samchain/econo-pairs-v1 huggingface dataset:
The common objective of all these efforts is to identify possible measures for improving the safety, efficiency and integrity of the regional payment systems. 7.4 The most demanding factor, common to all, is the rapidly changing global payment system infrastructure that is challenging the existence of domestic and regional payment systems, which are lagging behind. Given the increasing sophistication of cross-border transactions, the need to mitigate risks involved in using outmoded infrastructure has to be given priority. The SAARC payment system development strategy should therefore be designed to cater not only to the region’s present needs, but also its future demands. 8. How does the SAARC Payments Initiative work? 8.1 Let me briefly set out the proposed institutional structure of the SAARC Payments Initiative. 8.2 By consensus, Hon. Governors of the SAARC central banks requested the Central Bank of Sri Lanka to take the lead in this effort. We are happy to be the catalyst and promoter, but hope that at an appropriate time, this Initiative will be driven by the other SAARC member central banks. In consultation with the SAARC Governors, we have already appointed a SAARC Payments Council (SPC), which is composed of the chairpersons of the National Payments Councils (NPCs) in each of the SAARC member countries or by senior officials appointed by the Governors of central banks in countries which do not have NPCs.

This has been justified by saying that it might cause more confusion than clarity about the grounds for the policy. That has not been the Riksbank’s experience. Our view of inflationary pressure in the Swedish economy is published on a quarterly basis. The clear presentation gives observers a chance of understanding and questioning our assessments. As new information becomes available, moreover, they are in a position to relate it to our earlier assessment and continuously form a fairly good picture of how interest rates are likely to move in the future. BIS Review 76/1999  2  The publication of our inflation assessments has also facilitated decisions in recent years to raise or lower interest rates. In that the grounds for our actions are clearer, there is less risk of our being accused of heeding extraneous considerations, a worry that featured in the European discussion last autumn. It is my belief, however, that the ECB will become more open about its economic assessments as it settles more comfortably into its forecasting process and inflation assessment. Another difference in transparency concerns access to discussions at the decision-making meetings. The ECB has chosen not to publish any minutes. An important argument for this policy - and one that I find understandable but debatable – is that minutes disclosing how individual members voted might occasion a greater element of national considerations.
With a share of an estimated 26% of the world market, the Swiss banking centre is the leader in this area.5 In addition, the two big banks, UBS and CS, are among the most important institutions worldwide in some areas of investment banking, such as derivatives and foreign exchange trading. How did Switzerland, a comparatively small country, end up with a banking centre with such a wide international reach? A number of different elements may serve to explain this. First, I would like to mention the conditions which make the banking centre attractive for international investors. They include political, legal and economic stability, reliable banks, and a convertible currency whose value remains stable. In addition, a role in the steady inflow of foreign funds was played by the banking secrecy provisions established in 1934 and the enhanced protection of privacy associated with these provisions. These advantages appear particularly striking from a historical point of view, since, after the two world wars, neutral Switzerland presented a great contrast to the surrounding countries, which were suffering from currency turmoil, inflation and an increased risk of expropriation.6 Second, Switzerland’s prosperity and the relatively narrow local capital market – in terms of Swiss economic power – mean that Swiss investors seek investment opportunities beyond the national borders. At the same time, our economy also has a strong international focus.

