samchain/econo-pairs-v1 huggingface dataset:
  Broaden the oversight of the financial system in order to identify sources of systemic risk that may emanate from nonbank financial firms or from other areas of activity. Turning first to the Basel III capital and liquidity standards agreed upon by the Governors and Heads of Supervision Committee (GHOS) in Basel last month, I believe these standards address some of the major shortcomings revealed by the crisis. In particular, the new standards will require banking organizations to significantly increase the amount of highquality, loss-absorbing capital that they hold; significantly improve risk capture in trading, counterparty credit, securitization and other activities that the prior regulatory capital requirements did not adequately capture; make it more expensive for banks to provide liquidity guarantees to shadow banks; constrain the leverage that banking companies can take by introducing a credible, non-risk-based backstop; and increase the capacity of banks to absorb shocks that might temporarily impede their ability to access short-term funding markets. While these changes apply directly only to large internationally active banks, they will have wider ramifications for the financial system as a whole, including nonbanks and the capital markets. Furthermore, I believe that the agreement achieves an appropriate balance between significantly increasing the minimum capital and liquidity requirements for the major banks, while doing so in a way that recognizes the current state of the global economy and that seeks to minimize adjustment costs.

By shadow banks, I mean the largely unregulated financial entities that take credit risk and/or engage in maturity transformation without access to explicit governmental backstops such as the Federal Reserve’s discount window and or deposit insurance. As we saw in the crisis, without such support, these institutions are vulnerable to runs. When this occurred, the shadow banking sector imploded in a way that imposed significant costs on the regulated sector. The risk is that tighter capital and liquidity requirements for the large financial institutions could push much of the business of credit intermediation and maturity transformation from the regulated sector to the unregulated sector. However, this risk is mitigated by the fact that shadow banks heavily rely on credit support and liquidity lines from the regulated sector. The costs of such facilities will be affected by the new capital and liquidity standards for banks. Thus, the economics of the shadow-banking sector are likely to change in a way that makes such activities less attractive. In addition, by increasing transparency and requiring some risk retention by issuers, Dodd-Frank should make the securitization markets in which shadow banks operate less likely to support poorly underwritten credit. Taken together, these changes mean it is less likely that there will be widespread movement of credit and maturity transformation from the regulated sector to the unregulated sector.
All these facts and numbers suggest that Hong Kong has the strongest foundation on which we can launch further efforts to advance the progress of RMB internationalisation. 10. The timing is also right – with the Mainland’s economic growth continuing to outperform. Macro aside, portfolio flow is another major driver. We are seeing increasing capital flows into the Mainland markets by international investors, driven by the inclusion of RMB assets in global indices and also the attractive yield pick-up and diversification benefits. In the other direction, there is also an increasing need for Mainland investors – be they individuals or institutions – to more efficiently manage their wealth and diversify the allocation through outward investments. A good part of these two-way portfolio flows will be conducted in RMB, and through Hong Kong. Some thoughts on “How” 11. So far, the level of the international use of RMB remains relatively low, and is not commensurate to the Mainland’s economic strength. For example, the Mainland is already the world’s largest trading nation, but the use of RMB for cross-border trade settlement is only in the range of 15 to 20% of its total trade volume. Some will argue that in order to 2/4  BIS central bankers' speeches  further boost the usage of RMB in trade settlement, we will need to see more active use of RMB as an investment currency in capital market transactions.

