samchain/econo-pairs-v1 huggingface dataset:
Meeting the PRA’s expectations on the PPP has required some firms to take action to substantially reduce exposures to single asset classes or to different asset classes with similar underlying risk drivers. But, as I have explained, we are seeing new types of concentration risks emerging. These raise questions about the strengths and weaknesses in insurers’ investment strategies, governance and risk management. So we will continue to look for evidence that firms are adequately integrating the PPP across these areas in a way that goes beyond just quantitative techniques: i.e. that qualitative considerations are taken into account too. Faced with uncertainty, a prudent person would not be expected to simply rely on quantitative analysis when there are risks that are not, or cannot, be modelled. In addition to engaging with firms on the PPP as part of our core supervision  Page 8  activity, insurers’ assessment of counterparty exposures will also be reviewed in our Life Insurance Stress Test exercise this year. We will look at firms’ reliance on reinsurance following stress, and the extent to which this concentration risk exists. I would emphasise that while we expect greater consistency in the efforts and thought that firms put into meeting the PPP, we do not expect to see the same outputs. It is clear from working with firms that there is no universally right or wrong number for investment limits.

4  BIS central bankers’ speeches  Chart 4 Rising dislocations across credit and fixed income markets Basis points  Basis points  10 0 -10 -20 -30 -40 -50 -60 -70 -80 -90  5 0 -5 -10 -15  Jan.16  Nov.15  Sep.15  Jul.15  May.15  Mar.15  Jan.15  -20  Nov.14  Sep.14  Jul.14  May.14  Jan.14  Mar.14  30yr swap spread CDS-cash basis IG skew (rhs)  Source: Barclays Live and Bank calculations. IG skew refers to the difference between US CDX.IG index and single-name CDS (SNCDS), 10-year swap spread is the spread between 10-yr USD swap and 10yr US treasury note, and CDS-cash basis is the spread between SNCDS and a basket of equivalent cash bonds. Chart 5 Bank equities down 25% since end 2015 UK  US  Euro area  Japan  105 100 95  85 80 75  (Dec 2015 = 100)  90  70 65 01  December 2015  17  04  January 2016  20  05  February  23  Source: Thomson Reuters Datastream and Bank Calculations. BIS central bankers’ speeches  5  Chart 6 UK banks’ ROE down 11pp since 2006(a) Per cent 30 25 20 15 10 5 0  Pre-tax  -5  Post-tax  -10  -15 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 Sources: Published accounts and Bank calculations.
Central government finances can be weakened so much that the country enters a debt crisis. From this point of view, it may be considered justifiable to make every effort to increase the resilience of the financial system. At the same time, it is important to always compare the cost of various types of measure with their benefit, so that we can design the most efficient system possible. I have presented a long list of possible instruments that could be used to conduct macroprudential supervision. By necessity, this list will include most tools, as different tools are needed to counteract different systemic risks. But we are discussing something that is relatively new. At present, we only have limited experience of conducting macroprudential supervision in practice. This means that the process of introducing macroprudential supervision will entail a certain degree of trial and error. Quite simply, we will have to test our way forward, while constantly doing our best to assess the efficiency of the instruments being employed. 13 The financial system is complex and dynamic, and the risk outlook is changing all the time. This means that it can never be determined with certainty where a financial crisis may arise. Bearing this in mind, it is important that we, in Sweden, construct a framework for macroprudential supervision that is flexible and that we do not limit our possibilities in terms of the instruments that can be used. It is also important to establish a process to evaluate and later develop and modify the toolbox.

