samchain/econo-pairs-v1 huggingface dataset:
Judging from a combination of market intelligence, surveys and prices, there is no doubt that credit conditions for both households and firms have tightened materially. The Bank’s new Credit Conditions Survey, published for the first time in September, recorded a clear tightening in availability of credit to corporates over the previous quarter. A month later, a mini-survey unsurprisingly revealed tighter conditions for households too. 20 Spreads on corporate and household credit are already higher across the board; and for risky borrowers, financing costs have risen notwithstanding the fall in risk-free yields. Since August, the MPC has stressed, however, that it will not be sufficient in these circumstances to look solely at the price of credit, as there could be increased quantity rationing. The standard view is that households and small firms are more likely to be adversely affected in such circumstances than large firms, which typically have greater access to capital markets. But as this disturbance affected the wholesale loan markets, we will need to monitor conditions for corporate bond and loan issuance. Indeed, we will need to look at total credit, and carefully across different sectors to track the impact of the tightening. But timely and rich data are available on just bank lending. And interpreting them is not straightforward given the nature of the shock to the system.

By reducing reliance on retail deposits, it reduced barriers to entry. Lenders’ margins fell (Chart 16), and credit conditions in the UK mortgage market eased. Conversely, the painful reminder that undiversified funding and income sources may leave a bank unusually vulnerable will probably bring about another shock to the structure of the market. The persistent tightening in mortgage credit that that would bring was a factor in the MPC’s November projections. In the near term, the extent to which the big or more diversified banks fill the gap will depend on the extent to which they too preserve capital and liquidity in the face of the harsh environment I have described. Money, or bank intermediation So far I have focused entirely on credit. Where does this leave money (or Money), the starting point for much traditional monetary analysis? Well, much that I have said about banks – their capacity, in the short run, to lever up their balance sheets and expand credit at will; their role in providing liquidity insurance to investment vehicles and corporates – turns precisely on their liabilities being money. And for this reason, banks are after all decisively different from other intermediaries. As transactions balances and so the means of exchange in our payments system, the moneyness of bank deposits lies at the core of credit intermediation.
Impact on the supply of credit and capital allocation How do covered bonds impact the supply of credit and capital allocation? Capital requirements under Basel II and III incentivise banks to supply residential mortgage lending. The introduction of IRB models for calculation of capital requirements have resulted in low risk weights for residential mortgages. This may encourage leveraging. Some countries where large shares of covered bonds are backed by residential mortgages, have experienced relatively strong growth in residential mortgage lending and brisk house price growth. The availability of a large and liquid covered bond market may have facilitated this development. One would expect that the emergence of a vibrant residential covered bond market would generally deepen fixed income markets through larger volumes and better liquidity. The cheaper financing of residential mortgages through covered bonds has been reflected in household lending rates. In combination with very low risk weights and corresponding low capital requirements on residential mortgages, banks may have favoured such lending. As a result, corporations seeking financing may be pushed into bond markets through a crowding out effect. In addition, a vibrant market could make bond financing more attractive and pull corporate borrowers to the market. Higher interest rates on banks’ corporate loans may contribute to this effect. In some of the markets in Europe that have seen substantial deleveraging, loans to SMEs have been provided at steep interest rates. However, the economic situation and investment demand in general are probably much more important in determining overall growth in investment financing by banks.

William C Dudley: Opportunities for economic growth in Puerto Rico Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, to representatives of Puerto Rico's business and academic communities, San Juan, Puerto Rico, 29 November 2016. * * * Jason Bram, Tony Davis, Andrew Haughwout and Joseph Tracy assisted in preparing these remarks. I am very pleased to be here and to have this opportunity to speak with representatives of Puerto Rico’s business and academic communities. In my remarks, I will discuss the lessons learned from municipalities in the United States that have faced crises over the years―such as New York City―and what those outcomes might imply for Puerto Rico as it seeks to restore and sustain economic growth. I will also touch briefly on the Puerto Rico Small Business Survey, a new survey from the New York Fed that focuses on the business performance, financing needs and borrowing experiences of firms across the Island. As always, what I have to say reflects my own views and not those of the Federal Open Market Committee or the Federal Reserve System. My meeting with you today is part of the New York Fed’s continuing efforts to understand what is going on at the grassroots level within our Federal Reserve district. We plan these trips so we can interact with a diverse group of stakeholders.
Is bank consolidation a good or a bad development? The answer is not clear-cut. Sometimes the large resources in manpower and funds that are available in large banks are needed to develop and manage the complex activities which are part of modern banking. Large institutions have a better chance of diversifying their risks by entering into different activities and geographical areas; hence they become more stable. But on the other hand – if there is a problem in a large bank rather than in a  BIS Review 111/2006  3  small bank, this may threaten the overall financial stability and become a problem also for society at large. In my view, there is room for large as well as small institutions, which could be specialised in certain activities and services. Anyway, the composition of the banking sector is generally not for the authorities to decide by regulation as long as the institutions are safe and sound. An issue in geographically vast countries with remote villages such as India but also Sweden is how to ensure that people in remote and small villages also have access to basic financial services. We have tried to solve this in different ways. Internet and telephone banking improve access for some people and services. Payment orders may be sent through the ordinary mail. Another method might be to allow “authorised retail shops” to act as intermediaries for taking deposits and receiving simple loan applications on behalf of a bank.

