samchain/econo-pairs-v1 huggingface dataset:
Also, rules tend to be reactive rather than proactive. Rulemakers—whether they be members of Congress, regulators or judges—are almost always responding to events. And, even if rules could cover every situation, having a rule does not mean that people will always follow it. In many recent examples, the behaviors we observed violated rules already on the books. Thus, more rules and penalties alone will not cure the industry’s underlying problems. They are necessary, but not sufficient. What’s more, establishment of too many brightline rules may prove counterproductive in encouraging a good culture. For one thing, intricate and detailed rules can be construed as implying that the responsibility for good conduct rests with supervisors and regulators. For another, rules may create opportunities or incentives for legal or regulatory arbitrage—finding creative ways around rules. And this activity may, in itself, have insidious effects on culture. As I see it, the problem occurs when an organization’s culture equates “what is right” with what is legally permissible, and when “what is wrong” becomes equivalent to what is legally impermissible. The technical legality of the rule, not the propriety of our conduct, becomes the arbiter of our actions. A proliferation of rules may prompt us to ask first what we can do, not what we should do. Legal arbitrage is intellectually energetic, but ethically lazy.

Second, banking does not have its own ethics—nor should it have its own ethics. The qualities that you value in other aspects of your life should be the same qualities you apply at work and encourage in your colleagues. Third, candid assessment is critical to improving culture. I invite you to think in particular about the incentives and norms of behavior within your organizations. Do they support or impair the qualities and principles that guide you and that your firm espouses? Before expanding on those points, let me explain why I believe that reforming culture is important, 1/6  BIS central bankers' speeches  and justifies the time and effort of not only of today’s program, but of the ongoing work at your institutions and collectively across the industry. The manipulations of LIBOR and foreign exchange rates prompted the New York Fed’s work on culture. Of course, widespread misconduct did not originate with either episode. The timing, however, was significant. Despite the near-death experience of the financial crisis, new rules and regulations, and―in some cases―large fines and penalties, the LIBOR and FX events made clear that serious ethical and behavioral problems had persisted in the industry. I was particularly struck by how the manipulation of foreign exchange rates occurred even after the LIBOR fixing was widely known. The appropriate lessons from the LIBOR scandal did not seem to have been learned. That was both surprising and profoundly disappointing to me. The LIBOR and FX collusions were not occasional atonalities in an otherwise harmonious financial system.
This saved the Government significant expense in recapitalising the banks. The new banking system amounted to 1.7 times GDP. As a result, the domestic payment system functioned more or less seamlessly throughout, and customers had continuous access to their deposits. The run on the domestic banks stopped, but at its peak, demand for cash tripled and the Central Bank almost ran out of banknotes. Nonetheless, international payment flows were seriously affected by the freezing order imposed by the UK, and the British authorities’ suspicion that Iceland would not honour deposit insurance in UK branches of the failed Landsbanki and by general distrust among foreign counterparties. With heavy Central Bank involvement, international payment flows were gradually restored in the months that followed. I have expanded at some length on the measures taken when the banks failed, as there are still a number of misconceptions about the process. Some have claimed that the banks were  BIS central bankers’ speeches  3  nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time. This is why the sovereign was able to tap international capital markets last summer, and why its CDS spread is currently around 300 points.