This is primarily a matter of using tools aimed at financial companies, as it is within these companies that problems that may ultimately lead to a financial crisis can arise. But there may also be reason to use tools aimed at households and non-financial companies. Such tools can form important complements, for example by dampening demand for credit. Naturally, there are already policy areas that directly or indirectly influence financial stability. As regards the housing market, which is a sector that is creating a great deal of unease in Sweden due to high indebtedness and high prices, this is influenced by factors such as regulations for tax deductions for interest payments, changes to property tax, rent control and other regulations that affect incentives for housing construction. But decisions on measures in these areas are primarily taken on the basis of other goals than safeguarding the stability of the financial system. In micro supervision, which is the kind of supervision carried out by Finansinspektionen in Sweden, a series of different tools is also used to influence financial stability. However, at present, Finansinspektionen’s remit is focused on dampening risks among individual institutions, not in the system as a whole. What we need, quite simply, are specific tools for macroprudential supervision that can be used with the direct aim of promoting stability in the system. This will make it possible to counteract the systemic risks created by policies in other areas so that the system as a whole remains stable. The housing market is a good example of this.
However, the fact that Sweden was relatively well equipped to confront the crisis, in combination with other factors, contributed to a rapid recovery of the Swedish economy. During 2010, GDP increased by more than 5 per cent. Thus the increase was as large as the decrease had been the year before. And some of the reasons behind the pronounced decline also explain the rapid recovery. I will cover this in the first part of the speech. But Sweden was also lucky that the crisis did not have more severe consequences. As in many other countries, the crisis exposed vulnerabilities in the regulatory and supervisory framework for financial stability. The key conclusions we draw are not unique for Sweden and I will spend the rest of the speech outlining these issues and what we are doing to deal with them. Why were both the recession and the recovery more pronounced in Sweden than in the rest of the world? Sweden is indeed a small, open economy! Our exports and imports are approximately 50 and 40 per cent of GDP respectively. This is the main reason why the Swedish economy was hit so badly during the recent international recession, as global trade collapsed. While exports in the euro area and the United States fell by approximately the same amount as in Sweden, our higher export share meant a larger impact on the economy.

How should we structure the decision-making process in order to take account of the nexus between monetary policy and financial stability? It seems clear that the central bank should have some role in setting macro-prudential policy but that precise role may differ depending on the regulatory structure preferred by different countries. For example, responsibility for macro-prudential policy could be given to a committee in which a representative from the central bank would sit (like in the United States) or it could be given to the central bank (like in the UK). And central banks can adopt different internal governance approaches: some have a separate board for monetary policy; others also have a separate board for financial stability. Most central banks have the same board for both, but may have separate Deputy Governors responsible for each of the two strands. What matters, as I see it, is that “the buck stops somewhere”. There must be a decision at some high managerial level which balances the interests of monetary policy and financial stability as well as other central bank responsibilities. The organisation and processes of the central bank must also be structured so that there are analytical tools and resources available to help policy makers take a balanced view in their decisions concerning both monetary and financial stability policy objectives. For instance, there should be interdepartmental working groups. It is also important to remember that systemic risks can quickly spread between countries and reducing the build-up or impact of such risks will require coordinated international actions.
Do you think this authority should remain independent, or should it once again be subordinated to the Ministry for Economic Development? Thank you. ELVIRA NABIULLINA: Many thanks for your questions. As for the guidance you mentioned – this is still in the works. It is not so simple, as we are all accustomed to comment on a variety of processes. This is common practice when experts, business representatives and governmental officials voice their opinions on the current economic and forex situation. In other countries these opinions are not usually referred to as verbal interventions – verbal interventions are normally understood as the statement of a central bank, and are taken as verbal interventions, as well, possibly, forward guidance, too. I think that markets will gradually adopt the right view of such communications, and become accustomed to them. At the same time, we are looking to develop some general rules in this area. The idea is to ensure a more careful approach. 5 / 14  BIS central bankers' speeches  On the subject of Rosstat, there are objective complexities. These are understood to arise when Rosstat makes estimates in the context of significant external changes, which causes structural shifts to take place. These changes have to be reflected in data series as they unfold – so as a result we are not immune to recalculations. While we do use the full set of Rosstat data, we have always drawn on additional data obtained through surveys.

