the exception of Iceland, the interest rate is assessed at pre-announced times. The interest rate may also be assessed at extraordinary meetings. In addition, signals about the interest rate may be given in speeches or other statements. Practice varies with regard to the publication of meeting minutes and voting. At Norges Bank, we have become more transparent in recent years about the background for the interest rate decisions. So far, we have only had positive experience with this. In statements following monetary policy meetings, press conferences, inflation reports and speeches, we present an account of aspects of economic developments that influence the Executive Board’s assessments and interest rate decisions. Everything is available on Norges Bank’s website. Interest rate decisions are based on a monetary policy strategy drawn up by the Executive Board every four months. The strategy is published as soon as it is adopted and prior to the relevant strategy period.

Philipp M Hildebrand: Developing countries and international capital markets Summary of a speech by Mr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, to economiesuisse, Zurich, 14 June 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  After having plummeted on the back of the Asian crisis, capital flows to developing countries have risen considerably again in the last three years. In 2005, they are likely to reach the approximate level at which they stood shortly before the Asian crisis. Capital flows are channelled mostly to a few emerging markets, notably China. China’s monetary order is currently undergoing profound changes, with the country gradually liberalising capital movements. The concept of the “impossible trinity”, which was developed by the Nobel Prize winner Robert Mundell, asserts that this will inevitably lead either to a loss in monetary autonomy or to a flexibilisation of the exchange rate regime. Both trends can be clearly observed: the pressure on the fixed exchange rate on the one hand, and the rapid expansion of the monetary and credit aggregates on the other. In the longer term, China’s monetary order will probably move towards floating exchange rates. This transition will hopefully be successful. As China’s monetary policy of gradual change has so far proved its worth, it is likely to serve as an example to other developing countries.
International cooperation is indeed of great importance to supervisory and resolution authorities and deposit insurance systems (DISs).Globalisation has prompted us to decide and act jointly to address the financial crisis and to prevent new ones. We now know that a financial crisis cannot be resolved by countries and/or authorities acting independently. It is not only a matter for DISs but also for all other bodies involved in financial stability: central banks, supervisors, capital markets authorities, accounting standards setters, etc. The FSB  BIS central bankers’ speeches  1  has taken the lead in initiating reforms and in helping to implementing common principles at the local level. As regards deposit insurance, the International Association of Deposit Insurers was created in 2002 as a direct result of the early understanding of the importance of international discussion and practice-sharing between DISs. Progress made in this field has been tremendous. The momentum created by international authorities and standards-setters has actually been crucial International common standards are key because they embody common understanding and analysis. They are safeguards of the level playing field and of orderly problem solving. The Core Principles for Effective Deposit Insurance Systems drawn up by the IADI in cooperation with the BCBS, regularly updated and supplemented for instance by the guidance on ex-ante funding, are a perfect example in this respect.

Let me be clear, however, that in an event that the credit line to the backstop would temporarily be drawn upon, it will be subject to the principle of fiscal neutrality, i.e. the banking sector will ultimately be liable for repayment by means of contributions in all participating Member States, including ex post contributions. reject to it. If the Council approves the proposal of the Commission, the Board must modify the resolution scheme accordingly within 8 hours. 12  8  In the first instance, national compartments of the directly affected Member States will be used, up to a predefined limit set for each year in the transition period. This limit will decrease during the transition period. Starting at 100% in the first year, it will decrease to 60% and 40% for the second and third year, respectively. Thereafter the limit will decrease linearly for the subsequent years. As a second step, only if the first step was insufficient, available means in all compartments – including the ones just used – will contribute up to another predefined limit, also set for each year in the transition period. As I mentioned earlier, the pace of mutualisation is substantially frontloaded, starting at 40% in the first year. It will increase to 60% in the second year and thereafter increase linearly for the subsequent years until it reaches 100%. As a third step, to be used if the previous steps were insufficient, any remaining resources in the national compartments of the directly affected Member States will be used.
This internal consistency explains why monetary policy is the only part of the EMU framework that has clearly functioned as designed. Fiscal policies were supposed to conform to the other form of governance, where countries would decide on and execute their own budgets, but within the strict constraints of the deficit and debt limits set in the Treaty. Those limits were supposed to be policed by markets, the Commission and other Member States, but in practice the incentives of the latter to enforce the rules were weak. This meant that de facto rules could be applied with discretion, while Member States themselves decided on how to exercise that discretion – in other words, the worst combination of the two forms. The result was that fiscal positions diverged significantly, which then created substantial spillovers for other euro area members. But perhaps more fundamentally, internal inconsistency meant that fiscal policy itself became ineffective in several jurisdictions. A number of governments either did not have the fiscal space to absorb the shock they faced in the early stage of the crisis, or they were unable to maintain the trust of the market when investors finally reacted – and over-reacted. Fiscal policy therefore had to effectively give up its stabilisation function – which is vital with a single monetary policy – and switch to convincing investors of debt sustainability. Prudential policies were also supposed to fit the decentralised model, although here the framework was even looser.

