samchain/econo-pairs-v1 huggingface dataset:
It's perhaps less obvious that we cannot control the exchange rate. Many people think that we could weaken sterling against the euro quite simply by cutting our interest rate relative to the interest rate in the eurozone. But it's not as simple as that. The US has reduced its interest rate far more aggressively than the ECB over the past year or so, but the dollar is actually stronger against the euro than it was to begin with; and the same is true, to a lesser degree, of ourselves, here in the UK, with sterling also stronger against the euro (though weaker against the dollar) than it was a year ago. So there was nothing much - as I say - that we could have done directly to affect the weakness of the global economy and the resulting weakness of external demand on the UK. But what we were able to do - given that inflation was marginally below target - was to try to compensate for that external weakness by stimulating domestic demand here in the UK. The Bank sought to do this by cutting interest rates to buoy up consumer spending. And the Government has stepped up its own spending, which is helpful in the present international environment. Although we couldn't avoid an overall slowdown altogether we have managed to keep the UK economy as a whole moving forward despite the recession in the internationally-exposed sectors of manufacturing.

What I believe most people understand by this concept is a return to the standard operating mode of monetary policy, i.e. the withdrawal of the unconventional policy tools deployed during the crisis, which would entail a gradual increase in short-term interest rates and a gradual unwinding of bloated central bank balance sheets. The latter is by far the most challenging process, as the impact on global asset prices is a delicate issue, which not only requires good planning and favorable macroeconomic conditions, but is also bound to be lengthy. As regards the other element of policy normalisation – the increase in short-term interest rates –, while less controversial, it is by no means problem-free, considering its implications for financial stability. To quote the BIS Annual Report 2017, “policy normalisation presents unprecedented challenges, given the current high debt levels and unusual uncertainty”. The increase in short-term interest rates is an element of normalisation that also applies to the central banks that did not step out of the conventional framework – and this is the case in most Central, Eastern and South-Eastern European countries. Personally, I see normalisation as amounting ultimately to a return to real positive interest rates. I doubt, however, that this will be a swift process. In the case of Romania, the steps taken so far along the road to policy normalisation, were facilitated by two favourable developments in the banking sector.
On the prevention side, our primary goal as supervisors should be to reduce the risk of severe problems to the lowest possible level consistent with adequate provision of credit to the economy and a sense of two-way risk for banking institutions. Quite correctly, most of the Core Principles are aimed at the task of reducing the potential for systemic problems. However, it also is vitally important that when problems arise for an individual institution or a group of institutions, supervisors can provide guidance and supervisory action, as necessary, to resolve the situation. Thus, some Core Principles, especially those on supervisory enforcement and the safety net, address the operational role of supervisors and the institutional context in which they carry out that role. All of us have learned a lot about marketplace turmoil and systemic risk in the last year to 18 months. First, I will highlight some issues reflecting the close linkages between credit, liquidity and capital adequacy, both at the financial firm and the market level. Next, I will turn to lessons from earlier experiences with banking problems and show how prompt, but deliberate, BIS Review 86/1998  -2-  responses to credit problems can improve the health and liquidity of the banking system. I will conclude by talking about the work of the Basle Committee, both with respect to the immediate problems and the future agenda. II.

