samchain/econo-pairs-v1 huggingface dataset:
However, the review does give an opportunity we are seizing, to deal with those areas of Solvency II that we know are not working as well as they could. Sam Woods and I have both previously discussed the PRA’s concerns relating to the current regime[2] [3]. Taken together, the improvements we want to make represent an important set of reforms and can achieve the objectives of the review. Page 3  Objectives for the Solvency II review The Government set three high level objectives for regulatory reforms, namely: 1. to spur a vibrant, innovative, and internationally competitive insurance sector; 2. to protect policyholders and ensure the safety and soundness of firms; and 3. to support insurance firms to provide long-term capital to underpin growth, including investment in infrastructure, venture capital and growth equity, and other long-term productive assets, as well as investment consistent with the Government’s climate change objective. These Government objectives are aligned with the PRA’s two primary statutory objectives of safety and soundness of regulated firms, and protection of policyholders. The PRA’s statutory objectives are reflected directly in one of the Government’s review’s objectives, and they underpin the other two: only a financially sound insurance sector can provide sustainable contributions to long-term investment. Similarly, the sector’s competitiveness depends on its operating under a robust prudential regime.

The PRA agrees with longstanding and justified concerns raised by the industry on the sensitivity of the risk margin to interest rates, and its overall quantum when interest rates are low. The Government’s April Consultation Document[9] lays out reform proposals. The potential impact of these reforms can be significant. For general insurers, we believe that a roughly 30% cut in risk margin can be justified, similar to the impact on EU firms of reform proposals made by the European Commission. This outcome would therefore ensure no disadvantage on competitiveness grounds for GI firms. For life insurers, given the longer term nature of the insurance risks and the presence of closely matched assets, we believe that a greater reduction of around 60% is possible – but only if the FS is also reformed to better reflect credit risk retained by life insurers. Simultaneous reform of both risk margin and MA can also correct a potential distortion in the current framework that has become apparent over time. Namely that, broadly speaking, under the Solvency II regulatory regime, some long term insurance risks – in particular, longevity risk – appears to have been highly-capitalised, relative to credit risk. This has created an environment where life insurers have been retaining less and less insurance risk, but acquiring additional credit risk, including counterparty credit risk. This trend has become more evident since Solvency II came into force, and raises questions about the effectiveness of the regime, in terms of both competitiveness and in mitigating risks to our statutory objectives.
This is an opportunity for us to discuss the success of Bulgaria’s monetary policy regime in the broader context of the lessons from the current crisis. The speakers and discussants from the BNB today and tomorrow will share the knowledge we have acquired, based on our rich institutional experience. The experience of the Bulgarian central bank is unique. We are one of very few central banks in the world which have both practiced “conventional” monetary policy (involving setting of policy rates and conducting open market operations) and then operated a currency board after that. We have had a track record, during the last two decades, of monetary policy under two remarkably contrasting regimes. Thus our legacy is very different from that of the other similar monetary policy regimes in Europe (such as Estonia, Lithuania, or Bosnia and Herzegovina), where the currency boards were adopted by newly-established central banks in newly-independent states as a means of bringing confidence in a new national currency, promoting political emancipation and national identity. That was not our case, however. The currency board arrangements were introduced in Bulgaria exactly 15 years ago with the very same motivation that stays behind the current reform agenda in the euro area. We did it in order to achieve a much more efficient macroeconomic management and to bring in credibility in the whole policymaking process. Furthermore, the case of Bulgaria demonstrates the importance of maintaining wide consensus among politicians and the society at large, on the key principles of economic policy.

