samchain/econo-pairs-v1 huggingface dataset:
And, we are now undoing that with the so-called slotting approach, which involves putting loans into risk buckets according to key characteristics. Supervisors have taken, broadly, four actions to correct the failings of Basel I and II. First, to raise sharply the capital requirements for trading book and investment banking activities. In doing so, we are changing the terms of trade for investment banking of this sort, and we are, of course, seeing the consequences. No apologies there I’m afraid. Second, we are, as I have just said, taking some assets out of the models regime because they should not have been there in the first place. Third, where assets are in the models regime, we are moving to create floors to prevent low modelled risk weights driving overall capital requirements down to imprudent levels. There is no doubt that an industry has grown up to arbitrage models and we will not in future let that lead to irresponsible practices. Let me take the case of mortgage risk weights, which has attracted recent attention. Prime mortgages are the sorts of assets that should be susceptible to modelling – there are a lot of them and they have been around for a long time. We still require the models calibration to take account of the early 1990s recession. Specifically, we don’t want models to use the relatively benign loan losses of recent years to reduce capital held. Why?

This process must be grounded on prudent macroeconomic projections, involve all tiers of general government and translate into a medium-term plan detailing the government receipt and expenditure measures aimed at ensuring a gradual reduction in the imbalances. This would shore up the sustainability of public finances and bolster the credibility of, and confidence in, economic policies. The fiscal consolidation should also go hand-in-hand with an improvement in the quality of public finances, boosting their contribution to the economy’s potential growth. And it must take into account the impact of structural aspects such as population ageing, which will exert upward pressure on public spending on pensions and other expenditure items. At the same time, addressing social imbalances is also essential as increasing inequality could undermine social cohesion and foment social conflict, with adverse repercussions for the security of investments, the incentive to work and opportunities for future generations.25  25  Grossman (1991), Dijkstra, Poelman and Rodríguez-Pose (2020), Persson and Tabellini (1994), Alesina and Rodrik (1994) and Corak (2013). 8  In recent years, the Banco de España has actively contributed to identifying sources of inequality. One factor that crucially affects productivity is educational inequality.
But we are interested in growth and employment that is sustained into the medium and long term. And permanently low inflation is a necessary condition for achieving that. But, even if we agree on the objective, that still of course, leaves plenty of room for us to disagree about what that means for the actual policy stance - the level of interest rates - at any particular time. In fact, as you may have noticed, because we are wholly open about it, even the individual members of the MPC have been known to disagree about that - at the margin. Outside the MPC, a lot of people say to me - “OK I agree we don’t want to return to boom and bust, but you are still overdoing it. From where I sit, or from what I’m told,” they say, “we’re headed for recession just hours away”. Sometimes they imply by that that we are also going to undershoot the inflation target - sometimes they don’t much seem to care about inflation. Now there are always plenty of people who claim to know what’s going to happen to the economy, to know that interest rates are “clearly far too high” or “clearly far too low”, and the present time is no exception. It’s been difficult recently to hear yourself think above the deafening noise of opinions on the state of the economy, which, understandably, often reflect the situation in their particular neck of the whole economy wood.

Along with the ongoing monetary policy normalization in the US economy, the new US fiscal package and its impacts on the economy also absorbs attention. In the EU, as already clearly announced, the accommodative monetary policy, although with lower amount of assets purchase, is expected to apply by September this year or beyond and interest rate changes to take place later. However, the positive global outlook has still been surrounded by various risks, including the still pending outcome of Brexit negotiations, geo-political risks and the possible protectionism measures by the US administration. However, besides the sound and wide spread recovery, an important feature of the global environment is the generally subdued inflation, not always in line with the model-based forecasts and standard empirical findings. In this view, the flattening of the Phillips curve based on current economic data, points to possible altering of the standard relation between the economic cycle and inflation, raising discussion on one of the basic empirical findings in the macroeconomics in the academic and central banking community. The subdued inflation nowadays is mainly due to global factors that are not exclusively related to the commodity prices fluctuations, but also to the impacts of the globalization of production and digitalization of trade worldwide, both having impact on competition and prices in each economy. In such surrounding of prolonged lower inflation, the re-assessment of the time lag in affecting the inflation as well as the inflation measurement, the outlook of inflation expectations and their possible de-anchoring are to be considered.
The relative size of these two deviations is governed by the strength with which higher output translates into higher inflation; and the preferences of the policymaker, or: 𝜆 𝜋𝑡 − 𝜋 ∗ = − (𝑦𝑡 − 𝑦𝑡∗ ) 𝜅 where 𝜅 is the effect of the output gap on inflation. From this, it is clear that the higher is lambda, the greater the weight placed on output stabilisation and the more a given shock is allowed to flow through to inflation. As lambda shrinks to zero, the policymaker becomes an inflation nutter, with all of the adjustment to a shock forced through the output gap in order to keep inflation very close to the target. 13  A “micro-founded” loss function resembling this can be derived in New Keynesian models, in which lambda is a function of the underlying deep parameters in the economy (such as those governing the degree of price stickiness). These are typically based on the representative agent assumption. A newer literature drops representative agent assumption. In this case, the “micro-founded loss function” contains additional terms capturing some aspects of heterogeneity between households. For example, in a model with borrowers and savers, a term in the loss function containing the “consumption gap” arises – measuring the gap between the consumptions of the two types of household. The reason terms like this appear is that dropping the representative agent assumption tends also to introduce additional frictions, like borrowing constraints.