Sabine Lautenschläger: Interview in Le Monde Interview with Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank, in Le Monde, conducted by Ms Marie Charrel on 3 November 2014. *  *  *  On 4 November, the European Central Bank (ECB) assumes responsibility for the supervision of the 120 largest banks in the euro area, which account for 82% of European bank assets. Sabine Lautenschläger, member of the Executive Board of the ECB and ViceChair of the new Single Supervisory Mechanism (SSM), answers some questions. The SSM starts operations on 4 November. What is the mission of this new institution? Our task is to be an intrusive and independent European supervisor which contributes to the safety and soundness of the banking system and the stability of the financial system. Our aim is to identify inappropriate risks as well as procedures within credit institutions well in advance and to act in an efficient and timely manner to mitigate them. With the start of the SSM, there will be one supervisory approach in the 18 countries of the euro area – thus, for the first time, creating a supervisory level playing field for banks in the euro area. In our dayto-day business, we will ensure that banks are sufficiently capitalised, that they have sufficient liquidity, and that they have established a governance structure as well as risk control procedures that are appropriate for their activities. The ECB has just published the results of the banking stress tests.
7  The Desk also has the ability to execute agency MBS trades by other means. 8  Of course, this maturity distribution could change as part of the Committee’s ongoing assessment of the efficacy and costs of asset purchases. 9  For more information on the TBA market, see Vickery and Wright (2013). BIS central bankers’ speeches  3  MBS backed by new loans into the TBA market because of the market’s liquidity and because the TBA market is a forward market, which allows originators to hedge the risk associated with locking in loan rates with new borrowers.10 The Desk concentrates its TBA purchases in “production coupons,” since the yields and prices for production coupons are directly related to the primary mortgage rate. In general, the Desk purchases MBS in the TBA market across different agencies, maturities, and coupons in amounts that are roughly proportional to anticipated issuance of those securities. Issuance of new TBA securities varies over time, based on the level of refinancing and home purchase activity. Moreover, because the coupon at which new MBS are originated depends on the overall level of interest rates, the possibility of future fluctuations in the primary mortgage rate makes it difficult to determine well in advance which coupons will be issued. As a result, the Desk is not able to provide the same detailed guidance about the composition of its MBS purchases as is possible with Treasury purchases.

The capital savings are even more dramatic for SME loans that qualify for retail treatment: participating banks from Basel Committee member countries reported that their capital requirements on SME exposures qualifying for retail treatment would decline by an average of 12-13% under the standardised approach and up to 31% under the IRB approach. Similar conclusions can be drawn for those European banks participating in this study. Actually, EU banks in general reduce their capital charges for loans to SMEs compared to the current rules, and this decline is slightly stronger than the average of all banks providing data. I should note that QIS 3 did not fully recognise the risk-mitigating effects of collateral and guarantees, so we expect that, in some cases, banks may experience even larger “savings” when the New Accord comes into force. Other studies concur. For example, researchers at my home institution, the Bank of Spain, combed through a database covering almost every loan made by a Spanish bank to evaluate the potential effects of the New Accord on SME lending. Their findings, which, if you are interested, I can share in written form with you, agree that the New Accord will not create tougher capital requirements for loans to Spanish SMEs and may, indeed, reduce them. We are extremely pleased now to have tangible evidence that the New Accord will not create burdens for banks that lend to SMEs.
1  1  See for example Caballero and Kurlat (2009), “The ‘Surprising’ Origin and Nature of Financial Crises: A macroeconomic policy proposal”, paper presented at the Federal Reserve Bank of Kansas’ Jackson Hole Symposium. BIS Review 119/2009  1  Central banks around the globe cut key rates swiftly and forcefully, in some cases to levels close to zero. In Sweden, the central bank set the interest rate on banks’ deposits in the central bank at negative ¼ per cent. In Norway, it was not appropriate to use instruments as forcefully. But Norges Bank also reduced the key policy rate markedly and rapidly and more rapidly than the inflation and growth outlook alone suggested. Central banks have a long history of dealing with financial crises. The economist and journalist Walter Bagehot formulated as early as in 1873 the principles for central banks’ role in this area: “To avert panic, central banks should lend early and freely (without limit), to solvent firms, against good collateral, and at ‘high rates’.” 2 Bagehot’s principles describe central banks’ liquidity provision in the first phase of the financial crisis – from autumn 2007. Central banks responded swiftly and supplied an extraordinary amount of liquidity through their conventional instruments, i.e. loans against good collateral at a price close to the key policy rate. In most countries, banks also have access to liquidity through automatic drawing rights against the provision of collateral. These facilities are priced at a premium on the key policy rate in line with Bagehot’s advice.

