samchain/econo-pairs-v1 huggingface dataset:
The bulk of the high growth in central government allocations translates into strong growth in household consumption, while growth in public services production is moderate. This is only to be expected when there is a steep increase in public sector allocations in an economy where there are no available resources. In the long run, wages must be commensurate with the value added that is generated by workers. Real wage growth is thus determined over time by developments in labour productivity in all sectors of the economy. If historical productivity growth trends persist, the long-term rate of growth in labour costs that is compatible with the inflation target is 4½ per cent. The outcome of the wage settlements we have observed in recent years is not consistent with this. During the 1990s, we saw that unemployment declined as long as wage growth in Norway was lower than wage growth among trading partners. This came to a halt in 1998, when the social partners rejected the policy of wage moderation. Unemployment stopped falling. The sharp rise in labour costs in recent years carries with it a potential for higher unemployment. Annual wage growth is projected to range between 5½ and 6 per cent this year, and substantial pay increases have already been awarded with effect from 2003. When real wage growth is higher than productivity growth, corporate profitability deteriorates. Firms will then hire fewer people and shed labour. This also leads to a heightened conflict between budget limits and service production requirements in the public sector.

It is more interesting to look back on the reasons for this success, which, to my mind, was built on three founding principles: the Eurosystem’s mandate of maintaining price stability; the means employed to carry out this mandate, i.e. independence; and the spirit that drives its action – general European interest. A - The mandate: price stability The Eurosystem has been entrusted with a very clear mandate by the European treaties:1 its primary objective is to “maintain price stability”, in other words to avoid prolonged periods of excessive inflation – as seen in Germany after World Wars I and II – or deflation – seen following the crisis of 1929 –, which have consistently negative effects on the economy. Price stability preserves household purchasing power; and more than that, it builds confidence in the value of the currency and consequently reinforces the confidence of economic players in all their decisions for the future, from investment to contract conclusion. Some observers would have preferred a “dual mandate” to target both inflation and growth or full employment, as is the case with the US Federal Reserve (the Fed), for example. However, this would be politically unattainable given German culture and not particularly different in economic practice. In 1998, the ECB established a quantitative definition of price stability that it went on to clarify in 2003: to maintain inflation rates below, but close to, 2% over the medium term.
The need to move the goal from merely access to well-informed usage is increasingly recognised in the development community. • The World Bank’s Global Findex Database reports that 20% of bank account owners have not used their accounts in the past 12 months. As any entrepreneur joining us at the Festival would know, user acquisition is easy. It is simply a matter of good price and good marketing. User retention is the true test of the utility that a product provides. This is where the focus needs to shift. In other words, policy, infrastructure, and services aimed at improving financial inclusion need to genuinely make a difference in people’s lives so that inclusion is meaningful and sustained. • Products need to be designed with the end-user in mind, to delight rather than to perplex with technology. What is the role of central banks and regulators in ensuring that financial inclusion initiatives stick, while safeguarding that innovation delivers responsible, stable and inclusive outcomes for those most in need? Let me make two major points in this context. •  First, FinTech must offer interoperable solutions. 1/3  BIS central bankers' speeches  • Second, the solutions must be embedded in the broader context of people’s lives and the daily operations of businesses. Financial products need interoperable rails to reach customers effectively. Let me cite two quick examples: identity and payments. Identity is the starting point in any digital transaction.