What where the options facing the authorities? At that time, the official view was that the banks were solvent but faced a foreign currency liquidity problem. Their published CAD ratios were well above the 8% limit, and as late as August  2  My former colleagues at the BIS have been doing important research in this area, see, for example, McGuire, Patrick and Goetz von Peter (2009). “The US dollar shortage in global banking and the international policy response”, BIS Working Papers, No. 291; Baba, Naohiki, Frank Packer and Teppei Nagano (2008). “The spillover of money market turbulence to foreign exchange swap and cross-currency swap markets”, BIS Quarterly Review, March, 73–86; and Baba, Naohiki and Frank Packer (2008). “Interpreting deviations from covered interest parity during the financial market turmoil of 2007–08”, BIS Working Papers, No. 267. 2  BIS central bankers’ speeches  2008, the Icelandic Financial Supervisory Authority had deemed them able to withstand severe capital shocks. Now, however, we know that this was probably not truly the case. Even if they had been solvent in the sense that equity was positive, in the aggregate they were below the 8% threshold when corrected for “weak” capital in the form of equity financed by lending from themselves. Furthermore, we know that, over time, an unchecked liquidity problem will turn into a solvency problem.
In this regard, entrant countries should pay specific attention to their current account deficits, which are referred to in the Protocol on the convergence criteria, because they have to be sustainable in order to ensure a smooth stay in ERM II and a good competitive position later in the monetary union. The economic rationale of the criteria is clear: membership of a monetary union entails abandoning monetary policy as a country specific adjustment tool. Diverging inflation rates become quickly unsustainable both because they create strong real exchange rates movements within the area and different real interest rates at the national level. In this context more inflation-prone countries would have too low real interest rates leading eventually to credit booms, domestic demand overheating, and loss in competitiveness and external deficits. Furthermore, in the absence of an independent monetary policy at the national level, fiscal policy becomes the main adjustment tool. In this context, fiscal criteria were designed in order to assess the ability of the government to conduct sound fiscal policies. Achieving strict and sustainable fulfilment of the Maastricht criteria involves in my view three elements. Sound fiscal and monetary policies are the minimum requirement in order to meet the nominal criteria. However, meeting the nominal criteria is not sufficient to assess that the economy of the candidate country is ready for monetary integration. The second element, a sufficient advancement in the process of real convergence, is related to the assessment of sustainability.

At the same time, households and firms could remain confident that the expansionary monetary stance would not contribute to price and wage spirals in the longer term. In Norway, various measures of underlying inflation have been close to 2.5 per cent in recent months. Lower wage growth, reduced capacity utilisation and low global inflation have counterbalanced the effects of higher energy prices and the krone depreciation in autumn 2008. Consumer price inflation is expected to fall to somewhat below 2 per cent in 2010 following the krone appreciation over the past year. The interest rate is set with a view to stabilising inflation close to 2.5 per cent over time and bringing capacity utilisation gradually back to a normal level. Growth in the Norwegian economy is expected to gradually pick up through the remainder of this year and next. Capacity utilisation is expected to be close to a normal level in 2011 and to reach this level in the course of 2012. In our projections, inflation gradually moves up towards 2.5 per cent around the end of the projection period as capacity utilisation reaches a normal level and the effects of the krone appreciation unwind. Wage growth shows a gradual increase. The projections are based on a gradual rise in productivity. Improved productivity will ease cost pressures for firms. The projections are also based on increased scope for firms to strengthen profitability by raising prices. Activity in the Norwegian economy picked up towards the end of 2009.
No data for Greece, Slovakia, Estonia or Lithuania. a. The ratio has been calculated dividing NPL by the sum of provisions and capital (including equity instruments eligible as CET1 and reserves). In any event, ensuring a suitable level of provisioning for problem assets is key to properly identifying impairments and correctly measuring the bank’s solvency. Moreover, a rigorous provisioning review policy provides banks with the right incentives for the management of their non-productive assets, since it reduces the book losses that the disposal of such assets may generate. This is only achieved with stringent accounting regulations and strict supervision of asset valuation on the bank’s balance sheet which, as you are aware, has been a key element in the Banco de España’s supervisory strategy. Indeed, we have recently amended the accounting Circular to which banks must conform in order, among other purposes, to fine-tune the accounting criteria in respect of provisioning credit risk losses. Further, for some time we have been actively contributing within the SSM to developing a common methodology in this field encompassing best practices and ensuring their uniform application across all countries. 2.3  Regulatory reform  The ongoing and still incomplete reform of the regulatory framework is another factor of uncertainty that has affected banks’ share prices. With regard to the Basel Committee’s agenda, major headway has been made in reforming prudential standards and, in particular, in the treatment of credit, market and operational risks.

