samchain/econo-pairs-v1 huggingface dataset:
Lower interest rates should contribute to easing current tensions in the financial markets and also to facilitating the flow of credit. But monetary policy alone cannot resolve the financial and economic crisis. Corrective actions at other levels of policy are required, and these have indeed been taken by national governments and central banks as well as by international institutions. It will, however, take a while for confidence to return to a level that would permit the financial system to fully service the needs of a globalised economy. So why did the ECB increase rates in the first place in July? Consistently with its interpretation of the mandate, at that time the ECB perceived that there were strong upside risks to price stability. Decisions are always based on the latest information available and on a full analysis at a given point in time. The slowdown in economic activity has been very sudden, and projections for inflation have in the meantime been revised downwards. 2  BIS Review 152/2008  Do you think the cuts should always be passed on to the customer? In some cases the local banks have refused to do so, or they didn't reduce them to the full extent. In Malta, banking practice has generally been to set interest rates with reference to the official policy rate. Where such is the case, we would expect most of the ECB's interest rate cuts, one percentage point in the past month, to be passed on to customers, particularly at a time of weakening growth prospects.

In particular, because no new entity is required, it will not be necessary over a resolution weekend to authorise a new entity, or to change the contract documentation to which the firm is a party, and memberships of Financial Market Infrastructures can remain intact. But, whichever approach is pursued, the essential elements of the transaction are the same. These are set out in the KAs and are included in some detail in the BRRD: •  Entry into resolution: The trigger for entry into resolution is twofold 2: first, a firm must be failing, or likely to fail to meet its conditions for authorisation; second, it must be reasonably likely that no action is available to remedy this situation within a reasonable timeframe. This is intentionally forward looking; it is designed to allow recovery actions to be taken to remedy a breach, or likely breach, of threshold conditions, when the existing owners and management of the firm can take actions that might be successful in rectifying the breach. But, when recovery is not reasonably likely, resolution authorities have the option to put the firm into resolution and deploy their toolkit. And the BRRD goes beyond this – it includes the obligation that, when these two triggers are met, capital instruments are written down or converted to the extent necessary to meet resolution objectives, putting in statute the Basel Committee’s requirement that capital must be fully loss-absorbing when firms meet the point of non-viability.
From a medium-term perspective, and even when conditions are established that will free up the flow of credit from the banking sector to the  4  BIS Review 52/2009  real economy, it cannot be expected that rates of expansion will rise again to the heights of recent years. The de-leveraging process underway in the banking sector, and in the economy in general, is not a passing fad, but rather a means of achieving lower and more sustainable debt positions. One way of making up for the lower rates of credit expansion, and thus countering the foreseeable narrowing of net interest margins, would be to diversify banking activity into new business segments. In principle, diversification is a positive thing, but it must be undertaken with caution. Experience shows that both in Spain and internationally, only on limited occasions can an institution's sound knowledge of its core business be directly transferred to activities that lie further afield. Accordingly, those in charge of institutions should show prudence and avoid what can be termed contrived diversification processes and carefully assess their entry into unfamiliar market segments in which they lack experience. Second, in the short term bad debts will keep rising and so the pressure on loan loss provisions will continue to be high. It is true that the reduction in interest rates will bring relief for households and firms and help to limit the impact of the rise in bad debts, but the contractionary phase of the cycle will foreseeably last some quarters.

