samchain/econo-pairs-v1 huggingface dataset:
The Riksbank and financial stability Much work is being done with a view to avoiding financial crises. The Riksbank is one of the participants in these endeavours. Our efforts have included the development of an intellectual framework for contributions to improving the stability of Sweden’s payment system. In recent years it has become increasingly clear that the Riksbank has a main function that is probably just as important as maintaining price stability, namely promoting financial stability. The financial system has a central function in the economy and performs three main tasks: firstly, it handles payments; secondly, it channels savings to investments with a good return for future consumption; and thirdly, it spreads and reduces economic risks in relation to the players’ required returns. A smooth functioning of all these activities facilitates economic growth in that the production of goods and services as well as employment are promoted by lower costs and risks. In this way the financial system contributes to increased prosperity. In view of the financial sector’s central function in the economy, the authorities are particularly active in monitoring and regulating developments in this sector. In Sweden, the work for financial stability was accentuated by the serious incidents in the early 1990s. Since 1989 the Riksbank had been required by law to “promote a safe and efficient payment system”. The problems among Swedish banks naturally strengthened the Riksbank’s determination to contribute to the work on stability so that similar events would not occur again.

The pattern of risks differed somewhat from earlier periods with problems. Instead of the familiar difficulties with the banks’ loan portfolios, in large measure it was a matter of risks that certain highly leveraged players would generate problems through large positions in the repo market, for example. A drastic example—LTCM  5  BIS Review 23/1999  The problems in the U.S. hedge fund Long Term Capital Management can be seen as a drastic example of how systemic risks can arise if the banks’ counterparty risks and concentration risks become unduly large. A single player, seemingly far removed from the payment system, threatened to generate a systemic crisis in the U.S. financial system, with the risks of contagion that this might involve. LTCM, which had been operating since 1994, based its strategy on the use of statistical and mathematical models to identify temporary price differentials between similar financial market assets. This involved speculating, for example, in narrowing interest rate spreads in the U.S. bond market. In simple terms, a limited capital input was used to combine forward purchases of U.S. corporate bonds with forward sales of U.S. federal bonds. The combination of countervailing positions meant that the outcome would not be affected by the general development of interest rates. It was only the relative paths of the two asset categories that mattered—a narrowing interest rate spread would result in a profit. Similarly, the fund took large countervailing positions between different asset markets as well as between markets in different geographical regions.
Nevertheless, the latest forecasts provided by the ECB last Thursday continue to point to a gradual rise in inflation over the coming years: 0.1% in 2016, 1.3% in 2017 and 1.6% in 2018. 2  BIS central bankers’ speeches  II. This brings me to my second point: how effective are our non-standard measures? 1) Since the summer of 2014, we have implemented a series of monetary policy measures, dubbed “non-standard”, to complement cuts to key interest rates, which now stand at 0.00% for main refinancing operations and-0.40% for the deposit facility. These measures include: 2) Targeted longer-term refinancing operations, conditional on the provision of bank lending to the real economy. The new series of TLTROs that we decided to launch on 10 March - TLTRO 2 - will allow banks to borrow at highly favourable rates, depending on the amount of new credit they provide; 3) Purchases of private and public sector securities, to further ease monetary and financial conditions in the euro area. The Eurosystem buys asset-backed securities, covered bonds and investment grade bonds issued by euro area sovereigns, agencies and institutions. On 10 March we decided to expand this programme further by including corporate bonds among eligible assets, and increasing the amount of monthly purchases to EUR 80 billion from EUR 60 billion previously; 4)  Indications on the future path of key interest rates – or “forward guidance” – in order to influence agents’ expectations.