Ravi Menon: Financial inclusion and innovation - retaining the customer Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the BIS-World Bank Roundtable on Impact of Technology on Financial Inclusion and Financial Stability, at SFF x SWITCH 2019, Singapore, 13 November 2019. * * * Let me first thank Mr Agustín Carstens, General Manager of the Bank for International Settlements (BIS) and Mr Alfonso García Mora of the World Bank Group for hosting this Roundtable. And also Her Majesty Queen Máxima for her presence, inspiration and for tirelessly championing the cause of financial inclusion globally over the last ten years. I am delighted to welcome the BIS, the World Bank, the UN Secretary General’s Special Advocate for Inclusive Finance for Development (UNSGSA), and fellow central bankers and regulators to the Singapore FinTech Festival. • I hope you had time to soak in the FinTech Festival, feel its spirit and energy, spilling over 60,000 attendees, six halls, and 1,000 exhibitors. I want to focus my remarks on the important evolution taking place in financial inclusion: from Financial Inclusion 1.0 to Financial Inclusion 2.0. • Financial Inclusion 1.0 was about improving access to bank accounts. Financial Inclusion 2.0 focuses on usage of bank accounts. • Financial Inclusion 1.0 was about developing nimble innovative financial solutions for the unbanked. Financial Inclusion 2.0 is about facilitating collaboration among financial institutions and FinTechs, to promote integrated solutions.
This takes me to the issue of integrated financial markets in Europe, not only in the euro-area. As Peter Praet mentioned in last year’s Eurofi held in Malta, “private risk-sharing was the general principle of the new European rules such as the Bank Recovery and Resolution Directive (…) making banks equally liable across countries for the amount of risk they want to take into their respective balance sheet”. A pending issue for the completion of the Banking Union rests with the home-host approach in the resolution process. One of the main tasks within the resolution planning process for groups is to identify the most suitable resolution strategy and ensure its viability. Most of the resolution authorities and banking groups have embarked in a Single Point of Entry (SPE) resolution strategy at European level, acting according to their declared standing and European structure. The Single Point of Entry (SPE) resolution strategy is, by definition, the reflection of the idea of unity and cohesion, the purpose of the European Union. When an MPE strategy is preferred, authorities must ensure the separability of the subsidiaries from the parent bank not only as a gone concern, but also as a going concern. If the local subsidiary does not act independently in its daily activities, it is unlikely that it will be able to do so in case of turmoil.

First, the NPLs ratio dropped from 22% at end-2013 to 6.4% at end-2017, making it the largest adjustment in Europe over a relatively short time period. At the core of this adjustment were conservative requirements for provisioning NPLs, our hands-on supervision approach, and a fiscal facility that was conducive to the development of the secondary market for NPLs. Second, the share of local currency denominated loans in the total stock of loans has increased from one third prior to the crisis to two thirds nowadays. This reduced the contagion risk and improved the transmission mechanism of the monetary policy. A somewhat higher inflation and an earlier start in the policy normalization cycle have to be considered in view of another challenge, which is the lower level of financial intermediation. Some countries are facing the dilemma recently portrayed in a Bruegel Institute paper, between raising inflation and decreasing appetite for risk, the latter being reflected in the lower levels of credit to GDP. The solutions adopted are diverse. While some central banks are embracing a higher inflation, and try to stimulate financial intermediation, others try to reign in inflationary expectations and have already started the tightening cycle. Nevertheless, the issue of financial intermediation remains important, as credit for the corporate sector would need to replace direct fiscal incentives in most of these economies as a driver of growth, if we want growth to remain sustainable. The low financial intermediation in the banking sector comes, first of all, from the demand-side.
In addition, concerns about growth in China recently slipped into the background again. The stock markets of the advanced economies, which have since been able to partially recoup their losses, were the main beneficiaries of this recovery. By contrast, in the emerging economies, the wave of selling has had a lasting impact. In the most recent period, the MSCI Emerging Markets Index – calculated in local currency – was still approximately 12% below its level at the end of June. Stronger signals of diverging monetary policy stances between the euro area and the US were also reflected on the foreign exchange markets. On the one hand, the prospect of higher interest rates in the US boosted the US dollar. On the other, it put the currencies of emerging economies under pressure. Since mid-year, the US dollar has appreciated by 4.5% on a tradeweighted basis. The euro initially gained ground at times as a result of uncertainty in the emerging economies. However, after the ECB had held out the prospect of further monetary policy easing measures, the single currency came under downward pressure. By the beginning of December, the expectations of financial market participants had not been fulfilled and the euro gained in value again. By comparison with its mid-year level, the euro has appreciated only marginally on a trade-weighted basis. Demand for secure investments remained high worldwide. On the bond markets, yields on longer-term government bonds declined further.