In particular, low interest rates push up housing demand but also incentivise risk-taking behaviour by banks, by reducing the cost of leverage and weighing on bank margins and profitability. A global normalisation of monetary policy rates seems to be underway, most notably in the UK and in the US, against the background of a sharp rise in inflation. This could help slow down the increase in vulnerabilities, if the normalisation takes place gradually and does not trigger an excessive tightening of financial conditions. However, the global level of interest rates is likely to remain low in the medium term, dampened by structural factors such as demographics, inequality and a strong demand for safe assets internationally. Monetary policy has no influence over these factors. Even more importantly, the focus of monetary policy is price stability and economic developments, and not curbing financial system vulnerabilities. The most suitable way to address these vulnerabilities is therefore through macroprudential policy. Many authorities have in fact already responded to these developments by tightening macroprudential policy. Some countries have tightened borrower-based instruments in an attempt to curb rising vulnerabilities (e.g. Finland, France and Iceland). Others have opted to increase banking sector resilience to ensure that banks have enough capital to withstand a correction. Jurisdictions that released or reduced the CCyB in the acute phase of the pandemic to support bank lending are reactivating or increasing it again, in some cases to a higher level (e.g. Denmark, Germany, Iceland, Norway, Sweden, UK).
Complementing these three components is Islamic insurance or takaful, that provides the necessary risk protection to its policy holders and to serve as an efficient mobiliser of long-term funds. The spectrum of participants and the diversity of instruments are among the key attributes in creating the enabling environment for a dynamic Islamic financial system. This has been the approach adopted by Malaysia at the very onset of our journey in the development of a comprehensive Islamic financial system that is sustainable and progressive. In the initial stage during the early years of the development of the Islamic financial system, the focus of attention was on the development of the Islamic banking system and to expand the number of players and the volume of banking activity. This has increased significantly when the dual banking system was introduced. This was subsequently expanded to the specialised non-bank institutions, including the development financial institutions, and the savings banks and housing credit institutions, where Islamic financial products and services are being offered. The other core components of the Islamic financial system comprised the Islamic money market, the Islamic capital market and the takaful market. Today, the Islamic money market has become an integral part of the Islamic financial system, with transactions of more than RM2 billion  BIS Review 43/2003  1  a day and a broad spectrum of instruments, among which included the Government Investment Issues, Bank Negara Negotiable Notes, Islamic accepted bills and the Islamic private debt securities.

For example, asset fire sales dynamics that negatively impact market prices or a loss of confidence in the industry during periods of uncertainty or distress are examples of “externalities” with far-reaching effects on the financial system.7 Moreover, those costs and benefits will be realized in the future and thus need to be assessed ex ante from a probabilistic perspective. The official sector includes all of these costs and benefits to society in assessments of policy efficacy. This makes evaluating trade-offs and assessing effectiveness difficult, and suggests that simple assessments are likely to be incomplete. Policy assessment requires a rigorous evaluation of a broad range of outcomes, and an important part of the ongoing dialogue in conferences like this one is to continue to develop the conceptual frameworks and to study the data in order to make the most meaningful assessments of policy effectiveness. A Look at Bank Performance I will now discuss two perspectives on bank performance since the financial crisis that serve as rough proxies for the resilience of the industry and the provision of financial services. This is clearly not a rigorous test of whether specific regulations are optimal, but provides some indicative results about trends in resiliency and financial services. I will focus on accounting metrics from the balance sheet and income statement, but one could also turn to market data to assess resiliency.
At the Swedish Economics Associations’ proceedings in February 1996 he called for each debater to answer the following questions explicitly or implicitly: (i) Do you apply the same inflation target as the Riksbank, or another inflation target, or any other target? (ii) Do you make the same forecast as the Riksbank or do you make a different assessment? (iii) Do you know of a better way of attaining the target?13 These questions appear as relevant today as they were twenty years ago. Secondly, I have discussed how one should view a situation where it takes longer for inflation to attain the target, despite the Riksbank doing everything it can to avoid this happening. This is not a situation we expect to find ourselves in, but there is nevertheless reason to seriously consider and examine it. If such a situation were to arise, it would very important to clearly communicate that the inflation target has not been abandoned, to prevent long-term inflation expectations from falling excessively. As the central bank determines inflation in the long run – inflation is a monetary phenomenon – there are also good reasons for expectations of long-term inflation to remain in line with the target. This is important to maintain a smoothly-functioning price-setting and wage formation, but also for monetary policy to be able to counteract future economic downturns. Communicating this is a difficult but hopefully not impossible task.

