samchain/econo-pairs-v1 huggingface dataset:
The various national regulations also contributed to limiting the banks’ possibilities to compete on equal terms. 1  SEK 310 billion, according to the Swedish Association of Local Authorities and Regions. (https://skl.se/ekonomijuridikstatistik/ekonomi/sektornisiffror.1821.html)  3 [12]  Consequently the Basel Committee presented the so-called Basel I Accord in 1988. This was implemented into Swedish legislation in the early 1990s. Basel I was the first internationally-agreed minimum standard for capital levels to be held by internationally-active banks. It is worth noting here that the Basel Committee agrees on minimum standards. All countries are free to introduce stricter national requirements regarding their banks’ capital levels if they find it appropriate. This is something the Basel Committee encourages its members to do. The idea behind Basel I was, somewhat simplified, that the banks with assets assessed as less risky had a lower capital requirement than the banks with assets assessed as more risky. The regulations were simple and consisted of only a few risk categories. But this meant that one could take into account that the risk of losses was greater for banks with more risky assets than for banks that had more assets that were less risky. The banks’ capital could thus be distributed through regulation in a way assessed to increase efficiency in the economy. Basel I lead to the introduction of some new concepts, such as risk weights and riskweighted assets.

This regulatory framework was incorporated into Swedish law and in many other countries at the beginning of 2007. One of the main differences with regard to Basel I, was that Basel II made it possible to apply different methods to calculate risk-weighted assets and capital requirements. As you probably know, some banks were able, after approval by the financial supervisory authority, to use so-called internal models to calculate their risk-weighted assets. This reform was intended to increase the link between the banks’ capital requirement and their actual risks, which was also largely the case and thus generally improved the banks’ risk management. 4 [12]  However, the use of internal models also entailed a risk that the banks’ calculation of the capital requirements would not reflect the actual conditions. The risk that the banking system would not have sufficient capital to manage the risks arising from the banking operations thus increased. As the banks themselves were given the opportunity to influence their capital requirements, their incentives to underestimate the risks and thus reduce the capital requirements, increased. It is also difficult to determine how much capital a bank actually needs to manage a crisis situation. Soon after the Basel II Accord had been reached, the major international financial crisis broke out with the bankruptcy of the US bank Lehman Brothers. It then became clear that many banks lacked sufficient resilience to the sudden changes in the financial markets.
1 On this side of the pond too, the growth of financial markets in the City is attracting more attention. While much of that is favourable, we have seen renewed worries that London’s prominence and the wealth it attracts and generates may be distorting the broader economy possibly adding to social tensions – that it may be more a cuckoo in the nest than a golden goose. So the future of the City is a significant issue not just for Londoners but for the development of the wider British economy. And the development of the financial sector is of particular interest to the Bank not just because it is an important part of the economy itself but because it shapes the way that our monetary policy impacts on the wider economy and because of our responsibility with the FSA and Treasury for maintaining the stability of the financial system. I will be speaking about the impact of the City’s rapid growth on the broader economy in coming months but today I want to focus on what underlies that growth and, therefore, to address the question whether we should expect it to be a passing phase or to continue. Is London just on the crest of a wave or is it swimming with a persistent stream? Putting it into perspective To start with, how important is the City? Is its press profile greater than its real contribution to the economy? The City’s output is hard to measure.

Many have been established and are staffed by people who acquired their skills and earned their capital at the more established investment banks and fund management firms of the City. Being at the heart of world markets helped them spot the opportunities and assess the competition. Once they struck out on their own, they could draw on a network of former colleagues and contacts for staff, information and expertise. Future prospects of the City of London So what are the prospects of the City of London? One of the clear lessons from history is that any position can be lost. It is always possible to throw away an advantage by ill judged decisions. Any widespread operational disruption or fear about security could also be very damaging, which is one reason why we and the other tripartite authorities are spending so much time on improving crisis response and management. But in the absence of disaster the structural factors I have discussed seem likely to favour further concentration of financial business in the City. First, the entry of China and India international market has been associated with a massive expansion of international trade and finance in relation to overall world GDP. That seems likely to continue and has been a major factor in the growth of London in the past. Fifteen years ago people worried that developments in information technology would undermine centres like the City of London.
In the baseline scenario, the increase in y-o-y CPI inflation towards the end of the year will be less than forecast in June, mainly responding to the lower price of fuels. Accordingly, by year’s end, CPI inflation will be 3.3 percent instead of the 4 percent estimated in June. Going forward, inflation will remain close to the target through the third quarter of 2013, which this time marks the end of the projection horizon (figure 14). Private inflation expectations have been revised in the same direction and point at CPI inflation being somewhat above 3 percent at the end of the year, and in line with the target thereafter (figure 15). Such a trend for inflation is based on several assumptions. As I said, that the economy will grow around its trend in the coming quarters; that the real exchange rate will remain fairly stable, in the range believed to be consistent with its long-term fundamentals; and that labor costs will grow in line with the inflation target. Regarding monetary policy, the MPR has reached a range considered normal. Unlike predictions of some months ago, when most thought that the MPR would be raised further, the changes in the macroeconomic scenario have led to a greater dispersion of private expectations. Even so, the baseline scenario uses as a working assumption that, in the short run, the MPR will stay where it is today (figure 16).

