samchain/econo-pairs-v1 huggingface dataset:
For instance, the Bank of England granted the building society emergency liquidity assistance. And HM Treasury abandoned the limits of its existing deposit guarantee, extending them to cover all deposits in Northern Rock without limitation. The question that many people are probably asking is why so much effort was made for one individual financial institution. Public measures of this type could hardly be appropriate if it had been a question of an ordinary engineering company or retail chain that was in financial straits. It is due to two factors. Firstly, it concerns the special role played by the banks and the bank system as a whole in the economy. Secondly, it concerns the special contagion risks in the financial system. In a central bank context, these are usually called systemic risks. Banks and other intermediaries in the credit market who receive deposits from the general public play a central role in the financial system. They contribute, for instance, to facilitating the mediation of capital by acting as intermediaries between depositors and borrowers. They also create the conditions for more efficient mediation of payments in the economy. The banks’ deposit accounts are of central importance for the use of payment cards, credit cards and credit transfers. Many banks also participate in the system for the settlement of  BIS Review 30/2008  5  large-value payments supplied by the central bank. The banks and their account systems are therefore a vital part of the payment system.

Stefan Ingves: Can the authorities manage crises in the financial system? Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Swedish Economics Association, Stockholm, 13 March 2008. *  *  *  I’m sure that no one here has failed to notice the fact that there has periodically been turmoil in the financial markets since last summer. It is scarcely remarkable or unusual that the financial markets experience upswings and downswings. And there are almost always some countries in the world experiencing problems in their financial sector. We have become used to this being a fact of life. But this time there appears to be much greater nervousness than we have seen in a long time. Central banks have also followed developments with great interest. For instance, the ECB, the Federal Reserve and the Bank of England have taken a number of well-publicised measures. So why all the commotion this time? Well, this is one of the subjects of my speech today. Financial stability is the Riksbank's other task in addition to monetary policy. Apart from being a red-hot topic of discussion, it is also an area to which I have devoted many years of work. Today I want to talk about the regulations for managing financial institutions in distress and the challenges we face. But let me first reason a little about financial crises on the basis of the current turbulence and the crisis Sweden experienced at the beginning of the 1990s.
If the Romanian companies are unable to gain market shares in the tough competition with rivals on both aforementioned markets, the gap between imports and exports widens, causing the deepening of the trade deficit and hence of the current account deficit; the latter is already at a level that raises concerns, also in terms of its financing by flows deemed stable (such as FDI and European funds), which have no longer fully covered it. Romania’s sizeable external imbalance is singular in the region in terms of size and trend. It owes to the faster growth of domestic absorption than that of domestic output, as well as to nonprice competitiveness issues of the Romanian economy manifest in certain production sectors. Relevant from this perspective is the unfavourable comparison with Czechia, Poland and Hungary, three countries where, the same as in Romania, monetary policy is managed under the inflation targeting strategy and there is a floating exchange rate in place. 3/4  BIS central bankers' speeches  Speaking of the exchange rate, I cannot help mentioning that the hasty adoption of Government Emergency Ordinance No. 114 at the end of last year contributed, through the uncertainty created on the market, among others, to an episode of moderate depreciation of the domestic currency in January 2019. Thus, the relative stability of the exchange rate of the leu, which we have all got used to, was a bit affected.

