samchain/econo-pairs-v1 huggingface dataset:
Main risks identified outside the euro area financial system  A main risk to the euro area financial stability is the possibility that concerns about the sustainability of the public finances persist, or even increase, with an associated crowding out of private investment (slide 5). The progressive intensification of market concerns about sovereign credit risks among industrialised economies in the early months of 2010 opened up a number of hazardous contagion channels and adverse feedback loops between financial systems and public finances, in particular in the euro area. The main reason for the severe deterioration of public finances was the activation of automatic stabilisers as a result of the marked contraction of economic activity which followed the collapse of Lehman Brothers. At the same time, because the structural fiscal deficits of a number of euro area countries were sizeable before the financial crisis erupted, fiscal deficits in those countries rose to very high levels. Added to this were the discretionary fiscal measures taken by many countries to stimulate their economies, following the adoption in December 2008 of the European Economic Recovery Plan. By early May this year, adverse market dynamics had taken hold across a range of asset markets in an environment of diminishing market liquidity. Ultimately, the functioning of some markets, such as the government bond markets in countries with a very negative fiscal outlook, became impaired, thereby triggering a significant widening of government bond yield spreads in these countries, as shown on Chart 1 on slide 5.

Moreover, in view of the considerable near-term funding needs of euro area governments, a particular concern is the risk of bank bond issuance being crowded out, making it challenging to roll-over a sizeable amount of maturing bonds by the end of 2012. In addition, the vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property markets and to Central and Eastern European countries remain. There are also risks of heightened financial market volatility, if macroeconomic outcomes fail to live up to expectations. A key concern is that many of the vulnerabilities highlighted in my presentation today could be unearthed by a scenario involving weaker-than-expected growth. I will now conclude with five policy messages stressed in the Review (slide 17). First, the measures taken by the ECB to stabilise markets and restore their functioning, as well as the establishment of the European Financial Stabilisation Mechanism, have lowered tail and contagion risks. Second, sizeable fiscal imbalances remain and the responsibility rests on governments to frontload and accelerate fiscal consolidation, so as to ensure the sustainability of public finances, not least to avoid the risk of a crowding out of private investment, while establishing conditions conducive to durable economic growth. Third, with pressure on governments to consolidate their balance sheets, disengagement from financial sector intervention means that banks will need to be especially mindful of the  BIS Review 75/2010  5  risks that lie ahead.
The implementation of Basel II will pose a challenge to the entire  BIS Review 42/2006  1  financial community, while for the newly emerging economies this process will be a serious test since their banking systems are very much open. The discussion of the common supervisory framework also brings forward the question as to what extent the high rates of growth of credit for the private sector, globally, and in many of the dynamically developing countries, in particular, poses a risk to financial stability and how much supervisory policy could be used as a tool for solving this problem. The process of financial sector globalisation, which I already mentioned, raised for many countries the issue of choosing between either following a national monetary policy or joining a monetary union and carrying monetary policy to a supranational level. The experience of a successful realisation of the Economic and Monetary Union in Europe, as well as the experience of the countries from the area of the Frank are a good practical example for all of us about the potential advantages and challenges associated with a country's participation in a monetary union. Taking monetary policy to a supranational level is inevitably related to providing greater independence for the national central banks and delegating certain powers at a supranational level. In the democratic world, the independence of conducting policy on the part of central banks is inseparably linked to the higher degree of their transparency and reporting.

