samchain/econo-pairs-v1 huggingface dataset:
In most cases, this will have consequences for output, employment and inflation. Financial stability therefore fosters price stability. In Norway, the authorities’ work on financial stability is divided between the Ministry of Finance, the Banking, Insurance and Securities Commission and Norges Bank. The Ministry of Finance is responsible for establishing a framework which ensures that Norway has a financial industry that functions smoothly. The Banking, Insurance and Securities Commission is responsible for supervising the financial sector. Norges Bank shall foster robust and efficient payment systems and financial  1  See for example Ferguson (2002): "Should Financial Stability Be an Explicit Central Bank Objective?". This article was presented at the IMF conference, Challenges to Central Banking from Globalized Financial Markets, on 17 September 2002. BIS Review 25/2003  1  markets, i.e. foster financial stability. This is in accordance with the Norges Bank Act and the Payment Systems Act. Primarily, we wish to avoid instability in the financial system. A number of instruments are available, including regulation of financial markets, oversight and shaping the financial infrastructure. Norges Bank’s instruments are primarily the interest rate, banks’ borrowing facilities, including requirements for collateral that can be accepted to secure such lending, and its oversight of the payment systems. We are also obligated to alert the Ministry of Finance when we assess the situation as cause for concern. The Financial Stability reports are an important tool. Norges Bank can also serve as the lender of last resort.

The interplay between the Riksbank and the market is of central significance for monetary policy. It is a question of mutual dependence. For example, the Riksbank is to supply an efficient payment system – a financial infrastructure. We also oversee the stability of the system. Moreover, we are responsible for providing Swedish banknotes and coins. However, at the same time we are dependent on the financial markets to implement monetary policy measures. The game rules for our interaction with the financial markets have changed quite a lot over the past 25 years. The most dramatic changes took place in connection with the deregulation of the credit and foreign exchange markets that begin in the 1980s. The deregulation has contributed to more efficient pricing which better reflects demand and supply conditions. The efficiency of the financial markets has considerable importance for the impact of monetary policy via the transmission mechanism. The impact of our policy also depends on how well we succeed in communicating our intentions to the market. The more open and clear we are, the better chance we have of influencing interest rate setting in the way we want, not just in the short term, but also over a part of the so-called yield curve. This makes some demands of our actions. BIS Review 40/2007  1  The other aspect – that we are a public authority with responsibility towards the general public and their elected representatives – also makes a number of demands of us.
Statistics give a picture of rapid-fire growth over a very short period (see graph). From 2003 to 2007, the banks’ total assets grew from less than two times Iceland’s GDP to almost nine times. Right before their collapse, total assets amounted to eleven times GDP. Over 40% of total assets were in foreign subsidiaries, 60% of total lending was to non-residents, and 60% of income was from foreign sources. Over two-thirds of lending and over three-quarters of deposits were denominated in foreign currency, notably in pounds sterling. Around 85% of the banks’ foreign lending was in Europe, with half in the Nordic countries, a third in the United Kingdom, and a tenth in the Benelux countries. Currency composition of deposits 2007  Banks' balance sheet expansion and leverage % of GDP  Total assets/Equity  1000  18  Other; 14% ISK; 22%  900 17  800 700  16  600 500  15  400 14  300 200  13  100  EUR; 16%  GBP; 45% USD; 3%  0  12 2003  2004  2005  Total assets (left axis)  2006  2007  2008  Leverage ratio (right axis)  Consolidated accounts of three largest commercial banks. 2008 data is end‐June. Deposits to customers. From the largest commercial banks' consolidated accounts. Source: Central Bank of Iceland. Source: Commercial banks' annual reports, Central Bank of Iceland.

