samchain/econo-pairs-v1 huggingface dataset:
Supervisors should never act in a way which implies that they assume responsibility for the banks’ ongoing activities. Third, the supervisors must have a broad range of powers at their disposal to address different banking problems. This range should include limited measures such as requesting changes in the bank’s management or requesting improvements in risk management or control management. Also more far-reaching measures should be available such as stopping or restricting certain payments or activities, or the ultimate measures, to withdraw the banking license or to liquidate the bank. Preferably, some of these powers should be “pro-active” so the supervisor is allowed to act even before a problem becomes acute, for instance when the capital ratio is declining but has not yet reached the minimum level. Fourth, the supervisors must have a well defined and documented work process. This includes a set structure of approaches to collect and analyse information and to use this as a basis for taking action. The approaches are, for instance, offsite monitoring, onsite examinations and ongoing contacts with the bank. Offsite monitoring means analysing regulatory and financial reports from banks, from their internal and external auditors, and from external media. Onsite examination is a tool to ensure that the bank actually works as reported and to gain further insights into the bank’s operations. The modern approach in this field is not to look at all transactions and documents but rather at a sample of those, including the more important ones.

The regulation will not obstruct developments in banking while at the same time it prevents banks from behaving in a way that might harm customers or themselves, other institutions or markets, or society as a whole. Without going into detail I could mention the new Basel II framework for capital requirements on banks as an example of such flexible regulation. Under Basel II, banks may assume risks as long as they can prove to the supervisor that they have adequate capital to back up those risks. The banks must also have the necessary governance structures to ensure that they have the capability to identify, manage and control all major risks. Please do not misunderstand me; I am not advocating that all countries should adopt the Basel II, not at all. In fact, it would even be hazardous for countries to adopt Basel II unless the underlying preconditions and regulations for basic banking are adequate. My point is only that Basel II is a type of regulation which maintains a balance between “carrots and sticks”. It lets the banks do their business as long as they manage and control it well, but if there are shortcomings in the banks’ handling then Basel II provides increased powers to the supervisor to intervene at an early stage to rectify the problems. To sum up, Basel II mixes responsibility and flexibility for banks with strong supervision by authorities and the general public. Whenever appropriate I would also promote a functional rather than an institutional approach to regulation.
On 1 January 1999, a new Riksbank Act came into force. It states that the goal for the Riksbank’s activity is to maintain stable prices. The Riksbank shall also be responsible for a secure, efficient payment system. In the preparatory legal material on the Act, it is also further stated that the Riksbank, without setting aside the price stability target, shall also support the objectives of general economic policy with a view to achieving sustainable growth and high employment. The price stability goal has then been confirmed by law. The Riksbank’s Executive Board is responsible for making the price stability goal operational and designing the framework for monetary policy. Among other things, this means that the Executive Board decides on how the price stability goal is to be defined and over what period price stability is to be maintained. The Executive Board of the Riksbank has decided that price stability shall be defined as an annual increase in the consumer price index of 2% with a tolerance interval of plus/minus one percentage point. If the consumer price index is affected by factors that are considered to only have a temporary effect on CPI, the Executive Board has agreed that we shall be able to disregard this. The reason is that monetary policy otherwise risks leading to unnecessary fluctuations in employment and production. A lot has been achieved although some things remain to be done Economic policy has been very successful in many areas during recent years.