First, I will touch on the increasingly complex policy making environment given the openness of our economies. Second, I will posit three issues that we need to grapple with in considering the optimal policy mix towards achieving monetary and financial stability. Our mandates are to preserve monetary and financial stability, which are critical conditions for sustainable growth. In the pursuit of these mandates, a key consideration is the openness of our economies. While the integration of our economies with the global economy and international financial markets has yielded substantial benefits, it has also made our economies more susceptible to external shocks and spillover effects from global developments. Let me briefly touch on some of these external factors: First, global growth momentum is slowing. A key issue is how deep and prolonged the slowdown will be. A key risk is the ongoing trade tension and its impact on global trade, investment and sentiments. For many of our countries that depend heavily on international trade, the impact is already being felt in the slowdown of our exports and growth. Second, major central banks have indicated intentions, or a few have taken steps, to relax their monetary policy to support growth in an environment of low inflation. While this has helped to loosen the global financial conditions, the question is should emerging economies be prepared for another round of surge in capital inflows? This brings me to my third point.
In 1986, Norges Bank provided substantial loans to the banks – at the highest around NOK 80 billion – to prevent a rise in money market rates after large-scale NOK purchases had been made in support of the krone. 44 The loans, which were unsecured, were kept on Norges Bank’s balance sheet when solvency problems at the banks began in 1987. Norges Bank was later criticised for providing these loans. Although the criticism was misdirected, the loans did make it more difficult for the government to manage the banking crisis. 45 Today the Bank no longer provides unsecured loans and we have gradually tightened collateral requirements. Many banks rely heavily on short-term funding in international and domestic money markets. The lesson from the most recent financial crisis is that a shortfall in foreign funding can weaken stability in the financial system in Norway, even if the banks’ financial position is not in jeopardy at the outset. The next step will therefore be not only to require collateral, but also impose requirements on our clients – the banks – to improve their funding strategies. Banks must not be given the scope to take on substantial liquidity risk in the belief or with the certainty that Norges Bank will intervene should foreign funding seize up. A market functions poorly in the long term with such hidden support. With large unsecured loans, Norges Bank ended up providing income support in one instance in the 1980s when a savings bank experienced solvency problems.

In China, a large share of income was saved, either in the form of investment in new production equipment or financial assets. The increased supply of financial savings pushed down global long-term interest rates. Lower interest rates encouraged consumers and businesses in other countries to borrow capital from China and other surplus countries. The foreign debt of countries such as the US and UK accumulated rapidly in the years leading up to the crisis. BIS Review 163/2009  1  Historically low interest rates prompted fund managers in Western countries to seek out new alternatives in their search for high yields. New financial savings products were developed and spread to investors around the world. It was often difficult, or even impossible, for investors to value the risk underlying the products. Yield potentials can also be increased by leveraging securities purchases. As long as prices rise, the return on equity will increase with the degree of leveraging. On the other hand, the risk of being left with debt, and little or no equity capital, increases when prices fall. In the years ahead of the crisis, high debt leveraging still appeared to be an attractive proposition in an environment of low credit risk and a glut of cheap credit. The result was a surge in debt accumulation in the years preceding the crisis. Prices in securities and property markets soared. The build-up of macroeconomic imbalances in the years prior to the crisis increased vulnerabilities and the potential amplitude of a downswing.
Basically, there is now a broad consensus that low inflation is good for economic development and accordingly contributes to gains in prosperity. While it is true that in certain situations the economy can be stimulated by means of low interest rates, this works only if there are unutilised resources. Taken too far, it is liable to result in bottlenecks that push prices and wages up. There is then a risk of households and firms gradually starting to act in the belief that inflation will continue to be high — inflation expectations become firmly fixed on this. In other words, in the long run monetary policy is not capable of influencing growth. What does underlie a country’s economic development and thereby its prosperity are such factors as the labour force, a willingness to invest and technical progress. The best the Riksbank can do is promote an economic development that is more stable, with smaller fluctuations around the long-term trend. It therefore seems to me that the economic debate is somewhat lopsided. The long-term issues you work on in the Riksdag (Sweden’s parliament) ought to attract more attention. The Riksbank’s doings get more than their fair share. Convincing people in Sweden about the value of low inflation really should not be difficult. After all, what did we get out of letting inflation take off in the 1970s and ’80s? Recurrent devaluation cycles and a level of prosperity today that is considerably below that in many other countries.

