samchain/econo-pairs-v1 huggingface dataset:
However, this does not necessarily exclude looking into the arguments for or against either alternative. As I already said, I believe that it is better to have supervision integrated in the central bank. First of all, the ongoing complex challenges to financial and economic stability call for identifying, using and corroborating tons of information in order to articulate the adequate policies. The central bank relies on its database and expertise, which are prerequisites for managing such a challenging environment. Beyond this major advantage, there are also other benefits of such an institutional arrangement. Independence from political influence is essential for effective supervision. And central banks are institutions enjoying a high level of independence that a newly-established government agency would not be able to gain, at least in the short run. Besides, clearly acknowledging the links between price stability and financial stability means that they need to be taken into account when formulating the monetary policy. Moreover, as Benoît Cœuré pointed out, data collected and analyses conducted as part of banking supervision provide valuable information about the financial sector and may feed into the assessment of the state of the economy, being useful for the monetary policy decision-making process. Of course, literature identifies some disadvantages of integrating supervision in the central bank. The risk of this arrangement resulting in a too loose monetary policy, due to the conflicting objectives, which I have already referred to, is an important drawback.

We have configured the activities and reporting lines in order to ensure full operational independence and to avoid conflicts of interest between the supervision and resolution functions. Of course, this takes place without prejudice to the exchange of information and cooperation obligations. To be more specific, supervisory decisions do not pose constrains to resolution-related ones. Moreover, the staff involved in performing the resolution function is structurally separated from the other NBR functions. 3. Romania: a short history of institutional changes for ensuring financial stability The global crisis has made obvious for all of us that price stability and financial stability are much more intertwined than we used to think. I believe this development has farther-reaching consequences when it comes to the future of central banking. As I pointed out in November last year at the World Policy Conference organised in Montreux, I cannot imagine a future where the explicit concern for financial stability and the macroprudential policy are not central banking fixtures. In Romania, the concern for ensuring and strengthening financial stability was visible in several significant changes of the institutional framework, operated already before the outbreak of the global economic and financial crisis. Specifically, the NBR’s Financial Stability Department was created as early as 2004, with the first edition of the annual Financial Stability Report – a report that will be published on a half-yearly basis starting this year – being released in 2006.
W A Wijewardena: Microfinance – a potent instrument of poverty alleviation Valedictory address by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, at the Third Training Program on Microfinance Delivery System, College of Agricultural Banking, Reserve Bank of India, Pune, 16 March 2007. *  *  *  It is indeed an honor for me to deliver the Valedictory Address on the occasion of the conclusion of the Third Training Program on Microfinance Delivery System in Pune. The Central Bank of Sri Lanka made a request to the College of Agricultural Banking, a renowned training institute on microfinance, to prepare a tailor-made training program for its staff and microfinance practitioners engaged in its poverty alleviation projects. The College, popularly known as CAB, very kindly agreed to this. After the exchange of several correspondences between the two institutions, the training program was finally arranged. Two batches of trainees have already followed the program and enjoyed the hospitality which CAB had offered them. Back at home, those trainees have spoken very high of the quality of the training imparted to them by CAB. I am sure that those who pass out today in this third program too will return to Sri Lanka with the same high opinion on CAB’s professional standards. Microfinance is a very potent instrument of poverty alleviation. It fills the gaps which normally arise in macro-type poverty reduction policies pursued by governments.

2  BIS Review 48/2007  This was experimented in one of the development projects implemented by the Central Bank of Sri Lanka. In this particular project, bank financing was available for both micro and small businesses. One of the requirements of banks was the submission of a comprehensive business plan, acceptable to the banker, by the prospective micro-borrowers. But, none of the borrowers had the capacity to prepare them. As a result, the utilization of the moneys in the project became a problem. As a solution, it was decided to outsource the function to some business development consultants at a cost to the borrowers. Accordingly, a number of youth who had studied economics, business studies and accounting for the GCE Advanced Level were selected for training as business consultants. Then, they were appointed to provide consultancy services to potential entrepreneurs for a fee. The lending banks also paid a certain commission to them for services such as loan recovery and follow up work. The program worked well and a new generation of fee-based business consultants was developed by the project. At the end of the project, most of these consultants, having used their own expertise, started their own businesses. Another pertinent issue involved in microfinance delivery is how to reduce the transaction costs and make available the loans at the time they are needed by the borrowers. The transaction cost is simply the additional resources which a person has to spend, other than what is paid to the supplier, in order to complete a transaction.
To most people, $ million may sound like a lot, but given that $ trillion of financial contracts reference U.S. dollar LIBOR, it’s really a drop in the ocean.1 As a result, submissions are largely based on judgment, as opposed to real numbers. When the LIBOR scandal erupted, it became clear that there had been fraud and collusion, both within and across financial services firms, in the pursuit of profit. The reliance on expert judgment, rather than actual data, makes the rate too vulnerable to manipulation. It’s readily apparent to all those in the industry—both firms and regulators—that LIBOR is fundamentally broken. Consequently, banks are increasingly reluctant to provide LIBOR submissions, adding to the level of risk around using the rate. The U.K. Financial Conduct Authority (FCA) has reached an agreement with banks to keep submitting rates through the end of 2021, but in 2022 the existence of LIBOR will no longer be guaranteed. In other words, LIBOR’s survival is assured for only another 901 days. Those in the market know the full scale of the risks this creates for the financial system. LIBOR isn’t just the rate that banks use to borrow from one another—it’s also the underlying rate on numerous derivatives and loan contracts. The $ trillion figure I mentioned earlier is the approximate total exposure to U.S. dollar LIBOR. That’s about 10 times U.S. gross domestic product.