In the last HCSF communiqué in December 2015, for example, we indicated, on the subject of the property market, that “the price adjustment in the residential market since 2012 appears appropriate, whereas commercial real estate prices remain high”. We are ready, when needed, to take action with macroprudential measures, to prevent and mitigate any systemic risks that might arise. Monetary policy is thus doing a great deal to counter weak inflation and support economic activity – it is our duty and we will continue to do so with steadfast resolve: we are consistent in our objective, ready to act with the right instruments, and alert to any possible risks. However, I would also like to stress that “monetary policy cannot be the only game in town”. Other economic policies also have a role to play. This is precisely what the members of the G20 reiterated in Shanghai on 27 February: “Monetary policies will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth”. Where there is sufficient margin to do so, fiscal policy must support demand – this is not currently the case in France, but it is in other countries in Europe. Moreover, structural reforms remain absolutely vital in France, to encourage creations of jobs and of businesses and thus bring the economy back to full potential. Our country can’t wait any longer; its unemployed, its young people – such as yourselves – can’t wait any longer.
Marzunisham Omar: Risk and opportunity – managing risk for development Welcoming remarks by Mr Marzunisham Omar, Assistant Governor of the Central Bank of Malaysia, at the WB-BNM Seminar on the World Development Report 2014 “Risk and Opportunity: Managing Risk for Development”, Kuala Lumpur, 29 April 2014. *  *  *  It is my pleasure to welcome you to Sasana Kijang this morning to the seminar on the World Development Report 2014, with the theme “Risk and Opportunity: Managing Risk for Development”. Reading through the Report, I’m struck by two observations: •  first, in the past 50 years, middle-income countries have been in recession 14 to 16 per cent of the time and low income countries, a staggering 27 per cent of the time. •  second, from 1970 to 2011, there were 147 banking crises in 116 countries. So, while the world has, in the last 50 years, made significant progress in terms of economic development, poverty eradication and overall standard of living, the above observation begs the question of whether the global economy is also more prone to crises, highlighting the fragility of the economic system that is currently in place. This reinforces the need to have a proper framework to identify and manage risks, towards achieving a common shared goal of sustaining long-term development. Almost six years after the collapse of Lehman Brothers, the world economy is still coping with the aftermath of the Global Financial Crisis, notably the worst financial crisis in the last 70 years.

In strengthening the resilience of our economy and promoting the sustainability of growth, the role of policymakers go beyond managing short-term fluctuations in business and financial cycles. Equally important are structural reforms and institutional building that would increase the capacity and flexibility of the economy to absorb shocks and to improve the competitiveness and inclusiveness of the economy. The resilient and ability of an economy to face a crisis depends as much on  BIS central bankers’ speeches  1  what has been done throughout the years to strengthen the economic fundamentals and the financial system. However, the implementation of structural reforms is not without risks. In this regard, reforms that are undertaken in an environment of growth and stability would have a higher chance of success, as it would cushion the potential disruptions to economic activity and dislocations to vulnerable segments of society. The formulation of appropriate and consistent short-term and long-term policies, in turn, requires policymakers to have a holistic understanding of the domestic economy and financial system. From experience, a broad macro-level understanding of issues alone may not be sufficient, as issues at the sectoral level may be obscured at the aggregate level. This highlights the importance of having a firm understanding of micro-level behaviour and reaction patterns of households and businesses, which would reinforce the design of macrobased policy strategies. In this regard, the World Development Report 2014 is useful in facilitating policymakers in making more informed policy decisions.
However, these solutions are costly for end users and, at the global level, we are far from having a network (or set of interconnected networks) that would support quick and cheap transfers of funds. Second, and in close relation to the previous point, the DLT could help remedy the current limits of the existing wholesale market infrastructures. Those wholesale infrastructures also have various shortcomings. Since RTGS are not interoperable, correspondent banking is often the only solution to transfer fiat money across borders. However, correspondent banking is costly, and the perimeter of the AML/CTF and KYC checks is in some cases uncertain for the counterparties of a payment order. Furthermore, for security reasons, the access to payment systems is limited to a certain type of entities (mainly credit institutions, investment firms, ancillary systems, etc.). Finally, cross-border payments lack traceability. The DLT could also help improve current aspects of wholesale clearing and settlement mechanisms and facilitate in particular gross and simultaneous Delivery-versus-Payment processes, cross currency settlements and resilience and recovery from operational incidents. If the issues at stake are not the same in developed as in developing countries, the objectives of crypto-assets, and in particular stablecoins, are the same everywhere. They seek to shortcut central authorities and more generally financial intermediaries. However, they bring their own problems.

