samchain/econo-pairs-v1 huggingface dataset:
Benign economic and financial conditions in recent years have kept credit losses at low levels. Combined with buoyant returns from capital market activity, the profitability of major financial institutions has been strong. And capital levels are high. But as highlighted in Financial Stability Reports by the Bank of England and others, this benign environment has encouraged an increase in risk-taking and a “search for yield” which has lowered the compensation for bearing credit risk and market risk to very low levels. The vulnerability of the system as a whole to an abrupt change in conditions has consequently increased. Against this background, I would like to focus my comments today on some of the implications for the management and reduction of risks to the financial system as a whole. More specifically, how can the public policy goal of promoting systemic financial stability be best achieved? I will not provide a fully comprehensive answer to this question but will touch briefly on four aspects; improving the assessment of vulnerabilities that might threaten stability; developing appropriate buffers for capital  1  Financial System Risks in the UK – Issues and www.bankofengland.co.uk/publications/speeches/2006/speech280.pdf  BIS Review 77/2007  Challenges  (John  Gieve)  (July  2006)  1  and liquidity within the financial system that take due account of the changing nature of risks; strengthening the core market infrastructure; and lowering legal uncertainty.

Given their balance-sheet structure, funding liquidity is a key risk for banks: the transformation of short-term liabilities into long-term assets leaves them structurally vulnerable to liquidity pressures. Banks therefore need to position themselves so as to be able to withstand extraordinary demands on their liquidity. If capital markets work efficiently, a solvent bank in need of liquidity should, in principle, always be able to rely on the market to obtain funds. However, in practice, the interbank market may not always work perfectly; asymmetric information and coordination failures are among the most severe potential frictions. Banks may, therefore, find themselves unable to access normal sources of funding liquidity. The measures to which a bank in this situation would have to resort, such as large scale asset sales, could have major adverse spill over effects through the system, as could the most extreme case of an outright failure to meet obligations as they fall due. Liquidity buffers may help in this regard: a bank holding a buffer of assets that is reliably liquid under conditions of stress, perhaps with a core component that is eligible as collateral at the central bank, should always be able to access liquidity in a way that avoids precipitating severe market disruption. The trends described at the outset are also important here. First, a shift to greater reliance on wholesale funding and greater involvement in capital market activity more broadly perhaps makes banks more exposed to funding liquidity pressures than in the past: they are at the mercy of nimble wholesale lenders.
The substantial pressure on the krone towards the end of October hardly reflected economic fundamentals in Norway. 8) Interventions Exchange-market interventions are an important instrument of monetary and exchange rate policy. Norges Bank intervened to support the krone for the equivalent of NOK 29 billion in the period from mid-October to mid-December. Unrest in international financial markets in the wake of the financial crisis in Russia intensified the speculative pressure on the krone. It is the Bank’s view that this speculation was not justified by economic fundamentals in Norway. It was therefore necessary to defend the krone through interventions in order to prevent a selfreinforcing and unnecessary weakening of the krone. Norges Bank will continue to consider using interventions if market conditions so warrant. For example, a central bank may have to intervene directly in order to stabilise the market, particularly if international turbulence leads to panic-like market reactions. From a somewhat longer-term perspective, the experience of large-scale and persistent interventions is mixed. When the central bank intervenes heavily to defend the krone, market participants may easily move into a game situation and perceive central bank intervention as an interesting opportunity to make a profit. Market operators know that a situation in which the krone is perceived as “artificially strong” because Norges Bank is buying kroner cannot persist. It is then tempting to take reverse positions in the foreign exchange market in relation to the central bank.

