samchain/econo-pairs-v1 huggingface dataset:
The use of the buffers may pose difficulties in two instances: for example, if banks fear that reaching certain capital ratios may be penalised on financial markets (the stigma effect); or if there are doubts over their reconstruction in the wake of the crisis, in particular at a time at which banks’ earnings-generating capacity is modest or at which the markets may not be overly receptive. To mitigate this problem, we have made it clear that institutions will have sufficient time to restore compliance with capital requirements and that this process will not start before the main effects of the pandemic have dissipated. In any event, over the coming months we must continue to monitor the use of these capital buffers and assess, where applicable, the adoption of additional buffer-related measures. Based on the experience from this crisis, and looking ahead to the medium term, the balance between structural and cyclical capital buffers could also be analysed as a means of avoiding future difficulties in banks’ effective capital buffer use. Our recent decisions limiting the distribution of dividends by banks should be understood in this very context. Given the persisting uncertainty over the economic impact of the pandemic, as supervisors we have recommended that institutions exercise extreme prudence and consider refraining from distributing cash dividends and conducting share buy-backs, or that they limit such actions until 30 September 2021.

The fiscal policy applied during the three first quarters of the year materialised in the annual fall of public spending for this period, whereas income growth was low and budget deficit was in check. On the other hand, the fourth quarter of 2012 and year 2013 are expected to be characterised by upward fiscal spending and budget deficit. This fiscal policy increases the macroeconomic stimulus in the short run; however, it should be sensitive to the need for medium and long-term stability of the public debt. BIS central bankers’ speeches  1  Foreign demand was the main driver of economic activity in the third quarter of the year. Latest foreign trade data confirm the same trend for the successive period. Thus, in October, the trade deficit continued the corrective trend, narrowing down to 10.3% in annual terms. Its performance has reflected mainly the good performance of exports, which maintained positive rates of their annual growth, 12.0% in this month. Imports have also contributed to narrowing the trade deficit, contacting 2.3% in annual terms, in this month. The analysis of monetary indicators points to low monetary pressures on prices. Higher money supply, the M3 aggregate, continued to decelerate in October, settling at 6.2%. In particular, lending to the private sector slowed down significantly. Annual credit growth for the private sector was 2.4% in October, reaching its all-time low. To a large extent, it is influenced by the low demand of households and business for loans, as reflected by the performance of consumption and private investments.
The concern for financial stability is reflected not only on the regulations that the CBC is responsible for issuing, but also in a permanent monitoring and assessment of the Chilean financial system, its vulnerabilities and the risks it faces. This is done by analyzing many sources of information and the ongoing communications with the financial market’s players and supervisors. Whenever the view emanating from this analysis so warrants, it is verified with the respective institutions and communicated to the competent supervisors. Aside from the continuous monitoring by the CBC, the view of the Bank on the status and risks of the Chilean financial system is communicated twice a year in our Financial Stability Report (IEF), which is made available to the public and presented to Congress together with the Monetary Policy Report (IPoM). The Bank’s communication of risks in the Financial Stability Report seeks to inform financial system participants of the Bank’s vision regarding the main vulnerabilities and risks in the financial system from a forward-looking perspective and thus encourage them to take action to reduce those vulnerabilities. This scheme has proved effective. For example, after following the accelerated development of post-crisis housing prices, in the December 2012 Financial Stability Report the Central Bank expressed its concern about this trend and the risk that it implied in a context of high leverage in the origination of credits. After this warning, we saw a fall in the LTV of new loans, especially noticeable in the significant drop in loans carrying an LTV of 100%.