The corresponding consultation for U.S. dollar and some other non-U.S. dollar derivatives contracts closed just last week, and I look forward to hearing the results and next steps. Universal changes to derivatives contracts will take out about 95 percent of the exposure—the $ trillion number. If the market signs up to the ISDA protocol when it’s published early next year, it will be a huge step in the right direction. In addition, the ARRC has released four sets of recommended fallback language for different types of cash products. This fallback language clearly stipulates trigger events, replacement rates, and spread adjustments, and the triggers are close to those that ISDA has consulted on for derivatives. 2/3  BIS central bankers' speeches  And on Friday, the Securities and Exchange Commission (SEC) staff issued a statement highlighting risks and disclosures for market participants to evaluate proactively as they transition away from LIBOR. While derivatives and institutional cash markets make up the bulk of LIBOR-based contracts, consumer products are a critical area where the industry needs to focus. Ensuring a fair transition away from LIBOR is going to be particularly challenging, and it’s important consumers understand what the changes being made mean in real terms. Last week the ARRC published potential paths forward for adjustable-rate mortgages (ARMs). These include a set of guiding principles for ARMs and other consumer products, draft fallback language for new ARMs referencing U.S. dollar LIBOR, and a framework for use of SOFR in new ARMs.
17.05.2023  18th Banking Industry Meeting* IESE Madrid Pablo Hernández de Cos Governor *lEnglish translation from the original in Spanish  Allow me to begin by thanking the IESE for inviting me once again to this event. On this occasion, I would like to share with you the Banco de España’s analysis of the situation and outlook for the Spanish banking industry. In terms of the macroeconomic setting, most strikingly, economic activity in Spain and the euro area has proved more resilient than expected in recent quarters, amid highly adverse negative shocks. Further, there appear to be signs of renewed buoyancy in 2023 to date. According to the Banco de España’s latest projections, in 2023 real GDP growth in Spain will be substantially lower than in 2022. However, faster than expected growth in the first quarter, together with the recent revision of the historical series, suggest that GDP growth this year could exceed the 1.6% envisaged in our most recent projections and outstrip 2% on average in 2024 and 2025. This sharper GDP growth would be driven by, among other factors, the expected easing of inflationary pressures (and the ensuing recovery in agents’ confidence and real income), the disappearance of the global production chain disruptions and the deployment of the Next Generation EU funds. However, these projections are subject to very high uncertainty and there are risks that less positive scenarios will materialise. In particular, the possible duration of the war in Ukraine continues to be the main source of risk.