We are thus in an environment in which the return demanded by investors is, in general, lower than that obtained by banks at present. And this despite the fact that the risk that the acquisition of bank shares entails should have lessened as a consequence of the reduction in banks’ leverage. 1  Average of SSM institutions according to Banco de España calculations. BIS central bankers’ speeches  1  Naturally, the disappointing performance of bank profits is one of the factors behind the decline in banks’ share prices in recent months which, across the board, stand significantly below their book value, as can be seen in Chart 1. This decline has been somewhat greater in the case of Spanish banks, although these continue to evidence a higher ratio than that of the main euro area banking systems. Chart 1  PRICE TO BOOK VALUE RATIO OF THE BANKING SECTOR 1.2 1.0 0.8 0.6 0.4 0.2 0.0 June 2015  May 2016  SPAIN  ITALY  FRANCE  GERMANY  EURO AREA  EUROPE  SOURCE: Datastream. 2. Challenges for the banking sector  Several factors account for the low profitability of the banking business in Europe. 2.1  Low interest rates  One of the main factors is the maintenance of interest rates at low levels which, along with the low level of economic activity, exerts downward pressure on banks’ net interest income.
19.07.2018  Address on taking up office as a member of the Council of State Pablo Hernández de Cos Governor  Madame Chair of the Council, Council Members, Lawyers, ladies and gentlemen, First I would like to thank Mr. Alberto Aza and Mr. Juan Velarde for having agreed to be my sponsors in the ceremony today. It is a real honour for me to take up office as an ex officio member of the Council of State, the highest-ranking advisory body of the Government and a time-honoured institution in Spain. According to the Spanish Royal Academy dictionary, an “adviser” is someone who gives an opinion on what they consider beneficial or necessary for the advisee. It is indeed an important aspect of the functions of the Banco de España, in accordance with its law on autonomy, to advise the Government on economic and financial matters. From this dual status as a member of the Council of State and as governor of the Banco de España, allow me to take the opportunity here to briefly reflect on what are the main challenges facing the Spanish economy. In the past five years our economy has seen sharp growth in activity and a marked reduction in the unemployment rate, enabling a gradual correction of the imbalances built up before and during the economic crisis.

The high level of public debt is harmful to the economy’s financing conditions, it restricts the countercyclical leeway of budgetary policy and it means a high volume of resources must be set aside to pay the interest burden. There is room, moreover, for the fiscal consolidation process to be compatible with a revision of the structure of public revenue and spending, making it more efficient and  3/5  enhancing its contribution to growth. And, at the same time, a greater degree of fiscal coresponsibility should be promoted across the different tiers of general government. It is likewise a priority to pursue further reductions in unemployment and its persistence among specific groups, especially the lesser-skilled. The high level of joblessness is also closely related to the notable increase in inequality that came about during the crisis. Achieving this will require not only labour market measures but also, more broadly, actions targeting employee skills and training, to encourage their greater adaptability to a new environment marked by technological progress, the automation of productive processes and the knowledge economy. In parallel, despite the significant progress in recent years, the financial sector continues to face deep-seated challenges. These include the need to tackle the effects of the farreaching changes in regulation, technology and competition, to improve low profitability levels and to complete the ongoing reduction of problem assets. Looking ahead to the medium and long term, population ageing is probably the main challenge the developed societies face.
4  David Marquand, “The End of the West – The Once and Future Europe”, Princeton University Press, 2011. BIS central bankers’ speeches  5

As the Nobel Prize-winning economist Paul Krugman once remarked, “productivity isn’t everything, but in the long run it is almost everything”. Turning lastly to the external position, the United Kingdom has run a persistent trade deficit of the order of 2–3% of GDP since the beginning of the century (Chart 5). In spite of that deficit, our net external asset position has remained stable and roughly in balance. We managed to achieve this feat by earning more on our holdings of foreign assets than we paid out to foreigners on their holdings of assets here. In part this is because much of our assets are equity-like, while foreigners’ holdings here are more debt-like. Over the past two years, however, our net asset income from abroad has deteriorated sharply, so that our current account deficit – which comprises not only the trade deficit but also net asset income – averaged almost 4% of GDP last year. That deterioration appears to be primarily down to a fall in earnings on European assets, reflecting in particular the cyclical weakness of the euro-area economy. In that case it might be expected to unwind as the euro area recovers. Even so, it would be unwise to expect that we will again be able to run the sort of investment income surplus we saw in the years before the crisis. So the trade deficit in due course needs to decline too.
And they have interacted with the forces unleashed by the Great Recession to challenge the durability of the expansion. The Great Recession led to enormous dislocations in advanced economy labour markets. In many economies unemployment unemployment reached perilous levels. and  underemployment  skyrocketed. Youth  Central banks responded with unprecedented monetary stimulus. That was consistent with their price stability mandates. And it recognised the threat that the recession might permanently scar the workforce. As the recovery in many advanced economies has evolved, central banks are assessing the extent of structural changes in labour markets and are grappling with what they mean for monetary policy. The answer is not uniform across major economies. This is one reason why monetary policy in the US, euro area and the UK can be expected to be less synchronised than in recent years. 1. A tale of three labour markets  Indeed, despite common underlying influences, differences in how the labour markets of major economies responded to the Great Recession have been striking (Chart 1). The US Take the world’s largest economy – the United States – as a benchmark. Unemployment there more than doubled during the recession. While that rate has recently fallen back, that headline is much better than the details. The number of Americans in work has only just returned to where it was before Lehman failed, even though there are now 14 million more people of working age.

