samchain/econo-pairs-v1 huggingface dataset:
In doing so we steer the shortest end of the yield curve, which is the starting point of the transmission process of monetary policy, ultimately reaching the real economy in order to achieve price stability. I would like to commence by describing how the ECB has implemented monetary policy during the financial market turbulence, which started in August last year. In this context, I shall describe how the Eurosystem took action through its liquidity provision to the euro money market in order to ease tensions. I shall then turn to the coordinated action taken by central banks, and how important it was for them to address effectively tensions in global financial markets. In the second part of my intervention, I will discuss the measures put in place by the international financial community to restore market functioning and to ensure that the weaknesses highlighted by the current market correction do not recur in the future. In this regard, I will cover the progress made on the implementation of the priority recommendations of the Financial Stability Forum (FSF), as well as policy areas in which work is currently underway, including risk management of financial institutions, procyclicality and cooperation between central banks, supervisors and regulators. I will conclude with the most recent “action plan” that was adopted by the G7 in Washington and on the “concerted European action plan of the euro area countries”, which was just agreed last Sunday in Paris. 1.

The responses of central banks to the financial turmoil  Over the past four weeks – in particular following the collapse of Lehman Brothers – credit risk concerns have intensified and have led to additional disruptions in the functioning of money markets, not only in the United States, but also in the euro area and Europe in general. Central banks are taking all the necessary steps to stop the downward spiral, and recent actions have once again demonstrated their determination in this respect. In both “normal” and “turbulent” times, the primary objective of the Eurosystem’s open market operations is to keep the shorter rates, in particular, the overnight rate, as close as possible  BIS Review 123/2008  1  to the minimum bid rate. However, during the recent period of turbulence, open market operations have also aimed at ensuring the continued access of solvent banks to liquidity, notably by contributing to easing the impaired functioning of the money market. The Eurosystem intends to continue to follow this approach as long as necessary. From the first day of the financial market turbulence on 9 August 2007, in an environment of increased liquidity risk and in response to banks’ changed liquidity demand pattern, the ECB has achieved these objectives through making technical changes to the way in which it supplies liquidity in normal times, while also utilising the full latitude of its framework for monetary policy implementation.
Just like households, entrepreneurs can be savers and investors, but also employers and borrowers that depend on access to loans. SMEs in particular rely on funding from banks, since they typically do not access capital markets. Over the last decade, 43% of external finance for SMEs in the euro area has come from bank loans – double the share for large firms. [9]  So when the lockdowns began, SMEs across Europe turned to banks to meet their liquidity needs – and it was vital that a cheap and elastic supply of credit was available. 3/8  This is where the ECB stepped in. We monitor SMEs’ access to finance very closely, including through a special Europe-wide survey. And we took a series of measures specifically designed to help channel credit to firms in need. First, we launched our pandemic emergency purchase programme (PEPP), which helped stabilise financial markets. That was crucial to ensure that bank lending rates did not tighten suddenly, since bank loans are priced off sovereign borrowing costs. Second, we recalibrated our targeted longer-term refinancing operations (TLTRO III), lending to banks at the lowest rate we have ever offered, but only on the condition that they used the funds to lend to firms. Banks have taken up € trillion in these operations so far. To access that liquidity, banks have to provide collateral, so we also decided to make loans to smaller businesses and the self-employed eligible as collateral for our operations.