It is now clear to everyone that low inflation must be good for people because price growth does not accelerate, food prices do not grow. However, perhaps not everybody has realised the benefits of sustainably low inflation for businesses, because we are yet to assure them that inflation will indeed remain low and stable, and companies may rely on this assurance in making plans and raising investment. I hope we will be able to achieve this in the forthcoming years. As for the development of the financial and banking sector, I would like to complete the so-called resolution policy and invest more in favourable conditions for banking and finance at large, in order to improve financial inclusion and expand the availability of financial services to customers so that they have more trust in the financial system. The confidence in the banking system is already relatively high, but I would like to support and strengthen it. A separate task is the development of the non-bank financial sector. We have quite a small share of pension funds and insurance companies, though they are a source of long money necessary to economic development. These are the key objectives in this field. QUESTION from Reuters: 11 / 14  BIS central bankers' speeches  The seasonal nature of the balance of payments makes analysts expect purchases of foreign currency conducted by the Ministry of Finance to have larger impact on the ruble exchange rate in April. Do you support this view? And a question about methodology.
In the fall and in early winter, the market also felt the weight of rapidly deteriorating global lending terms, which will undeniably support the Central Bank’s tightening measures and will reduce domestic demand and inflationary pressure, as was mentioned in the Board of Governors’ announcement of 14 February. It is possible that there will be a rapid drop in domestic demand as a result of high interest rates and a tightening credit supply. At this point, however, it is impossible to assert that this will be the case. Exactly when it will be possible to lower the policy rate will be determined by economic developments and outlook. Precipitate interest rate reductions would push inflation upward and standards of living downward. The suggestion that it is necessary to lower interest rates in order to control inflation is absurd. Indeed, it is astounding how carelessly many people seem to view inflation. Furthermore, it is appropriate to stress that the Central Bank believes it is impossible to choose between price stability and financial stability. If we were to relax our stance on price  BIS Review 25/2008  1  stability, it would surely undermine the credibility of monetary policy. Inflation – and no less important – inflation expectations would increase drastically, which could lead, in short order, to an upward spiral of prices and wages and falling exchange rate.

On the contrary, forecasts suggest that times will be difficult for the greater part of the  2  Moody’s Investors Service: Special Comment: Iceland’s Aaa Ratings at a Crossroads, January 2008. BIS Review 25/2008  5  year, if not longer. The conditions that reigned in the financial markets for several years, and changed abruptly in mid-2007, were also quite unusual, and it is unlikely that such a period will occur again in the foreseeable future. It can be considered certain that investors will be much more cautious in the future than they were until the middle of last year, and that the banks’ room for manoeuvre will be more limited than it has been for a long time. Icelandic companies, including banks, must therefore adapt to changed circumstances, a tighter credit supply, and less advantageous terms. Under these circumstances, it is even more important to reduce the imbalances in the economy by, among other things, lowering inflation and anchoring inflation expectations. The Central Bank will continue its efforts to that end. 6  BIS Review 25/2008
In all these areas, we have made substantial progress in recent years. During the crisis, the ECB has taken all appropriate measures to ensure that price stability provided an anchor in an uncertain and volatile economic environment. Consistent with this principle, our recent decisions have aimed at addressing the risk of too long a period of low inflation and at ensuring that inflation expectations remain firmly anchored. As for financial stability, the crisis has shown us how the functioning of an economy becomes impaired without a well-functioning, robust financial system. This requires striking the right balance between insuring against crises, curbing risk-taking behaviour and mitigating moral hazard with a strong incentive framework. The establishment of the European Stability Mechanism and the launch of banking union, with its Single Supervisory Mechanism and Single Resolution Mechanism, have been milestones in this respect. The stabilisation and ongoing repair of the Greek banking system is another example. As a third dimension, the crisis has shown us the kind of existential threat to monetary union that can be brought about by the build-up of excessive imbalances, i.e. by the lack of fiscal and macroeconomic stability. The lesson drawn from this existential threat was that there was a need to reform economic governance. We should be very careful now not to roll back this achievement, in particular in the fiscal domain. New growth will not be generated by new debt. On the contrary: sound fiscal policies are essential for growing out of debt.

Therefore, the existing rules should be applied, and they should not be stretched to a point where they would lose their credibility. There is built-in flexibility in the Stability and Growth Pact to account for the cost of major structural reforms – but it cannot be based on empty promises. The sequencing should be clear. First, reforms need to be adopted and implemented. Then,  3  Euro area GDP is expected to recover at a pace of 1% in 2014 and 1.7% in 2015 according to the latest ECB staff projections. 4  Total investment in the euro area has shrunk by almost 20% since the peak in economic activity in 2008. In addition, total factor productivity has also been disappointing in the euro area since 2000: it grew by 0.45% annually from 2000 to 2007 before receding by 0.47% annually between 2007 and 2012 (source: Ameco database, European Commission). 5  See Barroso, J.M., “Remarks by President Barroso on the Country Specific Recommendations 2014”, speech given in Brussels on 2 June 2014. BIS central bankers’ speeches  3  the cost of such a reform, independently assessed, could be taken into account under the Stability and Growth Pact, with due attention to the limited fiscal space provided by the high debt levels. Economic stability is a necessary condition for growth, but is not sufficient alone. For our economies to grow out of high debt and unemployment, and thereby ensure social stability, we need to do more.
However, we would certainly be in an even better position now if we had built up a stronger presence in emerging economies. Contrary to what some people believe, I am fully convinced that globalisation is not the cause of weak growth and unemployment in Switzerland; indeed the opposite is true. Foreign trade is the engine driving our economy. It has expanded in recent years in step with the global economy. By contrast, our domestic market has been much less dynamic and has registered only limited gains in productivity. In comparing Switzerland to Singapore the many similarities are evident. As small countries, both of us have simply no choice but to trade with the rest of the world, if we want to prosper. In many respects, we also face the same challenges: We have to adjust to a rapidly changing world, we have to remain competitive with our high technology products as well as our world-class services, and we have to focus on niche policies. In other words, we have no choice but to opt for excellence. 4  BIS Review 85/2006