This is an important wake-up call for the financial market, and market participants are spending a lot more efforts on the transition issues, with the support of ISDA and other industry bodies. 3. But, with this growing momentum, are we all geared up? I would reply with a simple ‘no’. Clearly, much more remains to be done. Transition: A challenging process even for the deep USD market 4. Among all the IBORs, USD LIBOR is the most widely used benchmark in the global market. And the US authorities have been proactively engaging with the industry in promoting the use of Secured Overnight Financing Rate (SOFR) as an alternative. 5. Since the launch of SOFR in April 2018, the trading volume of interest rate derivatives (IRD) referencing SOFR has been growing, but it remains relatively small. According to ISDA’s Interest Rate Benchmarks Review, the total traded notional volumes of IRD referencing SOFR was $ billion in Q1 2019. This was less than 0.1% of those referencing USD LIBOR, which totalled $ trillion. 6. So, even for the USD market, which is the deepest and most liquid market in the world, the build-up of transactions based on an alternative risk-free rate could take some time. For other IBORs, this could be an even longer and more challenging process. Transition: A multi-dimension challenge Wide-ranging impact arising from the transition 7. As many speakers have pointed out, transitioning to alternative reference rates is a complex multi-dimension task.
The HKMA has also been very focused on raising the market’s awareness of LIBOR transition. We have spoken in different conferences on this topic, and also encouraged industry bodies, such as TMA, to organise seminars to explain the background and implication of LIBOR transition. All of the efforts, by us or by the industry, have a common goal – that is to reach out to a wide range of audience for their attention and get ready for this important LIBOR transition. Urgency of the LIBOR Transition 10. As we all know, time is running short, and end-2021 is fast approaching. Now, with a clear and certain timetable for LIBOR cessation, we should all work together with a sense of urgency. Although certain US dollar LIBOR settings will continue to be published until endJune 2023, this 18-month extension is intended to allow time for more legacy US dollar LIBOR contracts to mature. And, this won’t alter the fact that – LIBOR will come to an end. It is therefore vital for us to continue our preparation that is currently underway, and avoid any further build-up of LIBOR-related exposures going forward. With that in mind and to smoothen the transition process, we expect banks in Hong Kong to cease to issue new LIBOR-linked contracts by the end of this year. Development of the HKD Overnight Index Average (HONIA) Linked Market 11. As we have stepped into the fourth quarter, we will soon move into a post-LIBOR world.

Consequently, a higher share of SMEs than of large firms said that their profits had deteriorated in the first half of the year. Given the economic situation, it may come as no surprise that a limited share of euro area SMEs (10%) also reported a deterioration in their own capital (the share of large firms reporting a decline was lower). These developments certainly had an impact on the response to applications for bank loans and, more generally, on the availability of bank loans to euro area firms in the first half of 2009. Notwithstanding the deterioration in the economic situation, the majority of SMEs report that they were successful in applying for a bank loan in the first half of 2009 (see Chart 8). This is one of the main findings of the survey. It provides a very useful overall picture of bank loan supply and helps to answer the question of whether SMEs experienced financing constraints in the first half of 2009. In the period under review, 60% of the SMEs that had applied for a bank loan received the full amount they had requested. An additional 17% said they had received at least part of the amount requested, so that 77% of SMEs received either all or part of the requested bank loan. By contrast, 12% of SMEs had their bank loan application rejected. Unfortunately, we are not yet in a position to compare these results over time to assess whether these shares are high or low.
A great deal has been written on the subject. But perhaps it will suffice to recall the Swedish experience in the 1970s and 1980s. The high and widely fluctuating rate of inflation had clear negative effects on our economy. Productivity gains and investment growth in that period were low. Sharply rising prices led to an arbitrary redistribution of income and wealth. In order to rectify the corporate sector’s competitive position, the value of our currency had to be written down on a number of occasions. Bit by bit, however, more and more people, regardless of which political party they supported, realised that this economic policy could not be sustained. So in the early 1990s, Sweden finally joined the growing number of countries that had chosen to re-focus their policy on low inflation. 1  BIS Review 98/2000  But while it is not difficult to advocate low, stable inflation, it is less easy to argue that just 2% is the appropriate rate. When the inflation target was adopted in 1992, it was noted that this was approximately the level of ambition that important countries had chosen. Moreover, inflation was currently around that level when the decision was made. Alan Greenspan has argued that inflation should be so low that people generally do not give it a thought when making economic decisions. That points to 2% as a reasonable level. There are some objections, however. Some argue that an inflation target ought to be higher. One reason has to do with the downward rigidity of nominal wages.