Fourth, the banks are faced with higher costs and lower income as a result of structural changes. Apart from international competition, this pressure on margins is mainly attributable to tougher regulatory and legal requirements, technological advances and the continuing low  8  During the same period, the big banks also built up substantial off-balance-sheet positions which were attributable to investment banking activities. BIS central bankers’ speeches  3  interest rate environment. It can be assumed that the structural transformation in the Swiss banking industry will accelerate further.9 Basic prerequisites for the success of the banking centre in the future As we have seen, it is in Switzerland’s interest to have an effective banking industry located here, which can supply the economy with financial services and thereby contribute to prosperity and affluence. However, in view of the challenges I have mentioned, the fundamental question I posed in my introduction arises: Can Switzerland, as a relatively small country, continue to provide a home to a banking centre whose importance is global in nature? To ensure that this is possible, both smaller, regional banks and larger, international banks will be needed in future. Because of the broad structure of the Swiss economy, it can be assumed that customer requirements are also very multifaceted and diverse. A mix of different kinds of banks can make a contribution to meeting these requirements as efficiently as possible. Moreover, a diversified banking structure helps to ensure that a crisis at individual institutions or in individual areas of business is better absorbed.
  On the demand side, the investor base has been and remains severely eroded and many earlier active investors, such as SIVs and money market funds, are not expected to return to the market anytime soon. Europe in particular suffers from a lack of a significant real-money investor base that could step in.   On the supply side, concomitantly, the profit generating potential of securitisation remains insufficient, since spreads for various ABS still exceed the break-even levels from the issuer’s perspective. At the current levels of spreads, securitisation does not make economic sense for originators in most cases. At the same time, it would appear that current yields, with some exceptions, are not attractive to compensate for the perceived risks in the view of many investors. Therefore, although there are some signs of improvement, the current situation in structured finance continues to impose market funding constraints on banks and to hamper banks in  1  See “The Euro Area Bank Lending Survey”, April 2010, ECB. BIS Review 84/2010  3  providing credit to the economy. In this sense, securitisation is still certainly unable to fulfil the objectives that I highlighted at the beginning of my speech. Going forward, the key question is therefore: how do we bring back investors to the securitisation markets? This is tantamount to asking: how can investor confidence in securitisation be restored?

However, when these principles are transposed into specific provisions in some market convention, consensus becomes less easy to reach. In fact, aligning all the stakeholders’ incentives often proves to be difficult and there is the risk of only reaching a very low minimum common denominator. Certainly, this would not be sufficient to win back the confidence of public and private players in securitization. I therefore invite the industry to continue and to strengthen its efforts in this vital area of work. VI. Concluding remarks  Let me conclude by saying that, if managed in good order, securitisation should be a welfareimproving tool, because value is created by secured funding that is correctly structured and allows to adequately distribute financing and funding, and the related risks among households, enterprises, banks and investors. When it works properly, securitisation may represent a significant step towards more complete credit markets, thereby contributing to enhancing the efficiency of the economic system. The revival of securitisation markets is  BIS Review 84/2010  5  needed in many countries to support the provision of credit to the real economy, particularly to households and small business. While it is essential to define new market standards in terms of simplicity and transparency, more actions may be needed to re-start the securitisation market. There does not seem to be one single and simple solution that can unlock the securitisation market.
On this occasion it happened in a matter of weeks. The idea that consumer spending would come back quite quickly once infection rates had begun significantly to decline – faster, in particular, than in the “average” economic recovery – was something built in to the MPC’s “scenario” last May, early on in the pandemic. At the time, there was quite a bit of scepticism about this and many judged it to be too optimistic. For my part I think there was every reason to expect a relatively sharp recovery – slower, perhaps than the precipitous drop but nonetheless faster than in a typical economic upswing. In the event spending came back even faster during the summer than we’d expected in May. The same was true in other countries. And the interesting thing about these simple simulations (to the extent one attaches any credence to them) is that they suggest that the initial downturn in aggregate spending may have been as sharp as it was precisely because it was likely to be short-lived. The role of the furlough schemes was obviously critical here. One of the reasons “normal” recoveries in consumption are more protracted is because drops in output feed through to household incomes, via hits to employment and wage growth. This feedback slows down the dynamics of the average cycle. The schemes helped to interrupt that loop.

However, going out to eat still costs far more than it did, relative to other stuff. So you’ll probably be inclined to go less often. But what do you do with the money you would’ve spent? Do you simply switch it to other things, leaving your aggregate consumption unchanged? Or do you reduce your total spending as well, and instead save a little more? At least for the idealised consumer of simple economic theory, two things turn out to matter for this decision. One is the extent to which there are other, close substitutes for the taxed activity. If you liked cooking at home, or indeed anything else, almost as much as going to a restaurant you’d be more inclined to switch your spending immediately to these other things. Your total consumption wouldn’t change much. In general, a hike in a particular sales tax will have smaller effects on aggregate spending, and result instead in more expenditure-switching, if it’s levied on something for which there are similar (and untaxed) alternatives. The other important factor is how long you expect the policy to last. If he thinks the tax hike is permanent, our idealised consumer of economic theory would substitute his spending straightaway towards other goods or services, regardless of whether they’re close substitutes. If not – if he expects the government to come to its senses at some point, and reverse the policy – he’ll be more inclined to wait until that happens.
While the future path  BIS central bankers’ speeches  5  of policy is not on a pre-set course and must remain data dependent, we will strive to be similarly effective in our communications going forward. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences by the Fed chair following FOMC meetings; the publishing of growth, inflation, unemployment and federal funds rate projections by FOMC participants; a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate; and an equally concerted attempt to lay out how our various policy tools―such as interest on reserves, overnight reverse repurchase (ON RRP) operations and reinvestment of principal payments from our asset holdings – will be used to pursue our objectives. We are also working to be better stewards in safeguarding financial stability. Simply put, we failed to act early enough and decisively enough to stem the credit excesses that spawned the financial crisis and Great Recession. The U.S. was not alone in this shortcoming, but, given our position in the global financial system, we should have done better. We’ve taken important steps through new legislative mandates and a broader effort to rethink our regulatory and supervisory framework. In particular, systemically important banking organizations must now hold capital and liquidity buffers that are better aligned with their risk profiles.