David Rule: PRA Solvency II Conference – countdown to implementation Speech by Mr David Rule, Executive Director for Prudential Policy of the Bank of England, at the PRA Solvency II Conference, London, 17 October 2014. *  *  *  I would also like to extend my welcome and thanks to you for taking the time to attend this conference today. I want to take this opportunity to formally introduce myself. I was appointed Executive Director of Prudential Policy at the Bank of England in June having held a variety of different roles across the Bank and FSA, most recently as a supervisor of large UK banks. This conference is entitled “countdown to implementation”. We have reached a level of stability in the policy making process for Solvency II, and the purpose of today is to share our thinking and provide clarity where possible on those last remaining issues ahead of implementation. You’ll be hearing from experts across the technical areas and Victoria Saporta, Director of Financial Policy will give you an overview of the policy areas where work is still being finalised along with the timeline for completion. I would like to take a step back from this and reflect more widely on what Solvency II is about for the Bank.
Repeated crises and poor support from inflation expectations did not give good results in terms of production growth and real wages. The experiences of the past 10-15 years have been good, however. Fiscal and monetary policy have laid the foundations for better economic growth and wage formation has improved. The social partners have actively contributed to this good development. The results are positive. Growth has been high and real wages have risen, despite the moderate increases in nominal wages. It is of course extremely important that this positive development can continue over the coming years. The economic conditions for next year’s wage bargaining rounds are good and there thus is every reason to believe that wage formation will continue to function well. However, we will of course closely follow developments. The contribution that the Riksbank can make is to conduct a monetary policy aimed at ensuring that inflation and inflation expectations develop in accordance with our target. This in turn means that the social partners can continue to sign agreements based on the assumption that the inflation target will be met a couple of years ahead. Judging from the surveys we make of inflation expectations, monetary policy in this respect has a very high level of credibility. It is the task of myself and my colleagues on the Executive Board to ensure that this remains the case. 4  BIS Review 93/2006  1. Inflation differential rel.

In Islamic finance, financial innovation must be tested against the “Maqasid al-Shariah” (objectives of the Shariah), where the primary objective is the realisation of benefit to the people. This demands the internalisation of Shariah principles in Islamic financial transactions, both in form and substance. Indeed, the move to embrace Shariah-based innovation brings with it a strong Shariah-compliant culture in Islamic financial institutions. This in turn serves to ensure that the product development process in Islamic finance is grounded within Shariah injunctions which also incorporates ethical value propositions. Financial innovation also needs to be supported by robust risk management and strong governance practices. It is recognised that sophisticated and complex financial structures  2  BIS Review 123/2009  very often result in the failure of consumers, investors and even regulators to understand the risks and leverages embedded in the instruments which in turn results in the lack of transparency and inadequate risk management. In Islamic finance, a prerequisite under the risk-sharing arrangements is having the necessary information to understand the risks that are to be borne by Islamic financial institutions. The explicit risk sharing element between the financier and customer in Islamic finance obligates its participants to evaluate risk profile of the product or investment proposition, the underlying trends in earnings and cash flows, and its income-producing potential. This process also allows the pricing of funds to be adjusted accordingly. Equally important is the risk management capability of the Islamic financial institution to manage the risks that are peculiar to Islamic financial transactions.
There may be several explanations for this, for instance, that investors have confidence that the United Kingdom will manage to consolidate its budget successfully. But I believe that it is mainly because the euro area countries lack the defence mechanism that the United Kingdom has.8 The reasoning is as follows: When investors in, for instance, Italian government bonds are concerned over Italy’s creditworthiness they sell their bonds and buy something else, such as German government bonds. Then the Italian bond yields rise at the same time as liquidity leaves the country. Other investors become worried that the yields will rise further – which is the same as the value of their bonds falling – and therefore sell their holdings, which means that yields continue to rise. This becomes a spiral of falling liquidity and rising yields, which is difficult to stop. The Italian central bank is unable to do very much, as it cannot create liquidity in euro. Only the European Central Bank, ECB, in Frankfurt can do this. The Italians can ask for help, but they cannot do very much themselves – at least not in the short term. And the investors are aware of this, of course. 8  See, for instance, De Grauwe, P., “The Governance of a Fragile Eurozone”, CEPS Working Document No. 346, May 2011.

Of course, the financial crisis was due to many factors acting together. But one of the most important lessons was that one should beware of allowing debts to grow too much. This applies equally to households, companies and governments. This is neither a particularly surprising nor especially new lesson; over several hundred years, financial crises have often been preceded by periods when the attitude to credit granting and lending has been too carefree. But it seems as though this is a lesson that we must experience again and again – at least once a generation, and perhaps even more often. BIS central bankers’ speeches  1  A rapid and substantial credit expansion can cause many different problems. If the expansion is characterised by an exaggerated optimism and an underestimation and underpricing of risk, large loan losses may arise in the banks when the sentiment changes. This can lead to banks failing and ultimately to a financial crisis. We experienced this in the 1990s, and Spain and Ireland are experiencing it now. Once the economy has entered a recession after a period of rapidly-increasing indebtedness and rising asset prices, the recovery from this level may be very slow. The reason is that the economy then often enters what is known as a balance sheet recession.1 Put briefly, what this means is that the economic agents need time to adjust their balance sheets if, for example, property prices have fallen. Their incomes will for some time to come be used for amortisation rather than consumption and investment.