Andréa M Maechler: How negative interest works and changes in the management of foreign exchange reserves Speech by Ms Andréa M Maechler, Member of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Berne, 10 December 2015. *  *  *  Accompanying charts can be found at the end of the speech. In my remarks today, I will begin by talking about developments on financial markets since the middle of the year. Then I will discuss the way in which negative interest works. I will conclude with a report on changes in the way we manage our currency reserves. Situation on the financial markets I will start with the situation on the financial markets. Financial market developments since the middle of the year have mainly been shaped by three topics: the uncertainty surrounding the first interest rate move by the Federal Reserve, monetary policy easing measures by the European Central Bank (ECB) and concerns about growth prospects in the emerging economies, particularly China. In mid-August, disappointing economic data and an unexpected depreciation of the renminbi against the US dollar resulted in a sharp decline in the Chinese stock market. The fallout was also felt by stock markets of other emerging and advanced economies in short succession. After volatility on the stock markets had increased sharply at times, investors’ appetite for risk gradually returned at the end of September. Favourable economic data from the US and the euro area contributed to the more positive sentiment.
For the UK in particular, the move to a going concern regime represents a fundamental departure from the current set-up, in which a firm is required to calculate financial requirements under the assumption that, following a stress, it writes no new business and instead “runs off” its existing business over time. Solvency II looks at the insurance industry through a different lens and views insurers as “going concerns”, such that it is assumed that insurers will continue to operate after a stress. To achieve this, Solvency II introduces the concept of the “risk margin” which is intended to capture the cost of transferring a set of liabilities from one insurer to another. The risk margin is a fundamentally new component of our regulatory framework and we will ensure that firms meet it. 1. This is a source of some tension at the moment, because the construction of the risk margin is such that, in particular for life business, it becomes much larger when risk-free rates fall. So the current environment of low rates means that the risk margin is large – and when and if rates rise, it will become smaller. Reasonable people can debate whether or not it is sensible for this element of provisions to be so sensitive to risk-free rates, and it may be that once we are into a Solvency II world some firms will choose to hedge this exposure.

First, I would like to bust two myths: •  the idea that there is some kind of plan within the Bank to use Solvency II to increase required capital across the insurance sector; and  •  a suspicion that we will somehow keep the current ‘ICAS’ regime alive after 1 January 2016, rather than embracing the new regime. Second, I want to make it absolutely clear that we will give firms plenty of time to adjust to the new regime, and that those firms who wish to make use of transitional measures will be given the freedom to do so. Myth-busting I have heard from some a concern that we will use Solvency II to increase levels of capitalisation across the sector, or that we are seeking to load the sector with more capital now so that it is baked into the new regime once operational. Let me state very simply: there is no such plan within the Bank of England. The reason for this is also simple: we think that our current regime secures an appropriate level of capitalisation for the insurance sector and puts us in a good position to make the shift to Solvency II. The ICAS regime was introduced in 2004 as a response to the stock market falls and subsequent problems faced by UK firms in the early part of the decade.
Confining myself to this latter consideration, without a recovery in employment it will prove costlier to further budgetary adjustment, since the increases in revenue will be limited and because turning expenditure around will require an additional effort to offset the necessary increase in unemployment benefit payments. 2  BIS central bankers’ speeches  In any event, budgetary policy is key in circumstances such as the present. As I stated earlier, we are in the middle of a sovereign debt crisis. There is no doubt that the Spanish economy’s vulnerability has a significant fiscal component, although our difficulties are compounded by the persisting downturn – and its dreadful impact on employment – and the still-high dependence on external funding. The budget deficit ended last year at a level of 8.5%, far off the 6% target set in the Stability Programme. And the year-end public debt/GDP ratio was 68.5%, more than 30 pp up on 2007, before the international financial crisis broke. In turn, the deficit targets have been set at 5.3% for 2012 and at 3% for 2013, which entails a most significant budgetary effort. It is crucial, however, to rigorously meet these targets. Attaining them is vital for restoring credibility in the Spanish economy, and here the overall interests of all economic and social agents and all levels of government converge. A high degree of unity and consensus among the respective parties will be pivotal to success in the arduous task ahead.