Lars Heikensten: Behind the granite walls up at Brunkebergstorg - monetary policy in practice Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, to the Riksdag's Social Democrats, Stockholm, 21 March 2001. *  *  *  The theme for today’s seminar is monetary policy in practice. I find it extra stimulating because it is a subject I don’t often get a chance of talking about. While thinking about how to arrange what I want to say, I felt that, besides talking concretely about how we at the Riksbank go about assessing inflation, it would be a good idea to spend some time on some matters of principle. In that way I hope to lay a good foundation for the ensuing discussion. First I shall say a little about monetary policy’s purpose and our target. Then I shall describe how we make our assessment and how the Executive Board works. Before winding up, I shall also consider some issues connected with communication and transparency. ‘Hate inflation’ As we all know, monetary policy’s purpose is to safeguard low inflation. That has been the case in any event since the beginning of the 1990s. It became explicit, of course, when the Riksbank adopted an inflation target in February 1993. Since 1999, moreover, the Riksbank Act states that the objective of the Riksbank’s operations shall be to "maintain price stability". So why is this our objective?
A more moderate rise since last summer is related in part to lower air transport prices (increased competition between airlines) and a slower rise in house rents. The rise in prices for imported consumer goods has been pushed down by the strong krone exchange rate. The shift in clothing imports from high-cost countries to Asia and Eastern Europe has also contributed. In the near term, the appreciation of the krone over the past two years will be reflected in the underlying rise in prices. Subsequent developments will partly depend on developments in the global economy, the effects on the business sector of the high cost level, the krone exchange rate and how changes in the exchange rate feed through to consumer prices in Norway. In the baseline scenario presented in the Inflation Report, where the interest rate is held constant at 5½ per cent and the krone exchange rate at the average for the past month, inflation is projected to remain below 2½ per cent over the forecast horizon. The alternative scenario, incorporating monetary policy easing in line with market expectations, points to inflation above the target at the two-year horizon. Norges Bank has reduced the sight deposit rate from 7 to 5 per cent since 11 December last year. A lower interest rate differential has been followed by a weaker krone exchange rate. The lower interest rate and weaker krone have both contributed to a more expansionary monetary policy.

New financial sector regulation (I am referring to the CRR/CRD and the forthcoming BRRD) and single banking supervision will add new aspects and new partners to Nordic-Baltic cooperation. The goal of harmonisation of cross-border regulatory and supervisory practices is to create an operating environment for banks and other financial institutions that fosters mutual trust and helps ensure that the provision of financial services is continuous and satisfies the needs of the real economy. When the SSM becomes operational, it will have important effects on the routine supervisory work in the Nordic-Baltic region. The home countries of several subsidiaries that will be included under direct supervision by the SSM/ECB will probably remain outside the SSM. This presents a new challenge for the Nordic-Baltic cooperation framework. In the light of the success of our regional cooperation it is rational that we build the new principles of supervision on the existing foundation wherever possible. I hope and believe that in this new and more complex framework we will be able to preserve an important value – the spirit of cooperation. In view of the development of the single market it is also important that the building of the banking union be completed – the SSM must be followed by the SRM. Ideally, this would create the balance between rights and responsibilities which has been the guiding principle in safeguarding cross-border financial stability for nearly a decade.
And it is not comprehensive: it won’t protect pedestrians, and pile-ups will still block important highways to traffic. In macroprudential policy as in road safety: an ounce of prevention can be worth a pound of cure. 34  Crash resilience must be accompanied with standards of driving behaviour that prevent accidents in the first place – with speed limits and a Highway Code. We have applied that principle in the mortgage market. Alongside capitalising banks to withstand a deep downturn in the housing market, we have put guards in place against looser lending standards:  A limit on mortgage lending at high loan-to-income ratios;  And a requirement to test that borrowers can still afford their loan repayments if interest rates rise. 35  These measures guard against lending standards that make the economy more risky; that make what could happen even worse. Debt overhangs – induced by looser lending standards – drag the economy down when corrected. And before they are, high levels of debt make consumer spending more susceptible to the unexpected. 36  So they guard against lenders being exposed to both the direct risk of riskier individual loans, and the indirect risk of a more fragile economy. This multiplicity of effects means there is uncertainty about precisely how much bank capital would be needed to truly ensure bank resilience as underwriting standards loosen. 37  A diversified policy strategy –  speed limits and air bags – is more robust to that uncertainty.