Add to this that monetary policy interest rates are at their all-time lows, with which the capacity of central banks to increase the stimulus is also limited. In short, the tools traditionally used to boost growth have little room for maneuver in the developed world. Another source of risks that is being increasingly debated is the possibility of developed economies, especially the U.S., enduring a long time of slow growth. Excessive private debts, particularly of households, and public debt, combined with weak labor markets, are determinants of this assessment. This could shape a similar situation to that of Japan after the bursting of its housing bubble in the late 1980s, which gave way to a period of stagnation that has seen no end. Although we believe this to be an unlikely scenario, its consequences on the global economy could be severe. Amidst these conditions, emerging economies continue to grow strongly. The risks of overheating we saw only a few months back have diminished, partly because of the very action of the adopted economic policies and, especially, of monetary measures. There are still risks, however. For one, it is obvious that if developed economies continue to lag, the external demand facing the emerging world will fall, hurting their growth potential. Although in the current scenario some dynamism and a certain degree of decoupling are expected, this cannot go on indefinitely. Given the weakness of domestic demands in developed countries, they rely on their exports to grow and to resolve their global imbalances.
The financial crisis committee, which was appointed by the Government, is currently looking into the design of such a framework – for instance, which tools should be used and by whom. However, some measures belonging to the macroprudential toolbox have nevertheless been implemented and apparently to good effect – here I am thinking of Finansinspektionen's loan-to-value cap. According to the report on the housing market that Finansinspektionen published in March 2012, the loan-to-value cap has had the intended effect and the loan-to-value ratio for new mortgages is now falling for the first time for many years. A short-cut in the reasoning Monetary policy thus has relatively little effect on housing prices and household debt, but relatively large effect on inflation and unemployment. Moreover, there are other, better instruments than the repo rate available. One can therefore claim that the first statement above, that household debt in Sweden today entails sufficiently large risks to need to be addressed, does not have any significance for monetary policy. It is not monetary policy that should be used if household debt needs to be addressed. But let me nevertheless also discuss the first statement. How should we regard household debt in Sweden at present? This is where I perceive that those who advocate a higher repo rate because of household debt tend to take a short cut in their reasoning.

This means that the discussions conducted by the Executive Board take place on an open stage, almost, through the publication of the minutes from the monetary policy meetings and through the speeches held. In many other central banks these differences of opinion never see the light of day. 27  Svensson (2012a). The estimate is of course uncertain. As shown in Svensson (2012a), a 95-per cent confidence interval for the estimate 1.3(=1/0.75) percentage points gives an interval between 1/1.1= 0.9 percentage points and 1/0.4=2.5 percentage points, corresponding to a confidence interval for the estimate 65,000 unemployed between 45,000 and 125,000. An estimate using the Riksbank’s model Ramses, in accordance with the effects of various repo-rate paths as described in Svensson (2010), leads to roughly the same estimate of 1.2 percentage points. 28  If 3 percentage points lower unemployment corresponds to around 10 per cent higher housing prices, then 1.3 per cent higher unemployment will give roughly 1.3*10/3 = 4.3 per cent higher housing prices. 29  With even higher inflation and an inflation rate above the target, which according to Qvigstad’s (2005) criteria is justified when unemployment is higher than the long-run sustainable level, unemployment could have been even lower, and housing prices marginally higher. BIS central bankers’ speeches  13  This openness naturally has consequences, and not all of them positive.
President Wilson, having won reelection in 1916 on the claim of having kept the U.S. out of the Great War and observing strict neutrality, had directed the Federal Reserve Board in Washington to issue a clear-cut warning to U.S. banks not to invest in a pending large placement of British Treasury bills in the U.S. market. The immediate and worldwide effect of the statement was to give the impression that the U.S. had “broken with Britain,” an impression which officials were soon scrambling for ways to counteract.5 The result was the Federal Reserve Board’s decision, contrary to the terms of the account negotiations and to the consternation of the New York Fed, to unilaterally announce to the public the account agreement with the Bank of England. The whole episode spoke perhaps to the Fed’s inexperience in matters of delicate international financial diplomacy. In any event, the Bank of England magnanimously let the matter slide— noting that mistakes “may arise even in the best regulated families”—and the account agreement was executed on May 3, 1917 and operationalized on June 20, 1917.6,7 Andrew Hauser will provide more insight into this fascinating period in his remarks in a few minutes. As expedient as the accounts were for wartime needs, the historical records show they were also motivated by ambitions of the Fed’s first leaders to establish the dollar as a major international currency and, for Benjamin Strong, to establish New York as a great international financial center to rival London. They had their work cut out for them.