In the same period, thirty-two people held at different times the position of Minister of Finance, of whom nineteen graduated or specialised in these countries. Today, many Bulgarians continue studying the French language and culture in our schools or receive their education in Francophonian countries. They are part of the 175-million French-speaking community and in addition to the common language they are part of a common culture, which extends to all spheres of our life. I am proud that part of these people work in the Bulgarian National Bank and contribute a lot to the success of our institution. The increased economic and financial interrelatedness and interdependence of the countries call for ever-greater co-ordination of the economic and financial policies of the individual governments. The establishment in the 90-ies of the past century of the principles of free movement of goods and capital increased the interdependence of the financial systems across countries, so that financial stability is no longer a national but a global issue. The significant participation of foreign capital in the banking system of a country and the massive movement of capital, largely contributing to the formation of serious imbalances, changes significantly the understanding of systemic risk and the approaches to its assessment. The above process of interrelatedness of the banking systems of individual countries necessitated the adoption of new principles of surveillance over the banking sector, as well as analysis and control of the risks arising from the ever-increasing interrelatedness between the banking sector and the other segments of the financial market.
The return on asset which stood at 1.3 percent during the first quarter of 2007 fell to 0.7 percent for the first half of the year, reflecting provision in accordance with IAS39, the new accounting standards as you know, to strengthen the capital base. Meanwhile, qualitative improvements have resulted from much tighter board of director oversight and accountability, as required by the Bank of Thailand. On the non-bank side, non-bank credit card companies have been competing more strongly for market shares. To prevent default risks and NPL, and to safeguard against the overall  BIS Review 107/2007  1  financial stability, we have strengthened efforts to communicate to and raise awareness with the general public on this issue. Regulatory measures were also put in place to ensure that consumers were protected and well-informed, including the prescription of rules, procedures, and conditions for credit card business, including interests and service fee charges as well as debt collection. Turning to macroeconomic stability, latest data for August showed headline inflation at 1.1 percent and core inflation at 0.7 percent. On the exchange rate, while the baht movement has reflected largely external developments, there have also been internal drivers, which include large surplus in current and capital accounts. During the first 7 months of this year, the balance of payments recorded a surplus of 5.9 billion US dollar in total. Overall, international reserves rose to over 74 billion US dollar at end-August, close to 3.6 times of short-term external debt.

Any risk management framework that is driven by the correlation structure of short-term moves alone would most likely be proven too rosy in the event of clusters of defaults. The issue is that the correlation structure locally may be very different than that in the tail of the distribution. Of course, there  2  When the Bank of England takes collateral, it is solely to guard against the risk of default and so all correlations in that state of the world are relevant to what collateral is taken and the haircuts applied. See Breeden and Whisker, 2010, “Collateral risk management at the Bank of England”, Quarterly Bulletin, Q2, pp 94–103. 2  BIS central bankers’ speeches  are many practical problems in analyzing what could happen statistically in the tails, since these scenarios are, by definition, rare and the pay-offs may be non-linear3. Taking this second example a little further, assume that most big banks follow similar strategies. Most banks will then end up with a more diversified credit portfolio than if each bank was only holding the loans it originated itself, but they may also end up with similar portfolios of risk. In such a scenario, the system can easily absorb small shocks, but because of the diversification, a really big shock may threaten to bring down all of them instead of just the ones that happened to have originated the most problematic loans.
This seems surprising at first glance but is attributable to the fact that banks tried to offset a further decline in their interest margin with increased income from credit business. Meanwhile, interest rates on mortgage loans are also lower than before the introduction of negative interest. Thus, we can conclude that taking a policy rate into negative territory has a similar effect, in terms of transmission to other interest rates, to cutting a policy rate in positive territory. Although interest rates have fallen, no significant increase in credit growth has been observed over the last two years. The volume of bank loans to businesses and households has risen further, as you can see in chart 10, but credit growth has weakened. This slowdown in growth is particularly evident among loans to private, non-financial corporations. However, the picture is different for companies that are able to finance themselves via the capital market, as chart 11 shows. Domestic non-financial corporations have exploited the low capital market interest rates and issued more bonds since the introduction of the negative interest rate. As a preliminary conclusion, we may state that the negative interest rate in Switzerland principally operates via the exchange rate channel. Together with our willingness to intervene in the foreign exchange markets, it has helped to ensure that the Swiss franc has not strengthened further despite heightened uncertainty, for example in the wake of the British EU referendum.

The inflation target would have risked losing its role as anchor for pricesetting and wage-formation if we had not cut the repo rate in 2014 and 2015. With regard to my thoughts on going forward, I would like to begin with the monetary policy meeting on 10 February. The report presented then stated that resource utilisation in Sweden was assessed to be at a normal level. The members of the Board agreed that the important thing for monetary policy is for the trend in inflation to come closer to the target and to avoid weakening confidence in the target. The upturn in inflation is expected to continue to be fitful and there may be surprises along the way. Whether, and if so how, monetary policy will react depends on the causes of such surprises and how they are deemed to influence the outlook for inflation. We were also agreed that we shall maintain a high level of preparedness for action, even between the ordinary meetings, in case further measures are needed to safeguard confidence in the inflation target. Exactly how tolerant we are with regard to different outcomes may vary somewhat on an individual basis, which is natural on a committee. In my contribution to the debate at the meeting I wanted to say that I now have a greater tolerance for setbacks, in that we now have a more favourable situation in Sweden. I do not see this as advocating a new monetary policy strategy for the Riksbank.
How much discretion to give to the MPC and how much should remain with the Chancellor is an interesting question that was raised, but not fully resolved, in 1997 with the system of open letters which gives the Chancellor the opportunity to comment on the horizon over which the MPC plans to bring inflation back to target. So there are certainly aspects of the inflation targeting regime to consider. In assessing the current framework, however, there are two factors that should not be ignored. First, the primary responsibility of any central bank is to ensure stability of the price level in the long run. To drop the objective of low inflation would be to forget a lesson from our post-war history. In the 1960s, Britain stood out from much of the rest of the industrialised world in trying to target an unrealistic growth rate for the economy as a whole, while pretending that its pursuit was consistent with stable inflation. The painful experience of the 1970s showed that this illusion on the part of policy-makers came at a terrible price for working men and women in this country. The battle to bring inflation expectations down was long and hard, and involved persistently high levels of unemployment. Wishful thinking can be indulged if the costs fall on the dreamers; when the costs fall on others, it is unacceptable. So a long-run target of 2% inflation should be an essential part of our macroeconomic framework.