The focus of strengthening the system since the crisis has been on building the resilience of the core banking system. The results have been transformative. A system that could absorb losses of only 4% of (risk weighted) assets before the crisis now has equity of 13.5% and is on track to have overall loss absorbing capacity of around 28%. 32  Our stress tests show that it could absorb a synchronised recession as deep as the financial  crisis. And if signals emerge that what could happen to the economy is getting worse, or the feedback loops in the system that would be set in motion are strengthening, we will go further. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  But bank capital is not always the best tool to use to strengthen the system and is almost certainly not best used in isolation. It is a classic ‘cure’ – a largely fatalistic approach, taking what could happen in the economy and the feedback loops in the financial system as given, and ensuring they can be withstood. 33  Sometimes we must be fatalistic. We don’t have the means to prevent foreign credit booms, for example. But building resilience into the financial system solely using bank capital is equivalent to addressing road safety only with tougher car safety standards – more airbags – while ignoring standards of driving behaviour. Such an approach is not robust: no airbags will deal with all types of crash.
It is its very flexibility that should make the PEPP our preferred marginal instrument for dealing with the consequences of the crisis, and I would now like to expand on its components. First, flexibility in terms of time. We are not bound by a monthly allocation. And the programme is clearly intended to be temporary: the Governing Council “will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over, but in any case not until the end of this year [2020]”. There is a risk that the economic consequences of the crisis may continue beyond the end of 2020, possibly justifying an extension to the PEPP; I then believe it would be advisable for us to clarify the criteria, “state-dependent” on the economic situation, upon which we will base our decision to close the programme in the future. Second, flexibility in terms of volume. Unlike the PSPP, we are not committed to a fixed amount – today, the PEPP can go “up to EUR 750 million”, and we stated on 30 April that we were prepared to go further if need be. However, in my opinion this would only make sense if at the same time we ensure the maximum effectiveness of the PEPP. And this brings me to my third point, flexibility in terms of allocation between countries.

– flexible: we cannot guarantee 2.0% either all the time or straight away. – and, consequently, medium-term. This medium-term target needs to be viewed in two ways: it is forward-looking, to guide inflation expectations; but it cannot completely ignore the past either. Should we go as far as targeting an average level of inflation of close to 2%, and therefore explicitly compensate for any undershooting or overshooting of the target over time? This question remains open, and will be part of the “strategic review” of monetary policy that the ECB will pick up again in the next few months. One key question in this case would be the period over which the inflation average would be measured: I think the public health crisis could provide some justification for this sort of “averaging”, at least temporarily, starting as of the beginning of the crisis. In the American debate, this is called TAIT (Temporary Average Inflation Targeting). Independence in implementing the mandate The ECB is independent on two levels. First, its action in implementing the mandate entrusted to it democratically under European legislation is not subject to approval by national governments, nor to national legal interpretation. Second, in its action, the ECB never submits to pressure from the market or from trends in the media. In the current context of an unprecedented rise in public debt, this independence is more important than ever. France’s debt should exceed 115% of GDP by the end of this year.
It is possible for a month’s activity data to show a steep drop that does not necessarily respond to economic factors and that are later offset in subsequent months, without either being construed as a change in the mediumterm trajectory of the economy. On the domestic expenditure side, a development of the third quarter most worth noting was the strengthening of investment which made up for a mild slowdown in consumption. By investment components, special mention deserves gross formation of fixed capital in machinery and equipment, as its rates of change in annual terms have remained high throughout the year (Figure 3). Our 2018-2020 growth forecast Turning to our projections, after growing 2.8% in the third quarter, we estimate growth for the full year at 4%. This projection—which considers October data up to the statistical closing of the Monteray Policy Report—is in the lower bound of the range estimated in September (4%-4.5%), mainly due to the deterioration of mining activity. However, compared with what we foresaw before September, the growth in 2018 is in the upper bound of the range (Figure 4). For the next two years, we still estimate that the economy will grow around potential, gradually approaching trend growth. 2  Thus, the projection ranges considered in September are maintained: 3.25% to 4.25% in 2019; 2.75% to 3.75% in 2020. For spending, we anticipate a change in composition, to higher growth in investment and some slowdown in consumption.

This will safeguard our independence and credibility as monetary policy maker and will ensure that monetary policy is not affected by considerations outside of the realm of monetary policy, for example the state of the banking sector. This is particularly important in the context of our emergency liquidity assistance (ELA), the provision of which is based on a sound and reliable solvency assessment. In the future, we will have these assessments at hand “in house”. Moreover, a strong resolution framework, with effective tools for orderly resolution, will in turn help to remove the pressure on the central bank to unduly prolong the life of banks through liquidity provision. Second, the banking union will help to unwind the reliance of the euro area banking sector on central bank intermediation. As mentioned, during this crisis we have activated a set of nonstandard monetary policy tools that – by nature – were intended to alleviate impaired monetary policy transmission and ultimately serve our primary objective to maintain price stability in the euro area. By alleviating funding pressures and undue risks in securities markets, our measures have provided temporary relief for the banking sector and complemented policy efforts on the financial stability front. However, our measures cannot and should not solve the underlying structural problems. This is a task for governments and the banking industry.