Fiscal revenues increased 9.0% in annual terms, while budget expenditures were 7.5% lower than the previous year. Our monetary policy easing has also taken into account this feature of fiscal policy that the Bank of Albania has urged and supported. However, the Bank of Albania would like to bring to attention the need for a more uniform distribution of expenditures and budget deficit over the year, to enhance their effectiveness and avoid the fluctuations that their excessive concentration may cause to the country’s economic and financial indicators. BIS central bankers’ speeches  1  The improved foreign demand and positive dynamic of some sectors of the economy were reflected in an increase in annual exports by 10.3% in April. The detailed analysis of trade data reveals encouraging signals about re-exporting and agricultural activities. Trade deficit, however, expanded 1.8% in April, due to the simultaneous increase of imports by 6.0%. In particular, the energy situation continues to burden the trade balance of the country due to high levels of energy imports. Structural improvements to the economy and a more favourable external environment would pave the way for a faster growth of Albanian exports. The Bank of Albania considers this channel as the most appropriate tool to support the country’s sustainable growth in the medium and long term. Projections for low annual inflation rates, against the backdrop of below-potential economic growth, have dictated the pursuit of an easing monetary policy by the Bank of Albania.
Last week, the FOMC directed the Desk to reduce purchases of Treasury securities to $ billion per month and purchases of agency MBS to $ billion per month starting in October. The Committee also indicated that it will end the current purchase program at its next meeting if incoming information broadly supports its expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective. It also directed the Desk to maintain its agency MBS and Treasury security reinvestment policies – activities it separately announced it expects to continue after it begins to increase its target range for the federal funds rate. Should this course come to pass, the domestic securities portfolio will peak at a par value of about $ trillion – more than a five-fold increase since the start of the financial crisis in August 2007. The composition of the portfolio will also remain more complex. Formerly composed entirely of Treasury securities, the domestic portfolio is now only 60 percent Treasury securities, with the remainder held in agency MBS (and a small amount of agency debt securities). As I noted earlier, the weighted average maturity of the Treasury portfolio has lengthened substantially, while the MEP essentially eliminated the portfolio’s holdings of any Treasury securities maturing prior to February 2016. Meanwhile, it’s hard to predict the exact pace at which the SOMA portfolio’s agency MBS holdings will pay down over time given the prepayment uncertainty associated with those securities.

The current unusual circumstances are one of the main drivers for the prolonged boom in the local property sector. The risk of over-heating in the property sector to financial stability in Hong Kong is no smaller than that seen in 1997. We should note in particular that while mortgage rates were generally over 10% in 1997, after the burst of the property bubble, US interest rates have fallen, and mortgage rates in Hong Kong have spiralled down reaching about 2% in 2004. The situation we faced now is just the opposite. Mortgage rates are around 2%. And, even if the low interest rate environment were to remain until 2015 as anticipated by the US Federal Reserve, the US interest rates are bound to head back to more normal levels. Will mortgage borrowers in Hong Kong then be able to withstand the impact of interest rate hikes and property price falls? For example, under a 30-year mortgage, even though the borrower will be able to enjoy a low interest rate in the first two years, the repayment burden could become much heavier as a result of interest rate hikes in the years that follow. This could have serious consequences for the well-being of those families in the coming years. Therefore, I hope that the public will be cautious and should not underestimate the risks that rising interest rate could have on repayment ability, asset prices and the overall economy in Hong Kong. 2  BIS central bankers’ speeches
In the UK, the Financial Policy and Prudential Regulation Committees of the Bank of England annually test the core banking system against a very severe but plausible stress – a scenario in which banks have to withstand a combination of ‘tail risk’ domestic and global economic and financial market shocks.20 The scenario for the 2019 test, announced this week, includes a deep recession in the UK with GDP falling by 4.7 % from peak to trough, house price falls of 33%, falls in commercial real estate prices of 41%, recessions in the Euro Area, the US, and China and market stresses including a 41% fall in equity prices and a nearly 400bps widening of investment grade spreads.21 Last year, alongside the annual stress test, we also developed a worst case, disorderly Brexit economic scenario to give us confidence that the core banking system could withstand the losses and stresses that such a scenario would generate. We have also tackled the features of the financial system that amplified and spread the stress of the original losses. The systemic banks at the heart of the system have been capitalised to a higher standard, not because they are more risky but because of the impact on the rest of the system if they fail. In addition resolution regimes are being implemented to enable banks to fail safely, without disrupting the critical economic functions they provide – and without the taxpayer having to cover the losses.

One point worth noting to begin with, is that the Swedish nation as a whole has not increased its indebtedness in recent years. On the contrary, the large surplus on the current account indicates that external debt has declined. This should have contributed to making the economy as a whole less vulnerable to a rise in interest rates. In this respect we differ from a number of other countries, where household indebtedness has increased rapidly, while they have had a deficit in their current accounts for several years. This applies, for instance, in the United States, the United Kingdom and Australia. Developments in household indebtedness in Sweden are not remarkable when seen in relation to other OECD countries. It is clearly difficult to compare the level of debt ratios between different countries. Differences in taxation systems, credit terms and the percentage of the population that are home-owners are just some of the factors that complicate this analysis. On the other hand, a comparison of how much the debt ratio has increased in different countries in recent years can provide some perspective for developments in Sweden. It appears that developments in, for instance, the United Kingdom and Australia have been much more dramatic than in Sweden. Property prices have also risen more rapidly in these countries. However, in the United States, which deregulated its credit market at an earlier stage than the other countries, indebtedness has increased at a slightly slower rate, although it did not show any decline in the mid-1990s, as there was in Sweden.