Finally, it is important throughout the process of restructuring a banking system that the general public does not have to fear for the loss of their life savings. A reliably funded deposit insurance mechanism, a central bank that can provide liquidity to solvent, viable banks and a wellfunctioning payments system are essential elements of the public sector safety net. The safety net’s true beneficiaries are not financial institutions, but the general public. IV. The Role of the Basle Committee What do I see as the near and medium-term role of the Basle Committee and this organization of banking supervisors? What should be our goals to meet before the next such conference, to take place in New York in the Year 2000? Let me begin by saying that the Core Principles lay out the major highway to effective banking supervision, but do not provide a detailed street plan. One important element of feedback we are receiving from the Core Principles Liaison Group, consisting of members of the Basle Committee and members of the emerging markets, along with more informal feedback, is the need to provide more detailed street plans. There are several ways to achieve that. BIS Review 86/1998  -8-  The first is to continue to elaborate on the Core Principles by producing papers on key topics to augment and update the Compendium. The Compendium is the set of relevant papers issued over the years by the Basle Committee which elaborate further on the Core Principles and provide the next level of detail.
The Committee has established a working group of supervisors, called the Accord Implementation Group, or “AIG,” that shares information on implementation efforts among Basel Committee member countries. The AIG works with other supervisors as well, including through the Core Principles Liaison Group, a group of supervisors from many other countries that shares views and exchanges information. By promoting the sharing of information on practical issues, the AIG’s discussions will help to foster greater consistency in the implementation and application of the new framework across countries. For example, thanks to the work of the AIG, the Committee has been able to publish its thinking on the implementation of the supervisory review process – Pillar 2 – and on home-host co-operation in implementation of the framework. Let me just come back to this latter point. Given the internationalisation of banking groups and their increased reliance on group-wide risk management, it is clear that the cross-border implementation of the framework is more complex than it was in 1988. The AIG has been actively discussing this issue, and in August 2003 the Committee published a set of principles to promote closer practical cooperation and information exchange among supervisors. The principles re-emphasise the traditional responsibilities of home and host supervisors, but also how those responsibilities will continue under the new framework on the basis of enhanced co-operation. More recently, at the beginning of May, the Committee published an elaboration of the principles.

This gives us a good evidence base to look at whether firms which benefited from a CCyB release lent more than firms not benefitting from such release, after controlling for other firm- and country-specific factors. The short answer, as the Basel Committee’s work found, is that they did. A regression analysis found a positive and statistically significant coefficient between buffer release and loan growth.13 The effect of the countercyclical buffer release in the UK: using pass-through rates What about the UK evidence? In the UK, the FPC cut the UK CCyB rate to zero in March 2020. It had been increased from 1 percent to 2 percent in December 2019 with firms having one year to implement the increase.14 All firms in the UK got some relief in capital requirements – but the amount of relief varies across firms, driven by their relative exposure to UK credit risk-weighted assets (RWAs).15 By exploiting this cross-sectional variation across firms, colleagues in the Bank16 have examined whether firms that got more benefit from the release maintained lower capital ratios and lent more following the cut to the CCyB, as compared to their peers. The findings, reported in Table 1, support this hypothesis. Firms with higher exposure to the UK CCyB ratecut increased CET1 ratios by less during the pandemic as compared to their peers, and this result is statistically significant.
Having recovered from its low in early 2003, Japan’s equity market also made a marked recovery. The increase in optimism with regard to the economy and the highly favourable earnings situation of companies were major contributing factors to the rise in equity prices in Europe and Japan. The Swiss equity market – as measured by the SPI – is now trading once again at its peak level of September 2000. Looking at the developments since 1995, it becomes apparent that the Swiss equity market has strengthened far more significantly than equivalent foreign markets (cf. graph 1). In the forex market, the dollar’s recovery continued, with the greenback benefiting from the cyclical interest rate lead in the US, which has made dollar investments in all maturities rather more attractive. A number of market analysts believe that the Homeland Investment Act, which offers tax breaks to US corporations if they repatriate their foreign earnings held abroad before the end of this fiscal year, has boosted the dollar. Despite the fact that in the second half of the year the US current account deficit climbed higher still – to over 6% of GDP – and thus reaching an all-time high, the global imbalances did not appear to destabilise the greenback. On the whole, however, the real exchange rates are trending very close to their long-term averages (cf. graph 2). Against the background of a robust global economy, commodity prices rose yet further, with oil and gold being in particularly strong demand.

