samchain/econo-pairs-v1 huggingface dataset:
In a comparison of the profile in 2016 with the profile in 2005 and 2010, the most striking feature is that interest burdens rise in many age groups. The age profile itself is little changed. A similar chart showing the distribution of higher interest expenses across income deciles would have shown the same picture. Even though many households will feel the effects of higher interest expenses, the increase will be manageable for most people. The share of households with high debt relative to income, low debt-servicing capacity and a high loan-to-value ratio is small, and lower than just a few years ago (Norges Bank (2017)). Chart: Higher bank deposits dampen some of the effect of higher debt How quickly an interest rate increase will lead to lower growth in consumption also depends on the size of households’ financial buffers. Buffers in the form of bank savings can be drawn down if interest expenses rise, reducing the need to adjust consumption. Even though some households have little in the way of financial buffers, many households’ buffers are larger than just a few years ago. Despite the rise in debt ratios between 2010 and 2016, an interest rate increase will lay claim to a smaller share of bank deposits, particularly for the groups with the highest level of net debt. This will counteract some of the effect a higher level of debt has had on 6/7  BIS central bankers' speeches  the impact of an interest rate increase via the cash-flow channel.

Three-month Nibor is a so-called reference rate, used as a basis for the pricing of many financial contracts in Norway, such as loan contracts and interest rate swaps. In its capacity as a reference rate, Nibor is a key element linking the key policy rate with the interest rates facing households and enterprises. Chart: … and on to mortgage rates The interest rates paid by households and enterprises on their bank loans are set to cover banks’ costs as well as to provide a return on equity for the banks’ shareholders. A large share of banks’ costs consists of the cost of wholesale loans to fund retail lending. Prices for these loans will typically be formulated as a premium on top of three-month Nibor. Changes in Nibor will thereby affect banks’ funding costs and lending rates for households and enterprises. Reference rates are used to hedge against future changes in the general interest rate level. The pricing of bank bonds can serve as an example. When the interest rate on a bond is set at the reference rate plus a fixed risk premium, both the bank’s interest expenses and the bond purchaser’s interest income will depend on the level of the reference rate – and thereby on the general interest rate level. When the two parties agree to the contract, they can then focus on the contract’s specific conditions, such as the credit risk associated with the issuing bank. Internationally, Libor and Euribor are important reference rates.
2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  I see four main risks: 1. longevity risk - the risk that annuities to pensioners need to be paid for longer and therefore at a higher cost to the insurer because people live longer than expected; 2. market risk - the risk that asset returns are insufficient to pay the pensions: for example, because the insurer holds assets of shorter maturity than its liabilities, market interest rates fall and the insurer cannot afford to buy sufficient bonds to produce the income needed to meet its annuity obligations to pensioners; 3. credit default and downgrade risk - the insurer suffers losses because the assets in which it has invested default or downgrade; and, perhaps most importantly 4. management and governance risk - in the absence of regulation the owners and managers of an insurer may be incentivised to maximise their own short-term returns rather than managing the business in the long-term interest of the annuity holders. The interests of owners and managers are not necessarily aligned with those of the policyholders because owners share the benefits of taking more risk in a good outcome but have limited exposure to losses in a bad outcome because of their limited liability. Policyholders might be unable to monitor how an insurer is run because of the long-term and complex nature of pensions business.

The rapid growth of recent years has brought the economy to full capacity, the unemployment rate has fallen below 1½%, resulting in substantial wage pressures in certain segments of the market. The sharp expansion has resulted in a rising rate of inflation. In the 12 months to the beginning of October, consumer prices rose by 5.3%. The Central Bank issues inflation forecasts every three months. The latest forecast was issued in July and it envisaged a 3% average rate of inflation in 1999 and a 4% inflation rate from the beginning to the end of the year. A new forecast will be issued in the beginning of next week. The deficit on the current account of the balance of payments has risen. In 1998 it equalled roughly 5½% of GDP. It is expected to be lower in 1999. During the upswing, the Central Bank of Iceland has followed a restrictive monetary policy as reflected among other things in the fact that at present the differential between Icelandic and trade weighted foreign money market rates is well in excess of 5%. The yield on 3-month treasury bills in the market is currently above 9%, and the so-called repo rate of the Central Bank of Iceland is 9%. That can be compared with the repo rate of the European Central Bank of 2.5%. Since September of last year, the Central Bank has raised its interest rates four times, by a total of 1.8 percentage points. In early 1999 it also levied a liquidity requirement on Icelandic credit institutions.
This desire to postpone capital raising stems, in part, to the fact that bank executives often do not want to dilute the existing shareholders (which, of course, include themselves). I believe that the management calculus has often gone like this: In good states of the world, I have enough capital. In bad states of the world, perhaps I don’t. But to raise enough capital to guarantee I can endure all the potential bad states of the world, I will have to massively dilute my existing shareholders now. So the self-interested thing to do is to avoid the dilution and hope for a good state of the world. This does not always work well in practice. Once capital preservation becomes paramount, deleveraging intensifies and counterparties grow more wary about engaging. This dynamic, in turn, makes a bad state of the world more likely. What may be sensible for each institution individually, may collectively be a bad idea. That is because each firm does not internalize the cost that their decision not to raise capital has on the overall financial system. A healthy banking system is always essential. But never has that been more true right now given what has happened to the securitization markets and the broad “shadow” banking system. So where are we now? In my view, the deleveraging process is still far from complete. Hedge fund redemptions have soared.