Finally, problems on the financial markets resulted in a significant drop in stock market transactions. This had a negative impact on added value in the banking sector. However, the slowdown in production did not spread to all sectors of activity. Growth remained strong in the retail and wholesale business, the hotel and catering trade and the transportation and communication industries. This shows that domestic demand remains – on the whole – robust. With the first few months of 2008 seeing a steady flow of new jobs, the favourable climate on the job market continues to be conducive to private consumption in particular. Further growth in demand and production is likely over the next few quarters, albeit at a more modest pace. High prices for oil products and uncertainty related to the US real estate crisis will undoubtedly continue to hamper economic activity. However, growth in household consumption and equipment investment looks set to continue. The SNB continues to forecast GDP growth of between 1.5% and 2% for 2008. However, this average annual growth rate is boosted by the strong growth achieved in the second half of 2007. It therefore conceals what has been a noticeable slowdown in economic activity, with quarterly rates below potential throughout the rest of the year. Changes in the monetary and financial framework How have monetary conditions evolved since our last assessment in March? They have become somewhat more relaxed. This is mainly attributable to two factors.
Focus on price stability: Returning inflation to its 2% target Given today’s high level of inflation, it is time for plain speaking. In recent talks, I have offered more detailed discussions of the mechanics of monetary policy – on topics like quantitative tightening, activism and portfolio balance effects. [2] But today I want to speak – at least for a moment – more directly, more simply, perhaps more bluntly. That’s not to deny the complexity of the challenges the MPC faces, and the finely balanced character of the decisions it has to take. Indeed, we have entered a new phase for monetary policy. Risks to the economic outlook are two-sided. The MPC has to navigate a ‘narrow path’ in managing these risks. On the one hand, ensuring that the current elevated level of headline inflation does not become embedded in inflation expectations and price-setting behaviour. And, on the other hand, weighing against the current  Page 3  squeeze on real income that threatens to create slack and downside risks to inflation further out. I anticipate that we will have time to address these complexities in the Q&A that will follow my comments – and I hope to leave plenty of room for that. But first I want to re-iterate the commitment I gave in my first interview on joining the MPC last autumn. [3] I see my role as an MPC member as being ‘in the price stability business’. That means returning inflation to the 2% target in sustainable way.

Monetary policy implications (1) The character of these shocks has important implications for monetary policy. It is a famous dictum that monetary policy affects inflation with ‘long and variable lags’. [7] While these lags are difficult to predict and likely to vary across time in concert with the broader state of the economy, we typically think that monetary policy actions taken today will have their maximum impact on inflation at a horizon of 18 – 24 months. [8] By implication, monetary policy cannot entirely offset the impact of external price shocks on UK inflation. [9] And attempting to do so may serve to add to rather than contain inflation volatility. As we have seen, higher energy prices feed through to CPI inflation within a matter of months, via both direct and indirect channels. If a rise in international oil or gas prices is a genuine shock – in other words, it could not have been anticipated – then even an immediate monetary policy response would not be able to offset its initial impact on UK inflation. The offset would only feed through as the lags in policy transmission unwind. As a result, even a very active employment of UK monetary policy cannot prevent the emergence of some short-term volatility in UK CPI inflation. What’s more, given the uncertainties surrounding (a) the lags in monetary policy transmission and (b) the direction and magnitude of further external price shocks, the danger exists that attempts to ‘fine tune’ inflation developments using monetary policy become a source of volatility themselves.
Second, I would like to discuss the economic challenges we face and what it takes to address them. I am acutely aware that the focus of policymakers lies elsewhere for the moment. But let me be quite clear: economic success is also part of the solution in other fields. Therefore, mitigating economic risks deserves to be high on the political agenda. The ECB’s monetary policy: working and still flexible It was about three years ago that inflation started moving away from the ECB’s medium-term inflation aim of below, but close to, 2%. Since October 2013, inflation has been below 1%. Throughout 2015 headline HICP inflation in the euro area was very low or even negative, remaining under the influence of low commodity prices, and euro area annual HICP inflation was estimated at 0.4% in January this year. In parallel to this trend, we had to continually revise our outlook for inflation: while at the start of 2015, our staff was forecasting inflation to reach 1.5% in 2016 and 1.8% in 2017, in December they projected a rate of only 1% for this year and 1.6% for 2017. Against this backdrop, the ECB decided in December to act again. Our assessment of the monetary policy stance had two parts. First, we noted that the measures put in place since the summer of 2014 had been very effective. The monetary stimulus that they introduced led to a broad-based easing of financing conditions, stimulated credit provision, and has since provided substantial support to the euro area recovery.