In our view, financial literacy has become a necessity, taking into consideration not only the level of economic, banking and technological development, but also the importance and significance of information in today’s global setting. * * *  Honourable Chair, Honourable Members of the Committee, In conclusion, I would like to highlight that, over 2016, the Bank of Albania has showed initiative and devotion in addressing the challenges we have faced. The positive results of our work show that we are on the right direction. Nevertheless, I think that for successful institutions there is always something more to do. They are guided by the medium and long-term objectives; they invest to enhance the professional standards and increase their capacities though the preparation, strengthening of independence, accountability, transparency and good governance. This credo of ours will be a guide for our action plans in the future. Thank you for your attention! 1 This Memorandum was signed by the Bank of Albania, Ministry of Finance, Ministry of Economic Development,  Tourism, Trade and Entrepreneurship and the Albanian Association of Banks. 8/8  BIS central bankers' speeches
Regarding the composition of spending, while the recovery of activity in the main economies was initially driven by consumption, between the end of 2020 and early 2021, investment showed a more dynamic behavior (Figure 10). Global financial markets have captured this outlook, encouraging greater risk-taking, stock market rises and widespread asset price appreciations. As a result, financial conditions have remained favorable, particularly due to the greater stability of long-term rates, the decline in corporate spreads and risk premiums, and capital inflows to emerging markets. However, this picture is not common to all economies, with significant lags in those where pandemic control remains complex, where there is no significant vaccination plan in the short term, where policy space is limited, and/or where domestic tensions have increased. This is the case in several Latin American countries. International commodity and food prices have also been boosted by the global recovery, in the presence of supply-side difficulties and a depreciated dollar. Copper hit a record price of USD 4.86 per pound early in May  Page 3 of 27  and is close to USD 4.5 as of the statistical close of this Report, which is 11 percent higher than its March price. The oil price has also risen and is now above USD 65 per barrel. This, along with higher transportation prices, has increased the cost pressures faced by companies around the world.

These are the so-called “unobservable variables”, meaning that they cannot be measured directly (as can activity in a month or a year, for example) and thus must be estimated using different methodologies. The estimation of structural parameters is relevant for monetary policy decisions, as it provides a reference of where their values should stand over longer terms and therefore serves as a guide Page 5 of 27  for assessing the macroeconomy and calibrating monetary policy accordingly. In 2020, the Bank postponed the review of these parameters because the uncertainty surrounding the unusual nature of the shocks that were affecting the economy —the social crisis and the pandemic— made it more advisable to gather more information to assess the medium-term effects on the economy. The results of these estimates are detailed in three boxes of this Report. As for trend growth, its estimate is revised downward given the persistent slowdown in productivity growth over the last decade. Our estimate for non-mining trend GDP growth is reduced to a range between 2.4 and 3.4 percent for the 2021-2030 period, which compares to the range between 3.25 and 3.75 percent estimated for the 2019-2028 decade. This revision is mainly explained by a lower Total Factor Productivity (TFP) growth projection.1 This assumption is based on the consolidation of a downward trend since the early 1990s, which was only temporarily reversed during the commodity price boom of the second half of the 2000s (Figure 18).
Banks did not classify loans properly or make adequate provisions against them. This allowed insolvent or near-insolvent banks to continue in business and to build up further losses. The end-result of this has been the need for large-scale restructuring of banking systems across the region, a process that is still going on. Inevitably, this involves use of public funds, to take over or recapitalise the banks that might have a chance of survival, or to pay off the depositors of those banks that are hopeless cases and have to be closed. Let me now turn to how Hong Kong’s experience has compared with that of other banking systems in the region. The first point to make is that our banks have by no means escaped unscathed from the Asian crisis. This could hardly be the case when the scale of the recession of the last 18 months has been the deepest since records began in 1961. Real GDP fell by 5.1% in 1998 after rising by about the same percentage in the previous year. Unemployment has risen to 6.2%, a level unprecedented for Hong Kong. This was accompanied by plummeting asset prices that at their lowest had fallen by 50% in the case of residential properties and 60% in the case of the Hang Seng Index. In an economy as used to prolonged economic growth and full employment as Hong Kong and so heavily dependent on asset values, it is not surprising that this translated into a sharp rise in bad debts for the banks.

The bad debt charge for our locally incorporated banks in respect of their Hong Kong business more than tripled in 1998, albeit from a low base. Non-performing loans (measured by those that have been classified as substandard, doubtful and loss) rose from around 2% at end-1997 to 7.3% at the end of last year. This is a sharp increase but it is important to put it into regional perspective. The equivalent figure for non-performing loans in Thailand at present is around 46%. The picture in Indonesia is even worse. Hong Kong has therefore fared better in respect of credit risk than its neighbours. It has no doubt been helped in this by the solid regulatory framework in Hong Kong and the infrastructure of business laws that makes it relatively easy to take and realize collateral and to put defaulting borrowers into liquidation. Banks are also free to carry on their business without political interference. I believe that Hong Kong has also benefited from its openness as a financial centre, though this can also have its drawbacks. Major international banks are allowed to play a full role in our banking system, including in many cases participating as full retail banks. This has allowed cross-fertilization of talent, systems and products between the local and foreign banks. Finally, another point in Hong Kong’s favour is that it had already gone through a banking crisis in the early 1980s, in which abuses such as connected lending had played a part.
Norman T L Chan: What does it take to develop a Global Offshore RMB Hub? Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Treasury Markets Summit 2014, Hong Kong, 15 September 2014. *  *  *  1. A very warm welcome to all of you to this year’s Treasury Markets Summit. 2. The theme of today’s Summit is: “Development of Hong Kong as the Offshore Renminbi Hub”. This is indeed a very timely topic as we have just marked the 5th anniversary of the launch of the pilot scheme for the use of renminbi (RMB) in cross-border trade transactions in the summer of 2009. We of course started the RMB banking business back in 2004, but until 2009 our business was restricted to the development of personal accounts for Hong Kong residents and use of credit cards. The major milestone was clearly the start of offshore RMB trade settlement and other businesses for corporates five years ago. 3. So what have we accomplished in the last five years? It is probably fair to say that very few of us could have envisaged the rapid progress that we have achieved in turning Hong Kong into the global offshore RMB business hub in such a short time. In terms of deposits, including Certificate of Deposit (CDs), we have grown from around RMB90 billion in end-June 2010 by nearly twelve times to RMB1.1 trillion now, which makes us the largest offshore RMB liquidity pool in the world.