There are also other factors not connected with the expectations that push up asset prices and can temporarily lead to the increase in demand that is created by exaggerated asset prices not being  2  BIS Review 43/2002  expressed as inflation and thus not being counteracted by tighter monetary policy. A high level of credibility for the central bank can also create low and stable inflation expectations, which can mean that inflation will not rise for a period of time, despite strained resource utilisation. Deregulation on globalised markets can also temporarily subdue inflationary pressure. Is there reason to change strategy? The question is whether it is possible to raise ambitions for monetary policy to prevent financial bubbles arising? Most people advocate a strategy where asset prices are merely taken into account to the extent that they affect inflation forecasts during the normal forecast horizon. However, there are also advocates of a strategy where monetary policy also prevents the occurrence and effects of financial bubbles. Those who maintain that monetary policy cannot counteract the occurrence of financial bubbles point out that the central bank has no possibility of determining whether or not asset prices are fundamentally motivated. They also point out that it is difficult to motivate an interest rate hike that is essentially aimed at counteracting an excessively large expansion in credit and an overly high real demand if the assessments of inflation do not at the same time show that the target level will be exceeded.
The most outstanding development of the past several months has been the attenuation of some of the  BIS central bankers’ speeches  1  inflationary risks then identified. International commodity prices ceased to increase and the propagation of specific price shocks has been limited. This and monetary policy decisions have collaborated to ease fears of a further inflationary acceleration that we felt in March. Accordingly, private inflation expectations show a decline in the last two months, although some remain above the target (figure 2). First-quarter data showed a fast expansion of domestic output and demand, exceeding March’s expectations. Partial indicators for the second quarter reflect an economy that continues to grow strongly but shows some recent moderation. Worth noting is the strong dynamism of private consumption and, to a lesser extent, the machinery and equipment component of investment. Consumption evolves in line with fundamentals, particularly the increase in household income, given that both employment and wages continue on the rise. Financial conditions are still favorable. The baseline scenario assumes that GDP will grow this year between 6 percent and 7 percent. This range is higher than foreseen in March, consistently with the upward bias then identified. This higher growth forecast is based on actual first-quarter figures that exceeded estimates. For the rest of the year, the pace of expansion of demand will moderate as forecast in March. In particular, the speed of growth in the GDP of sectors other than natural resources will quickly approach the trend rate, which is still estimated at five percent.

But just as a town ravaged by flooding will seek to rebuild in ways that help it withstand the next big storm, so, too, must we think about how to shore up the Treasury market so it can better endure the next big shock. Today, I’m going to touch on the notable market disruptions that have taken place over the past decade. Then, I’ll discuss the imperative of a resilient Treasury market. I’ll close by challenging all of us to come together to prepare for the future. As always, before I continue, I must give the standard Fed disclaimer that the views I express here today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. Look Back to Prepare for the Future A well-functioning U.S. Treasury market is critically important for our economy and, in fact, the entire world. It enables the safe and stable flow of capital and credit to households, businesses, and governments. It serves as a primary benchmark for pricing in other financial markets, both domestic and global. Last, but definitely not least, it’s vitally important for the effective transmission of monetary policy to the broader financial system and to the economy. Thankfully, most days—most years—the Treasury and related markets function incredibly well. But in the past decade, these markets have experienced three abrupt and notable disruptions, each of increasing severity.
In addition to these savings bank merger/SIP operations, it should be mentioned that in the three years of international financial crisis, only two savings banks saw their solvency deteriorate to such an extent as to require the application of precautionary special measures. First, the directors of Caja Castilla-La Mancha were replaced by the Banco de España in March 2009 (before the FROB was set up). It received aid from the DGF totalling € billion, of which € billion consisted of preference shares and € billion were in the form of guarantees of asset value, as well as € million of bridge financing. This savings bank, following the agreements reached by it with Cajastur, has joined one of the 12 merger/SIP processes under way. Second, CajaSur was subjected to compulsory restructuring due to lack of solvency and viability, following its failure to approve a merger with Unicaja, a sound and solvent project in which the two savings banks had agreed on a private solution for the failed institution. The FROB granted temporary aid through the subscription of € million of non-voting equity units and € billion in liquidity support, which so far it has not been necessary to use. Definitive arrangements are being worked out for this savings bank through a competitive process in which the aid finally granted will be defined. At present, the provisional amount of the aid to be received by Spanish savings banks in this process is as follows. The FROB will furnish around € billion to strengthen own funds in merger/SIP processes.