This encourages banks to grant loans to SMEs and refinance them by borrowing from the ECB. In parallel, our supervisory arm ensured that there were no prudential barriers to banks acting quickly, which freed up € billion in bank capital for new lending. And fiscal authorities complemented our efforts, making available wide-ranging loan guarantees and other liquidity support measures – equalling close to 20% of euro area GDP. This was crucial to mitigate the higher credit risk banks face when lending to SMEs during a recession. As a result, from March to May last year, bank lending to euro area firms rose by the largest amount on record. And it was SMEs that benefited the most from both cheap and abundant credit. 4/8  Lending rates on very small loans – which are a proxy for lending to SMEs – declined substantially, with firms able to borrow at the lowest rates ever recorded – below 2%. [10] And, since March, € billion in new small loans have been granted to SMEs in the euro area, including € billion to SMEs in Germany. Our policies were key to achieving that outcome. Banks taking part in our TLTROs saw a considerable increase in their credit growth, with loans rising by over € billion in the year up to September. And this dovetailed with government loan guarantees to funnel credit to SMEs, which received more than 70% of all the guaranteed loans granted.
The strength of the UK recovery and the fall in its unemployment rate suggest that the equilibrium real interest rate is now rising gradually back towards zero. The Ghost of Christmas Past should not be forgotten. A recovery may be gaining pace but our economies are a long way from normal. Leverage is still high and weak demand for advanced economy exports could persist for some time. The Ghost of Christmas Yet to Come suggests that it is unlikely that equilibrium interest rates will return to historically normal levels any time soon. This prospect puts a premium on macro-prudential policies and financial reforms to manage the associated risks without abandoning the need to keep interest rates in line with the equilibrium level. So while it is unsurprising that the ideas behind secular stagnation are being revived, it would be a mistake to rush to a more extreme macroeconomic response. There is a long history of pessimism in economics, from Thomas Malthus through Alvin Hansen to Robert Gordon. Such worries have proven misplaced in the past and scepticism is warranted now. Don’t forget that the US economy is more than 13 times larger than when Hansen first formulated his ideas. Similar performance must again be possible. Central banks are playing a catalytic role to help deliver it but their contribution will ultimately be limited. The most important drivers of long term prosperity will be measures taken by others to increase the growth of supply, particularly those that reinforce an open, global economy.

The other step concerns the choice of the central parity rate for entry in ERM II. As explained earlier, this, however, remains a multilateral decision to be taken by consensus and the matter, therefore, is not at our sole discretion. What are your expectations with regard to the central parity rate? As I have just pointed out, exchange rate stability is vital for our open economy and we wish to preserve this important feature of the currency during ERM II. We have reason to believe that this is not an unrealistic expectation. It is based on the outcome of a study the Bank carried out on the equilibrium exchange rate. According to economic theory, the central parity rate in ERM II stands a better chance of being sustainable over the two-year period if it corresponds to the equilibrium exchange rate. Thus, if one could identify the latter rate, one would automatically have an idea of the most appropriate central parity rate for ERM II. The equilibrium rate, however, is not specifically known and cannot be observed. It can only be estimated under a number of assumptions and the estimates are sensitive to the methodology used. Recognising this caveat, the Bank used several methods to estimate the equilibrium exchange rate. Both the methodologies and the results of the Bank's study were shared with local and foreign experts, from the ECB and from fellow national central banks in the EU and in North America.
However, for the saving glut to result in growing imbalances, net savings have to be more and more asymmetrically distributed across nations. In addition, for more than a decade now, capital has been continuously flowing “uphill”, i.e. from poor to rich countries with current accounts surpluses in emerging economies mirrored in growing deficits in the US. This is one of the most salient and puzzling features of modern economic history and has attracted a lot of attention. Some explanations focus on the domestic drivers of private saving behaviours in both emerging and advanced economies. Cyclical factors, such as productivity shocks, or fiscal policies, have likely played a role (Bussière et al. 2010, and Henriksen and Lambert, 2009) But this can only be part of the story. It may well be that saving / investment imbalances are endogenous to the system itself.. According to the “Bretton Woods II” approach (Dooley et al. 2003, 2008, 2009), the pattern of capital flows results from a mutually beneficial equilibrium between two groups of countries. On the one hand, emerging economies which follow an export-led development strategy and seek to prevent appreciation of their real exchange rates by constant foreign exchange intervention (together with capital controls). As a consequence, they accept to accumulate increasing stocks of liquid assets denominated in dollars. On the other hand, the US is happy to get both reserve inflows to finance their deficits and cheap imports to fuel their demand for consumption goods.