That has been responsible for  BIS central bankers’ speeches  1  an unusually weak recovery in consumer spending which, after falling initially by some 7%, is still more than 4% below its peak. The result is a large number of vacant retail premises – visible here in Belfast, as elsewhere. The second factor is the extent to which the balance sheets of the major UK banks had grown before the crisis hit, and had been financed primarily by borrowing. So the subsequent reduction in bank lending – the deleveraging – was greater here than in many other countries. That deleveraging has as its counterpart a reduction in the amount of (broad) money in the economy and a reduced willingness on the part of banks to expand lending to finance the recovery. And the third is the crisis in our main trading partner – the euro area – where the near term outlook is weak, and the longer term prospects for tackling the evident fault lines in the monetary union uncertain. The former means that our current account deficit has remained stubbornly high, and the latter is holding back corporate investment With a disappointingly slow recovery, and unemployment one million higher than before the crisis, the main aim of economic policy has been to generate both a recovery and a rebalancing of the economy, and bring unemployment down without putting at risk hard-won medium-term price stability. The Bank of England has played its part by administering a powerful combination of medicines.
The second is needed to enable these firms to deposit monies in RTGS on behalf of their customers. The final change provides assurance that any longer-term stability implications of these changes can be addressed under the Bank’s prudential remit. 8  We do not intend, however, to extend facilities to PSPs for which they have no need. Non-bank PSPs will not therefore be eligible for membership of the Sterling Monetary Framework – and in particular the Bank’s credit facilities. That is because PSPs are not part of the monetary policy transmission mechanism or exposed to inherent overnight liquidity risk. The Bank may also take steps to limit PSPs’ capacity to hold unlimited overnight balances on their settlement accounts. BIS central bankers’ speeches  5  billions of pounds worth of capital. With the economics of wholesale banking under pressure, cutting inefficiencies is a high priority for industry. That is why it is welcome that FinTech innovators are exploring the potential of distributed ledger technology to simplify the settlement chain, reduce its cost, and raise its speed while increasing resilience. The instruments involved range from equities to bank loans. However, the challenges facing such projects are legion, including reliability, resilience, security and scale. And fundamentally, how to prove technologies that are still nascent? One challenge an otherwise robust system of sufficient scale would not face is access to central bank money from the Bank of England. The Bank has for many years sought to ensure that, wherever possible, wholesale securities settlement occurs in central bank money.