Thirdly, there is no indication – from our perspective – that the risks entered into in the banking industry have risen: market and interest rate risk have only increased slightly on an aggregate level, and credit risk even seems to have fallen. Consequently, the banking sector is in good shape at the moment. As far as prospects for the near future are concerned, we believe that the macroeconomic environment and financial market conditions pose no major threat to the stability of the Swiss banking system. The outlook for 2005 indicates that economic growth in most regions will only slow down at a moderate pace. In addition, the available indicators suggest that there is currently little risk of contagion effects causing a crisis in the Swiss banking sector. Nevertheless, there are still potential sources of risk. They pertain to credit risks in particular. Firstly, an unexpectedly sharp economic downturn could have a serious impact on the quality of the loan portfolios and the stock market. Secondly, should we witness a swift economic recovery, however, a sharp rise in the still very low interest rates could also result in a deterioration of the loan portfolio. This  is because the growing interest burden would suddenly put considerable pressure on households and companies with mortgages to pay off. Banks would also be directly affected by the steep interest rate hike, as the interest rates on their assets tend to be fixed for a longer period than those on their liabilities.
The evidence suggests that investment is less 13  responsive to these commercial incentives the greater the degree of uncertainty about future returns . Nor is it just a matter of uncertainty: it’s unlikely that these propitious conditions will last forever. Either the currency market is right about the consequences of Brexit, in which case the UK’s trading relationships will become less favourable; or it’s wrong, in which case sterling is likely to recover. Yet even in normal times, currency moves generally have to endure for quite a while before multinationals decide to shift production from one 14  location to another . So these are not straightforward decisions. Put simply, firms in the tradable sector, and those thinking of entering it, will be weighing the boost in the current rate of return against any additional risk premium they currently require of such investments. The question is whether the first is big enough to compensate for the second. Summary and conclusion The adjective “post-Brexit” is bandied around quite a bit these days. The term’s a bit previous. A better description of the UK’s current economic circumstances is “post-referendum” but “pre-Brexit”. The result is something of a sweet spot for exporters. Sterling fell sharply after the referendum and, despite the strength of consumption since then, has remained close to record lows.

This means a greater regulatory burden for all and greater inconvenience to market participants, and possibly implications for the legal and institutional arrangements for regulation. Fourth, this approach may involve tighter rules for the markets. The critics may again say that this will further erode market freedom. But should we be so dogmatic? In any case, it is all a matter of degree. In the end, it is the public interest that counts. Is there, for example, anything wrong in restrictions against the holding of large dominating positions in any particular market, or against the taking of market moving activities? The purpose of a market is price discovery. There is no objection for buying low and selling high, and I would wish anybody who is attempting that the best of luck. But there is no legitimate reason for anybody to be operating in a market in a manner that has the sole aim of moving the price in order to make a profit. Tighter rules aside, it is interesting, and indeed slightly worrying, to note that stronger forms of restrictions and controls have been gaining currency among some monetary authorities or regulators in the past two years. These range from restrictions on domestic credit to some forms of exchange controls. This response is quite understandable and may be a reflection of the failure of the international financial architecture to accommodate the needs of small markets. But it is also regrettable, given the enormous benefit that international capital has brought to the region.
At the second stage, we will arrange consultations with the professional community, including financial market representatives, companies, independent analysts, and researchers. Now, I would like to focus on challenges to the economy in a broader context. By the moment, the economy has almost recovered to its pre-crisis level. Today, the key question is about the pace of post-pandemic growth and the drivers that would promote a faster than 1.5–2% annual growth rate (this was our pre-pandemic estimate of potential growth). We believe that, by bringing inflation back to the target, our monetary policy will serve our longterm development goals. Indeed, monetary policy does not influence economic potential. However, it creates prerequisites 2/7  BIS central bankers' speeches  for investment that would improve labour productivity and relocate resources to the industries of tomorrow. The chief result of the inflation targeting regime is that we have managed to decrease the socalled inflation premium and, accordingly, the level of long-term interest rates, thus improving the affordability of long-term financing. These are moderate long-term interest rates, rather than our key rate as such, that are vital for businesses’ investment plans. It is now crucial not to miss the momentum of changes — we need to support digitalisation and, simultaneously, raise labour productivity and reduce companies’ costs. The Government has launched large-scale infrastructure projects that should open new opportunities for businesses to implement really efficient projects. This is also essential given the energy transition that is set to take place.