A more standardized contract creates greater certainty and predictability about the characteristics of the financial contracts. When the parties involved are better able to understand their rights and obligations, stakeholders’ confidence in the market would correspondingly improve. In essence, standardization of documentation, products and practices are essential to ensure that the markets are fair, efficient and transparent. Whilst contract and product standardization is encouraged to the greatest extent possible, we also need to be mindful not to let it stifle innovation. As a nascent industry, the need for innovation and competition in Islamic finance is so important that its absence might impede its growth. One important area is the need to appreciate and subscribe to the value of diversity in Shariah. I believe that diversity in Shariah interpretation is the seed to harness innovation in Islamic finance. Diversity in opinions and practices generate wider options for consumers and practitioners. I believe that this is very fundamental. It is also for this reason that Malaysia subscribes to the concept of mutual recognition of the interpretations and decision of Shariah principles reached by a recognized Shariah body across countries. We believe in the need for diversity as it is an impetus for sustainable global growth of Islamic finance. While diversity would create a conducive environment for Islamic finance to prosper, varying interpretations of Shariah within a country can add to the complexity of the operating framework of Islamic financial institutions.
The move toward a tougher capital and liquidity regime undoubtedly receives the greatest attention in terms of the measures being implemented to make large banks safer. However, there also are a number of other important changes being made to supervisory practices in the United States and elsewhere. One noteworthy example is the more widespread use of horizontal stress tests to ensure that banks have adequate capital. This is a very important development, because it makes the evaluation of capital more forward-looking. The issue is not just how much regulatory capital a bank has currently but how that bank’s capital level is likely to evolve over time in adverse economic circumstances. In the United States, another important change is that we are refocusing our supervisory practices to identify structural weaknesses and to push firm managements to remedy their shortcomings relative to “best practice” standards. Horizontal reviews across the large banks are being undertaken to identify firm-specific deficiencies. At the Federal Reserve, we are placing greater emphasis on understanding banking organizations’ business models and strategies – in other words, better understanding the specific markets and activities from which the banking organizations make money over time and the nature of the risks they take in this process. Strong risk management practices within organizations are particularly important, as risk managers must be empowered to stand up to those in the front office and prevent activities and practices that create risks or incentives that are incompatible with bank safety and soundness.

Instead, the goal of the CCAR was to help ensure that large bank holding companies have strong, firmwide risk measurement and management processes to support their internal assessments of capital adequacy and that their capital resources are sufficient given their business activities and the resulting risk exposures. 4  BIS central bankers’ speeches  The second important strand of reform is to ensure that regulatory oversight is sufficiently broad to include the activities of the so-called shadow banking system. This aspect of reform and oversight is still in its early days. But work is underway. For example, the Financial Stability Board is undertaking work to identify potential sources of vulnerability caused by the activities in the shadow banking system and how such vulnerabilities could be addressed. Also, in the United States, the Financial Stability Oversight Council (FSOC) views its mandate broadly with respect to identifying systemic risks and proposing remedies. For example, on an ongoing basis, the FSOC will monitor and assess which non-bank financial intermediaries in the United States are systemically important and, thus, require greater regulatory oversight. But the focus will not just be on large financial firms. Activities and practices that occur outside of the core institutions are also important. For example, the activities of money market mutual funds is one area receiving close scrutiny. As you know, a run on the money market funds developed in the fall of 2008 when the Reserve Fund broke the buck when Lehman Brothers failed.
Within corporate debt, the proportion of leveraged lending and lower grade corporate bonds has risen rapidly in recent years, and in the UK and US there is a larger tail of highly indebted companies than there was before the crisis.13  Alongside this, protections for investors have been weakened materially. There has been an increase in borrower leverage, greater use of earnings add-backs and a relaxation of other investor protections like restrictions on collateral transfers. The share of ‘covenant-lite’ loans has reached record highs.14  Leveraged loans originate in the banking system. Much of the exposure, however, appears to have been passed on to market based investors, such as investment funds, insurance companies and pension funds either directly or in the form of collateralized loan obligations (CLOs). The growth of market-based finance has been one of the major changes of the post crisis financial landscape. Assets under management (AuM) globally now total $ trillion as opposed to $ trillion ten years ago. The growth in corporate borrowing over the same period has largely come through the market-based channel, rather than banks, as has the increase in net external borrowing by emerging markets. The development of market based finance in and of itself probably increases the resilience of the financial system by providing an alternative channel of credit.15  Its use of leverage is much less than the banking channel.