In current conditions of uncertainty, investors – reading our rate guidance – tend to anticipate a more extended period of time to the date of a rate hike. By the chained structure of our forward indications of all instruments, this automatic adjustment mechanism extends the horizons for full reinvestments too, and thus reinforces the impact of rate guidance on longer-term interest rates. Moreover, our new series of long-term refinancing operations (TLTRO-III), which started in September 2019 and will end in March 2021, help to ensure favourable bank funding conditions in support of an efficient bank-based transmission of monetary policy in the euro area. The combination of our monetary policy measures continues to prove effective in stabilising the economy and in ensuring very favourable financing conditions. This is evident in the successful pass-through of our policy measures to financing conditions that matter for the real economy. In fact, bank lending rates for both firms and households have continued to decline in the recent months and remain close to historical lows. Loan growth to non-financial corporations, while moderating in tandem with the slowdown in the economy, is still supporting capital creation and the mortgage market. Our recent Bank Lending Survey confirms that credit supply conditions are favourable. 2/3  BIS central bankers' speeches  Overall, the present monetary policy stimulus lends substantial support to growth and inflation developments, buffering to a large degree the negative impulse from global factors.
Aligning the capital charges in the standardized approach more closely with economic risk while retaining relative simplicity is an important goal, as the Committee wishes to ensure that all banks worldwide that look to the Accord as the benchmark can subscribe to the new framework. Credit risk mitigation techniques The Committee is also looking to allow for greater recognition of credit risk mitigation techniques, such as collateral, guarantees and credit derivatives, while at the same time addressing potential risks that remain from their use. As we finalize our proposals, we are working to ensure that there is a high degree of consistency between the treatment of risk mitigation techniques under the standardized and internal ratings-based approaches, though the two are likely to differ in some respects. Operational risk The Committee recognizes that in refining the measurement of credit risk, it is also important to consider the coverage of other important risks, such as operational risk. The announcement of our intention to incorporate an explicit capital charge for operational risk in the new capital framework has had a catalytic effect on the industry, which is striving to improve its measurement capabilities in this area. The Committee wants to maintain this momentum. It is working closely with the industry to develop an “evolutionary” approach to operational risk that would reward banks that improve their risk management and measurement capabilities. We intend to include this approach in the next Consultative Paper.