Without these measures, the euro area would have been in outright deflation last year and prices would have fallen at an even quicker pace this year. Growth would have been significantly lower. BIS central bankers’ speeches  1  Second, while our measures were deemed effective, they were also judged to be insufficient in view of the deteriorating outlook for price stability. There was a concrete risk that without increasing the quantitative stimulus, the date by which inflation would settle around levels below, but close to, 2% would once more be pushed back beyond any relevant definition of medium term. Therefore we decided to recalibrate our monetary policy stance. We cut the deposit facility rate further to –0.3%, we extended the envisaged end-date for our monthly purchases to the end of March 2017, while maintaining its conditionality on the inflation outlook, and we announced that we will reinvest the principal payments of our purchased assets once they mature, for as long as necessary. We also decided to continue conducting the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017. Since our meeting in early December, conditions have once more changed. A moderate recovery of the euro area economy is under way, driven mainly by domestic demand. But downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks.
Thus, the impact of the pandemic on domestic demand was less pronounced. Despite relatively successful public health measures, the large share of tourism services in Iceland’s GDP made the economy quite vulnerable to the economic consequences of global restrictions on travel and tourism services. In 2019 tourism and tourism-related services amounted to about 8% of Iceland’s GDP, a proportion second only to that of Portugal and Spain in the OECD. Reflecting the weight of tourism in exports, Iceland’s exports contracted by 31%, more than in any other OECD country, and service exports shrank by 54% in the wake of restrictive measures taken by all major trading partners. Other tourism-dependent countries such as Greece, Spain and Portugal also suffered severe export shocks. The weight of tourism and the effects of COVID on exports  In 2020, economic activity in Iceland contracted by 7.2%, compared to 4.9% on average in main trading partner countries. The difference may appear smaller than expected given the size of the shock to exports. As a small open economy, Iceland imports a large share of consumer durables, investment goods and tourism services. Therefore, a considerably larger share of shocks to aggregate demand tends to be absorbed by the external sector than in larger, more self-contained advanced economies.

But it began to recover in April 2002. The latest figure for the whole year showed the annualised growth at almost 6%. This was a dramatic turn around. It should be noted that the export recovery did not come entirely from our traditional markets, the US and Europe. What we did see was that export to Asia increased by over 7%, somewhat higher than the average figure, with China absorbing a good 23% more of Thai goods this year compared to last. Second, farm prices improved substantially. Prices increased by 11% boosting farm income by the same percentage for the whole year. Both these factors helped improve our domestic consumption especially the sale of automobiles, motorcycles and construction. Third, there was a strong recovery of other domestic demand. Part of this was helped by the fiscal stimulation. In 2002 the budget deficit was at 3.6% of GDP. The other factor was the low interest rate environment that the Bank of Thailand has maintained for the past 5 years and is now beginning to bear fruits. The accommodative monetary policy resulted in robust growth of mortgage lending as well as other types of consumer loans. Consumer confidence rose to its highest level in recent years. Domestic investments improved too. I agree that at the moment not much of the new business investment was yet financed by bank loans. The entrepreneurs still rely more on their internal cash. But the latest investment indicators showed an annual rate of increase at a high of 23%.
3 ISPVs are the vehicles central to the structure of insurance linked securities which provide (re)insurers an alternative, capital markets-focussed form of risk transfer to traditional reinsurance products. It is a growing and particularly innovative market, often able to offer (re)insurers more attractive terms. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Solvency II reform  Even though insurance regulation is fun, I would love to finish this speech without a long technical section on Solvency II. The good news for you here in the room is: we will set it all out in our report to the TSC, so I will spare you the detail. When it comes to Solvency II, it pays to see the woods for the trees. Let me briefly address a couple of myths. First, there is simply no evidence to suggest that the introduction of Solvency II has crushed the profitability or growth of UK insurance companies. Over the two years following the introduction of SII, assets in the UK insurance sector grew by more than 10%. Returns on equity for larger UK insurers have remained steady at above 9%, close to the levels seen on average since 2010. And UK life insurers’ average credit default swap premium fell from 70 basis points on 1 January 2016 to 47 basis points on 6 February 2018. Second, there is no convincing evidence that Solvency II has driven up prices for UK insurance policyholders.