But this means that, simply put, the people of the United Kingdom are not getting the most out of the data the Bank collects. 11  For further discussion see Broadbent (2016), “Central banks and digital currencies”, available at: http://www.bankofengland.co.uk/publications/Pages/speeches/2016/886.aspx. 12  This allows an efficient check of a firm’s cyber defences akin to the way a policeman could walk by a house and observe, from the outside, its security features – whether the gate is locked; whether it has an alarm; whether windows have been left open; what routes intruders might use to gain access to the property; and so on. BIS central bankers’ speeches  7  That’s why we are investigating ways of anonymising and de-sensitising data – fully respecting privacy laws without losing analytical content – to allow wider sharing. Progress has been encouraging creating the prospect of better informed policy making. 13 These are just two examples of a bigger programme of collaboration between the Bank and technology innovators. We are open to further collaboration and tomorrow will provide details of the next steps. Finally, the Bank is calibrating its regulatory approach to FinTech developments. FinTech should neither be the Wild West nor strangled at birth. The Bank is devoting considerable resources to ensure whatever develops is sustainable, not ephemeral. If FinTech enables a great unbundling of financial services, risks will change in tandem.
Turning first to the issue of measuring the impact of TIPS issuance on the government’s funding costs, this could be done simply by comparing the ex-post costs of a program of TIPS issuance to the costs of a comparable program of nominal Treasury issuance. Studies 1 of this sort have typically shown that TIPS issuance has resulted in a higher net cost to the Treasury. Unfortunately, although this methodology is attractive in its simplicity, it has some flaws that undercut its usefulness in reaching conclusions about the attractiveness of the TIPS program. The problem with an ex-post analysis is that it depends critically upon the performance of inflation over the period in question. If inflation turns out to have been meaningfully different than what was expected at the time of TIPS issuance, then this difference – the so-called “inflation surprise” – can be important in affecting the relative costs of TIPS versus nominal Treasury issuance. If inflation turns out to be higher than expected, then TIPS issuance will likely look to have been more expensive than nominal Treasury issuance. If inflation turns out lower, an ex-post analysis will likely show a savings from the TIPS program. Over the long run – and I mean the very long run – there should be roughly as many downward surprises in inflation performance as upward surprises. But within any relatively short period, such as the last decade, this certainly does not need to be the case.

The public’s recognition of this incentive may help hold down inflation expectations and cause inflation expectations to be more firmly anchored. In addition, TIPS may give the Treasury access to a broader investor base, which also may reduce the Treasury’s overall borrowing costs. The comparison between the prevailing interest rates on TIPS versus nominal Treasuries provides insight into the relative costs associated with issuing a marginal dollar of debt. But just as important is whether TIPS issuance, by displacing nominal Treasury issuance, reduces the level of interest rates that the Treasury pays on its nominal issuances. This would occur if TIPS were not perfect substitutes for nominal Treasury securities and if the demand for nominal Treasuries were downward sloping – that is, not completely elastic. The first condition almost certainly holds given the different attributes of TIPS versus nominal Treasuries. If they were perfect substitutes, then there would not be a liquidity premium for nominal Treasuries relative to TIPS. The second condition seems likely to hold since numerous studies have found that an increase in the net amount of Treasury borrowing leads to higher expected borrowing costs for the Treasury. How big might this effect be? That’s difficult to estimate. A few studies 6 have found that an increase in supply in a particular segment of the Treasury yield curve has contributed to a rise in yields.
In order to put this number in perspective, it is useful to note that the domestic analogue of this figure is 1.6 p.p., and that the overall frequency of crises in the sample is only 3%. 2. Model of monetary and macroprudential policy coordination with market-based finance  Aikman, Giese, Kapadia and McLeay (forthcoming) use a calibrated two-period New Keynesian framework to examine the trade-offs and interactions between macroprudential and monetary policies. Their model includes the possibility that rapid credit growth in the first period leads to a future financial crisis, and analyses the decision facing a policymaker with access to both a macroprudential tool, a countercyclical capital buffer (CCyB), and a traditional monetary policy tool, the policy interest rate. In the variant of the model used for the results shown in Chart 8, some credit is provided by a market-based finance sector, which reduces the effectiveness of macroprudential policy. This model is described by the following set of equations, where all variables except 𝐵1𝐵 , 𝐵1𝑀 (growth rates), 𝛾1𝐵 , 𝛾1𝑀 and 𝛾1 (probabilities) are expressed as deviations from steady state.

9 In March 2016, the FPC raised the countercyclical capital buffer rate to 0.5%, consistent with its view that financial conditions had moved out of the post-crisis phase, and the Committee’s intention to move gradually toward a buffer rate in the region of 1% in a standard risk environment. Following the result of the EU referendum, this rate was reduced to 0% in order to reduce regulatory capital buffers and increase banks’ capacity for lending as the real economy goes through a period of adjustment. 10 Aikman et al (forthcoming). 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  11  Under a reasonable calibration , a 15pp increase in credit growth in both countries over three years would increase the probability of a crisis by more than 6pp, as shown by the dark blue bars in Chart 3. Were there a reciprocity agreement between the two countries - by which an increase in the countercyclical buffer in one country is applied to lending in that economy by banks in the other country - they would both increase the countercyclical buffer by around 1pp, bringing the probability of a crisis down to only 1.8pp higher than before the shock - as shown in the yellow bars. However, if there were no reciprocity, any tightening of the countercyclical buffer will be partly offset by leakages. The higher buffer would boost resilience by less since foreign lenders in each country would be unaffected, reducing its overall effect on the crisis probability.