It would not be surprising that when we’re done, hedge fund assets (before leverage) will have fallen in half or more from their peak of about $ trillion. Of course, the Madoff scandal and other episodes of misappropriated funds have further undermined confidence, reinforcing the redemption pressure. Most importantly, the pressure on the financial system has been exacerbated by the deterioration in the economic outlook following the Lehman failure. Before last fall, the causality ran mostly from the turmoil in the financial system to the real economy. Since then, the real economy has contracted sharply and this has reinforced the balance sheet pressure on banks and the forced deleveraging process. So where do we go from here? Well fortunately, it is not all bad news – there are a number of programs that have been enacted that have already made a difference. And several new initiatives are being enacted now that should help to support and bolster the financial system. Those areas where the Federal Reserve and the Federal government have responded in force are doing somewhat better. Banks and dealers have plenty of access to liquidity. The Term Auction Facility or TAF – in which funds are auctioned off to banks – and the Term Securities Lending Facility or TSLF – in which auctions are held to borrow Treasuries from the Federal Reserve – have recently been undersubscribed, indicating that the facilities have been sufficiently sized to meet the demand for liquidity.
Ong Chong Tee: The post-crisis financial landscape - what next? Remarks by Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision) of the Monetary Authority of Singapore, at the Society for Financial Studies Cavalcade Asia-Pacific Conference's Gala Dinner, Singapore, 13 December 2018. * * * Professor Laura Starks – President, Society for Financial Studies Professor Ron Masulis – Program Chair Professor Jun-Koo Kang – Associate Chair, Nanyang Technological University Professor Bernard Yeung – Dean and Stephen Riady Distinguished Professor, National University of Singapore, President, Asian Bureau of Financial & Economic Research Professor Massimo Massa – The Rothschild Chaired Professor of Banking, INSEAD Associate Professor Johan Sulaeman – Dean’s Chair, Department of Finance, NUS Business School Ladies and gentlemen, a very good evening. Thank you for inviting a few of my MAS colleagues and I to be here tonight. Introduction 1 The SFS Cavalcade conference is a distinguished forum that brings together some of the sharpest minds in the world of finance and research. 2 This evening, I thought I could share some perspectives of a financial regulator. My hope is to flag a few pertinent issues that could do well with more research insights and discussion. As the great Hungarian scientist Albert Szent-Gyorgyi once said: “Research is four things: brains with which to think, eyes with which to see, machines with which to measure and fourth, money”.

