samchain/econo-pairs-v1 huggingface dataset:
And as a result the spike in gilt yields reversed – a tightening in monetary and financial conditions was averted – and yields continued to decline as the purchase programme got under way (Figure 6). Reflecting the improvement in functioning, the MPC concluded in in June that purchases can now be conducted at a slower pace. The rate of APF gilt purchases has therefore been reduced first to £ in June and then £ in August. At that pace we expect the current programme of purchases to be completed at around the turn of the year. Where does that leave the policy toolbox today? Bank Rate stands at 0.1%, the lowest it has ever been. The Bank’s balance sheet has increased in size from 27% of pre-Covid GDP, already very large by historical standards, to nearly 40%; and still growing (Figure 7). And market interest rates remain historically low at all horizons. 3  Corporate bond purchases take place on a separate schedule, designed to reflect the more complex characteristics of the UK corporate bond market. 4 This was just one of a wide range of interventions to support the UK financial system that the Bank carried out over this period. Andrew Hauser’s speech “Seven moments in spring”, available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/sevenmoments-in-spring-covid-19-speech-by-andrew-hauser.pdf, gives a comprehensive, first-hand account of developments.

Even over just the past two decades, we have seen a range of systemic events with a wide diversity in source and characteristics. We’ve seen credit booms and credit concentrations that resulted in substantial losses in the banking industry, in areas as varied as commercial real estate, energy, agriculture, and emerging market sovereigns. We have seen shocks reflected in sharp and substantial movements in interest rates, exchange rates, and asset prices. Some of these events were associated with a deterioration in macroeconomic performance. Some occurred in periods of relatively strong economic growth. Some were driven by abrupt changes in expectations about inflation or about monetary policy and the associated changes in the level of interest rates and the shape of the yield curve. Often these events followed periods of accommodative financial conditions, rapid credit growth, sustained rises in asset prices, and low volatility in the prices of financial assets. Many of these events had a self-reinforcing element, with initial changes in interest rates or asset prices being amplified by the subsequent actions of market participants in the face of unanticipated losses. Financial leverage was also an amplifying factor in many of these events. In some instances, there were unexpected patterns of correlation in the movement of asset prices and in credit losses across borrowers. These experiences led to changes in risk management practices, in supervision, and in our capacity as a central bank to contain systemic risk. These responses have reduced the overall vulnerability of the system to the types of shocks we’ve experienced.
Take, for example, the bank sector’s solvency, measured as the ratio of equity capital to the balance sheet total. This amounts to only a few per cent, whereas the level in non-financial firms is 20, 30 or even 40%. So a simple way of solving the bank sector’s vulnerability would be to raise the capital base to what is customary in other companies. Banks would then be in a better position to cope with unexpected disturbances in the financial markets. Maintaining a large reserve of equity capital for unexpected events is, however, costly and someone would have to pay for this. The solution would therefore lead to expensive credit and low interest on  1  BIS Review 9/2000  deposits. Projects that are not exceptionally profitable would not obtain finance and the level of saving in the economy would be low. With little investment and low saving, growth would ultimately falter and prosperity would suffer. From this it will be readily understood that unduly tight capital adequacy requirements for the bank sector can be very costly for the entire economy. So if the whole economy would be liable to suffer because the banking system opts for or is coerced into holding a sizeable capital reserve, one can say that this is not a viable remedy for ensuring the financial system’s stability. But how, then, are financial crises to be prevented?