It is therefore, imperative that all institutions provide the price of their loans in terms of the Annual Percentage Rate rather than a monthly percentage. In this way, transparency is enhanced and consumers would have a clear  BIS central bankers’ speeches  1  picture of precisely how much they need to borrow relative to their income levels. This would result in responsible lending and a more competitive and transparent microfinance industry. It is in this regard that the initiative on transparent pricing for the microfinance sector in Zambia could not have come at a more opportune time. I am informed that the Transparent Pricing initiative will offer training on transparent pricing and collect and publish data on the prices of microloans offered in Zambia. This initiative will complement the Bank of Zambia’s effort of enhancing transparency through the quarterly publication of financial charges, fees and commissions for accounts and other general services and transactions applied by financial service providers. In addition, the workshop has come at a time when the Bank of Zambia is conducting a study on “How Microfinance Institutions Determine Lending Interest Rates in Zambia”. The deliberations from this workshop will be of great benefit to the Bank and will provide valuable insights into the factors affecting interest rates in Zambia. Distinguished Ladies and Gentlemen, one of the reasons advanced by microfinance institutions to explain the high interest rates charged for their services in the past has been the high risk of default and lack of credit information on the borrowers.
Just like the successful public-private collaboration that is moving the world off of LIBOR, the private sector must do its part to enhance resilience as well. It means constructively and actively engaging in improving the resilience of the Treasury market and related markets. It also means planning to build resiliency for episodes of volatility that can impair market liquidity, and preparing for periods that have less certain funding, such as at year-end. And it means being a source of strength to the financial system and the economy, not a weak link. Conclusion Debates around financial stability and monetary policy have been longstanding and have tended to focus on unfavorable trade-offs. Central banks must avoid being a jack of all trades and master of none. The time is now to find solutions that strengthen our financial system without compromising our monetary policy goals. These issues are complex, but the need for meaningful progress on strengthening the resilience of core financial markets is clear. 1 Alternative Reference Rates Committee, ARRC Best Practice Recommendations  Related to Scope of Use of the Term Rate, last updated May 4, 2022. 2 John C. Williams, A Solution to Every Puzzle, Remarks at the 2020 U.S. Treasury  Market Conference (via videoconference) (September 29, 2020). 3 John C. Williams, Preparing for the Unknown, Remarks at the 2021 U.S. Treasury  Market Conference (via videoconference) (November 17, 2021).

And heightened uncertainty can add to market volatility, resulting in diminished market liquidity. But these debates about trade-offs expose a basic problem. Everyone is familiar with the idea of a "jack of all trades." Using monetary policy to mitigate financial stability vulnerabilities can lead to unfavorable outcomes for the economy. Monetary policy should not try to be a jack of all trades and a master of none. There must be a better way. Fortunately, there is. Instead of looking at this as a problem of choosing the point on an unfavorable trade-off curve, we must look for ways to shift the curve by enhancing the resilience of the financial system. The value of this approach to building resilience was demonstrated by the global efforts to strengthen the banking system following the global financial crisis. Despite the economic disruptions caused by COVID-19 and Russia's war on Ukraine, the banking system has functioned well, serving as a source of strength for the economy, not a weak link. Alternative Solutions, Prudent Results As monetary policymakers, we need to count on well-functioning markets that promote financial stability as we pursue our price stability and maximum employment goals. So, what can be done to enhance financial stability? At the Federal Reserve, we have instituted changes over the past few years that support market functioning in times of stress.