Further, retail deposits cover a very significant portion (75%) of the total stable funding needs (60% for European banks as a whole). Assets - The Spanish banking industry’s consolidated assets grew by 2.1% in 2022. Financial instruments in Spain declined by 7.7% and those stemming from business abroad (expressed in euro) increased by 9.6% to 53.7% (up 4.3 pp on a year earlier). - Much of the decline in financial instruments in Spain owed to the reduction in balances held with central banks (-31.9%) and, to a lesser extent, to the drop in loans to the resident private sector (-2.5%). Meanwhile, the increase in financial instruments abroad was due to the growth in lending to the resident private sector in third countries (10.3%) and in debt securities (16%), against the background of a depreciating euro. - Debt securities grew by 11.7% and represented 13.6% of total assets at December 2022.3  3  At consolidated level, more than 80% of debt securities have a general government counterparty. 3  - As for the reduction in the stock of lending to the resident private sector in Spain (down by 0.7% in 2022), the results of the Bank Lending Survey (BLS) indicate that both supply and demand-side factors contributed to these developments. The decline came despite the larger volume of new loans (+8.9%) and the increased drawdown on existing credit lines (+12.9%). - The stock of loans to households was down by 0.2%, essentially due to lending for house purchase, while other lending to households held stable.
About two-thirds of the difference with the March forecast is explained by the buildup of expenditureboosting measures, and the other third mainly by the better start of the year and the adaptation of the economy (Figure 13). It is important to note that, assuming that after the March and April setbacks, the economy returns to February’s level and stays there for the rest of the year, GDP growth in 2021 would be close to 7.5 percent even before considering any effects from the third pension-fund withdrawal and the massive fiscal transfers (Figure 14). The vast fiscal transfers and the approval of the third withdrawal of pension savings result in projecting annual private consumption growth at around 15 percent (around 12 percent in March). Meanwhile, GFCF is forecast to rise by 11.4 percent in the year, and total exports to do so by 1 percent. For 2022 and 2023, expected growth ranges are revised downward, given the higher base of comparison, the gradual decline in the consumption impulse and limited investment dynamism. In the central scenario, GDP will increase between 2 and 3 percent in 2022, and between 1.75 and 2.75 percent in 2023. The annual increase in private consumption will moderate significantly over the next two years, largely reflecting the transitory nature of the current income-support measures (Table 1). For investment, significantly lower expansion rates are expected for 2022-2023 than for 2021. Beyond the higher first-quarter effective result and the cyclical recovery expected for this year, the outlook points to limited dynamism.

For inflation to take off rapidly, we would have to see a jump in inflationary expectations. But inflationary expectations have been quite stable. Indeed, we may be facing a quite different problem. Many forecasters – myself included – assume that stable 2 percent  BIS central bankers’ speeches  7  inflation expectations will be an important factor helping to pull actual inflation up. Over the past five years, professional forecasters’ projections for long-run inflation have been at the 2 percent target and Treasury Inflation-Protected Securities (TIPS) break-evens have been flat. Yet actual inflation has only just recently made it back up to 1–1/2 percent. Moreover, we still have not seen much at all in the way of higher inflation compensation being built into interest rates or wages. So there is cause for concern that expectations might not produce as strong a pull on inflation as we hope. We can turn to the Japanese experience again to highlight this risk. Long-run inflation expectations in Japan have averaged a little over 1 percent. Yet during that period, the only time inflation was palpably above zero – let alone not in outright deflation – was when consumption taxes increased or oil prices spiked. So inflation expectations may remain stable while inflation itself lags for a prolonged period. Conclusion As I think about the process of normalizing policy, I conclude that today’s risk-management calculus says we should err on the side of patience in removing highly accommodative policy.
Could these estimates be considered to amount to a commitment concerning the terminal rate? Of course, not. Again, it is just a model-based forecast based on current information. Being a forecast, this range is entirely data-dependent and may change as time goes by. However, I consider it to be a valuable tool in order to provide the public with some guidance regarding how much we expect our interest rates to adjust in order to fulfil our price stability mandate. Notice that this target-compatible terminal rate is not necessarily the same as the natural or neutral rate. The natural rate is the real interest rate that is compatible with inflation at its target. When real rates are above the natural rate, the monetary policy stance is contractionary, and when they are below, monetary policy is expansionary. The problem is that the natural rate cannot be observed. At best we have some estimates about its longrun value, which range from -1 to 0%, equivalent to 1-2% long-run nominal rates. This range is consistent with the long-run expectations of market participants, which is currently at 1.5%.16 Our current estimate of the target-compatible terminal rate is thus higher than the long-run natural rate. This implies that nominal rates will overshoot the long-run (nominal) natural rate, and hence it is expected that rates will decrease again over time I would like to flag a final consideration.

Why by raising interest rates and not by reducing the size of our balance sheet? I see three important reasons. First, we understand better the transmission mechanism of interest rate rises than that of quantitative tightening. We have decades of experience with the former, but we have never reduced the size of our balance sheet from such large levels. Second, quantitative tightening could potentially cause market turmoil in certain market segments, as supply may outgrow demand and liquidity may dry up. This could imperil the policy normalisation path at a time in which all our efforts should be focused on it. Third, monetary policy transmission in the euro area is heavily dependent on bank credit. Loan pricing is typically benchmarked to short- and medium-term rates. Policy rates are thus a more effective instrument to tighten monetary policy. Going forward, a key question is: by how much should our key interest rates eventually increase? That is, what is the value of interest rates that guarantees that inflation converges to 2% by the end of our medium-term horizon? I will call this level the “target-compatible terminal rate”. A second, related question is: how fast should this terminal rate be reached? Let me address the second question first. What should the optimal path towards the terminal rate be? One possibility would be to raise rates to the terminal level straightaway.
“The Aftermath of Financial Crises.” Paper prepared for presentation at the American Economic Association meetings in San Francisco January 3, 2009. BIS Review 7/2009  7  out of the crisis by, for instance, increasing exports than when it is a national or regional crisis as most of the previous crises have been. My assessment is that one should not attach too much importance to the exact figures. They are dependent on which countries are included in the averages. But they nevertheless imply that there is a tangible risk that the economic downturn will be both more profound and more prolonged than we are assuming in our main scenario, and that 2010 will also be a year of weak or negative growth in many countries. The current economic situation and monetary policy Using monetary policy to combat a financial crisis is not particularly effective. It is not possible to manage a financial crisis by means of adjustments to the repo rate. The Riksbank has therefore been concentrating on other measures to promote financial stability since the Lehman crisis. On the other hand, monetary policy can be used to alleviate the effects of the financial crisis on macroeconomic developments. At the most recent monetary policy meeting on 3 December, we Executive Board members decided to cut the repo rate by 1.75 percentage points. This was the largest cut made since the repo rate system was introduced in 1994.