But since the end of 2008, the BNB focused on the capital and liquidity relief for banks while also allowing them to ease lending. As a result of these conservative and countercyclical policies of the BNB, and the rather prudent behaviour of the banks themselves, today Bulgaria manifests a very stable banking sector, with outstanding capital adequacy and liquidity ratios. Four years after the Lehman Brothers collapse, the banking system of Bulgaria remains one of the few in the EU where no single bank needed to be rescued or supported with taxpayers’ or central bank money. Merging the monetary and macropdudential mandates (including banking supervision) under the auspices of the central banks is currently being implemented in some of the “older” EU Member States. The macroprudential oversight of the financial system is being introduced only recently at the EU level. While these new concepts are now being embraced by central bankers and politicians worldwide, the simultaneous pursuit of both monetary and banking stability, from a true macroprudential perspective, has been the order of the day for the BNB for more than a decade now. Through our own painful experience with a crisis in 1996–1997, we became fully aware of the systemic importance of the financial system. Thus a key element behind the success of the overall policy mix in Bulgaria is that our central bank is entrusted with the tasks and responsibilities to regulate and supervise the banks in the country, with the goal of ensuring the stability of the banking system.
Jan F Qvigstad: Outlook for the Norwegian economy Address by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at Sparebank 1 Fredrikstad, 4 November 2009. The text below may differ slightly from the actual presentation. The speech is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 28 October and Monetary Policy Report 3/09. *  BIS Review 139/2009  *  *  1  The operational target of monetary policy in Norway is low and stable inflation, with annual consumer price inflation of close to 2.5 per cent over time. In recent years, average inflation has been close to, but somewhat below 2.5 per cent. Consumer price inflation has generally been somewhat below target since 2003 and monetary policy was then oriented towards pushing up inflation. In 2007 and 2008 inflation picked up to slightly above target. Inflation expectations were firmly anchored and the key policy rate was gradually raised to a more normal level. Inflation close to target and firmly anchored inflation expectations were essential for monetary policy to be effective when substantial cuts were made in the key policy rate in autumn 2008 and the beginning of 2009. It has been a year since financial turbulence developed into a full-blown crisis and resulted in the most severe downturn in the global economy since the Second World War. The financial crisis eroded confidence in banks, counterparties and contractual partners.

As always, what I have to say today reflects my own view and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. Although a reserve currency can formally be defined as any currency that is part of a foreign country’s foreign exchange reserve holdings, I do not think this is what we have in mind when we talk about a reserve currency. While the status of being a reserve currency can be conferred, the stature of being a reserve currency must be earned. As I see it, a successful reserve currency needs to satisfy a number of conditions. First, the currency needs to be fully convertible – with no risk of restrictions that could limit the ability to convert such holdings into cash denominated in the investors’ domestic currency. Second, the reserve currency country needs to have deep, liquid and transparent capital markets so that the sovereign debt instruments and other highquality debt obligations can be bought and sold at narrow bid-ask spreads and easily converted to and from cash. Third, the assets in the country must be governed by a wellunderstood, consistent and enforceable legal regime. This is to ensure that investors’ rights will be well protected, regardless of short-term political developments or changes in the governing regime. Fourth, the financial system in the country must be strong and stable to ensure that liquidity will be available even during times of stress.
On the basis of the deviation between actual price inflation and Norges Bank's projections over the last few years, an uncertainty interval for price inflation can be calculated. How can monetary policy be credible when it is so difficult to control price inflation? The answer is to be found in two factors. First, economic agents base their decisions on the probable inflation outcome. Although there is considerable uncertainty, monetary policy will be credible if the outcome they consider most probable, and thus base their decisions on, is consistent with the nominal anchor. Second, confidence is linked to the response pattern. If price inflation in Norway is higher than that aimed at by the ECB as a result of shocks, there must be confidence that monetary policy instruments are oriented towards bringing price inflation down towards the level implied by the nominal anchor. Thus temporary deviations do not necessarily lead to a loss of credibility. Confidence in low and stable inflation contributes to greater stability in the krone exchange rate than would otherwise be the case. However, this cannot prevent changes in the krone exchange rate if the  BIS Review 7/2001  3  Norwegian economy is subjected to substantial disturbances in the real economy other than those in the euro area and such disturbances are not countered by fiscal or incomes policy. Monetary policy cannot function effectively without good interplay with fiscal policy.