Over the  16  same period, unemployment averaged 7.6%, with a  14  standard deviation of 2.8%. Soon after the adoption of  12  inflation targeting, unemployment fell by one  10  percentage point and its standard deviation was cut in  8 6  half. The volatility in economic growth rate in the  4  1970s and 1980s was also one-and-a-half times  2 -6  -4  -2  6 8 Output gap (%) Source: Bank calculations. Inflation is the annual growth rate of the retail price index (RPI) until 1975, and the annual growth rate of the retail price index excluding mortgage interest payments (RPIX) after 1975. The output gap is the percentage deviation of quarterly GDP from its trend, where the trend is measured by a Hodrick-Prescott filter. 0  0  2  4  higher than after the adoption of inflation targeting. In sum, high, volatile inflation likely contributed to a higher natural rate of unemployment and poor supply side performance. Once the UK adopted inflation targeting and granted  operational independence to the Bank, consistent with the theory of constrained discretion, the UK moved towards a better equilibrium characterised by low, stable and predictable inflation, and relatively stable employment. Moreover, by successfully anchoring inflation expectations around the target, inflation targeting helped lower UK borrowing costs for households and businesses, and has allowed monetary policy to promote short-run stabilisation of the economy.
Hence, to estimate the direct cost to the taxpayer of the aid provided to banks, we should first consider the amounts paid out by the FROB to these banks, add this to the expected cost of the APSs extended by the FROB (at Banco de Valencia and Caja Sur) and of other guarantees and coverage offered by it in connection with resolution processes, and subtract the amounts recouped or expected to be recouped. That is to say, we should firstly calculate the funds paid out by the FROB to purchase shares or contingently convertible bonds, which amount to € million, adding these to the estimated cost of the APSs and other guarantees granted in resolution processes which, on the latest valuations available, account for € million. From this amount it would be necessary to subtract the recovery of the amounts disbursed through the redemption of convertible bonds subscribed by the FROB or the disposal of the FROB’s shareholdings in the banks receiving aid. Here, the € million from the sale of  2  As at 30 April 2014. BIS central bankers’ speeches  3  NCG and the return of the aid granted to Banca Cívica by Caixabank3 should be recorded. Further, the convertible bonds subscribed by the FROB in Caja3 (absorbed by Ibercaja), CEISS (absorbed by Unicaja) and Liberbank, are highly likely to be redeemed before 2017, entailing the return of € million.