Today, all the Swedish banks have voluntarily strengthened their capital bases by more than the Basel regulations require. Banks in many other countries have done the same. At the same time, the concept of bank sector solvency has been increasingly undermined. Many risks are not on the balance sheet. It is therefore more relevant to consider the ratio between total risk exposure and the capital base. With the expansion and growing complexity of financial market operations, it has become increasingly important that banks are capable of managing the risks in their business. The financial turbulence in recent years has underscored this and banks are also more determined to have such a capability. The  BIS Review 9/2000  2  capacity to understand, monitor and control internal risks is thus featuring more and more prominently in the organisation of financial enterprises. A major aspect of this work has been the development of more advanced methods for the quantitative measurement of risks. As one might expect, most progress has been made in the measurement of market risk; the extensive trading in financial instruments provides a good supply of price statistics and this is a considerable help when it comes to estimating market risks. Much work is now being done in many places to construct models for a better management of credit risks, which are still by far the largest risk category for banks. The difficulties here, however, are far greater than in the case of market risks.
Pål Longva: Report from Norges Bank Watch Remarks by Mr Pål Longva, Deputy Governor of Norges Bank (Central Bank of Norway), on the Centre for Monetary Economics' (CME) assessment of the Norges Bank's conduct of monetary policy, published in its Norges Bank Watch Report Series, Oslo, 1 March 2023. ***  In February/March each year, the Centre for Monetary Economics (CME) presents a report commissioned by the Ministry of Finance on Norges Bank's activities. A committee of independent economists assesses Norges Bank's conduct of monetary policy. The reports are published by the CME in its Norges Bank Watch Report Series. First, I would like to thank this year's committee for an excellent report. Such an annual assessment is highly useful. I would also like to thank the Centre for Monetary Economics for hosting the event and for the opportunity to comment on the report. The committee supports the monetary policy decisions taken in the course of 2022. Our communication is described as open and clear. At the same time, they would like for us to be clearer in communicating our views on the fiscal policy stance. In Norway, there is a clear division of roles in economic policy. The people's elected representatives are responsible for fiscal policy. Norges Bank sets monetary policy in order to best fulfil the mandate the people's elected representatives have assigned to it. Norges Bank Watch notes that in certain situations, fiscal policy could be more effective than monetary policy in lowering inflation.

As I stated in my introduction, such an assessment is very useful for us, and we will take the committee's recommendations on board in our work going forward. Thank you for your attention. 3/3  BIS - Central bankers' speeches
It’s a tough regime which enables us to hold the top brass to account when things go wrong. 2. Responsible openness based on international collaboration and standards. The approach taken works with the grain of the international financial system, and other countries have already borrowed heavily from it. 3. Proportionality and sensitivity to business models, and promoting competition. The regime has left us room to tailor it so that it fits a small insurance company as well as it fits a huge bank. 4. Dynamism and responsiveness. The framework gives us room to adapt it as needed. To give you one recent example: in view of the increased importance of operational resilience at firms, and particularly at banks given the programme of branch closures and the rapidly-growing dependence of their customers on digital channels, we last year introduced a new Senior Manager Function (SMF 24) for operations – so that it is clear who is accountable when things go wrong. This simply wasn’t as high a priority when the SMCR was first brought in in 2016, but had become more important since – and the framework is flexible enough to allow us to respond to this change. 5. Consistency. There is enough of the regime in legislation to ensure consistency across activities and through time. 6. Accountability. We are regularly asked about the regime in Parliament, and have imposed it on ourselves.

I said that we more often heard the opposite concern from EU officials in the context of Brexit – that having escaped the “shackles” of EU regulation we would embark on a course of weakening financial regulation in a way that makes the financial system less resilient. This, needless to say, would be anathema to the Prudential Regulation Authority and to all of us who have spent the last decade repairing the financial system. So as far as the stringency of financial regulation goes, we at the Bank have a clear view of what would make sense for the UK in a post-Brexit environment: we should keep it calibrated roughly where it is now and have no desire whatsoever to weaken it. And despite inevitable tensions between regulator and regulated, my impression is that at the most senior levels most of the people running banks and insurance companies in the UK today would agree with that position, and that it also has support in the Government and Parliament. We need to keep pace with new developments and continually patch any weak parts of the regulatory system, but overall following 10 years of wrenching reform we should let the new architecture do its job. But what about the style of regulation in a post-Brexit world? Now I am always reluctant to talk about style, for good reason: my oldest child told me the other day how much she admires the persistence with which I prioritise comfort over fashion in my clothing choices.
In particular, there has been much greater cross-border activity in Europe, supported by fully-integrated pan-European systems for making wholesale payments. But many systems for the trading, clearing and settlement of securities are still fragmented nationally by sector. Market firms are keen to see consolidation of the arrangements for clearing and settling securities trades, where costs are still considerably greater in Europe than in the US. Even without mergers, market firms can of course trade remotely from a single location, though this does not address the issue of duplicate investment costs. But it seems that full rationalisation may take years to implement and, while the broad vision of integrated European systems is widely shared, there are still differences of view about how best to achieve it. The third change is the diversification of investment. The launch of the euro has begun to encourage a shift in funds away from the particular national market in which they have traditionally been invested, and towards investment across the euro area as a whole. This helps to explain the increasing use by fund managers of European benchmark indices against which to measure investment performance, rather than national benchmark indices. Portfolio diversification has so far been rather slower than originally expected. But there is evidence that diversification is continuing to take place, and it is expected to pick up over time. Fourth, financial institutions themselves are consolidating, including in some cases across borders, so that they can better provide a service to clients across the Single European Market as a whole.

