samchain/econo-pairs-v1 huggingface dataset:
This is why I welcome the introduction of a legislative bill on a financial stability council, which aims to provide a stronger foundation for systemic risk analysis and response and to guarantee access to the necessary information. Time will tell whether further steps are necessary. On 9 April, the Central Bank will publish its annual Financial Stability report, including a detailed analysis of the financial system and the risks affecting it. I will therefore be brief on that topic. The big picture is this: since Iceland’s outward-oriented banking system collapsed, a great deal has been achieved in terms of building up a financial system with a domestic focus. The banks’ balance sheets have grown stronger, non-performing loans are on the decline, foreign exchange mismatches have been reduced, equity has increased, and liquidity is strong. Corporate and household debt levels are falling. The regulatory framework for banking operations has also been improved based on the experience gained from the financial crisis, both with implementation of international rules deriving from the important cross-border collaboration that developed during the crisis, and with implementation of rules based more Iceland-specific risk. A good example of this is the new liquidity rules adopted by the Central Bank in December, which are based on the Basel III principles but include special ratios for foreign-denominated liquidity.

Such a turn of events would have had severe effects on the real economy. In this respect, it is important to refrain from drawing too-sweeping conclusions from the banking collapse in Iceland, as the international part of Iceland’s banking system was so large and domestic banking operations were actually kept up and running at considerable cost. International cooperation on crisis management grew markedly in scope, particularly through collaboration among the G20 countries and at the International Monetary Fund. It encompassed a common perspective on fiscal measures to support the banking system and stimulate demand, and the provision of support to specific countries. Later on, emphasis shifted to the reform of the financial regulatory framework. That work is still underway. BIS central bankers’ speeches  1  But in spite of these measures, by late 2008 and early 2009 the recession on both sides of the Atlantic had become the deepest since the interwar years, and on a global level it was the most extensive and synchronised contraction in history. All of this affected the Icelandic economy, of course, but added to it were the collapse of Iceland’s banks, the plunge in asset prices, and the inevitable adjustment of domestic demand following the overheating in 2005–2007 – an adjustment that had begun before the banks fell. The contraction from the peak in Q4/2007 to the trough in Q1/2010 was the deepest Iceland has seen, at least in the post-war period. GDP contracted by nearly 12½%.
A first source is the “too big to fail” (TBTF) problem – that the Swiss banking sector has several banks with balance sheets that are large in relation to GDP. A second key source of risk resides in the substantial imbalances that have been building up in Swiss real estate and mortgage markets and the high exposure of domestically focused banks to these markets. Let me mention here that other possible system-wide sources of risk discussed on the global level, in particular those in the “shadow banking” sector, are considered less of an issue in Switzerland. One reason is that shadow banking assets in Switzerland carry low to moderate bank-like systemic risks. Another reason lies in the fact that bond funds and other investment funds, which make up 60% of shadow banking assets in Switzerland, are supervised by FINMA. 8 Switzerland has made considerable progress in addressing its two main sources of risk to financial stability. With respect to the risks stemming from the real estate and mortgage markets, a countercyclical capital buffer (CCB) has been introduced. The CCB was activated on a sectoral level in early 2013 and increased in 2014, as a complement to further administrative and self-regulatory measures aimed at increasing the resilience of the banking system and preventing excessive credit growth. Experience with this policy mix has so far been encouraging, and has flowed into the preliminary assessment indicating that these measures have contributed to a recent dampening of corresponding market dynamics.