But as the Bank’s Monetary Policy Committee (MPC) has seen wages, employment and productivity evolve, we are increasingly of the view that there has been a material labour supply shock for the reasons that I have discussed. So we have been paying increasingly close attention to developments in the labour market. Our forecasts for the next three years, and hence our interest rate decisions, are based on key judgements that: •  the number of people participating in the labour force will continue to rise, reaching 64% of the population later in the year and continuing its upward trend of the past decade;  •  the unemployment rate that the economy can sustain without generating accelerating inflation will return to where it was before the Great Recession (around 5%), and, at around 5½% now, is currently only a little above that; and  •  there is scope for the average hours people work to increase further, reducing by about half the current gap between actual and reported desired hours. In short, and unlike the US and euro area, the economy is likely to be able to sustain a higher level of employment than in the past. The uncertainty is less the direction of that development and more its magnitude. To assess that magnitude and its implications for inflation, we are tracking a range of indicators, including those of the prospective paths for wages and unit labour costs. Actual wage growth, at just 0.6% since a year ago excluding bonuses, is currently very weak.
This requires that the central bank is independent and has clarity and openness with regard to the conditions on which interest rate decisions are based. Can we judge when asset prices and debts are exaggerated? In order to be clear and open, it is important that there is an overall framework for how monetary policy shall be conducted, based on accepted economic theories. Central banks have long used models based on empirical estimates to make forecasts of economic development. More powerful computers and more developed econometric methods have made it easier to use models in the regular work. In general, the use of models contributes to consistency in the assessments over time. This should create good conditions for clarity in communication with financial agents and the general public. Forecasts and simulations based on models also provide a common point of departure for discussions between central banks and academics and make it easier for us to benefit from previous experiences. Many central banks, including the Riksbank, are now developing dynamic, stochastic, general equilibrium models, DSGEs, as an aid for monetary policy. The Riksbank normally aims to attain the inflation target within two years, as monetary policy’s impact has a time lag. The two-year time horizon provides some scope for taking fluctuations in the real economy into consideration. However, under certain circumstances, deviations from the inflation target can be so large that it is reasonable to allow inflation to return to target beyond the normal two-year horizon. The Riksbank makes forecasts of GDP and inflation three years ahead.

This growth in intra-regional trade has been spurred, in part, by the integration of production network and supply chain in the region, especially the emergence of China and its integration into the regional economy. Also, government policies to support freer trade through bilateral and multilateral trade agreements have also had a strong supporting influence. Accompanying the growth in intra-regional trade is a deepening process of financial integration in the region, defined as cross-border investment flows within East Asia. Evidence of this can be seen from the data on cross-border flows in FDI, portfolio investment, and bank lending that point to a rising trend. Also, financial prices in the region’s financial markets show greater tendency to converge. For example, cross-border interest rate and bond yield differentials have narrowed while the volatility in money market interest rates across the region has declined. To me, a key stimulus to the current process of financial integration has to be East Asia’s rapid economic growth and the accompanying growths in intra-regional trade and cross-border investment. Government policies to develop financial markets in the region have also been important in so far as helping to provide a clear direction of policy preference towards greater regional integration. As a result, cooperative government efforts to develop regional financial markets, especially the bond and equity markets, are being carried out in many regional fora.