The FSA brings together within a single organisation responsibility for financial regulation to deal effectively with the oversight of increasingly complex and diverse financial groups. The Bank meanwhile retains responsibility for monitoring the stability of the financial system as a whole. This regulatory structure is designed to provide confidence in financial institutions and markets, whilst not stifling innovation and risk-taking. Indeed the new Financial Services and Markets Act balances the objectives of prudential supervision and consumer protection with an explicit objective of promoting efficiency and competition. •  London has flexible labour markets, and low levels of corporate and personal tax. The UK compares favourably with many other European countries in this regard and has been the beneficiary of high levels of overseas direct investment as a result. BIS Review 11/2001  1  •  English is the language of international finance. •  We are lucky enough in London to find ourselves in a convenient time-zone so that market firms can trade with Asia in the morning and New York in the afternoon. •  And finally, London has great attractions as a place to live! Like Japan, the UK has a long heritage, and a rich culture. The euro is an opportunity for the City, not a threat Since London is an international financial centre, the launch of the euro at the beginning of 1999 was a major event for the City, as well as for the euro area itself.
The debt-to-GDP ratio in 2020 is expected to grow by more than 20 pp under scenario 1 and by some 25 pp under scenario 2, up to 116.8% and 120.6% of GDP, respectively. High public debt also means future vulnerability. In the short term this risk has been mitigated: first by the measures taken by the ECB, which have prevented fragmentation of the euro area sovereign debt markets; and second by the European response, with the launch of mechanisms to jointly address the costs of the pandemic. However, if such a high level of public debt were to remain in place over time, the Spanish economy would be exposed to a situation of chronic vulnerability to changes in investor sentiment in the financial markets. For its part, the negative net international investment position of the Spanish economy and the foreign debt position have risen, in terms of GDP, as a consequence of valuation effects and of the fall in output. Specifically, in 2020 Q2, the negative net international investment position stood at 77.4% of GDP, 6.5 pp more than in Q1, influenced by the sharp contraction in output. The nation’s gross external debt rose by € billion in 2020 Q2, owing solely to valuation effects, to 188.1% of GDP, a record high. The high net liability position of the Spanish economy continues to be another factor of vulnerability, especially in the present setting of high uncertainty over future economic developments.

However, in the context of uneven and uncertain recovery I have described, we cannot rule out the possibility that the risks identified may materialise or that their impact and persistence may be greater than expected. In this sense, in the banking sphere, the response to the possible materialisation of these risks can only be at the European level, given the commitment to banking union. 13  In this response, the completion of banking union with the launch of a fully mutualised European deposit insurance scheme would make a decisive contribution to ensuring financial stability in the euro area, in the coming months and in the medium term. It is also crucial to analyse how appropriate the European regulations for resolution and winding-up of credit institutions are for a hypothetical systemic crisis, or the possible role that asset management companies may play in the event of severe impairment of European financial institutions’ balance sheets. The EU Member States should also make swift progress towards an agreement to create a common European procedure for administrative windingup of credit institutions. This procedure would benefit from the instruments developed for resolution of credit institutions, aiming to maximise the realisable value of the financial assets that make up the bulk of banks’ balance sheets. In Spain, recent experience has shown how inefficient the existing insolvency proceedings for credit institutions are in terms both of timelines and recovery in value.
13 April 2023  Monetary and Fiscal Dimensions of Responding to Multiple Global Shocks Presentation at the 15th Annual Meeting of the OECD Working Party of Parliamentary Budget Officials and Independent Fiscal Institutions by Rannveig Sigurðardóttir, Deputy Governor for Monetary Policy, Central Bank of Iceland It is a pleasure to join you here to discuss the role and interaction of monetary and fiscal policy - a topic that deserves our full attention today in times of high inflation. The global economy had barely recovered from the financial crisis when it was hit again by two subsequent shocks that have had enormous impact on both monetary and fiscal conditions around the globe. I want to give you a snapshot of how the Icelandic economy has weathered these shocks relative to other OECD economies, firstly, during the COVID-19 pandemic and subsequent supply-chain disruptions, and then, following Russia’s invasion of Ukraine, the ensuing energy and food crises. Finally, I will discuss the role played by monetary and fiscal policies in response to these shocks. Iceland was among the countries most severely hit by the global financial crisis (GFC). Prior to the crisis, the country was uniquely vulnerable due to macroeconomic imbalances, including a large current account deficit, unfavourable net international investment position, highly indebted households and business sector, inflated asset prices, and an oversized and undercapitalized banking sector. Iceland’s strength, on the other hand, was the relatively strong position of its public finances.