To move towards a more resilient global system, the euro should play a more important international role. It is at least a credible complement to the dollar as a safe asset. More broadly, in present adverse circumstances, we should assign top priority to two courses of action. First, designing a consistent regulatory and monitoring framework to ensure that the development of crypto-assets does not undermine confidence in the financial system. The recent turmoil that has affected all types of players within the crypto-asset ecosystem (stablecoins, DeFi protocol, lending platforms, hedge funds) has highlighted yet again the intrisic weaknesses of this market and the necessity to have a comprehensive regulatory framework at the international level. In this sense, I welcome the upcoming update by the FSB of its high-level recommendations on the regulation and supervision for global stablecoin arrangements and other types of crypto-assets. In 2023, we will have a global, consistent and comprehensive framework to tackle crypto-assets. The speed of implementation by jurisdictions will be key. In the implementation path, a critical aspect will be our ability to collect and share reliable data on the crypto asset markets. But regulation cannot be central banks’ only answer: it has to be accompanied by their own innovations. The main rationale for central bank digital currencies is to preserve the role of public money in a fast-moving economy.
Thirdly, much of the practical changeover work will occur in the retail trade and shops, partly because this is where we use cash and partly because the banks have cut down on their cash handling. However, conditions vary considerably in the retail trade with regard to, for instance, technical equipment and security. It is necessary to ensure the entire changeover functions in a way that is felt by the general public to be simple and secure. How should we deal with the challenges? To summarise, one can say that there are two groups of challenges on the Swedish payments market. One concerns the slightly longer-term challenges following on from developments on the payments market, and the other concerns more near-term challenges regarding the banknote and coin changeover. Let me begin with cash and the near-term challenges. The cash changeover 2015–2017 The Riksbank has over a long time, and since its planning began in 2008, had a dialogue with the various participants in the market regarding the banknote and coin changeover. This means that the banks, cash-in-transit companies and retail trade have been able to influence every part of the work, especially the timetable. This has been very important to the Riksbank, as we no longer play any role in the practical handling of cash. The timetable for the changeover has been divided into two stages and extends over a relatively long period, which means that all of those involved have had plenty of time to prepare.

In recent years regional central banks have also built up a large addition to their foreign reserves. Such a large pool of domestic savings should be channeled into long-term investment in the domestic markets to support growth and development in the region. At present however, the dominant financing tools in most Asian countries still continues to be short-term bank loans, and bond markets in the region still remain underdeveloped. The bulk of local savings has instead been channeled to international financial centers with a wider alternative for investment and well-developed financial markets. At the same time, Asia is a recipient of short-term portfolio flows that had been destabilizing and highly volatile. These funds have further aggravated the problem of maturity and currency mismatches making the region more vulnerable to fluctuations in international capital movements. Creating a more stable financial system Developing regional bond markets for Asia: Asian savings for Asian investment Efficient and liquid bond markets in Asia - both at the local and regional levels, would enable the private sector as well as the public sector in Asia to raise and invest long-term capital without the currency and maturity risks which accompany international capital flows into the region. Development of regional bond markets will help governments and businesses in the region reduce currency and maturity mismatches.
By March 18, 2008, the FOMC had reduced the federal funds rate by three percentage points to 2.25 percent – including two unusual 75 basis point reductions one on January 22, 2008, and the other on March 18. The FOMC was well aware of the impact that the financial crisis could have on the real economy and was actively trying to offset these adverse effects. The FOMC made an additional 25 basis point reduction in the federal funds rate on April 30, and then held the policy rate constant over the summer at 2 percent. The Panic of 2007 turned into the Great Recession of 2008 following the bankruptcy of Lehman Brothers on September 15 and the Fed’s emergency assistance to American International Group, Inc. In response, the Fed reduced the federal funds rate to essentially zero by mid-December, instituted swap lines to provide dollar liquidity to foreign central banks, added new liquidity facilities to target specific sectors of the shadow banking system and began to expand its balance sheet through asset purchases. To deal with problems in commercial paper market, the Fed introduced on October 27 the Commercial Paper Funding Facility (CPFF) to backstop issues of commercial paper. In an effort to restart the securitization market, on November 25, the Fed announced the Term Asset Backed Securities Loan Facility (TALF).