In order to solve this problem, central banks in many countries have provided the funding that the banks have not been able to acquire on the market. Several central banks have also actively handled problems in individual institutions. One example is the Bank of England, which in September 2007 provided liquidity assistance to the British bank Northern Rock. Another example is the Federal Reserve which granted an emergency loan to the US investment bank Bear Sterns in March 2008 when the bank experienced an acute shortage of short-term funding. It was, however, not possible to rescue Bear Sterns and the Federal Reserve helped to mediate the takeover of the bank by JP Morgan. During the autumn of 2008, the central banks also rapidly and significantly cut their policy rates, sometimes in coordinated actions, to dampen the effects of the crisis on macroeconomic development. Governments have offered guarantees and capital injections to minimise the risk of further bankruptcies in the banking sector. Concern over banks and other financial players going bankrupt has namely been a central component of the financial turbulence. Given the  BIS Review 7/2009  3  vulnerable situation that the global financial system is now in, it may be unwise to let systemically-important financial institutions go bankrupt. Several countries have also decided on a more expansionary fiscal policy to counteract the downturn in economic activity. During the spring and summer of last year, the US government began to issue tax rebate cheques.
Prepared for the Federal Reserve Bank of Kansas City, Jackson Hole Conference, August 2008. 10  You can think of the investors of the lower rated tranches as “buying” all of the subprime mortgages contained in the securities and borrowing funds from the investors in the highly rated securities. The thinner the initial credit protection, the higher the initial leverage that was being used to essentially purchase the underlying subprime mortgages. Repackaging these securities into CDOs and CDO-squared securities further increased the effective leverage. BIS Review 92/2010  5  overnight, reaching 75 percent in 2008. 11 These small haircuts implied that the broker dealers could use considerable leverage themselves in purchasing these securities. So, leverage was high at all levels of the financial chain from the individual subprime borrowers, to the investors in the lower rated securities, and to the broker dealers who invested in the highly rated securities. At their peak, subprime mortgage related securities amounted to only around $ trillion dollars – a relatively small size given the overall size of the repo market. Leverage, however, amplified the losses as house prices began to decline. Why did the point at which house prices peaked and started to fall in some housing markets spark a run on the repo market? Additionally, why did the problems in subprime mortgage assets spread quickly to other assets? Gary Gorton uses the analogy of an E. coli breakout. 12 Suppose that E. coli is thought to have infected a small quantity of the country’s meat supply.

Using the earlier forest fire analogy, it was as if the Fed could not drop water directly on the burning section of the forest; rather, it had to drop the water on an adjacent section of forest and hope that somehow the water got to where it was needed. Several problems became apparent with this strategy. First, few discount loans were being taken out. There is a history of “stigma” associated with borrowing from the Fed’s discount window. Given the high degree of uncertainty in the financial markets in the autunm of 2007, this stigma effect likely became amplified. Second, given uncertainty about their own future liquidity needs, banks developed a strong “precautionary demand” for liquidity. This implied that they were less willing to lend out liquidity to other financial firms. Finally, it was becoming increasingly difficult to assess the credit risk associated with lending to other firms even if only for short terms. To use a medical analogy, the progression of a fever can be measured by a person’s temperature. The progression of problems in the interbank lending market can be measured by the spread between LIBOR and the overnight index swap (OIS) rates for a given term. Chart 7 shows the 3-month LIBOR/OIS spread. Prior to the onset of the financial crisis, this spread had been very narrow. Very soon after the BNP Paribus announcement, the “fever” shot up dramatically. The first new liquidity facility that was introduced to deal with these problems was the Term Auction Facility or TAF on December 12, 2007.