But the flip-side is that this process has moved forward in fits and starts, it has not enjoyed a broad degree of consensus and it has sometimes failed to be as rigorous and ambitious as the gravity of the situation required. Likewise, since the onset of the tensions there has been – occasionally notable – headway in the ongoing adjustment of the most vulnerable national economies, sometimes in step with the strict conditionality imposed under the financial support programmes under way. But here, too, action has broadly tended to be behind instead of ahead of events. BIS central bankers’ speeches  1  In these conditions, it is the European Central Bank that has positioned itself as the fundamental bulwark against the crisis. And, ultimately, this is buying time for the Member State governments, in both their responsibility for domestic economic policies and as co-managers of the common European Project, to make resolute progress in resolving the problems at the root of this crisis. We should not forget that the extensive range of non-conventional measures deployed by the ECB since the start of the crisis – the 3-year LTROs being one of the most recent and successful examples here – are, by their very nature, limited over time. And, more important still, these measures do not affect the fundamental imbalances which are ultimately at the source of and responsible for the crisis.
Academic research also has a large part to play in this process, in both identifying the issues and proposing or evaluating policy responses. A lot of discussion is taking place around disentangling different forms of complexity in the market place. For example, regulators are promoting more transparency around funding and legal entity structure within complex financial institutions. And there is also a growing body of work that is exploring clearing houses and exchanges as important structural vehicles to mitigate the increased inter-connectedness driven by the growth of derivatives1. The approach taken in this paper is to look at some of the details of how risk-taking is executed and the underlying market structures. These micro-foundations can have a profound impact on systemic stability beyond the normal consideration of formal regulations. In particular, we focus on one aspect of market structure: contracts where, because of a failure to take into account how the financial system as a whole operates, the true value of the contract is different from what it was intended to be – by at least one of the counterparties who struck the contract. This can arise either because in states of the world in which a particular contract is designed to have value there is high correlation with other events or where, in that state of the world, full adherence to the legal structure would cause large unintended consequences in terms of signalling or reputational damage.

Despite that initial investor reaction, however, Deutsche was able to keep market access and to successfully issue further capital instruments in the months thereafter. The theme we have encountered in these examples is that many of the decisions taken during times of extreme pressure seem to be affected by (apparent) considerations outside of the immediate financial contract – at least, rejecting options which were perceived to be acceptable when the original contract was struck. Or that the financial consequences of particular decisions were more adverse for the decision maker (or more generally the markets) than anticipated. In that sense they are classic examples of time inconsistency. We have tried to illustrate how acting narrowly rationally when it is perceived to be outside the realm of “what is normally done”, can carry massive risks. The problem that this creates is that when we are dealing with tail events and disaster insurance, it is hard to determine ex ante what such insurance contracts (or options delivering insurance) are worth. How should investors and regulators evaluate these contracts? If the reputation and signalling implications of exercising are too damaging in case of extreme stress, it would be naive to attribute full value to them when determining the risk profile and hence the appropriate capital buffer. It is also worrying from a financial stability perspective if these considerations force possible systemic implications to be more extreme rather than less. Stress tests and contract design considerations So what have we learned?
Higher provisioning and, especially, the non-recurring adjustment to goodwill, both as a result of the expected downturn in economic conditions on account of the pandemic, were the main causes of lower profits. The losses were concentrated at the two banks with the largest international presence but profits decreased by two thirds at the other banks. In any event, banks’ recurring business has only been affected modestly to date and this is being offset partly by an adjustment to operating expenses and, consequently, they continue to gain in efficiency. 11  Therefore, the price-to-book (P/B) ratio — which compares listed banks’ market capitalisation and their book value — contracted notably in Spain, as in other European countries, by declining to levels of around 0.4, although it subsequently recovered somewhat. 12  One way of illustrating the risks to financial stability posed by the current episode is through simulation exercises which assess prospectively banks’ resilience to adverse macroeconomic scenarios. Accordingly, the ECB conducted a so-called “vulnerability” analysis – to underline their limitations compared with the usual stress tests – in order to measure European banks’ resilience to the strains triggered by the coronavirus. The results published last July show some of the risks identified.7 Specifically, based on these results, the euro area banking sector overall is positioned to withstand pandemic-induced stress, although the reduction in banks’ solvency under the most adverse macroeconomic scenarios would be significant. Furthermore, the results of this exercise show significant heterogeneity across banks.

These companies – not necessarily financial in origin – which extensively harness information about their customers using new technologies, may drastically alter the operating environment of traditional banks. The banks’ strategy faced with these challenges must inevitably involve investing heavily in this type of technology to make the most of their data. This, also, will enable them to refocus their lending business on higher-margin segments while maintaining the risk they have assumed within reasonable limits. They should also continue to strive to make efficiency  “Euro area banking sector resilient to stress caused by coronavirus, ECB analysis shows”, ECB press release of 28 July 2020. 8 The benchmark central scenario envisages an increase in infections over the next few quarters and the application of the corresponding containment measures until a medical solution is available; based on these assumptions euro area real GDP is projected to decline by 8.7% in 2020 and rebound by 5.2% in 2021 and by 3.3% in 2022. Under the adverse scenario, which envisages a vigorous rise in infections and stricter containment measures, real GDP would decline by 12.6% in 2020 and would grow by 3.3% in 2021 and by 3.8% in 2022. 7  9  See P. Hernández de Cos (2020).