However, independent of specific events, the question arises whether regulatory and oversight control has kept up with this development everywhere. It is indeed rather problematic that custody activities lie in a grey area between banking supervision and system oversight. In some countries where the tasks deriving from banking supervision and system oversight are performed by separate authorities the regulatory and oversight  4  BIS Review 28/2003  framework is very likely to be incomplete or at least sub-optimal unless the two authorities succeed in establishing a strong and effective co-operation. This aspect seems all the more important as large custodians tend to become direct competitors to traditional market utilities like CSDs and ICSDs. This said, I must admit that regulatory and oversight authorities should address this issue with the aim of allowing an acceptable level playing field among large custodians and providers of market utilities. The aim here is not the protection of incumbents against efficient predators - or of Little Red Riding Hood against the big bad wolf - but rather to restrict the use made by large individual suppliers of their powerful market position which eventually could lead to outright dependency of the former customers of CSDs and ICSDs on huge and incontestable financial service suppliers. In view of these challenges, there is good reason to critically reassess rules and regulations related to securities clearing and settlement systems as well as to the way regulatory and oversight responsibilities are implemented in practice. A predominantly national approach no longer serves market needs.
Rodrigo Vergara: Chile’s March 2016 Monetary Policy Report Presentation by Mr Rodrigo Vergara, Governor of the Central Bank of Chile, of the Monetary Policy Report before the Finance Committee of the Honorable Senate of the Republic, Santiago de Chile, 28 March 2016. *  *  *  Accompanying figures and tables can be found at the end of the speech. Introduction Mr. President of the Senate’s Finance Commission, senator Andrés Zaldívar; senators members of this Commission, ladies and gentlemen, Thank you for your invitation to present the vision of the Board of the Central Bank of Chile on recent macroeconomic developments, its outlook and implications for monetary policy. This vision is contained in detail in our Monetary Policy Report of March 2016. Since our last Report saw the light December of last year, inflation has behaved as forecast. It has remained high, mainly due to the effects of the significant depreciation the peso has accumulated, in a context where indexation to past inflation and narrow capacity gaps have limited the decline of non-tradable inflation. Regarding activity, 2015 figures showed weaker demand and slower than expected growth towards the end of the year. As I will describe in a moment, this factor, along with an expected weakening of the external scenario, results in reduced growth prospects for this year. In our projection scenario, inflation is assumed to be slightly lower than we thought in December.

Just as a reference: in March 2014, 90 percent of the analysts consulted under our Economic Expectations Survey thought that GDP would grow by 4 percent or more in 2016. Two years on, 90 percent are betting on less than 2.1 percent. What caused this change in the forecast? To begin with, the world economy is undergoing an important process of reconfiguration, which entails deep changes that have proven not only more intense, but also of a much more persistent nature than expected. Among them, it is worth singling out the evolution of the Chinese economy and its major effects on the commodity markets. The effects of this phenomenon have reflected strongly in a sharp reduction in mining investment, of nearly three points of GDP in the past few years, putting a brake in our economy, especially considering that in previous years this sector was an important driver of growth. The situation in China has not only affected the prices of commodities. In addition, the uncertainty surrounding the changes in the Chinese economy has driven up global risks. After all, never had an emerging economy played such an important role in the world economy. Secondly, the global financial crisis of 2008 hit the developed economies harder than we originally thought. The wounds it left have constrained their economic recovery and pushed them to experiment with ultra-expansionary monetary policies. This, coupled with the fragilities of many emerging economies, has led this group of countries to face tighter financial conditions than they did some quarters ago.