samchain/econo-pairs-v1 huggingface dataset:
My point of view is that the need for policy response is not so much about imposing more and heavier regulations, but instead about improving and developing existing ones. When doing so, two conditions must be met: first, some kind of market failure has to be proven, and second, the benefits of imposing new rules must exceed the economic costs. Given recent events, there are numerous regulatory issues to discuss within this context. In many cases work has already started. For example, how to achieve better management and supervision of liquidity risk as well as greater transparency in the financial sector are important matters currently under review. Further issues include regulatory treatment of the originate-and-distribute model and off-balance sheet entities, as well as procyclical elements in regulation. Of particular interest is the issue of clearing and settlement arrangements in the unregulated credit derivative markets. One partial explanation of the uncertainty that has prevailed in the financial system recently is the absence of a resilient infrastructure for these markets. No central counterparties have existed and there has been no common market place for exchanging these instruments. As a result, trading has been fragmented and opaque, which in turn has implied that nobody has really known where the credit risks are and few have realised that these risks – directly or indirectly – actually have remained on the banks’ balance sheets. Clearly, there are many issues on the agenda and the course of events over the past year has underscored the need to get to work.

Short-term interest rates – which are currently at 5½% – actually peaked last year at 7½%. For much of my 37 years at the Bank I’d have given my eye-teeth for them to trough at 7½%. Long-term interest rates, which have recently been at around 4½%, are lower than they’ve been since the late 1950’s. That’s certainly good for the economy as a whole, though I recognise that it does not necessarily feel good to people living on interest on their savings, even though those savings keep their real value far better than during the earlier period of high inflation. The public sector’s balance sheet is in excellent shape compared with most of the rest of the world – and the Government’s borrowing requirement position is strong and sustainable. And  3  BIS Review 19/1999  the same is true of the balance sheets of the banking system, and of both the household and corporate sectors. And on top of all that, England beat the Springboks at rugby – even if our cricketers didn’t do so well down under! Yet all that one reads about – all that anyone wants to talk about apparently – is the bad news. So let me not disappoint you this evening, and now come on to the bad news. Where are we now? By around the beginning of 1997 it was becoming clear that we were once again in danger of having too much of a good thing.
As a result, credit risk perception by banks remains considerable; Second, in spite of a better reflection of the key interest rate cut in the last quarter of 2013, the credit price (including other related costs) is considered still relatively high. For that 2  BIS central bankers’ speeches  reason, banks need to cut the credit price down, having better control of their operational costs, especially foreign currency funding costs. Third, credit restructuring should be conceived as a broader process of deep restructuring of the activity of borrowing businesses. Each non-performing loan should be seen as a new opportunity. Our approach should extend to the micro level, according to the motto: door to door and case by case. From the bank’s perspective, this would mean that credit restructuring is not merely a rescheduling of credit instalments in agreement with the businesses, but an in-depth analysis to assess the possibilities of its future existence in the market and acknowledge on time the loss of a part or full credit value. Fourth, infrastructure and legal practice concerning collateral execution remains subject to adaptation to the new situation. Fifth, it may be necessary to allow longer time to see the effect of the measures taken until now, and other measures that should further address the above-listed problems. Despite the existing problems listed above, the Bank of Albania believes that the circumstances are better for banks to be more active in this year in tackling non-performing loans.