Low oil prices amplified the fall in investment in the petroleum sector. At the beginning of 1999, the outlook for the Norwegian economy seemed fairly bleak. In this situation, the possibility that Norway would enter a recession of a type that would further reduce confidence in the krone was considered a definite risk. This is why Norges Bank decided at the beginning of 1999 to reduce interest rates. Owing to the uncertainty associated with economic developments and the effects of interest rate changes, Norges Bank adopts a gradual approach to the setting of interest rates. Interest rates were therefore reduced in five steps by a total of 2.50 percentage points in the period from 28 January to 23 September 1999. The lowering of interest rates contributed to strengthening the krone. 6  BIS Review 7/2001  In mid-1999, Norges Bank considered the risk of a recession of a type that would reduce confidence in the krone to be substantially reduced. In addition to the reduction in interest rates, this was partly due to brighter prospects for international growth and higher commodity prices. However, we still envisaged a growth pause in the Norwegian economy. The projections for price and cost inflation in the next few years were then in accord with the corresponding aim for inflation for the ECB.
A collapse of confidence in the coffee houses of Lombard Street was one thing; a collapse of confidence in the world economy is quite another. An examination of these parallels will, I hope, help to throw light on three questions. First, does the nature of financial risk explain the frequency of crises and what does it imply for the design of banking regulation? Second, what are the lessons from the crisis for central banks in their pursuit of both monetary and financial stability? And, third and most urgently, how do we find our way out of the present crisis? The nature of financial risk and its implications for the regulation of banks There is no shortage of proposals for reform of bank regulation from official groups, such as the Financial Stability Forum, and unofficial groups, such as the G 30, chaired by Paul Volcker and the Geneva Forum. Since the excessive risk-taking of recent years has now given way to an extraordinary degree of risk aversion, there is no hurry to choose among them. Whatever exuberance – rational or irrational – existed has been destroyed by the crisis. So we have time to reflect before we decide on the shape of a new regulatory system. Another reason for reflection is that recent years have seen a natural experiment. Some regulatory systems were light touch, others heavy touch, and yet others placed both ownership and regulation of banks in the public sector.

And, more fundamentally, should there be a Glass-Steagall type of provision to prevent retail deposits from being used to fund investment banking activities? There are good arguments in favour – to separate the utility functions of a retail bank taking household deposits and running the payments system from the casino trading of an investment bank, and good arguments against – the difficulty of maintaining a credible boundary between those institutions that are eligible to receive government support and those that are not. We need a public and informed debate on the merits of the arguments. We also should reflect on the fact that the belief that the authorities will step in when risks materialise encourages risk taking and means that risk-adjusted returns to financial activity are too high. The experience of unsustainably high returns in normal times interspersed by regular crises has been repeated across countries and over time. So if banks are to bear the true cost of the risks they take, changes need to be made to the environment in which banks operate. All these are important issues. While committing at international level to broad principles on regulatory reform, such as extending the net to all highly leveraged institutions and making capital requirements counter-cyclical, there is time to think through carefully the best way to implement them, and it is important that we take it. Many of these questions about the future of the regulatory structure will be discussed in the Turner review to be launched tomorrow. The Bank awaits the Review with interest.
One cannot rule out the possibility that investors might reduce their holdings or perhaps no longer wish to own Swedish mortgages through covered bonds when housing prices are falling heavily. Although the risk of direct loan losses on the banks’ mortgages is initially small, investors who perceive the uncertainty to be great and who have poor knowledge of the credit risk might wish to sell their holdings. If a general expectation of increased sales pressure also builds up, a large number of more well-informed investors 4  BIS central bankers’ speeches  might choose to sell their holdings of Swedish covered bonds to avoid large falls in value. This type of herd behaviour could create very negative price fluctuations on the bond market and perhaps even disrupt the functioning of the market. The stress tests carried out by both the Riksbank and other analysts indicate that the Swedish banks would be able to cope with a large fall in housing prices without the earmarked collateral declining significantly. But regardless of this, we can be sure that the uncertainty regarding the covered bonds would increase if housing prices were falling and it is always international confidence in the Swedish housing market that is important here. However, it is difficult to predict at what loan-to-value ratio the Swedish covered bonds would begin to be perceived as less safe by the market. Perceptions of what is acceptable may suddenly change.