It is our job to ensure that companies and households can make transactions and calculations using a currency with stable purchasing power. During the time Estonia has been a member of the European Union, the well-being of the people of Estonia has improved. EU membership has meant our economic environment has been more stable and deserving of confidence. In the past ten years, economic growth in Estonia has surpassed average economic growth rates in the European Union, so that Estonian GDP in purchasing power terms has advanced from 55% of the EU average in 2003 to 71% in 2012. The incomes of residents of Estonia have also increased, with real wages up more than 40% in the past decade. EU membership has brought both opportunities and risks. It is the job of those setting national policy to make sure that risks are minimised and that we are best able to profit from opportunities and I am sure that the analysis provided here today by my colleagues will help in guiding the decisions behind that policy. The presentations we will hear today have been prepared thanks largely to the initiative of the European Commission Representation in Estonia to celebrate the tenth anniversary of Estonia’s accession to NATO and the European Union. In summary we can say that in ten years we have made Estonia and the space where Estonian people operate much larger. BIS central bankers’ speeches  1
Indeed there are at least two situations where the use of capital controls and limits on gearing might not be a very effective means of maintaining financial stability, namely if either: 1.  the link between an institution’s leverage and its robustness to real (or imagined) risks to the value of its assets were very weak.....OR...  2.  there were great sensitivity of the overall cost of funding to changes in equity capital – so that requiring an institution to hold much more capital came at a very high price. If either of these things were true it would strengthen the case for using monetary policy directly to help preserve financial stability. But I think there is strong evidence that neither of these things are very likely. The only reason why a financial firm’s leverage (the ratio of assets to equity capital) would be irrelevant to robustness is if that equity were not truly loss-absorbing or if it was already so large relative to assets that the chances of losses being that great becomes virtually zero. But in fact bank equity capital that is truly loss absorbing has been 10% or less for most banks, and generally a great deal less. That is certainly not so high that chances of losses this big are of negligible probability. Value-at-Risk (VAR) models might have suggested otherwise. But those models have weaknesses that reflect the difficulty of accurately assessing risks. Assessing the probabilities of losses on bank assets is not easy.

The financial market liberalization made the monetary policy effectiveness increasingly dependent on market expectations for the interest rate policy, which additionally raised the need for developed central bank communication with the public to the degree of necessity. As an illustration of the central bank communication in the past, and what it is today, I would remind you that the world’s largest central bank – the FED, publicly announced the decision on interest rates for the first time in 1994. Today, it seems unreasonable 1/3  BIS central bankers' speeches  for a central bank not to announce its decision on the interest rate. The recent global economic crisis has once again affirmed the necessity of developed communication and transparency and has been an incentive for many central banks to ensure proactive approach in promoting their transparency. Today, as the ECB President, Mario Draghi, emphasized, “the central bank communication is actually a monetary policy tool in itself”. Besides the numerous monetary instrument innovations aimed to stabilize the financial markets and encourage the economy, central banks have begun to struggle to improve the quality and quantity of communication of their measures, including their future measures. Namely, the central banks not only tried to better explain the measures they took and the reasons for doing this, but also reported on the future measures (monetary policy set-up), which is an important novelty in the central banking operations. Why is all this necessary?
This search for marginal borrowers is a normal function of competitive markets, and does not imply that all resulting loans will turn out to be poor quality. The FPC’s concerns about the rate at which consumer lending is growing have been well-flagged already and, very recently, the PRA published the findings of its review of consumer credit lending, focusing on asset quality and underwriting practices for credit cards, unsecured personal loans and motor finance – and the 47  issues it wants firms to address . I’m aware that, other than in a minority of cases, such lending is not undertaken by societies. The regulatory requirements following the Mortgage Market Review have also rightly put affordability at the heart of mortgage lending decisions but, as with any rules or regulations, complying with the spirit as well as the letter of the law is important. By way of example, I would highlight a recent trend in increasing loan terms: where 25 years might once have been the normal maximum term for a mortgage, now 35 years or even longer seems to be increasingly common. Of course, increasing the term reduces the level of each monthly instalment and makes the loan more affordable in the short term; however, it also increases the total amount of interest paid over the life of the loan quite significantly, and it increases the possibility that the final instalments may have to be met from post-retirement income.

As I noted earlier, that reflects the preponderance of adverse cost shocks, which we have largely accommodated, whether by accident or design. But the concentration of such shocks runs the risk that the MPC is no longer seen as taking the target seriously. Having a target in which the acceptable deviations from target are in effect hardwired in might reduce that risk. 6  See, for instance, the forecast errors box on pp.48–9 of the August 2010 Inflation Report. 7  See Bean (1998). BIS central bankers’ speeches  3  Against that, a nominal income growth target has two drawbacks. The first is that the data for nominal income is less timely than that for inflation and subject to revision, sometimes significantly so. Chart 2 shows the first estimate of nominal income growth, together with the current vintage of data; one should not take comfort from the concordance between the two series in the recent past, as the recent data have not yet had much opportunity to be revised! The average absolute revision over 1993–2009 is a full percentage point. Now the susceptibility to revision is hardly a knock-out blow. After all, the data on growth and employment are also subject to revision and recognising that the data are an imperfect guide to reality is part and parcel of setting policy. But the susceptibility of the data to revision would make it somewhat harder for the public to understand the MPC’s objectives and for Parliament to hold us to account.