This is not normal, but today there is no other alternative but to continuously expand controlling powers. Since there is little hope for self-regulation, we believe it right to move towards more systemic efforts in order to limit risks for customers. We would like to, so to say, coordinate the fundamental principles with the market community. The first principle is product governance, that is, product life cycle management. We discussed this topic yesterday at the International Financial Congress. We are now drafting a relevant 5/7  BIS central bankers' speeches  consultation paper and will publish it soon to discuss it with the financial community. The idea of such product governance is that, before offering new products or services in the market, a company should identify the target audience and its needs, inherent risks for customers, and test new products before their launch. The second fundamental principle is the assessment of the customer value of a financial product. In our opinion, a high-quality financial product should conform to consumers’ reasonable expectations. I firmly believe that if market participants focus on the customer value of a product, this will promote effective competition in the market. Unfortunately, not all financial products offered in the market today conform to the customer value principle. As an example, let’s look at recent statistics on housing equity holders’ insurance and insurance in general.
IT is also a necessary condition for the methods used to calculate financial risks in portfolios of securities or credits. The new Basel Committee rules on capital adequacy in banks, to take an example, are entirely dependent on such calculations. Network effects in the payment system The banking sector in Sweden is, as we know, strongly concentrated. This can raise questions in certain contexts as to how well competition functions. However, the concentration has also enabled, as I pointed out earlier, a more rapid exploitation of network effects and economies of scale connected with IT developments. Let me go into this in more depth, hopefully without becoming too abstract. The development of payment services is governed, just as on other markets, by supply and demand. Supply is affected by costs and technology, while demand is affected by factors such as price, acceptance, comfort and accessibility. Advantages of scale within the production of payment services arise as these services are often connected with high fixed costs and relatively low flexible costs. Building up a new computer system is expensive, but every transaction that passes through the system costs less. The economies of scale effects provide incentive for various types of co-operation and joint solutions, where producers join forces to utilise the economies of scale and spread costs over greater volumes. There are also advantages of scale on the demand side, the in the form of positive network effects. Positive network effects mean quite simply that a particular system becomes more usable the more people who use it.

More than the specific figures in the projections, what matters most is knowing the direction and intensity of the forces driving current dynamics, so we may better identify and gauge the pressing measures needed. The forecasts published by international institutions in recent weeks show that we face a severe global recession. Earlier this month, on 13 March, the International Monetary Fund published for the first time a negative growth rate for the world economy of between 0.5 and 1 pp for this year. A moderate recovery is estimated for 2010, but one still far below what we thought the growth potential trajectory was. Unfortunately, for several months now, each new projection has habitually entailed a notable downward correction on the projection immediately preceding it. It would therefore not be unusual, once the IMF updates its world macroeconomic outlook in a few weeks, that the resulting forecasts should have worsened on those published this month. The outlook for the euro area does not differ substantially from what the IMF anticipates for the developed economies. Early in the month the European Central Bank released what are still the latest projections for the area as a whole, placing growth at between -3.2% and -2.2% for the current year and between -0.7% and 0.7% for 2010. As for Spain, next Friday, repeating an initiative first launched two years back, we shall publish our projections for 2009 and 2010. I shall leave the specific figures for Friday’s release.