Commodity prices remain high by historic standards, consistently with the strength of emerging economies, some specific supply-side elements and the depreciation of the dollar. Worth noting are the recent sharp increases in the international prices of some foodstuffs and the copper price peaking at $ per pound (figure 4). The baseline scenario in the IPoM we are presenting today assumes that some of these factors will persist over the projection scenario. In the case of copper, even if it will not be as high as today, it will exceed September’s projections, at $ and $ per pound in 2011 and 2012, respectively. The price outlook for WTI oil is also revised up from September, to $ per barrel in the two years. The baseline scenario for the international economy is good, albeit with important associated risks. We expect an average growth rate of 4.2% for the world economy over the next two years, fairly high by historic standards, but around 0.3 percentage points below the market consensus forecast. This differential is based on the effects of the financial turbulences in Europe, tighter fiscal adjustment plans in the region and the absence of a vigorous recovery of demand in developed economies. In addition, because of the inflationary pressures present in some emerging economies, it is obvious they cannot continue to grow at the same pace they did this year (table 1).
We face a number of major challenges to sustaining this record. I want to focus on just a few of these those where the risks are highest and the return to sensible policies is likely to be highest. The first of these challenges is the combination of our fiscal and external imbalances. Both are unsustainable. Each magnifies the risk in the other. Fiscal deficits of the magnitude projected are large enough to damage future growth prospects of the U.S. economy, which in turn magnifies our vulnerability to a decline in the willingness of other countries to lend us their savings, which could lead to higher risk premia on U.S. financial assets, also damaging long-term growth prospects. It is important that the United States work to build more confidence that it will act on the fiscal front to achieve a better balance between our commitments and our resources, both with respect to the medium term and the longer term. Building a stronger fiscal cushion and strengthening confidence in our fiscal sustainability is critical to reducing the risk in the size of our external imbalance. A second important challenge involves sustaining a commitment to openness and market-oriented economic policies. The pressures that have accompanied the process of technological change and more rapid global economic integration have eroded the strength of the center of the U.S. political spectrum that has been the source of our commitment to an open trade policy.

Both are intended to make Swiss franc investments less attractive, thereby easing pressure on the franc. This is important given that the franc remains significantly overvalued. Our expansionary monetary policy is aimed at stabilising price developments and supporting economic activity. Our new conditional inflation forecast suggests that inflation will rise faster over the coming quarters than we predicted in March, principally due to the significant increase in oil prices in the intervening period. The effect of this oil price rise on annual inflation vanishes after the first quarter of 2017. The new conditional forecast moves closer to that of the last quarter from then on, and is in line with it from 2018. This forecast shows that our expectations for the medium-term development of inflation and the Swiss economy remain essentially unchanged. At –0.4%, our inflation forecast for the current year is 0.4 percentage points higher than in March. For 2017, we expect inflation to be 0.3%, somewhat higher than assumed in the previous quarter. For 2018, we continue to anticipate inflation of 0.9%. The conditional inflation forecast is based on the assumption that the three-month Libor will remain at – 0.75% over the entire forecast horizon. Global economic outlook Since the assessment of the inflation and economic outlook for Switzerland is heavily influenced by economic developments abroad, let me now present our assessment of the global economy. The moderate recovery in the global economy is continuing, supported by ongoing highly expansionary monetary policy worldwide.
Social progress is one of the key objectives of the European integration process: “The Union shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress … It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child”. (Article I–3 of the draft European Constitution). Welfare is not only a remedy for the failure of insurance markets, but also a tool to promote inclusion, solidarity and a sense of fairness. In the three post-war decades (the so-called “Golden Age”), which especially in Europe were marked by high growth rates, use of advanced technologies, high growth employment, stable lifetime employment, welfare started to emerge, at different times and on different scales depending on the country, as an integrated system that protects its citizens from significant risks. The European model redistributes many more resources for social purposes than the US and Japanese systems: on the eve of the crisis, the total expenditure on pensions, unemployment benefit, for children and families was, in relation to GDP, more than twice that of the US and Japan. This can take different forms as regards the composition of social policies and the degree of labour protection.