Nevertheless, we are aware that within this reality, there is room for a more positive approach to consumption and investments, and more lending. Uncertainties and reluctance are the main problems standing in the way of the Albanian economy. The purpose of this forum is to identify, together, ways to overcome this situation. In this context, I would like to quote President Roosevelt: the only thing we have to fear is fear itself. 2. Decision-making on banking supervision and financial stability  Recently, non-performing loans have been mentioned frequently. I will take this opportunity to make the following necessary clarification: First, I would like to underline that we have identified this problem at an early stage and have been very scrupulous with the banking system to evidence every penny of a loan that is not being repaid duly. This is why non-performing loans increased rapidly in the first period, and have stayed at the current levels for a long time. In contrast to other countries in our region, we have persisted not to conceal the non-performing loans, but evidence them accurately and comply with our rules to make provisions for every loss penny. Second, we have adopted a rather conservative approach to non-performing loans classification. In our case, when we calculate the value of non-performing loans, we do not take into account the value of collateral, as is the practice in many countries. If we deducted this value from that of the non-performing loans, the NPLs’ value would be significantly down.
A case in point is the decisions we have taken in Frankfurt since the start of the crisis, such as interest rate cuts, the unlimited supply of liquidity, purchases of bonds and covered bonds and three-year refinancing operations, which, while aimed at resolving problems of the euro area as a whole, have proven particularly beneficial for Spain. But there are other less evident instances, such as when Europe obliges us to use competitive procedures to award banks that have been taken over or oversees the granting of public aid. Admittedly, this makes bank restructuring a lengthier and more complex process, but it should be acknowledged that it helps Spain ensure that sell-offs are open to all new investors that may be interested and that the taxpayer’s money is better allocated. The help of the European institutions should likewise be appreciated when, in compliance with the new economic governance framework, they obliged the Spanish authorities to be rigorous in cutting the budget deficit. This has not been to the liking of some but, however we view it, it is rightly one more reason to be confident about Spain’s possibility of emerging from the crisis. The discipline required by Europe, which may prove uncomfortable and even debatable in the short term, has, like monetary discipline, extraordinarily positive effects on our economy in the medium term. It is as though Spaniards had taken out insurance so that our governments, authorities and companies cannot take decisions that harm Spain in the long run.

So as to be able to have a new toolkit adapted to this crisis, more than half a dozen laws1 had to be approved, from first creating the Fund for the Orderly Restructuring of the Banking Sector (FROB) in 2009 to the last Decree Law approved in February, with regulations that have set about righting the shortcomings. These include the creation of an institution/fund allowing for the obligatory and orderly restructuring of non-viable banks and encouraging the merger of viable ones; the regulation of institutional protection schemes; the possibility of converting savings banks into banks; new capital requirements to speed through restructuring; the granting of greater powers to the Banco de España; the merger of the deposit guarantee funds, etc. Promoting all these changes in a full-blown crisis was like carrying out two tasks on a ship that has hit the rocks: while evacuating the passengers, it was necessary to repair the lifeboats. A most difficult task, as I said, but the seven laws have now been passed. And there is one very positive aspect, namely that all these regulations had the backing of the country’s two main parties. This is perhaps why these reforms have maintained a series of common characteristics and, while giving due merit to the main actors, i.e. the different governments and the legislative chambers, mention might be made of the advice that the Banco de España has offered and continues to offer.
The first real source of asymmetry is the very principle of limited liability. Beyond a certain level of remuneration and risk taking, one should ideally envisage a system which mimics that of partnerships or full personal liability. The fact that this is probably too ambitious justifies more ad-hoc complementary forms of regulation. Shareholders have by and large paid their dues in the crisis, but creditors typically have not. This is the level at which there is most to gain in both correcting the incentives (ultra-high leverage should worry creditors first, and regulators only afterwards) and protecting tax payers. By definition banks rely a great deal on credit; it is conceptually clear that creditors should come into play before taxpayers when something goes wrong. This would naturally be the case via bankruptcy proceedings. If we cannot go that far because of the crucial role of banks and certain financial institutions, we must find other ways for creditors to step in before taxpayers are involved. This can be achieved through ways of anticipating part of bankruptcy outcomes (living wills) or/and through some form of automatic conversion of a significant proportion of bank debt into equity. Secondly, these considerations address the financial stability issue only through the lens of individual institutions. We now know that this is not enough. Microprudence must be supplemented by macroprudence, i.e., a system design that encourages well-managed individual institutions to act, in particular at times of crisis, in ways that do not make life harder for other institutions under stress.