It is important to note that the phenomenal growth of the Icelandic banks was enabled but not caused by the common European legal and regulatory framework. As we all know, from the early 2000s to the middle of 2007, highly unusual conditions developed in the international financial markets. The supply of credit was plentiful, and interest rates were lower than they had been at any time in the 20th century. The financial markets eagerly sought bonds, including those of the Icelandic banks, which were suited for use in various kinds of structured products, partly because their ratings were high compared to their CDS spreads. The banks were under regular scrutiny by international credit rating agencies, which at one point took them to triple-A. In turn, the good ratings facilitated their push into the bond market. Finally, the banks became an important part of the Icelandic economy, their  6  BIS Review 9/2010  expansion and that of Icelandic firms enjoyed broad support, they paid high salaries, and the Treasury received sizable tax receipts based on their activities, direct and indirect. In the first half of 2006, the Icelandic banks narrowly escaped the so-called mini-crisis. In late 2005 and into 2006, the banks began to attract international attention. A notable shift in market attitudes was reflected in rising credit default swaps. Analytical coverage of the banks became critical, expressing significant concerns about their ability to manage risk or to exploit economies of scale given such rapid growth.
Preliminary indications are that the majority of the banks were ready for the installation of the RTGS application software on 29 March 2004. The installation of the software is being done in a phased manner, i.e. on first-ready-first installed basis. This is to ensure that the project schedule is not held back unnecessarily. •  It is also important to remind all banks that every bank is required to comply with the minimum technical infrastructure specifications for both the Perago RTGS client configuration and SWIFT connectivity prior to the installation of the application software. This will enable timely installation of the Perago RTGS application software, bilateral key exchange (BKE) for SWIFT connectivity and commencement of the pilot project. RTGS training for commercial bank staff •  The RTGS training facilities have been installed, tested and are currently running in the Bank of Zambia In-Service Training Centre. Training for the Bank of Zambia staff has been finalised. Training for commercial bank staff is scheduled to commence on 16 April 2004. This training will involve Perago RTGS Server Applications Technical Operations Training for  6  BIS Review 27/2004  the IT area staff and Perago RTGS Entry training for the business area staff. This programme covers training for transaction capturers, authorisers, and systems administrators and operators. •  As earlier communicated to commercial banks, a number of training sessions have been devised because the training facilities can only accommodate 12 participants at a time.

Lars Nyberg: The ESRB – reflections after 9 months of operation Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at Norges Bank (Central Bank of Norway), Oslo, 27 September 2011. *  *  *  The financial crisis that started in 2007–8 exposed serious weaknesses in the regulatory system. Firstly, it turned out that the banks had too little capital and that the quality of that capital was not good enough. Furthermore, issues of liquidity had largely been neglected by regulators. All this has been addressed by the Basel III compromise, which is to be slowly implemented over the years to come – too slowly in the view of some countries, too quickly according to others. Secondly, the crisis revealed some embarrassing weaknesses in the EU framework for financial stability. The quality of supervision varied substantially between countries and coordination within Europe was insufficient, to say the least. Perhaps even more importantly, the concept of macro-prudential supervision (I will return to this concept in a while) was largely unheard of. To address these issues, the Commission, in late 2008, set up a group (where I had the honour of being a member) led by Jacques de Larosière with the mandate of presenting a roadmap for strengthening the European supervisory framework. The group delivered its report in March 2009. One of the main ideas was the creation of a new institution, which eventually came to be called the European Systemic Risk Board and which is my subject for today.
The most high profile of these has been Libra – a new payments infrastructure based on an international stablecoin fully backed by reserve assets in a basket of currencies including the US dollar, the euro, and sterling. It could be exchanged between users on messaging platforms and with participating retailers.41 There are a host of fundamental issues that Libra must address, ranging from privacy to AML/CFT and operational resilience. In addition, depending on its design, it could have substantial implications for both monetary and financial stability.42 The Bank of England and other regulators have been clear that unlike in social media, for which standards and regulations are only now being developed after the technologies have been adopted by billions of users, the terms of engagement for any new systemic private payments system must be in force well in advance of any launch. As a consequence, it is an open question whether such a new Synthetic Hegemonic Currency (SHC) would be best provided by the public sector, perhaps through a network of central bank digital currencies. Even if the initial variants of the idea prove wanting, the concept is intriguing. It is worth considering how an SHC in the IMFS could support better global outcomes, given the scale of the challenges of the current IMFS and the risks in transition to a new hegemonic reserve currency like the Renminbi. An SHC could dampen the domineering influence of the US dollar on global trade.