A weaker króna would have a multiple impact in the form of higher inflation, not least in the climate of overheating which has prevailed in Iceland recently, a resulting fall in living standards and difficulties for companies and credit institutions. Exchange rate policy reforms For quite some time now the Central Bank has been examining the option of abolishing the formal fluctuation bands for exchange rate policy and adopting instead direct inflation targeting as the basis of monetary policy. Articles on this topic have appeared in the Bank's publications in recent times and international agencies have recommended serious consideration of inflation targeting as the main monetary policy goal. The fixed exchange rate framework has gradually been eased and the fluctuation bands have been extended in phases, as I mentioned earlier. Indeed, the extension of the bands in autumn 1995 can be claimed to represent the first step towards instituting a new foreign exchange framework, with the next step taken in February last year. The Central Bank sees many factors in favour of adopting inflation targeting, which is a logical continuation of the flexible exchange rate policy that has been pursued. Monetary policy based on formal inflation targeting enjoys growing support and has been adopted by an increasing number of countries. Industrialised nations which have done so include Australia, the UK, Canada, New Zealand, Switzerland and Sweden.
Both of these views suggest that central banks could have potentially helped prevent the crisis by setting higher interest rates and that they should have done so if the “inflationtargeting” precepts had been fully understood and optimally followed. In both cases, however, the underlying models would have predicted that such policy failures would have prompted overproduction and excessive rates of inflation, rather than a financial crisis. The third hypothesis I would like to discuss is the theory of the “risk-taking channel”. This newer line of argument is that, even if monetary policy was optimally conducted before the crisis, the prevailing low interest rates provided fertile ground for miscalculation and excessive risk-taking by financial intermediaries, thus contributing to the crisis. According to this view, the “inflation-targeting” paradigm itself is deficient in the sense that it does not take into account the negative externality of a policy exclusively aimed at price stability imposes on financial stability. In Claudio Borio and Haibin Zhu’s9 terms, “changes in policy rates have an impact on either risk perception or risk-tolerance and hence on the degree of risk in portfolios, on the pricing of assets, and on the price and the non-price terms of the extension of funding”. In other words, a long period of low interest rates drives financial intermediaries to take increased risks. Empirically, there is a growing body of evidence to indicate that a channel of this kind exists.10 There are three main versions of the “risk-taking channel”.