This means, in particular, that for some parts of the economy even being too late will feel as though it is too soon. What is certain is that the current expansionary monetary policy cannot be maintained indefinitely without incurring inflation risks. Therefore, households and firms should prepare themselves for a return, sometime in the future, to a world of higher interest rates, with exchange rates being guided by market forces. This is the normal state of affairs, and all concerned should shake off bad habits learned in extraordinary times and remember that they are ultimately responsible for the long-run viability of their decisions and operations. 2. Safer financial system: regulation  It is here that we have most to learn from recent events, and here that we must adapt. There is a lot that could be said. However, I will be modest and confine myself to putting forward three simple ideas that are becoming part of the general consensus, as outlined in the G20 and FSB agendas. Firstly, it should not be a game of us (the central banks, the regulators, the government) versus them (the banks or their managers, the financial sector). What is at stake is the design of an economic system that is efficient, compatible with the rules of a market economy and favourable to value creation. One essential lesson of the financial crisis is that the system was not properly designed.
Fourth, the use of common assessment and risk management tools by market participants, and finally an excessive and shortsighted focus on “shareholder value” may also amplify swings. Prudential regulations may also occasionally have proven conducive to an excessive emphasis on the short term when assessing risks. What can the authorities do to counter these tendencies? Debate among academics, policymakers and market participants has been intense in recent years, and is far from settled. This is an area particularly open to discussion, where new ideas and new evidence are forthcoming. Indeed, the way monetary stability and financial stability interact with each other seems a particularly complex topic, and the impact of specific measures on both fields is uncertain. As far as monetary policy is concerned, the debate on whether it should react to asset prices has been one of the most interesting of recent years. Insofar as asset prices contain useful information that helps predict future price -and output- developments, they should clearly be included in the set of indicators the central bank uses for decision-making. This is not, however, as easy as it may sound. First, because empirical evidence on the usefulness of asset prices in predicting future price and output developments is not conclusive. And second, because the integration of asset prices in macroeconomic models poses a series of practical difficulties. 2  BIS Review 35/2002  Going one step further, a related question is whether monetary policy should react directly to asset prices, over and above the impact of the latter on inflationary prospects.

In a globalised world, Switzerland's attractiveness as a business location in an internationally competitive environment should continue to improve. Third, the economically active population could be strengthened by increasing the number of qualified immigrants. There is a substantial pool of labour from which to recruit not only within the European Union (EU), but also in other regions. At the same time, Switzerland's employment quota could be lifted if more women now living in Switzerland entered the workforce. The key to achieving this goal is striving for a greater work life balance, i.e. combining a career and family life for both parents. For example, more women should have the option to work fulltime on a permanent basis. BIS Review 13/2007  1
The purpose of our policy has been to prevent Sweden falling into the deep recession suffered by many other countries in connection with the crisis. It has thus been a question of wanting to manage our task of maintaining price stability and macroeconomic balance in the best way possible. 9 As I see it, there is no doubt that the Riksbank’s mandate allows us and even requires us to take into account risks linked to a credit boom and rising house prices. So, neither in the light of the international debate conducted today nor the mandate given to the Riksbank, has the monetary policy conducted been particularly “unusual” or “strange”. The monetary policy strategy the Riksbank has applied in recent years is also worth mentioning. What we have tried to do is to find a suitable balance where we support the recovery, but at the same time do not accelerate as hard as we might have done if we did not need to take into account housing prices and indebtedness. This has not, as one might sometimes think, been a question of braking hard. When all is said and done, the repo rate is currently no higher than 1 per cent. Difficult balancing act if the repo rate is the only tool But let me now return to Figure 1 and the discussion I started with. Stabilising two cycles – the business cycle and the credit cycle – with the aid of only one tool – the policy rate – is of course not easy.