As I have already said, any delays would postpone the achievement of the target. Moreover, the key rate that would be required for this purpose would be considerably higher. As regards the economy, I would like to stress that the majority of industries have already bounced back to the pre-pandemic level of output. Certain restrictions remain in a number of sectors, first of all in oil production where they are associated with the OPEC+ agreements. The services sector, where small and medium-sized enterprises account for a larger portion than in other industries, has not fully restored yet. The decline here was stronger and still persists, although the recovery process is quite active. Quarterly data on GDP for 2020 confirmed our estimates that business activity did not wane during the autumn wave of the pandemic, in contrast to many other countries. Furthermore, companies promptly responded to the recovery in demand, purchasing equipment, making investments in production expansion, and forming the inventories of raw products and components. Among other things, this is evidenced by the rise in investment imports over the last six months. Taking into account high-frequency indicators for the first quarter, we keep unchanged our GDP growth forecast for this year at 3–4%. As the reduction in GDP was slightly lower last year and demand has increased, the economy may generally reach pre-pandemic levels as early as in the second half of the year.
Yet in 2015, fewer than 5% of French companies and 6% of individuals had some form of cyber-insurance.3 Insurers can and should take inspiration from their own experiences in tackling cyber-risk, and use it to develop a more mature 1  Sources: Fédération Bancaire Française; Observatoire 2016 de l’image des banques, published by BVA and based on a survey conducted in May 2016, and Observatoire 2015. 2 Source: European Commission’s Digital Economy and Society Index. 3 Source: Le marché de la cyber-assurance : la révolution commence maintenant, PwC, January 2016. 3  French and European cyber-insurance offering. Second subject: data and big data, with the spread of connected objects that is triggering an exponential rise in the amount of data available on insurance policyholders. Naturally this represents an opportunity: the traditional business of insurance consists precisely in collecting and exploiting data in order to quantify and put a price on risk. Nonetheless, I would urge insurers to take a responsible approach: we need to strike the right balance between segmentation and the sharing of risk between policyholders – the basic principles of solidarity and risk-pooling that are intrinsic to insurance are at stake. And we must not lose sight of our collective values regarding individuals’ right to privacy. 3. What are the challenges for the French and European economy? Let me just remind you of two basic economic facts: there can be no lasting growth without a rise in productivity; and there can be no productivity without innovation and its diffusion.

There has been a lot of discussion among economists about the current slowdown in productivity and the threat, as some see it, of a “secular stagnation”. Personally, I think that expression is going too far, and you here stand in proof. But for an economy to be competitive and to grow, it needs to increase innovation and its diffusion, not slow it down. The digitalisation of the financial sector can accelerate this positive process: it helps to disseminate technological advances such as electronic signatures, solutions to defend against cyber-attacks or distributed ledger technologies. Innovative and secure payment solutions, such as tomorrow’s blockchains, are also helping to speed up the development of e-commerce and modernise physical trade. Achieving this will require greater harmonisation at European level: in the precise application of the texts governing the financial industry (definition and security of payment services), in more recent fields (crowd-funding) or in the search for greater interoperability of technologies and standards. But, above all, it is vital that we define an overall strategy for European innovation in financial services. This strategy must cover all the issues raised by digital finance: from data protection to the fight against money laundering; from IT security to consumer protection; from financial stability to the social challenges of banking inclusion; from financial literacy to changes in jobs in the financial sector. It is a project currently being conducted by the European Commission. And the Banque de France and ACPR are both playing a part.
2  BIS Review 121/2007  inflation expectations from becoming entrenched below the operational target of 2.5 per cent was one of the main reasons the interest rate was lowered to a very low level in 2003 and 2004, when inflation receded and approached zero. Low interest rates have stimulated demand and output and gradually led to the prospect of higher inflation, which we are addressing by increasing the interest rate. Consumer price inflation is still fairly low, but capacity utilisation is now at such a high level that inflation is projected to move up gradually to 2.5 per cent. Higher interest rates will contribute to a gradual decline in capacity utilisation, thereby preventing inflation from becoming too high. In the long term, monetary policy cannot influence real economic variables such as output and employment; it can only influence nominal variables such as inflation, the nominal interest rate and the nominal exchange rate. When monetary policy serves as an anchor for inflation expectations, it allows the interplay between monetary policy and other components of the economy to function. A good result can be achieved if the social partners take the role of "leader" and the central bank the role of "follower". Wage growth can then be determined in the knowledge of the monetary policy response. Flexible inflation targeting provides a fixed framework for monetary policy and gives a clear indication of how the central bank is to respond in different situations.