I would say that market confidence is essential for the stability of the financial system. 1  The Riksbank usually discusses household indebtedness from a financial stability perspective in its twiceyearly Financial Stability Report. See, for instance, Financial Stability Report 2013:2. Sveriges Riksbank. 2  Previously, mortgages were often financed through housing bonds, which had maturities of around 30 years. Today, covered bonds are used instead, where newly issued covered bonds had an average maturity of around 4 years in the autumn of 2013. At that time, the average maturity of the outstanding covered bonds was approximately 3 years. BIS central bankers’ speeches  1  We saw in the most recent financial crisis that high indebtedness in the household sector can create problems, with some countries suffering a severe fall in house prices. When the value of houses declines, households begin to save more. When savings increase, consumption decreases and thus demand in the economy falls. Ultimately, this can lead to lower production and higher unemployment. We do not want to see this kind of development in Sweden. It is also important to remember that there is interplay between developments in the financial markets and developments in the real economy. If we were to experience a fall in housing prices during a recession and thus similar problems to those experienced by other countries, it is likely that we would suffer both a decline in demand in the economy and that the banks would experience greater difficulty and greater cost in obtaining market funding.
Now is the time to act in France, where stepping up reforms is a priority, with a focus on two main areas: on the one hand, sustainably consolidating our public finances, and on the other, aiming to achieve an overall transformation, with and a major simplification effort in both labour market and the goods and services market, and large-scale investment in education, vocational training and apprenticeships. Even though we must pursue this course, this is what the new government appears to be doing with the labour market reform underway since this summer, and efforts to bring the government deficit down to 2.6% in the 2018 budget, well below the threshold of 3% of GDP for the first time in 11 years. Now is the time to act in Europe, above all. We cannot both overburden monetary policy – our German friends are right in this respect – and refuse Economic Union which is the prerequisite for a sounder Monetary Union. So we must not let ourselves be slowed down by sterile debates or false suspicions: there is no question of implementing a “transfer union”, which would only benefit certain countries; we must not get bogged down by  Page 7 sur 8 considerations about methods either, between intergovernmental and community methods.

You are well aware that we at the ECB’s Governing Council will decide this autumn on the re-calibration of our policy instruments beyond the end of the year – and, to quote Mario Draghi, “probably the bulk of these decisions will be taken in October”. We are now faced with a simple requirement, in line with our mandate to maintain price stability, and the progress towards our inflation  Page 4 sur 8 target: we have to reduce the intensity of our net asset purchases, while maintaining overall a substantially accommodative monetary policy. As regards our asset purchases, we have to reduce their intensity in a pragmatic manner, as we already decided successfully in December 2016. “Pragmatic” because, while keeping the current rules – we shouldn’t change any of the parameters, including the issuer and issue limits –, we can on the one hand exploit the margins of flexibility of the programme and we must on the other hand hold in reserve an additional purchasing capacity – if needed. So, there is no reason to be worried by the prospect of an adequate reduction of our net purchases, which would be perfectly compatible with maintaining a substantial degree of monetary accommodation. Indeed, QE is not limited to net asset purchases, and monetary policy is not limited to QE. Our monetary policy is based on a set of instruments [slide]: it is not a solo, but a quartet.
In many developing countries, these institutions have led to an increase in lending, particularly to the agricultural sector and the rural population in general, thus trying to work out the formalisation and evaluation problems I stated above. I find that the successful experience of microcredit institutions in other countries could be imported to Albania. Consequently, all policy-makers should get closer to these institutions and help them grow, as the microcredit institutions are the ones that have great potential to become important lenders to the private agricultural enterprises, better than any other intervention by financial and public institutions. Let me conclude by saying once more that the agricultural sector should be an important source for Albania’s further development. But the solution to the problems facing this sector calls not only for greater attention, but above all, for a modern way of thinking and a more concrete cooperation between all related stakeholders. I, therefore, hope that today’s meeting will contribute to drawing the attention towards this important sector and push forward the required structural reforms, which would also encourage the cooperation between agriculture and the banking and financial sector. 4  BIS central bankers’ speeches

BIS central bankers’ speeches  1  We all agree that the Black Sea Region is increasingly becoming a priority on the international agenda. In fact, a regional approach is emerging as actors completely understand that common problems need to be addressed jointly. Over the past five years the region and the world have faced many troubled moments; fast changes have influenced the way peoples choose to look to the future. The idea of strengthening cooperation in the Black Sea Region is not new. It sprang from a paradox: although the countries in the area shared geographical proximity, they came from different historical and political backgrounds and, as a consequence, had poor or quasiinexistent economic relations. As a veteran in this field, I can give you a simple example: in the ‘90s, to reach either Baku or Tbilisi one had to fly through Vienna. In effect, in the autumn of 1997, the Governor of the Central Bank of Turkey contacted me and suggested the founding of a Governors' Club of Central Asia and Black Sea Region, with the Bank for International Settlements serving as a model. It was officially instituted on May 1st, 1998, in Istanbul, when nine countries signed the founding protocol. During the following years, thirteen more countries gradually joined our Club, now spreading from the Baltic Sea to the Pacific Ocean, from Central Asia to the centre of Europe.