When the new Executive Board of the Riksbank took office at the beginning of 1999, we found no reason to change the target formulation. To make it possible to evaluate how we carry out our task, we endeavour to be as clear as possible about the grounds on which monetary policy decisions are made. Inflation assessments and interest rate decisions are explained in the Riksbank’s inflation reports. The Riksbank has also stated a rule of conduct for what should normally lead to decisions on interest rate rises, and the justifications for departures from this rule of conduct. Finally, the published minutes of the Executive Board’s monetary policy meetings contain an account of how we voted and the reasoning underlying the decisions. Resource use is important for inflation Since the interest rate affects inflation with a time lag, monetary policy decisions are based on forward-looking assessment of inflation. Highly simplified, the conceptual framework, used by the Riksbank in the appraisals of price tendencies, can be described as follows: when there is unused capacity in the economy, price pressure is low and inflation is under the target. When demand is sufficiently high to lead to output exceeding the level that coincides with the long-term trend level of production, inflation instead tends to exceed the target. Inflation will be on target when output is at the level of the long-term trend level of production - the output gap is closed. This reasoning assumes that inflation expectations are close to the target for monetary policy.
2  In just a couple of days, the exchange rate weakened according to the TCW index by just over 10 per cent, which increased to around 20 per cent after a few months. 2  BIS central bankers’ speeches  ... to a floating exchange rate, inflation target and independent Riksbank When the krona fell, there were probably not many people who believed that Sweden would change its monetary policy regime entirely. Most people probably expected that we would eventually return to a fixed exchange rate. However, it was clear that such a return would take time and during a transition period a new strategy would be necessary. At the end of the 1980s, the Reserve Bank of New Zealand had begun to aim its monetary policy at trying to directly govern inflation and in 1990 they introduced an official inflation target as a means of creating a nominal anchor in the economy. Canada and the United Kingdom soon followed suit and Sweden joined the group in 1993. On 15 January, the Riksbank announced that its monetary policy objective would be to hold inflation around a quantified target: 2 per cent, measured as the change in the consumer price index. This target would begin to apply from 1995. Twenty years have now passed. With hindsight, we know that it actually took a very short time for the inflation target to become credible and for inflation expectations to become anchored around 2 per cent.

What does one gain by conducting a policy that  9  As the CPI is to a great extent affected by repo-rate cuts in connection with the financial crisis, it has been natural to focus more on underlying inflation measured in terms of the CPIF. 10  Households’ total assets are much higher than their debts. A large part of this concerns housing. But there is also a considerable part that consists of more liquid assets, the value of which need not fall if housing prices were to fall. BIS central bankers’ speeches  5  deliberately allows it to take longer for inflation to return to the target and for resource utilisation to return to a normal level? Is it worth the cost in terms of poorer target attainment? This is not easily illustrated. It is a question of a “new” type of trade-off being included in the material on which the analysis and decisions are based and it takes time to find good forms for this. It also involves illustrating risks and uncertainty and making them more concrete, and this is always a challenge. The Riksbank has been carrying out work on developing this for some time, and an outline as to how financial imbalances can be included in the monetary policy assessments has begun to take form.
From an economic viewpoint, the dissolution of the union in 1905 was a painless process. Former Central Bank Governor Nicolai Rygg1 wrote: “For 1905, (Norges Bank) points to the bright aspects of developments over the year, i.e. rising exports,…, but it takes time for confidence and the enterprising spirit to grow sufficiently to generate greater vitality and activity”. Norges Bank’s role was primarily to secure confidence in the monetary system. There were fairly large cash withdrawals from banks. Many sought to safeguard their wealth by investing in foreign bonds. Banks had to resort to loans from Norges Bank. The Board of Norges Bank nevertheless chose to leave the interest rate unchanged at 5 per cent. In Rygg’s words, this would not contribute to undermining the confidence-inspiring calm that marked major historical events. Economic developments were favourable up to World War I. International real interest rates have fallen The interest rate level is lower today than in 1905. In fact, Norges Bank has not allowed the key rate to be this low since the Bank was established in 1816. This partly reflects international conditions. In many countries interest rates were reduced considerably when the economic situation deteriorated early in 2000. Interest rates adjusted for inflation, i.e. real interest rates, are now also low. The first decades following World War II were marked by stable nominal interest rates, moderate inflation and low, but positive real interest rates. In subsequent periods, real interest rates have fluctuated. In the 1970s inflation surged.