First, it is very clear that “shadow banking” is not the same as the non-bank financial sector. This is not a debate about the appropriate regulatory framework for the whole of finance. For example, the vast majority of hedge funds are not shadow banks, and don’t trade in the credit markets or especially illiquid markets. Second, non-bank intermediation of credit is not a bad thing in itself. Indeed, it can be a very good thing, helping to make financial services more efficient and effective and the system as a whole more resilient. We must remember that as we make policy. But, as we know from this crisis and from previous ones, true shadow banking can weaken the system. Regulatory arbitrage, which is always with us, can distort and disguise channels of intermediation. That leads me to my third general point. Shadow banking comes in lots of shapes and colours. There are degrees to which any particular instance of shadow banking replicates banking. The liquidity offered by some shadow banks relies pretty well entirely, and more or less openly, on committed lines of credit from commercial banks. In these cases, the liquidity insurance offered by the shadow bank is “derivative”; there is a real bank in the shadows. But for other shadow banks, liquidity services are offered without such back-up lines. In those cases, claims on the shadow bank have, in effect, become a monetary asset.
Those in power nevertheless managed to exploit the system. Roman emperors were in the habit of financing their wars by reducing the precious metal content of their coins. This resulted in higher seignorage revenues from each coin issued. For a period, these revenues  2  BIS Review 136/2008  were sufficient to finance an army, a long war or several monuments. This is the number one temptation facing money issuers. Henry VIII of England was one of the most renowned exponents of this kind of behaviour. 6 In the 1500s, he reduced the silver content in coins to 1/3 of the original to finance wars against France and his own expensive lifestyle. In addition to coins, a system gradually developed involving paper money. Banknotes were a receipt for a money issuer’s claims on silver or gold. Instead of using coins as a means of payment, the receipt was used. This was more practical, but with the introduction of banknotes the authorities also introduced a new promise. They promised the bearer that they would redeem the nominal value of the notes in silver or gold. The value of the notes was entirely dependent on confidence in the issuer’s promise. The authorities’ ability to fulfil their promise depended on government finances. Brutal tax collectors, abundant tax coffers and peace with neighbouring countries inspired confidence in the authorities’ ability to redeem the notes in a precious metal then or at some time in the future.

It was observed that countries where weight was given to low inflation recorded favourable economic developments. Theoretical works published some years later showed that expected and rules-based policy could stabilise the economy provided price and wage rigidity existed. Some examples are: Fischer (1977): “Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule”, Journal of Political Economy, 85, No. 1, pages 191-206), Taylor (1980): “Aggregate Dynamics and Staggered Contracts”, Journal of Political Economy, 88, No 1, pages 1-24 and Calvo (1983): “Staggered Prices in a Utility-Maximizing Framework”, Journal of Monetary Economics, 12, No. 3, pages 983-998. Only when these articles were published was the theoretical basis in place for keeping promises while at the same time allowing monetary policy to contribute to stabilising the economy. 25  See reference in footnote 13. 26  See Eitrheim, Øyvind (2005) in Eitrheim and Qvigstad (Eds. ): “Tilbakeblikk på norsk pengehistorie. Konferanse 7. juni 2005 på Bogstad gård (Norwegian monetary history in retrospect. Conference, 7 June 2005, Oslo)”, Occasional Papers No. 37, Norges Bank. 27  Bahr, Henrik (1962): “Høyesteretts dom i gullklausulsaken (The Supreme Court ruling in the gold clause case)”, Lov og Rett: norsk juridisk tidsskrift, booklet No. 5, pages 193-211. 28  Two government-guaranteed banks had also issued bonds. BIS Review 136/2008  7  Since the beginning of the 1980s, there has been a broad consensus that monetary policy must be geared towards price stability. This paradigm shift also reached Norway, but not until the end of the 1980s.
Bank analysis suggests that such reductions in the spread over the risk-free rate played an important role in raising credit growth relative to GDP during both of the surges in the credit to GDP ratio since 1980.8 The spread over the risk free rate appears to have fallen due to three main factors – improvements in “intermediation technology”, greater risk appetite by banks, and greater access by banks to wholesale funding.9 How long should we expect these factors to exert downward pressure on the spread over the risk-free rate? Reductions in the business cost of intermediation pushed down on rates and up on credit growth relative to GDP during the financial liberalisation of the 1980s. They continued to have an effect, though to a lesser extent, during the 2000s. Such reductions will almost certainly be long lasting. The underlying drivers such as technological innovation in information gathering and rising competition are unlikely to go into reverse. Indeed, we might expect technology and competition to drive intermediation costs down further. The other factors that pushed down the spread over the risk-free rate in the upswing have proved to be much less sustainable. The increase in banks’ willingness to take risks and in investors’ willingness to provide wholesale funding both unwound sharply in the crisis. This is likely to have been one factor behind the fall in credit to GDP. Following the post-crisis repair phase, banks’ risk taking and lending spreads now appear to be at a more standard level.