These reforms, in turn, would contribute to progress in fiscal consolidation, as they would enhance the perception of the sustainability of public finances and would reduce the degree of sacrifice implicit in the necessary fiscal austerity that must be maintained in the coming years. There are several fields in which the Spanish economy requires an overhaul of its structures, to make them more consistent with our membership of a monetary area and with a highly competitive and globalised world economy. Two such fields are the labour market and the financial system, on which I shall elaborate in detail later on in my address. Correcting the inefficiencies weighing down on the functioning of our labour market is of paramount importance since, as the market is currently structured, the obstacles to gaining competitiveness and generating sustainable employment are patently clear. In particular, these shortcomings have meant that the adjustment of the economy in the recent crisis has fallen disproportionately on employment as a result, among other reasons, of the scant sensitivity of collective bargaining to the specific situation of firms. The extent of these rigidities is not merely cyclical; their effects are largely permanent as they force firms and workers out of the market, causing lasting damage to productive capacity and human capital. Last week the government approved a series of measures aimed at correcting these inefficiencies, specifically at reducing duality in hiring and at reinforcing companies’ internal flexibility.
We cannot allow the Swiss franc to appreciate further. Hence, we must continue with our current policy, in particular as interest rates are already around zero. To enforce this policy, we are prepared to buy foreign currency in unlimited quantities, if necessary. Moreover, we stand ready to take further measures if the economic outlook and the risk of deflation so require. By setting a minimum exchange rate, we have opted for a simple and clear policy, to which we are fully committed. For precisely these reasons, this policy has been absolutely credible to the markets. Before concluding, let me elaborate on two potential side effects which are often discussed in the context of our current monetary policy. On the one hand, it is argued that the significant increase in liquidity since August 2011 may trigger inflation risks in the longer term. Given the current economic situation, however, expanding the supply of liquidity was a necessary monetary policy response. There is currently absolutely no risk of inflation in Switzerland. First, headline inflation turned negative in October 2011 and continued to decline through the end of the year. It is assumed to fall even further in early 2012. Second, neither our inflation forecasts nor the medium-term inflation expectations from our surveys of households and companies show any signs of  2  BIS central bankers’ speeches  inflation risks. Consequently, there is no necessity whatsoever for the SNB to reduce the level of liquidity for the time being.

In such a scenario, demand for perceived safe financial assets would fall in general, and for the Swiss franc in particular. However, as downside risks are currently far more likely to materialize, the SNB will enforce the minimum exchange rate with the utmost determination. Under these exceptional circumstances, it is a necessary measure to fulfill our mandate. BIS central bankers’ speeches  3
A general assessment was that in the Swedish economy’s present cyclical phase, it is important that monetary policy does not remain expansionary for too long. Considering the time lag associated with monetary policy’s effects, a change to a less expansionary stance must be made in good time before resource utilisation becomes excessively high. The stated aim was that this would provide better conditions for more sustained increases in production and employment. Against this background, when the inflation report had been presented, the repo rate was increased in December by 25 basis points, from 4.10 to 4.35 per cent. In periods of financial unrest in international markets there is often a “flight to quality”; savers and investors experience uncertainty and rearrange their portfolios in favour of what are perceived as secure assets. In connection with the Mexican crisis in the spring of 1995, Sweden’s currency depreciated sharply and bond rates rose substantially; this amounted to a flight from Sweden. In view of the krona’s recent weakening tendency, it would be going too far to talk of a flight to Sweden but the fact remains that the situation differs from earlier occasions with international financial unrest. Even so, a correction of the present under-valuation of the krona would be a good thing. The conclusion from this is that the increased confidence which Swedish economic policy has earned in recent years must be nurtured continuously, not least to make us resilient to turbulent times.