Most recently, the Federal Reserve increased its key rate by 0.25 percentage point, and it has also announced further interest rate hikes. With the prospect of low inflation, Norway has lagged behind other countries in adjusting interest rates to a more normal level. Two years after we started to lower interest rates it would appear that inflation is moving up, albeit slowly. Inflation is low, but the indices are also influenced by temporary and erratic disturbances. It will still take time before we will have seen the full impact of low interest rates. It may appear that growth in the Norwegian economy has become more self-driven. Capacity utilisation is close to normal and rising. After a period, the interest rate can then gradually be raised to a more normal level. Economic policy tasks The various components of economic policy have varying effects. This is why they have different functions: •  Monetary policy steers inflation in the medium and long term and can also contribute to smoothing swings in output and employment. BIS Review 10/2005  5  •  The central government budget – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. •  Wage formation, the structure of the economy and incentives determine how efficiently we utilise our labour resources and other economic resources.
Before turning to the next issue — the problem of the poor countries’ large debts — let me summarise the discussion about the IMF, its lending operations and requirements. In my opinion, the criticism of the massive loans contains several grains of truth. Solutions are admittedly difficult to find when problems have already accumulated but a considerably stricter position at an earlier stage, together with greater transparency about the actual situation, could have resulted in a better policy. I am more hesitant about the criticism of conditions imposed on particular countries. There have certainly been mistakes — policy has, for instance, been constructed all too frequently on the premise of a fixed exchange rate — but even retrospectively, the answers are seldom as obvious as they are said to be. Macroeconomic policy in a crisis is almost always a question of arriving at the right balance between different alternatives. Poor-country debt A fourth area of problems in the debate on globalisation concerns the debts of the poorest countries. This is something that has not least engaged representatives of the Church, for instance in the context of the Jubilee 2000 campaign. It has been argued that the international community is not doing enough to tackle the debt problems of poor countries. I agree that the debt situation in many developing countries can hamper economic development, although a majority of the poorest countries also face problems of a more fundamental nature, for instance as regards internal institutional conditions.

That there are problems cannot, however, be denied. They have to do, for instance, with the prevailing conditions for world trade and how the resultant gains are to be distributed. Another issue is the free movement of capital, which played an important part in the positive economic trend in the 1990s but has also contributed to a situation where economic unrest spreads more quickly from country to country and is sometimes a major ingredient of financial crises in developing countries. Then there is the question of how the international financial organisations have functioned and the problem of debt in certain poor countries. These are some of the issues I shall now discuss. The globalisation debate Trade is crucial The first issue is about trade. The critics argue that the expansion of world trade to include more countries as well as additional goods and services leads to the poorest countries being marginalised — developing countries are unable to compete with the wealthy nations in this process. Some consider it would be better for the poorest countries to close their borders and build up their own industries. They would then be in a stronger position when perhaps they are ultimately incorporated in the world economy. A similar policy was advocated by some in the 1960s and ’70s and it was implemented in various guises in many countries, for instance in Latin America. But the subsequent course of events provides strong arguments against such an approach; isolationism has not been a good way of generating prosperity.
If these conditions are met through institutional reform plans (until 2025), relying on deeper convergence, entailing, for example, Competitiveness Authorities and further financial and fiscal reforms, including the Deposit Insurance Scheme, Capital Markets Union and European Fiscal Board, should help resolve the quadrilemma. In the words of the Report: “...the Macroeconomic Imbalance procedure (MIP) could be utilised as a tool not only to prevent and correct imbalances but also to foster reforms and monitor progress in each euro area Member State towards these common standards. Significant and sustained convergence towards similarly resilient economies should be a condition for access to a shock absorption mechanism to be set up...”. As central bankers we need to be aware of the role and importance of structural reforms. And we also need to communicate this to the general public. However, even if convergence in TFP as a source of sustainable catching up gets kick-started and risks arising from it eventually get ironed-out, fiscal and macroprudential policies will still be needed to take care of residual idiosyncratic shocks. Moreover, we are directly responsible for getting macroprudential policy right, and in order to be able to do that, we need a profound understanding of all the issues relevant for its smooth and efficient implementation. Some of the critical issues for macroprudential policy at this point in time encompass (i) cross-border spillovers, (ii) the coordination of macroprudential and monetary policy and (iii) devising an internally consistent structure of macroprudential instruments.

Generally speaking, the greater the depth of financial mediation, the larger the relative size of the banking sector in the economy and the higher the level of private sector debt, the more vulnerable the economy, the greater costs of any financial crisis and thus the higher the ensuing requirements as regards quality of banking regulation and strictness of supervision. Therefore, effective prevention of financial crises is an increasing priority for economic policy makers of countries with greater depth of financial mediation. Still, the depth of financial mediation differs systematically, for example, between the founders of the EU and recent entrants. For example, in the case of the Czech Republic, if the worst comes to the worst we can revoke the licence of a major bank, take its liabilities onto the government balance sheet and sell its viable business, as we have done in the past, without increasing our government debt-to-GDP ratio above two or three hundred per cent, provoking a sovereign debt crisis and starting the vicious circle known to many European economies. Most developed European countries do not enjoy such freedom. On the other hand, many segments of our financial industries are still underdeveloped and their space for growth is rather high. I do not believe we have reached the point at which one should question the benefits to the economy of increasing the depth of financial mediation.