Aggregates, as I have said, can hide a multitude of sins. Household debt came down post crisis in most advanced economies – falling from 83% of GDP in 2009 to around 73% today – and has grown very slowly, if at all, since, moving within a percentage point for the last five years.12  11 The Euro area is perhaps something of an exception, given that Euro members issue debt in a common currency rather than a national currency. This removes the exchange rate and inflation mechanisms for correcting debt values that can operate when sovereigns issue in their own currency and makes the adjustment mechanism of default more likely, as was seen in the Euro crisis. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Financial sector debt in advanced economies has also grown very slowly after the very painful deleveraging of the financial sector during and after the crisis. This reflects greater risk aversion in the banking sector reinforced by the much higher level of capital banks are now required to hold against losses, a very positive development for financial stability. Corporate debt in advanced economies, however, is a more mixed story. It has not grown much overall over the past 5 years. But within that, over the past 3 years its growth rate has accelerated in some countries – particularly the US and France. And perhaps more importantly, while the totals may not be changing much, the riskiness has been increasing.
3/4  BIS central bankers' speeches  *** Dear participants, I avail the opportunity for addressing to this Conference and highlighting the importance of sharing knowledge and experiences among us on such an important theme. I would like to conclude my speech by thanking you again for the invitation! 4/4  BIS central bankers' speeches

As the change in indirect taxes and administered prices has a direct effect on domestic inflation, their catching-up adjustment should be effected before the years during which they will be used as basis for evaluation of compliance with the Maastricht criteria – i.e. before 2008. From this perspective, earlier timing of harmonization of some excise taxes is a step to facilitate significantly the performance on the inflation criterion, as it would eliminate the proinflationary impact of an increase in these taxes in the years in which such evaluation will be made. In conclusion, I would like to sum up that, in the light of the rapid change in the structure of our economy, the stable macroeconomic policy pursued by the Government and the BNB, and the prospects for EU membership, the concerns, expressed in the leaflet for this Conference, of possible overheating of the economy and the risks this entails for its stability, seem rather exaggerated. The country’s external imbalance financed by capital inflows is more of a signal of stability, credibility and potential for development of our economy. Of course, the economic policy makers are not and may not be complaisant. The challenges Bulgarian economy is facing are well recognized, and there is the will to take all the necessary measures to preserve the stability and growth in the economy. Ladies and gentlemen, thank you for your attention. BIS Review 22/2006  3
The policy mix must be well-balanced at the international as well as the domestic levels. Placing too heavy a burden on monetary policy in terms of achieving the main economic and financial balances is detrimental to its effectiveness. In particular, it diminishes its ability to maintain and consolidate financial market stability. This concern underlies the implementation of the Growth and Stability Pact in Economic and Monetary Union. By obliging fiscal policies to commit to stability, the pact allows the fiscal buffers to fulfil their role as stabilisers. Indeed, by their information and expectations, investors can penalise  4  BIS Review 41/2001  imbalances affecting the main world economies or diverging developments in different countries. To reduce this constraint, economic and monetary policies must be harmonised at the international level in order to achieve more balanced international financial relations. B. Financial authorities have to soften as much as possible some of the side-effects of the new financial market features. Let us first consider a few possible improvements as regards credit cycles: •  Provisioning standards should allow banks’ lending to be less pro-cyclical. As a general rule, provisioning standards require improvements so that provisions better reflect the actual inherent credit risk of loan portfolios. They should also be improved for macroeconomic purposes, so that banks’ lending behaviour becomes less pro-cyclical. These objectives could be achieved through a more forward-looking provisioning, whereby provisions are set up earlier – that is to say, in a perfect world, as soon as a loan is granted.

They are particularly appropriate for online purchases;  •  Cards offer you additional protection if what you purchased is lost, damaged or stolen as the credit card statement can vouch for the fact that you bought the item even in the absence of the original receipt;  •  It helps you build a credit line which can be used by the credit reference company to support your creditworthiness when applying for a loan; and  BIS central bankers’ speeches  1  •  In the case of emergencies, a card can become handy in paying for requirements which may be completely outside your budget. These are some of the basic conveniences of credit cards which will come about with the extensive use of this instrument in this country. Apart from the cardholders, credit cards have other wider advantages which impact on the greater economy. From our perspective as a Central Bank, we are keen to promote the use of non-cash and more efficient payment systems for its convenience, flexibility and security. We consider it as one of the instruments that can contribute to the promotion of financial inclusion as has been clearly demonstrated in other countries where cards are a common tool for the settlement of financial transactions. In the United States, for instance, 80% of households have at least one credit card.