Unlike 2008, the solvency and liquidity of the banking system was not at the very forefront of market and regulator concerns. And, of course, the shock itself did not originate in the financial system but rather in a once-in100 year pandemic that has left us with many other, more powerful, and disturbing memories. But it is worth refreshing our memories about just how extraordinary were the events of late February and March 2020. The realisation that we were facing a global pandemic – and that, in order to contain it, large parts of the global economy would need to be shut down – sparked a reassessment of financial asset values and, as one would expect, a ‘flight to safety’ by investors. In February 2020, as you would expect, risky asset prices fell sharply. At the same time, the price of traditionally safe assets rose sharply and yields fell – the yield on US treasuries for example fell by around 100 bps. This flight to safety was also reflected in the gold price, which rose by around 4% over this initial period. In the early weeks of March however – from the 9th to the 18th – a different dynamic took hold; an accelerating ‘dash for cash’ in which, given the illiquidity of other markets, investors sold their most liquid assets, driving safe asset prices down. A dash for cash which turned into a stampede. The numbers are impressive.
There has also been significant shifts in the asset portfolio composition. Following the initiatives to promote SME access to financing, banking sector loans to this sector have increased significantly to account for 38% of total business loans. Retail lending for consumption has also increased. The strong banking system has been well positioned to meet customer demand for financial services. Indeed, the banking industry has continued to benefit from strong demand for household credit. •  The enhancement to the legal infrastructure including enactment of the Payment Systems Act 2003 will serve to strengthen Bank Negara Malaysia’s payment system oversight, and to provide the legal framework to ensure that payment systems are protected from disruptions and its consequent effects on financial stability. •  The Islamic financial system has evolved to form a vital component of the Malaysian financial system. The Islamic banking system now accounts for almost 10% of the total assets of the banking system, from 6.9% in 2000. Significant milestones have been achieved in developing the Islamic financial infrastructure as well as in the development of the prudential regulatory and supervisory framework in meeting the changing requirements of the new economy. 2  BIS Review 28/2004  •  Following the intensified consumer awareness and literacy programme that has been implemented, there is evidence of growing consumer involvement in product development and delivery. Customers are demanding greater service quality and product offerings to fulfil their preferences and requirements.

3/8  fact, Norway has scored particularly favourably in recent years by managing to sustain productivity8 growth at a strong level. We seem to have avoided this symptom of Dutch disease. Restructuring in the Norwegian economy in the 1990s, changes in the tax system, broader and deeper financial markets, deregulation in trade and service markets and the use of the market mechanism in the telecommunications, postal and transport sectors appear to have contributed to a more efficient use of resources. This is a fourth positive result. Another wealth effect could be lower labour force participation and higher welfare spending. In Norway, labour force participation is relatively high after lagging behind our neighbouring countries up to the 1990s. The labour force participation rate has declined somewhat in recent years, but is still at a high level. This is a fifth positive result. However, the average number of person-hours worked is lower than for the other Nordic countries, and this difference seems to have increased through the 1990s to date. The increase in the labour force participation rate during the period does not seem to be the explanation. Reducing working hours is one way of spending income and wealth gains. We could also spend wealth gains by reducing the retirement age. OECD figures show that the difference between the official and effective retirement age is wider in Norway than in other comparable countries. Developments in expected retirement age are a cause for some concern. A working 40-year-old can now expect to retire at around 63.
For example, after the market turbulence at the start of the year, we kept monetary policy on hold at the March FOMC meeting and explicitly referenced “readings on financial and international developments” in the FOMC statement. Similarly, in speeches prior to the Brexit vote and in the FOMC minutes, we raised our concerns about the risks of disorderly outcomes associated with the U.K. referendum. For instance, the June FOMC minutes state: “Most participants noted that the upcoming British referendum on membership in the European Union could generate financial market turbulence that could adversely affect domestic economic performance.” In addition we are doing a reasonably good job incorporating the flow of new information into our forecasts. The fact that the federal funds rate projections from the SEP have changed significantly from quarter to quarter indicates that FOMC participants are responsive to new information. Now, some have expressed an alternative view that the movement in these rate projections is an indication that the FOMC’s reaction function is unstable and unmoored. I do not see it that way at all. The forecasts of FOMC participants with respect to growth and inflation have not changed much this year. What have changed are expectations about the monetary policy stance that would be appropriate in order to achieve those outcomes. It is important to emphasize that these interest rate projections are not commitments. They are point-in-time views of the appropriate interest rate path and are updated as economic circumstances and financial market conditions change and evolve.