The simulated policy would probably also have prompted a significant drop in cumulative real GDP growth, estimated at about 3.3 percent. These higher interest rates would, however, only have had a limited impact on credit growth, i.e. they would theoretically have reduced a 30 percent credit growth to around 27 percent. As a result, it is not clear that the simulated policy could have significantly reduced the probability of a real estate bubble developing. Another study of  14  See, for example, Buch, Eickmeier and Prieto (2011). This study of the US market between 1997–2008 suggests that looser monetary policy or unexpected house price decreases prompt small domestic banks to increase their exposure to risk. The same conditions seemingly cause foreign banks to reduce their risk exposure, however, while large domestic banks retain the same levels. 15  Angeloni, Faia and Lo Duca (2010). 16  Bean et al. (2010). 4  BIS central bankers’ speeches  OECD countries by Katrin Assenmacher-Wesche and Stefan Gerlach,17 estimates that, to obtain a 10% decrease in property prices, central banks would have to sacrifice between 2.3 and 4.0 percentage points of real GDP growth. In turn, Christian Hott and Pierre Monnin18 estimate that house prices were overvalued by some 25 percentage points in the US in 2005 and by approximately 50 percentage points in the UK in 2006.
There is a risk however that this would detract from the role of the lead bank and the financial advisers and reduce the impact of the contribution that the HKMA can make familiarity can breed contempt. The HKMA has been involved in about 10 cases since the HKAB Guidelines were issued. Typically these will involve situations where a small minority of banks, sometimes only one, are refusing to sign a restructuring agreement or are threatening to take action, such as realize security, which would cause the workout to collapse. Our practice in such cases is to listen to both sides and to understand their respective positions. Where a small number of banks are holding out against the majority view, we will ask them to explain their position and to weigh the costs of their behaviour against the potential benefits. Where the position of the minority banks seems to lack sound justification, we will usually try to persuade them to accept the majority view or at least make every effort to work towards a compromise. At the very least, we would request the banks to reach decisions on restructuring proposals within a reasonable period of time and try to adhere to the deadlines which are set for these decisions. The HKMA’s role in the workout process is, I believe, consistent with the Monetary Authority’s principal function under the Banking Ordinance, which is to “promote the general stability and effective working of the banking system”.

Obviously this can delay the whole process - a point to which I will return later. This is only a very short description of the mechanics of a workout and hardly does justice to what can be an enormously complicated exercise involving banks with widely different levels of security as  BIS Review 45/1999  2  well as non-bank creditors whose interests also need to be taken into account. But I hope that I have given you enough to illustrate the central principles of the process: a willingness by the debtor to recognize that there is a problem and to approach the banks to seek assistance, matched by support and forbearance by the banks and a willingness to work together to reach a solution by consensus. That solution may not be the optimum one for every individual bank but the objective should be that each bank is at least better off than it would be in a liquidation and is treated fairly vis-à-vis others. In the course of preparing this speech I have had the benefit of talking to a number of market participants about how effectively the workout process in Hong Kong and the HKAB Guidelines are working. It is fair to say that there are varying shades of opinion on this point, but there is general agreement that the Guidelines have made an important contribution in codifying what is expected of banks in Hong Kong. It is equally true that there may be room for improvement in the workout process.
To illustrate that, Chart 10 plots the distribution of levels of productivity across countries over a set of sample periods, where productivity is measured relative to a frontier country (the United States) indexed to one. Comparing the distributions in the 1950s and 1970s, there is a clear rightward shift. Cross-country productivity convergence or catch-up was underway, as the Classical growth model would suggest. In recent decades, however, that pattern has changed. Comparing the 1970s with the 1990s, there is a small leftward shift in the probability mass. And in the period since the global financial crisis, there has been a further leftward shift in the distribution and a widening of its range. Today, non-frontier countries are about as far from the technological frontier as they were in the 1950s. Another way of illustrating the same point is by looking at differences in productivity between frontier and periphery countries over time (Chart 11). In the decades immediately following the Second World War, the Classical growth model was operating effectively, with catch-up in productivity underway and at faster rates among emerging market countries with furthest to travel to the frontier. 37 38  Gordon (2014). Barro and Sala-i-Martin (1992) and Rodrik (2011). 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  Since the 1980s, however, that convergence process appears to have stalled, perhaps even to have gone into reverse, in both advanced and emerging economies. The gap to the frontier has failed to close and, in particular for emerging market countries, has widened.

Smaller firms have higher average growth rates, and greater dispersion in these growth rates, than larger ones. Finally, when it comes to companies’ leverage, the picture is also a nuanced one. 54  High leverage is a  characteristic of firms with two very distinct productivity profiles (Chart 22g). Very low-productivity firms tend to have high leverage because their profits, repayment capacity and investment are low. But high leverage also characterises high-productivity firms, whose profits, borrowing and investment are high. These patterns provide an explanation for the damaging impact of the crisis on productivity growth. The absence of credit may have affected disproportionately high leverage, high productivity companies operating in the upper tail. The distribution of debt is also important when gauging what impact monetary policy and regulatory forbearance may have had on the lower tail of companies, to which I now turn. The Role of Monetary Policy  These distributional data enable us to look closely at the lower tail of companies who have potentially been protected from failure since the global financial crisis by regulatory forbearance and accommodative monetary policies. Chart 16b plots this lower tail on three dates, pre-crisis (2002), mid-crisis (2008) and post-crisis (2014). Unsurprisingly, the crisis fattened the lower tail. Since the crisis, however, this tail has shrunk again. The tail of low-productivity companies today is, if anything, smaller than it was pre-crisis.