Mario Draghi: A route for Europe Address by Mr Mario Draghi, President of the European Central Bank, at the day in memory of Mr Federico Caffè, organised by the Faculty of Economics and the Department of Economics and Law at the Sapienza University, Rome, 24 May 2012. *  *  *  A teacher, says Eco, “teaches that everyone must become individual and different”.1 Professor Federico Caffè, albeit with a coherent vision and deeply held convictions, was a teacher. He taught his students to think for themselves and did not pass on a binding creed. He helped his students – economists, thinkers, servants of the state and of the institutions, alert citizens – to discover themselves. I’ll start with the subject which, without a doubt, was the most precious to Caffè, namely welfare. Probably nothing in his intellectual heritage is more topical than this painful protest of his: one cannot, he would say, “accept the idea that an entire generation of young people should consider themselves as having being born at the wrong time and having to suffer job insecurity as an inevitable fact”.2 Work: a European matter “Full employment is not only a means of increasing production..., it is an end in itself, since it leads to overcoming the servile attitude of those who find it hard to obtain a job opportunity or live in constant fear of being deprived of one. In other words, the benefits of full employment are considered as well, and above all, in terms of human dignity.
The IAFR, adhering to the principles of independence, transparency and accountability, will contribute to improving control over fiscal policy and to introducing greater budgetary discipline in all tiers of general government, in line with the Law on Budgetary Stability and Financial Sustainability approved in 2012. More specifically, and focusing on the budget for this year, the IAFR has recently published a report on macroeconomic forecasts (Informe sobre las Previsiones Macroeconómicas), endorsing the Government’s macroeconomic projections that underpin the draft State Budget and analysing the consistency of the projections made in previous years. Furthermore, by 15 October, the IAFR is to publish its report on the draft Budget (Informe sobre el propio Proyecto de Presupuestos), in which it will assess its suitability with a view to meeting the objectives of stability, debt and the rule that ties spending to economic growth. As regards the sustainability of public finances in the long term, the latest key development has been the approval and entry into force of the new revaluation index and the pension sustainability factor. The reform entails a structural change, since benefits are to be linked to the system’s ability to generate revenue. The information available on the budget outturn to date this year shows headway in the process of fiscal consolidation. The overall general government deficit in National Accounts terms was 3.43% of GDP to June, 0.5 pp down on the figure of 3.94% in the same period a year earlier.

The adjustment in public finances undertaken by the Spanish economy is three-pronged: the gradual reduction in the budget deficit in line with the targets set, the strengthening of the fiscal governance framework and the reform of the pensions system. In light of the budgetary exercise under way, compliance with the fiscal commitments acquired at the European and national level should be the cornerstone of our budgetary policy. Fulfilment of these objectives will allow us to build on the gains in credibility already attained and to turn around the upward trend in the public debt/GDP ratio. Both goals are prerequisites for a durable economic recovery. BIS central bankers’ speeches  3  One of the main changes to the institutional framework of Spanish fiscal policy has been the creation and start-up of the Autoridad Independiente de Responsabilidad Fiscal (Independent Authority for Fiscal Responsibility – IAFR). The IAFR will be playing a most prominent role throughout the budgetary cycle, monitoring compliance with the principle of budgetary stability in the general government sector, in accordance with the provisions of Article 135 of our Constitution and with European regulations. In this way Spain is moving to enhance its economic governance, joining those EU countries – practically all of them – that have this type of agency.
A stable financial system cannot be based on questionable and opaque risk assessments. To regain confidence in these calculations, banks should make sure that their RWA calculations are transparent and traceable. In particular, they have to ensure that changes in RWAs over time, and differences in published RWAs between institutions, can be explained and economically accounted for. Third, the ongoing work on recovery and resolution plans should be pursued with total determination. If required for the guaranteed maintenance of systemically important functions, changes in the current organisational structure should be explored and initiated without delay. Fourth, on the regulatory side, further progress in defining the key elements of a viable resolution and recovery strategy for globally active banks is needed. In the absence of global bank insolvency legislation, this necessitates close coordination among regulators across borders. Specifically, further steps are necessary to guarantee that resolution measures – such as a bail-in – ordered by the home regulator are mutually recognised by foreign authorities. In this regard, it is encouraging that the resolution and recovery plans for our big banks are being developed in close collaboration with the foreign regulatory authorities concerned. Let me finish with some words regarding the cyclical risks. Mortgage volumes and real estate prices continue to grow at rates significantly above those justified by fundamental factors such as income and population growth. This means that the imbalances, which are already large, are increasing further.