Over the years, taxation of the value of owner-occupied housing in Norway has gradually been reduced. The tax benefit for owner-occupied dwellings, introduced in 1882, was abolished in 2005. The tax allowance for debt interest, however, was retained. This system subsidises household borrowing, it subsidises owning rather than renting a dwelling, it leads to higher house prices than would otherwise have been the case and to overinvestment in housing capital. Households inflate their balance sheets and housing capital in order to take advantage of the tax benefit. Taxation of housing in line with other forms of capital implies taxation of the value of owning a dwelling, the rent saved and the rise in the value of the dwelling. Housing taxation reform can contribute to curbing the house price fluctuations that successive generations seem to be exposed to. 4. Conclusion  Developments in recent months indicate that the financial crisis in Norway will not turn into a crisis in the real economy. There has been no recurrence of the solvency crisis in the banking sector twenty years ago. The Norwegian economy has nonetheless been exposed to major shocks. Oil prices and prices for other important export goods rose sharply through the upturn. The liquidity crisis hit the banking sector as growth started to slow. The impact on unemployment has not been pronounced and inflation has remained low and fairly stable throughout. We can safely say that fiscal and monetary policy have been fairly effective so far.
The trade-off has been present in the academic and economic policy debate for many decades and, although opinions differ in terms of acknowledging the difficulties caused by exchange rate volatility, the benefits of a floating exchange rate to safeguard macroeconomic stability are perceived to trump these difficulties. For one thing, over the past decade the credible Chilean policy of flexible exchange rates has brought about a nearly total elimination of currency mismatches in the corporate sector that had hindered monetary policy making for so many years. Structural challenges In a context of good commodity prices and favorable access to credit, the phenomenon of real exchange rate appreciation poses structural challenges to economies in the region. I would like to focus on three issues that have been widely discussed in business, political, and academic circles. 5  Dornbusch, R., (1983), “Real Interest Rates, Home Goods, and Optimal External Borrowing”, Journal of Political Economy 91(1). 6  Calvo, G., A. Izquierdo and E. Talvi, (2003), “Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina’s Lessons,” NBER Working Paper 9828. BIS central bankers’ speeches  3  First, it is worth emphasizing that part of the appreciation of the real exchange rate reflects the proceeds from the higher prices of our main exports. The resulting increases in expenditure and investment push up the price of services and wages, which is the counterpart of exchange rate appreciation.

The fall in oil prices has not deterred oil companies from investing eagerly. Both the central government budget and the current account are in surplus. The Norwegian economy may weather the downturn without any substantial impact on the level of activity or employment, but with a continued risk of high growth in labour costs in the business and public sectors. Economic policy The guidelines for economic policy were revised last year. Henceforth, the real return on the Government Petroleum Fund shall be used over the central government budget. Central government petroleum revenues shall continue to be transferred to the Government Petroleum Fund and invested abroad. Monetary policy shall be oriented towards low and stable inflation. The inflation target is 2½ per cent. When monetary policy is oriented towards stabilising inflation, it also contributes to stabilising aggregate demand and output. The inflation target is the nominal anchor for the Norwegian economy. Low inflation is the objective and the interest rate is the instrument. If it appears that inflation, with unchanged interest rates, will be higher than 2½ per cent, the interest rate will be increased. If it appears that inflation, with unchanged interest rates, will be lower than 2½ per cent, the interest rate will be lowered. Low and stable inflation will be a fixed feature of economic developments. This is something that the social partners, businesses, borrowers and investors in property and securities can take as a given.
In this context, it is important that all players involved consider in their investment and funding decisions that the current price and demand trends of the sector might not continue, especially considering the external risks described, the expected increase in supply and the economic slowdown. While total household debt over income has dropped, the available evidence suggests that bank debt remains dynamic, particularly in the middle to upper income homes. To the extent that banks properly evaluate and analyze the credit risks inherent in this segment, it should not be a source of vulnerability. However, there are factors that could contribute to an underestimation of these risks. First, rolling credits have been pretty dynamic in recent years. Second, the absence of a consolidated debtor data base hinders any household credit risk assessment for supervisors and suppliers – a concern we brought up before this Senate last time we presented our Financial Stability Report. Finally, those banks that have recently expanded a lot their consumer loan portfolios have seen a sharper deterioration of their  BIS central bankers’ speeches  5  NPLs indicators, consistent with greater risk taking in this segment. So far, this has been accompanied by increased provisions. While in recent years the overall Chilean banking system has tended to reduce its dependence on short-term wholesale funding, some small and midsize banks remain highly dependent on this source.