It is in the U.S. national interest to make sure that non-U.S. banks that are judged to be sound by their central bank are able to access the U.S. dollar funding they need in order to be able to continue to finance their U.S. dollar assets. If the access to dollar funding were severely impaired, this could necessitate the abrupt, forced sales of dollar assets by these  2  BIS central bankers’ speeches  banks, which could seriously disrupt U.S. markets and adversely affect U.S. businesses, consumers and jobs. One way we can help to support the availability of dollar funding is by engaging in currency swaps with other central banks. This has been used as a policy tool dating back to 1962. Recently, the Federal Open Market Committee decided to re-launch this tool, cooperating with five other central banks. Our intention is to create a credible backstop to – but not supplant – private markets. Banks with surplus dollars are more likely to lend to banks in need of dollars if they know that the borrowing bank will be able to obtain the dollars it needs to repay the loan, if necessary, from its central bank. This action is designed to support financial stability, avoid an unnecessary tightening in financial conditions and support economic activity and jobs in the United States. In particular, by reducing the cost of dollar funding via the swap lines last month, we reduced the pressure on banks in Europe to abruptly liquidate their U.S. dollar assets.
We can thus now also answer the question as to when bank deposits constitute sound money. Having central bank money that retains its value is a key prerequisite for sound bank money. Since bank deposits in Switzerland are denominated in Swiss francs, their value is largely determined by SNB money. Sound bank money therefore hinges on sound central bank money, but that in itself is not enough. Bank deposits are only sound money if the bank in question is also solvent and liquid, in other words, if the depositors can rely on being able to exchange their deposits into banknotes or into deposits at another bank at any time without any problems. For this to be ensured in turbulent times as well, banks need to have a strong capital base and sufficient liquidity. They must be able to meet their obligations at all times, and therefore must not take on any excessive risks. This is the case if banks structure their business 7 8  For more information on Swiss monetary history, cf. inter alia Jordan, Thomas J. (2014), Sound money – a fundamental pillar of our society, speech at Ustertag, Uster, 23 November. Of course, this temptation is not unique to paper money systems, as shown by recurrent instances of debasement in the era of metal-based money. Non-state money issuers are also susceptible, albeit with the motive of private gains.

It is therefore not enough for just central bank money to be sound money; bank deposits must be sound as well. When is central bank money sound money? But let us first consider the money that serves as the anchor of our monetary system. These days, central bank money is paper money: 4 there is no defined obligation as regards convertibility into gold, which makes the issuing of money completely flexible. 5 This brings considerable advantages. It allows central banks to adjust supply in line with demand and thus to keep the value of money stable over time. 6 Thanks to this flexibility, in crisis situations a central bank can make an important contribution to damage limitation by supplying additional 2  3 4 5 6  Just over two years ago, the Swiss electorate rejected the sovereign money initiative and its proposed change to a system based purely on central bank money. Prior to the vote, the SNB had also highlighted the disadvantages of such a move. Cf. inter alia Jordan, Thomas J. (2018), How money is created by the central bank and the banking system, speech at Zürcher Volkswirtschaftliche Gesellschaft, Zurich, 16 January, and Jordan, Thomas J. (2018), Why sovereign money would hurt Switzerland, speech at the Swiss Institute of Banking and Finance at the University of St. Gallen, St Gallen, 3 May. In addition to central bank money, the coins issued by the Confederation are also legal tender.
Even though the start of the year did not turn out quite as weak as it seemed in June when we lowered the repo rate, it still appears that economic growth and resource utilisation this year will be markedly lower than we expected at the beginning of the year. In the period ahead we expect that the cyclical upswing to a greater extent will be associated with increasing domestic demand. There are currently a number of signs that such a change is on the way. During the second quarter this year, growth in household consumption seems to have picked up and it appears that consumption continued to grow strongly in the third quarter as well. Moreover, the upturn in investment that began last year has also continued during the first half of 2005. Export growth, however, was somewhat weaker than expected during the first half of the year owing to the dip in international economic activity. However, monthly data for goods exports and the NIER's business tendency data for new export orders point to a slight pick-up recently. The high productivity growth in recent years indicates continued good growth in the Swedish economy in the coming years. It has meant that companies have been able to increase their production with their existing work forces. This in turn has improved the cost situation for companies and held back price increases in the economy. The low inflation rate has made it possible to conduct an expansionary monetary policy for a comparatively long period.

1 This index ranks countries taking into account the foreign direct investment they  attract in proportion to the size of their economy. 2 Source: 2021 annual report of Cyprus Shipping Chamber (CSC-ANNUAL-REPORT-  2021.pdf (csc-cy.org))  4/4  BIS - Central bankers' speeches