The most uncertain element of the recoverable amounts is the estimation of the outcome of the sale of Catalunya Banc, currently under way, and of the divestment of BFA/Bankia and BMN. However, it is likely that these disposals will entail an appreciable lessening of the cost that the restructuring of the financial system has involved for taxpayers. In any event, the figures are sizeable. However, in terms of GDP they are not higher than those recorded in other European countries during the financial crisis despite the fact that, in most of them, banks have not had to face a real shock with an impact on the scale of that of the collapse of the real estate sector in Spain. As discussed earlier, the banking industry – via the Deposit Guarantee Fund – has also contributed notably to stabilising the financial sector. This contribution has been possible thanks to the maintenance at all times, despite the severity of the economic and financial crisis, of appreciable financial soundness at most institutions, representing more than 80% of the sector as a whole. The DGF’s support was in the specific form of direct injections into CAM, UNNIM and CCM (for a value of € million), the APSs granted to these institutions (whose estimated cost as at 31.12.2013 was € million at present value) and the potential losses caused by the acquisition of shares in NCG and CX, provisionally evaluated at € million. 4.
Framed by this historical perspective, I would like to share with you some of my thoughts on how the public sector can and should work with private financial institutions to maintain financial stability. In particular, I would like to discuss the work that we bank supervisors, and other organizations, do to promote and protect the safety and soundness of our financial systems and institutions. In a complementary fashion, I would also like to discuss the roles of the private and public sectors in preventing and resolving international financial crises. The supervisor’s charge to promote financial stability One does not need to remind bankers in Frankfurt, or for that matter in any country, of the importance of stability to financial markets and organizations. We’ve been reminded of this necessity many times in the modern age, including by the global financial turbulence triggered by the recent crises in emerging countries. Regardless of whether financial systems and institutions face serious and protracted crises or just temporary downturns, bank supervisors in every country have a special responsibility to safeguard the sound operation of their banking systems. This charge consists of two duties. •  To promote stability, supervisors must first encourage banks to manage their risks appropriately to ensure proper safeguards are in place that limit an organization’s vulnerability. This is the duty of prevention. It is critical for supervisors to remember that the primary responsibility for the safe and sound operation of a banking organization rests with its board of directors and senior management.

Problems with the global financial safety net  Hume himself recognised that the nature of sovereign flows created an incentive to insure against a sudden stop, lamenting: “There still prevails, even in nations well acquainted with commerce…a fear, that all their gold and silver may be leaving them 7.” There are different ways for countries to insure against the risk of sudden stops in capital flows: (i) individually through the stockpiling of foreign exchange reserves, (ii) via collective arrangements with other countries, for example regional reserve pooling or swap arrangements or (iii) through the International Monetary Fund (IMF). This multi-layered global safety net has some advantages but it seems to me that the current configuration is suboptimal: it is fragile, costly and fragmented. Fragile The aggregate size of the global financial safety net had been in decline before of the financial crisis, despite rapid reserve accumulation. There has been some recovery since then, as the size of the IMF and Regional Financial Arrangements increased in response to the crisis and central bank swap agreements were put in place. But the composition of the global financial safety net is now more fragmented [Chart 1] and it is unclear whether it would be sufficient during a systemic crisis. The IMF element is fragile, with borrowed resources accounting for an unprecedented three-quarters, around $ billion of which are temporary loans due to start rolling off next year with no agreement in place to extend them [Chart 2]. 7  See Hume (1758).
In 1913, US Federal tax rules summed to 400 pages. By 1945, this had risen to 8,200 pages, by 1974 to 19,500 pages and by 2000 to 46,900 pages. In 2013, US Federal tax rules amounted to 74,000 pages. That is almost a two hundred-fold increase over a century. Viewed through the lens of history, it is not difficult to explain this evolution. As cracks have emerged in the plaster – for example, regulatory and tax loopholes – they have been papered over. Like a bad painter and decorator, new layers have been applied to support the  BIS central bankers’ speeches  1  layers below. These were rational responses to real problems. And for a time they will have filled cracks, reduced uncertainties, corrected incentives. Yet this evolutionary path leads inexorably towards a framework – whether regulatory or tax – which is a patchwork of make-do-and-mend. History locks in the idiosyncrasies and complexities of the past, generating a steadily rising tide of red tape. As the regulatory and tax codes attest, the resulting frameworks can be Byzantine in their complexity and HeathRobinson in their design. For three distinct reasons, this patchwork may not serve society well. First, maintaining such a framework is a high-cost activity. In financial regulation, it makes for a steadily-rising standing army of regulators and compliance officers. In the US in the 1930s, there was roughly one regulator for every three banks. Today, there are roughly three regulators for every US bank.