Recall that, after the signs delivered by the Federal Reserve last May, the withdrawal of the monetary stimulus was expected to begin in September. This drove up long-term interest rates by more than 100 basis points in the U.S., the currencies depreciated against the dollar and volatility increased, with particularly harsh effects on emerging economies. Later on, as such withdrawal did not occur in September, interest rates receded some and calm returned to the markets. Although this resulted in some improvement of the external lending standards to emerging economies, our baseline scenario considers the possibility of recurrent episodes of volatility during the transition towards more normal financial conditions. For one thing, the temporary nature of the U.S. fiscal agreements could bring new tensions in early 2014, although this seems less likely. At any rate, external lending conditions are less favorable than they were early in the year. Compared with September, long-term interest rates dropped as the Federal Reserve kept the asset purchase plan unchanged, and at the same time international stock markets improved. Several emerging market currencies depreciated against the dollar – the Chilean peso included – which was trading at more than $ per dollar in November and has recently surpassed $ The real exchange rate, as I said, has risen to near its 15 to 20 years’ average. In terms of the outlook for global growth, developed economies are still in a process of gradual recovery.
For the Bank of Korea, the courageous policy responses to some of the very tough challenges presented during these episodes can be judged by the results that have been achieved. There is now a cause for optimism in the present circumstance. Korea is recognised as one of the economies that has been the fastest to recover from the crisis. The exceptional work by the Bank of Korea has been an important element in this unwavering resilience of the Korean economy. As the nature of globalisation changes and as financial innovation intensifies, the world has become more complex and less predictable. While the trend for greater trade orientation continues, changes in comparative advantage and shifts in the direction of global demand have transformed the trade patterns in the global economy. In addition, the financialisation of savings and the increased diversification of these funds into financial markets have increased the impact of these markets on the real economy as the performance of these markets experience booms and bust. The greater integration of financial markets across borders has also increased the potential for its effects to be rapidly transmitted from one financial system to another market in another part of the world. In this new environment, the greater interdependence arising from the stronger interlinkages between economies and financial systems have thus significantly raised the risk for contagion. At the same time, new economic growth centres have emerged that are shaping the economic and financial landscape of the world economy.

To remain effective in the new environment and to have the capacity to respond to the new challenges, Central Banks also need to undertake its own transformation and modernisation. Moreover, in preserving the independence of the Central Bank and to be able to stand our ground in performing our responsibilities, Central Banks need to be standing on solid ground. This requires continuous capability enhancement and capacity building so as to be well positioned to have the ability to rise to the challenges of the new environment. This may involve significant changes to the governance arrangements, the empowering legislation, the skills required, the role of communications, the human capital management and development and the organisational culture. Indeed, capacity building is a further robust area of collaboration in the Asian region. Going forward, Asia’s participation in the global economic and financial system is set to increase exponentially. As the countries of the region connect with each other and the rest of the world, there is every reason to hope for a better future of sustained stability and enhanced growth prospects for the benefit of the regional and world economy. 4  BIS Review 74/2010
The process runs as follows: Domestic interest rates at the longer end of the maturity spectrum tend to become more closely correlated with the global rate, or the rate of the largest trading partner, and less correlated with the domestic policy rate. This means that monetary transmission tends to go increasingly through the exchange rate channel, which is only a problem, however, if the exchange rate behaves badly. Unfortunately, there is a lot of evidence to suggest that it does. Uncovered interest rate parity (UIP) does not hold except over long horizons. Interest rate differentials give rise to widespread carry trading, which is by nature a bet against UIP. Exchange rates  BIS central bankers’ speeches  1  thus diverge from fundamentals for protracted periods, followed by sharp corrections. So the exchange rate often seems to be as much a source of shocks and instability as a tool for adjustment and stabilisation. Ultimately, these cycles can take the boom-bust form and, in extreme cases, can result in serious financial instability or crisis. The research on this phenomenon is still ongoing, but there is a lot of evidence to suggest that the problem would not disappear even if macroeconomic policies in the traditional sense were perfect. This process was important in the Icelandic episode. The capital inflows were driven by the traditional push and pull factors.

This story was much more unique, as it involved the first banking crisis in Europe since the EU single market was formed in the early 1990s. Let me briefly discuss each of these in turn, in order to set the stage for the policy discussions. First, the macroeconomic boom-bust story. All the usual suspects were present: very strong capital inflows fuelling a credit and asset price boom that subsequently turned into a bubble at the same time as the economy overheated and an unsustainable external position developed, as could be seen in a double-digit current account deficit. And macroeconomic and prudential policies were not up to the task. At the deepest level, this part of the story was related to three factors: 1. The complications that tend to arise with macroeconomic management as very small, open economies become more and more financially integrated;  2. The specific conditions of ample and cheap credit at the global level;  3. And major policy mistakes in Iceland, both of the type that would be deemed to be such in any book (such as giving an already overheated economy a demand stimulus), and those more closely related to the orthodoxy prevailing at the time: freely floating exchange rates, interest rate policy focusing mainly on low inflation in terms of goods and services, and good micro-supervision; and let the markets do the rest. The first factor is perhaps of interest here.