At times during 1996 and 1997 the 12-month change figure for the CPI was below the tolerance interval’s lower limit of 1 per cent. On a number of occasions the Riksbank pointed out that this was mainly an effect of the repo rate cuts during 1996. In that it was not a question of more permanent effects and the inflation assessment pointed to a future increase, there was no need for further repo rate cuts. During the summer and autumn of 1997 inflation did, in fact, move up fairly rapidly, as expected, in that these transitory effects successively dropped out of the 12-month figures. As a result, actual inflation has moved closer to the underlying rate. In describing this tendency, the Riksbank has been far from alarmist. The latest inflation report This brings me to the future development of inflation and the current situation for monetary policy. Our December inflation report provides a natural point of departure. The assessment there was that during 1998 inflation would somewhat exceed the target, with a gradual acceleration to a rate of about 2.5 per cent in 1999. Underlying inflation was likewise expected to move up and reach just over 2.5 per cent at the end of 1999. This assessment was broadly in line with the more or less concurrent forecast from the National Institute of Economic Research, for example, as well as with the figures that forecasters in general presented last November and December.
It is also important for us to learn from the bitter lessons experienced by others as our financial services industry too is tempted to provide low quality credit, which has been the root cause of the subprime issue. The topic therefore is very relevant and it is time to generate a wider discussion on Governance, Risk Management and Compliance – in short – GRC, which are considered to be the three key pillars or imperatives of financial management. 1. What is GRC? 1.1 By itself, GRC is not new or unknown. GRC has always been of fundamental concern to businesses, the financial service industry and to regulators and supervisors. All stakeholders realize that there are enormous benefits of observing GRC and that such benefits would outweigh the cost of putting in place processes, procedures and controls that enable effective implementation of GRC. 1.2 Governance is all about self-discipline. It is the process by which the Board of Directors sets the objectives for an organization and oversees progress towards achieving those objectives. Put it simply, it is the set of procedures and processes that keeps the organization alive and allows it to operate as a “going concern”. The higher the sophistication of the financial system, the higher would be the demand for governance as regulation and supervision cannot cover all risk elements in their supervisory processes. 1.3 The next critical pillar or imperative is Risk Management; i.e. identification, assessment, continuous monitoring of risks (real or hypothesized) and risk mitigation, while maximizing returns.

Adopting an integrated GRC framework is a challenge  4.1 Understanding the demands of the organization’s stakeholders is the key in terms of performance and conformance, and aligning the organization to deliver against these objectives. Considering the risk appetite and risk tolerance of the organization, the processes and technology should be designed and deployed so that the achievement of objectives is measured, risks are assessed and continuous improvement is realized in support of effective GRC. Integrating GRC has become a challenge for virtually every financial institution looking to establish an integrated and consistent approach to controlling exposures, managing risks and creating value. 4.2 The major challenge in adopting an integrated GRC approach is the aligning of the GRC framework and processes to standalone and isolated solutions that are already in place. The difficulty is to integrate these isolated solutions through a flexible and add-on basis to embrace new requirements. Changing core business solutions without overhauling business requirements is considered to be a nightmare by many financial institutions. If it is  4  BIS Review 15/2008  properly planned and designed, it would not be that bad and those who have taken the bold decision to do so will be the winners in the future. 4.3 Another important challenge would be to adopt a GRC framework, which is consistent with international standards. To enable this, new policies and procedures have to be written with links to automated systems.
And if that confidence cracks, the costs are felt not just by the customers and shareholders of the banks concerned, but more widely in the economy given the potential disruption to the payments system. Our monetary economy relies on stability in the banking system. The other side of the Contract has, accordingly, had three elements designed to protect the economy from those risks. First, prudential regulation of banks, to contain their risk taking and so reduce the likelihood of confidence cracking. Second, deposit insurance, to make retail depositors more or less whole in the event of failure notwithstanding that regulation. And thirdly, central bank liquidity policy. Essentially, central banks have stood ready to provide unlimited amounts of liquidity against good collateral at a rate above the market rate prevailing during peacetime. 1 2 During the recent turmoil, that last part of the Contract broke down because borrowing from the central bank via premium-rate facilities became stigmatised. 1  In Lombard Street (1873), Bagehot talks about high rates of interest rather than penalty rates as such. This is in part because he was writing in the context of the gold standard regime, in which systemic stress was often associated with an external flight of credit and so rising short-term interest rates (see pages 56 and 57); in part because Bagehot thought about the premium in terms of comparisons with normal conditions (page 197). 2  This is to be distinguished from support operations for individual institutions.

So it is clearly in our own interests as well as theirs that the Asian economies recover as rapidly as possible and that we help them towards that end. That represents a difficult international economic and financial agenda for the future which, given the time, is perhaps the subject for another lunchtime occasion. The immediate first step is financial stabilisation in Asia, and my message to you today is that we are making progress towards that end. BIS Review 5/1998