Resistance is strong, particularly among those who gain most from squeezing through the loopholes. There is also an in-built professional inertia among regulators, lawyers and tax accountants with large  2  BIS central bankers’ speeches  amounts of human capital invested in complexity. In removing complexities, society’s gain would be their loss. Nonetheless, in the light of the financial crisis, we may be nearing an inflection point, where the societal pendulum begins to swing in the opposite direction. There are certainly signs of the red tape tide beginning to turn in the area of financial regulation. A growing chorus of concern has emerged recently about complexities and inconsistencies in banking regulation. Earlier this year, the G20 Finance Ministers and Central Bank Governors committed themselves to addressing this problem. So too has the Basel Committee on Banking Supervision. This is a good start. But, at this stage, it is no more than that. One risk is that the regulatory inclination may be to tackle this problem slowly and piecemeal, to unwrap the onion one layer at a time, to avoid throwing the baby out with the bathwater. As Axel Leijonhufvud once remarked to me in a different context, while the bathwater in this case may be worth reusing, the baby would never have come of anything. Thin-slicing reform, whether regulation or tax, condemns us to failure. Peeling the onion one layer at a time tends to end in tears.
In Zambia, with the growing emphasis on trade within the regional economic groupings like SADC and COMESA, plastic money in the form of credit cards, is a very practical way of facilitating settlement of cross border transactions. Another benefit which may be associated, with the more extensive use of e-money is the potential increase in tax compliance among the retail and wholesale sectors. The use of credit cards generates accurate records of purchases which currently may not be captured by the Zambia Revenue Authority because business houses may declare false figures. With the use of a credit card there is no provision to cheat the taxman by refraining from issuing a receipt as the record of the transaction will speak for itself. Whilst on the subject of greater tax compliance, I would want to see some form of requirement for most businesses to use points of sale terminals and other non-cash forms of payment in our shopping malls and central business district businesses where we see a resistance from businesses to embrace this technology in favour of cash. But let me end my remarks this evening by pointing out a number of problems and challenges that might be associated with the use of credit cards. The biggest disadvantage of credit cards is that they encourage the holders to spend money they don’t have. If the credit card does not require that you pay off your balance each month, this balance will accumulate.

The longer you wait to settle, the more money you will owe since interest will be charged each month on the unsettled balance. Cardholders therefore need to be careful not use the card liberally. If you think, the card makes you throw caution to the wind as you spend; you might consider leaving the card alone. The possibility of falling into a debt trap is another real danger that cardholders need to watch out for. Interest rates on credit cards can be high. In some countries interest rates on credit cards can be as high as ten times what banks are willing to give on deposit balances. We will keep our sight on what rates apply in the market as a central bank and may even intervene if necessary. But the responsibility of avoiding falling into a debt trap lies primarily with the cardholder. It is prudent to remember that whilst a credit card can make your life easier and can be a wonderful tool for facilitating payments, if you do not use it wisely, it will become a massive financial burden for you. We must learn some lessons from how failure to keep track of purchases and the uncontrollable propensity to spend outside budget, has led to the financial ruin of many people in the developed economies. The last risk, I want to talk about is pertinent to both cardholders and issuers of cards – and that is the risk of credit card frauds.
It may also be difficult for a supervisory authority to build up and maintain a level of macroeconomic expertise sufficient to make a difference in financial crises that only occur every ten or twenty years. But such expertise always has to exist at the Riksbank. Fourthly, there is the matter of resources. For many years, Finansinspektionen has had too few resources to carry out its tasks. This has been pointed out by the IMF most recently. A merger would probably mean that more resources would be allocated for Finansinspektionen’s tasks. Merging the authorities would also allow us to avoid duplicating work and to achieve synergies such as a joint macroeconomic analysis and shared support functions and databases. It should also be noted that increased resources for this activity would not have to burden the taxpayers, as the financial sector would fund the activity via charges. The role played by the state in financial stability is currently being strengthened in several areas of the world. In the United States, which frequently has a large number of authorities acting within one area, a council with overall responsibility for financial stability has been set up. In the United Kingdom, responsibility has been assumed by the Bank of England. The new EU authority, the ESRB, has been moved to the ECB. It has its own board and its own secretariat, but it will also have the ECB’s resources at its disposal.

However, two members of the Executive Board remained responsible for tabling proposals for decision in issues of monetary policy and financial stability. This was also changed later, so that these two were no longer responsible for tabling proposals for decision, but only acted as spokespersons. When Irma Rosenberg left, the role of spokesperson for monetary policy disappeared, and when Lars Nyberg leaves at the end of this year, the role of spokesperson for financial stability will also probably disappear. The Executive Board has also decided to assign the Governor to assume managerial responsibility for the Heads of Department and to monitor the Riksbank’s activities within the scope of the fixed budget and operational plan. However, this will not solve the problem of the Governor not being head of the Riksbank in the same way as a Director General is head of an authority. The Riksdag Committee on Finance has stated its intention to review the Sveriges Riksbank Act once other issues it has been assigned by the government to investigate have been cleared up. My suggestion is that the role of the Governor of the Riksbank also be reviewed and strengthened at the same time. There are many ways in which this could be done, and different countries have taken different approaches. One possibility that I think might work well would be to have a Governor who is head of the authority and two Deputy Governors who, under the Governor, each take responsibility for their part of operations.