2  BIS central bankers’ speeches  requirements by the end of 2014.4 At the same time, regulators are working on the establishment of resolution and recovery plans. When finalised, these plans should enable the regulators to secure the orderly resolution of a global bank in the event of a severe crisis and, in doing so, to make sure that systemically important functions can be maintained. As an important step towards this goal, FINMA has been authorised, since November 2012, to order a bail-in of creditors to generate the financial means necessary for restructuring a bank. Turning to cyclical risk, in June 2012, the Federal Council announced a set of measures consisting of three elements: (1) a permanent increase in risk weights for high loan-to-value mortgage loans,5 (2) a revision of the banking industry’s self-regulation guidelines for mortgage lending,6 and (3) the legal basis for the activation of a countercyclical capital buffer (CCB), as proposed in the Basel III framework. This instrument allows for a temporary increase in capital requirements when imbalances appear to be building up in the credit markets. It thus aims to increase the resilience of the banking system, and helps to lean against excessive credit growth. In February 2013, following a proposal by the SNB, the Federal Council activated the CCB, requiring banks to hold additional capital amounting to 1% of risk-weighted residential mortgage loan positions. Banks have been obliged to comply with this rule since 30 September 2013.
Although my role has changed since then, my belief in the fundamental importance of this issue remains the same. Indeed, my conviction has been reinforced by the Banque de France’s own commitment to supporting VSEs, both at a central level and through its local presence in France’s regions. One of the main advantages of this nationwide network is that it makes it easier to listen to and support local businesses, the majority of which are clearly VSEs. Through its local branch network, the Banque de France is responsible for dealing with credit mediation applications. It provides valuable insight for economic and social actors by publishing statistics on VSEs, and is the only central bank in the Eurosystem to publish data in this level of detail. In addition, the Banque de France conducts studies into VSE finances and their positioning in the French economic landscape. Clearly, this symposium is not just a one-off event reflecting a passing interest in a subject that’s currently in the spotlight. In fact, it is part of an ongoing and enduring initiative, and will provide additional impetus to the work already being undertaken at the Bank. I shall come back to this in a few minutes. *** First of all, let me underline the importance of VSEs for growth and employment, and for the strength of our regional economic fabric.

I shall follow your work and the results closely, and I hope you enjoy this excellent event. Thank you for your attention. 4  BIS central bankers’ speeches
Numerous countries with highly expansionary monetary policies have witnessed just such a trajectory, and hence a marked rise in capital market debt, in the last few years. However in Switzerland, the opposite has occurred. As chart 2 shows, after peaking in spring 2011 at almost CHF 560 billion, the volume of all outstanding Swiss franc bonds trended sideways for four years, and since the introduction of negative interest in 2015, the total volume has even fallen by around CHF 40 billion. It is evident that the domestic segment has been steadily growing since the financial crisis. Let’s take a closer look at the domestic segment. Chart 3 shows the development of domestic Swiss franc issuance by sector. Three aspects are striking. First, this development is chiefly driven by Switzerland’s two mortgage bond institutions (mortgage bond bank and mortgage bond institute); these entities jointly account for around a third of the domestic segment. The strong rise in this sector reflects both the growth of the Swiss mortgage market and greater use of this refinancing instrument by the banks. From the banks’ perspective, it is preferable to borrow via long-term instruments such as mortgage bonds than to finance mortgage loans via customer deposits, as doing so enables better maturity matching on both the assets and the liabilities side. Furthermore, in the current interest rate environment, mortgage bonds offer banks better financing conditions than customer deposits. Second, domestic non-financial corporations (‘other corporations’, light blue) were a further important driver of the increase in bond issuance in the domestic segment.

The main difference between this macroeconomic setting and that of the IMF or the European Commission is the lower decline in gross capital formation projected in the budget. Achievement of the targets set for 2013 may be jeopardised if tax receipts are affected by lower economic activity. Expenditure in the State and Social Security Budget is dominated by the interest on government debt, spending on contributory pensions and unemployment benefits. The sharp rise in these items reflects the increase in debt and the higher cost of new issues, demographic trends and the unfavourable performance of the labour market. To offset this expansionary trajectory, the Budget adopts an austere stance on other expenditure items, in particular the remuneration of public employees and real investment. Lastly, I must mention that the Budget for 2013 saw the culmination of one of the most important agreements of the Toledo Pact, namely the separation of the Social Security System’s funding sources: on one hand, contributory pensions, funded solely by social contributions and, on the other, non-contributory supplements and non-contributory pensions, funded by taxes. This separation, which began to be applied in 2002, will finally be completed in 2013. The bank restructuring process Finally, I would like to comment on the bank restructuring process under way further to the agreement entered into with the European authorities last July. Bank restructuring is progressing as scheduled.