William C Dudley: The US economic outlook and the implications for monetary policy Speech by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Bank Indonesia – Federal Reserve Bank of New York Joint International Seminar, Bali, 31 July 2016. *  *  *  It is a pleasure to have the opportunity to speak here in Bali. Today I plan to provide a brief summary of the U.S. economic outlook, incorporating recent U.S. economic data and global and financial market developments. I will then discuss the implications of the outlook for U.S. monetary policy, and explain how international and financial market developments influence my thinking. I will emphasize two key points. First, financial market conditions matter in determining the appropriate stance of monetary policy. Financial conditions affect households’ and firms’ decisions, so that the transmission of U.S. monetary policy to the real economy depends, to a large extent, on how changes in monetary policy help deliver the appropriate financial market conditions to support our objectives of price stability and maximum employment. But financial conditions also evolve in response to domestic and international events. Thus, when I reiterate that U.S. monetary policy is data dependent, that includes not just the information gleaned from important economic releases such as payroll employment and retail sales, but also how financial market conditions react to economic and financial market developments in the global economy.
The measures recently announced by the European Central Bank (ECB), aimed at containing the risk of the euro area running an excessively low inflation rate over a prolonged period, likewise contribute to bolstering the growth outlook for our economy and assisting the adjustment under way. But let us not forget that the crisis – complete with double-dip recession – in the Spanish economy has had a most severe impact on employment and income levels, and has caused a most pronounced setback in terms of real convergence with Europe. Merely restoring pre-crisis levels of well-being will take several years. Evidently, here, maintaining the reform drive is crucial for speeding the process of recovery of the levels of economic prosperity lost due to the crisis. BIS central bankers’ speeches  1  2. Banking sector: situation following the reform  The Spanish banking sector has concluded a far-reaching transformation, entailing the cleanup, restructuring and recapitalisation of the most vulnerable banks, all resulting from the transformation of the former savings banks. The consequences of this reform have been reviewed on various occasions, so I need not detail them here. Allow me merely to summarise the three key elements of the process. i)  Firstly, the reform has driven an intense restructuring and re-sizing of the banking industry, enabling its excess capacity to be corrected. Of note has been the integration of savings banks into existing or newly created banking groups, which has enabled the number of credit institutions to be reduced by over 30.

The natural rate of interest (R*)  The second concept of the interest rate I want to look at today is the natural interest rate. The natural rate of interest is quite an old concept, first posited by Knut Wicksell at the end of the 19  th  Century as the rate of interest at any given time that keeps the price level stable. Wicksell argued that if the market rate exceeded the natural rate, prices would fall; if it fell below, prices would rise. The economics discipline then went on an intellectual journey over the 20  th  Century, first largely abandoning the natural rate  concept in favour of Keynes’ advocacy of fiscal policy for demand management and then returning to monetary policy, albeit in the form of the famous quantity theory of money. By the start of the 1990s, however, the difficulties of targeting the growth in monetary aggregates were clear and central banks turned to interest rates as the principle instruments of policy. Nowadays, we tend to think of the natural rate not so much as the rate that would hold prices stable at any given time but, given frictions in the economy and lags in the impact of monetary policy, as the interest rate that will close the output gap over the monetary policy horizon. However, unlike the trend real rate, the natural rate is a shorter-term concept.
Cross-border European mergers would be particularly positive: they would deepen the banking union, reduce the sovereign-bank risk nexus, and provide greater potential for diversification. In this respect, the ECB Guide on the supervisory approach to consolidation in the banking sector specifically aims to enhance the predictability of supervisory actions for the market and thus help banks design merger plans that are prudentially sustainable, such that the resulting institution has a business plan that, when executed correctly, will add value. 10  Conclusions In sum, a banking sector that was initially healthier and more solvent and forceful economic policy action have allowed the initial impact of the shock of the pandemic to be absorbed and helped keep credit flowing to the economy, thereby preventing systemic risks from materialising. However, the ultimate impact of the crisis on the banking sector will depend both on its scale and duration and on the effectiveness of economic policies in alleviating its effects on households and firms. Economic policies (national, European and international; monetary, prudential and fiscal) should continue to support the economy, targeting the hardest-hit firms and population cohorts. In particular, supporting viable firms whose solvency has deteriorated after a year of crisis is crucial, to prevent the productive system and employment from being destroyed, which in turn would also damage the banking sector’s financial position, thereby hindering the recovery.

While impact analyses reveal that the reform would increase capital requirements in some jurisdictions, they also show that certain facets of the reform would lower them. Specifically, some of these latter facets have already been implemented via the European quick fix I mentioned earlier.14 The objectives of this second phase of the Basel III reform, which consist of balancing simplicity, comparability and risk sensitivity, remain wholly in place. Thus, after deciding to defer implementation by one year so as to increase banks’ operational capacity, all members of the Basel Committee on Banking Supervision (BCBS) have committed to its full and consistent implementation on the new date agreed. The economy and financial system will thus have sufficient time to absorb the main effects of this crisis and to progressively rebuild their buffers, if they were used. Domestically, the coordinated supervision of the risks to financial stability has been strengthened in recent years through the creation of the Spanish macroprudential authority 14  For example, in relation to the digitalisation of the banking sector, this reform exempts from deduction from CET1 investment in software development, databases and database management; the related amortisation, however, must still be deducted. This is because such investment is considered a basic input for banks to pursue their activities amid the economy’s and society’s growing digitalisation, and for banks to be able to better compete with BigTech firms, which are software asset-intensive.