Recent financial market turmoil may complicate the transmission of monetary policy in some countries. If it amplifies the downturn in economic activity, it may accelerate disinflation from what is currently projected, although so far this appears unlikely to fundamentally change the outcome. Inflation and inflation expectations have started to decline in Europe and the US. Disinflation may take somewhat longer in the case of Iceland,  given the still strong economic momentum and prospects for higher wage growth than in trading partner countries. Much will depend on the interaction between three markets: the labour market, the housing market, and the foreign exchange market. Monetary policy will have to remain tight until the relationship between the three markets has been stabilized. Stronger counter-cyclical fiscal policies would shorten the time needed to reach the balance and bring inflation to target.
5  See IMF (2010), chapter 2, and references contained in it, for a discussion of balance sheet and asset co-movement approaches to determining systemic institutions. 6  Actually, the SBIF may deny authorization to any bank merger, acquisition of assets of a bank by another banking entity, or taking control of two o more existing banks by the same person or group, or to increase substantially the existing control if the acquiring bank that performs said merger, acquisition or the resulting group of banks reaches a significant market share. In order to deny authorization, the SBIF needs prior approval by the Central Bank Board, issued by the majority of all Board members. 6  BIS Review 124/2010  Figure 1 Net flows of investment funds to emerging economies (billions of dollars accumulated in twelve moving months, weekly data) Equity flows  Total flows  Emerging (1) Latin America Total equity  120  Asia ex-Japan Other emerging (2)  120  80  80  40  40  0  0  -40  -40  -80  Total  Total fixed income  Total equity  -80 06  07  08  09  10  06  07  08  09  10  (1) Global Emerging Markets (GEM). (2) Middle East, Emerging Europe and Africa. Source: Emerging Portfolio Fund Research. Figure 2 Monetary Policy Rates in the world (1) (percent)  Developed economies (2) Chile (4) Survey emerging ec. 35  Emerging economies (3) Survey developed ec.

It is clear that, from 2000 to 2010, the growth differential between developed and emerging economies widened significantly, reaching around 5.5% between 2007 and 2010. Hence, the Great Recession did not affect significantly this growth differential, and prospects for the near term also indicate that growth in emerging economies will outpace growth in developed economies, but at a rate (4%–4.5%) not that different from the average between 2003 and 2005. A simple observation of the data therefore suggests that growth differentials are more important in driving capital inflows than interest rate differentials. The latter have remained quite stable for several years, and the main stylized fact of the past decade and a half has been a significant shrinkage of short term interest rates in emerging economies. A more suggestive interpretation of these broad medium-term trends is that high growth in emerging economies attracted capital inflows. Prudent macroeconomic management in emerging economies (especially compared to previous decades), allowed an improvement in external and fiscal solvency, alongside appreciation pressures. These factors helped implement lower interest rates. This different macroeconomic backdrop has also implied that today current account balances in emerging economies do not display the significant deficits observed in the run-up to crises during the 1980s or 1990s (Figure 4). The lack of a significant widening of the current account deficits should also indicate that current concerns about (net) capital flows into emerging economies could be premature, although for specific economies they could be posing more immediate policy challenges.