The provision of cloud services carries a systemic risk of operational resilience and some providers are already "Too Big To Fail": the interruption or failure of a few of the big techs’ systems could indeed impact financial stability and the economy in general, given the very high level of concentration of providers1 and the dependence of financial institutions using their services. Moreover, some of their financial activities, which are closely linked to those of traditional financial players but are carried out outside the regulated framework - and therefore without any constraints! - carry a strong risk of moral hazard which could again prove detrimental to financial stability. One  1  The four largest providers (Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba Cloud) control 70% of the market (FSI Insights on policy implementation, Big Tech interdepencies, by Juan Carlos Crisanto et al, July 2022). 5  example among others: if they were to provide both brokerage services and credit scoring services, these companies could be inclined to generate more business in order to collect commissions, while reducing the attention paid to credit quality, in the absence of risk participation. But alongside the big techs, other players, at the crossroads of IT and finance - maybe you will soon join one of them, once you have graduated from your engineering school - are profoundly transforming the latter. They offer a wide range of services, particularly focused on cryptoassets.
And the magic happens when the two are combined, the brains and hands co-ordinated. Nothing illustrates this better than the revolution in the UK’s monetary and financial stability frameworks during my tenure. Monetary policy  I joined the Economics Division of the Bank in 1989, following the well-trodden path from Sunderland council estate to Threadneedle Street. I hoped to redesign the UK’s monetary policy framework. My first task fell a fraction short of those ambitions. It was to forecast the non-resident (“externals”) component of the asset counterparts to M4 (a measure of the money supply). Like the Schleswig-Holstein problem, only three people understood the external counterparts to M4. One was dead, the other mad and the third was not me. The external counterparts of M4 are as close to a random walk as any time-series on the planet. That makes forecasting them a mug’s game. I was that mug. Almost as thankless was the six-monthly forecasting exercise we undertook at the time. This involved every economist forecasting a component of the National Accounts in microscopic detail. My job was to forecast the Interest, Profits and Dividends component of the UK current account, another lofty task, another random walk, another game of mugs. At the end of this exhaustive process, the forecasts were sent around the Bank, as well as to HM Treasury. There, I have it on good authority, they quickly became landfill (as recycling wasn’t an option at the time). Like the UK’s entry at Eurovision, the Bank economists’ contribution was spirited but ultimately pointless.

But this reflex response is not the only macro-economic force at work. Two further large and powerful sources of economic energy are also fuelling growth, one public, one private. The public source is the extra-ordinary degree of additional stimulus that has been provided to the UK and global economies by monetary and fiscal policy. In the UK, the quantum of additional QE and fiscal easing both presently stand at around 15-20% of GDP, adding significant further momentum to an already rapidly bouncing-back economy. The private source of economic energy comes courtesy of the large pool of involuntary savings amassed as a result of restrictions on spending. For UK households these amount to over £ billion and for UK companies around £ billion. Leakages from this saving lake are already fuelling spending on goods and assets. And lower than expected unemployment is encouraging more of these savings to be spent in a virtuous cycle. The size and depth of this saving lake means it could finance demand at scale for some period to come. With public and private financial fuel being injected into a macro-economic engine already running hot, the result could well be macro-economic overheating. When resurgent, and probably persistent, demand bumps up against slowly-emerging, and possibly static, supply, the laws of economic gravity mean the prices of goods, services and assets tend to rise, at first in a localised and seemingly temporary fashion, but increasingly in a generalised and persistent fashion.
However, changes in the stance of monetary policy must not be viewed as an immediate reaction of monetary policy to the financial market crisis, but rather as a reaction to the expected effects of that crisis on economic growth and on inflation. This view also explains the apparent hesitation of some central banks to lower rates, in spite of the serious financial market turmoil. The precise way in which the financial market crisis will affect economic growth and inflation has not been obvious – and is still not obvious. Operational target and the stance of monetary policy The second lesson concerns the setting of the stance of monetary policy in times of financial turbulence. The financial market crisis led to a tightening of credit conditions and to higher risk premia, which is tantamount to a more restrictive monetary policy stance. In order to offset tighter credit conditions and higher risk premia, an adjustment of the policy rate may be appropriate. Such an adjustment is not necessarily synonymous with a more expansionary monetary policy and does not necessarily increase inflation risks. The concept of the Swiss National Bank implicitly takes into account changes in certain risk premia: by steering and stabilising the 3-month Libor, which includes a risk premium, the SNB is constantly adjusting the repo rate in order to offset changes in the risk premium. 8  The report on “Enhancing Market and Institutional Resilience” by the Financial Stability Forum (2008) presents an extensive list of lessons from the financial crisis.

Let me reassure you, despite the weak labor market conditions that have prevailed since the Great Recession, the benefits of a college degree remain significant. Research we have undertaken at the New York Fed clearly shows that young people with a college degree are more likely to have a job and they tend to earn higher wages than those without degrees – and this is true even for those who may be underemployed initially when they first enter the labor market after graduation. In fact, our research finds that to some extent, it has always proved challenging for college graduates to transition into the labor market, even during economic expansions, but as time passes, and the graduate’s experience grows, the transition generally gets accomplished successfully. Although it is true that the labor market has been more difficult for college graduates in recent years, I am confident that most will find work and transition into higher-skilled jobs as they gain experience and as the labor market improves. Thank you for your kind attention and I will now be happy to take some questions. BIS central bankers’ speeches  5