In the 10 years between 1997 and 2007, the annualised growth rate of real credit was 7%, relative to real GDP growth of 3%. That meant credit grew at more than double the rate of the economy over the period. Had this trend continued the stock of credit would have been 200% of GDP by 2012 and 300% of GDP by 2023. The great recession that followed the financial crisis saw a sharp correction. Credit went into reverse, shrinking annually by around 2.5% a year in real terms from 2010–2014. By 2014 the stock of credit had dropped from its peak of 177% of GDP to 140% – and remains around that level. To put it in context, we are now back to where we were in 2002. Credit to GDP would have to fall another 25 percentage points to get back to 1997. Credit, of course, is another way of saying debt. As most of the lending during the long period of pre-crisis credit growth was to UK households, the stock of UK households’ debt relative to their income not surprisingly follows a similar path to the stock of credit to GDP. In 1964, it was 54% and remained around this level until 1980; but by 1990 it had exceeded 100%. It surged again from the late 1990s – by 2007 it had grown to 155%. It fell to 135%, its 2004 level, in 2012 and remains around there.
And interest rates have been lower and less volatile over this period than they have been for more than thirty years. Some people, it’s true, still say to me that all this has not had much effect on them - it’s not like it was in the boom times! And I recognise, of course, that economic conditions do vary across regions and sectors and between individual companies. More than ever before it’s a tough competitive world. But what most people say to me these days is that steady growth and low inflation is exactly what they want so that they can make rational, long-term, decisions in their own businesses, which is what enables them to face the global competition. The major preoccupations that I hear are about whether our recent, more stable, economic environment will continue, and about the implications - good or bad - for that environment of a move to a single European currency. Let me say a word first about our domestic economic prospects before turning to Europe. In fact, Mr. Chairman, we set out the Bank’s views on the domestic economy at some length in our quarterly Inflation Report only last month. But in summary we have seen a gradual pick-up in the pace of activity over the past year, driven by domestic demand - notably consumer spending - so that the money supply and both demand and output are now growing at above-trend rates. Other things equal we would expect that to continue.

However we need to acknowledge that the benefits of globalisation have been very unevenly distributed, even in the most developed economies where many wage earners have not seen a real increase in wages for decades and have lost their jobs and security. This is what populism feeds on whilst certainly not offering solutions intended to ensure social justice. Economic growth is only a means to the ultimate end of providing a higher standard of living and confidence about the future for all citizens. But it is an absolutely necessary means. Page 8 of 8
However, given their distortive effects and collateral damage it brings upon the economy, any introduction of this type of measures will have to be carefully designed to minimize unintended consequences, especially on productive long-term capital inflows that we highly value. As for the case of preventing financial imbalances, it is sometimes proposed that for policy rate to have sufficient traction in addressing risks to financial stability, the adjustments may need to be so large as to have a significant adverse impact on economic activity, a price too dear to pay. Thus, with an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really needs another instrument that acts more directly on the source of the problem. That is what “macro-prudential policy” is supposed to achieve. 2. Imperfect foresight  The second limitation of monetary policy lies with the notion that all policymakers have limited capacity to measure economic performance very precisely even in real time, not to mention to forecast the future. Monetary policy is always conducted in an uncertain environment. Unforeseen macroeconomic shocks, imprecisely estimated effects of policy on macroeconomic variables, and noisy measurement render monetary policy design and implementation a challenging task. Our state of knowledge is also far from a perfect understanding of people’s decision making that determine the future evolution of the economy.

However, the Riksbank’s ambition is to formulate monetary policy so that inflation returns to the target level in a few years’ time. But why in a few years’ time? Why not the next quarter? The reason is that the Riksbank also strives to stabilise production and employment around long-run sustainable levels. Sometimes an overly rapid return to the inflation target could lead to excessive fluctuations in production and employment. The Riksbank then tries to bring inflation back on target at a somewhat slower pace so production and employment develop in a stable manner. It is also possible that inflation will approach the target for reasons that risk slowing down production and employment. One example of this is when substantial wage increases lie behind an inflation rate that is below target beginning to rise. The inflation target and Industrial Agreement have contributed to higher real wages So what significance has the inflation target had? Let me start by reviewing what has happened to the rate of inflation. Figure 1 shows how high inflation in Sweden has been from 1970 until today. Inflation here is measured in terms of the annual percentage change in the consumer price index (CPI). 1 The average annual rate of inflation during the period 1971–1992 was 8.4 per cent. The inflation  1  2  Statistics Sweden has adjusted the methods for calculating the consumer price index, for instance in 2005. BIS central bankers’ speeches  target has led to a severe slowdown in the rate of inflation.