Once the existing distribution reserve has been depleted, we will most likely have to reduce our profit distributions significantly. Cosa initiative The people’s initiative “National Bank profits for the Old Age and Survivors' Insurance Fund (AHV/AVS)” – better known as the Cosa initiative – proposes allocating the SNB’s profits which remain after deducting the CHF 1 billion for the cantons to the Old Age and Survivors’ Insurance Fund (AHV/AVS). An obligation of this kind would impact on the National Bank’s independence, putting it under political pressure to distribute higher profits, which in turn would only be possible were the SNB to expand the money supply, reduce the currency reserves or take greater risks. This would undermine the SNB’s credibility and freedom of action as well as compromise the stability of the Swiss franc. The National Bank’s most important task is to conduct monetary policy geared towards price stability. In order to do this, we have to be able to take monetary policy decisions – even in difficult situations – without political pressure or the obligation to generate a return. 2  BIS Review 86/2005  BIS Review 86/2005  3
To emerge from an uncertain world with confidence, people and businesses need a fixed point by which to navigate. Once identified, everyone can then play a role supporting the strategy to get us to our destination. That strategy must be grounded in the bedrock of the UK’s existing macro policy institutions and frameworks. That means fiscal policy anchored in a clear commitment to long-run sustainability and buttressed by the independent Office for Budget Responsibility. And it means respecting the frameworks for the other major arms of macroeconomic policy as they are set out in statute and conducted by the Bank of England. The Bank has clear remits and can deploy a wide range of instruments. With its goals defined by Parliament, the Bank has operational independence. Its policy strategies and communications are decided by independent, expert committees whose members are individually accountable to Parliament for their analysis and policy actions. The Bank conducts policy consistently, transparently and accountably. Its policy committees are straight with the British public about the risks and trade-offs in the pursuit of our objectives. This institutional framework is critical to reduce uncertainty and essential to promote prosperity. With this backdrop, let me now describe the concrete steps the Bank has taken to address uncertainty and how we can be expected to act in the weeks and months ahead. 3.1  Financial policy  Let me begin with financial policy.

B. Lee (2011), “Time-varying rare disaster risk and stock returns”, Journal of Financial Economics 101 (2). 4  These include demographics, inequality, lower public investment, saving in emerging markets, higher credit spreads, cheaper capital goods, and lower trend growth. See Rachel, L and Smith, T (2015), “Secular drivers of the global real interest rate”, Bank of England Staff Working Paper. 2  BIS central bankers’ speeches  automation of jobs and of trade for their location; and the consequences of bigger, more global markets for “winner takes all” patterns of compensation. These secular trends can be reinforced by more cyclical moves (Chart 2).5 Cyclical economic uncertainty spiked during the crisis, remained very subdued until last autumn, and has since been on the rise. The last of the uncertainty trinity is policy uncertainty.6 It is reduced when there are clear policy remits, frameworks, and institutional structures that empower and discipline fiscal, monetary and regulatory authorities. It is elevated when these are absent. And it is influenced by the effectiveness of the tools available to central banks, the clarity of their policy strategies and, crucially, the transparency of their communications. Chart 2 UK economic uncertainty spiked after the failure of Lehman Brothers  Source: Bank calculations and Haddow et al (ibid.). Shows data to end-May. In recent years, policy uncertainty has increased globally. In some jurisdictions, fiscal frameworks have been questioned; in others, exchange rate regimes. And with very low interest rates and expanding unconventional policies, the efficacy of monetary policy itself has been questioned.
Let me add a final comment to this important issue. It is clear to me that we could also do more, beyond the strict solvency standards, and study how other regulations, such as those related to provisioning, can contribute to reducing pro-cyclicality. 8  BIS Review 8/2005  7. Basel II impact on global competition. Another broad concern that the Committee has worked to address is Basel II’s impact on global competition. In particular, some have asked whether banks that choose Basel II’s advanced approaches will enjoy benefits over those that choose simpler approaches or remain on the 1988 Accord. Basel II reflects also the existing diversity of banks and jurisdictions and the sense that no singlepolicy approach, and no single hard-and-fast rule, could be applied to all banks of all shapes and sizes. Consequently, the Basel Committee sought something bolder than a single, universal rule. The so called “menu approach” of Basel II offers different alternatives to different kinds of banks and jurisdictions, but in developing this approach significant efforts were made to ensure that the level playing field is maintained. We should understand that adopting an advanced approach requires significant investments and does not automatically reduce a bank’s capital requirements. In a more risk-sensitive capital framework, capital requirements for an advanced bank may actually rise relative to the current rules if the bank’s exposures are actually riskier than the measures under the 1988 Accord would have suggested.

At the same time, the interest rate on a 5-year mortgage fell from just over 11 to around 5 per cent. This led to interest expenditure for home-owners declining substantially and pushing down CPI inflation. With the aid of the CPIX measure the Riksbank could show that the low inflation was largely the result of its own earlier interest rate cuts. Demanding that the interest rate should be cut further because inflation was so low, as some people did, was thus unreasonable. It would mean that monetary policy was “chasing its own tail”, as it was expressed then. Strict two-year rule and the CPIX The CPIX measure was particularly important during the period when the Riksbank communicated its policy with the aid of a simple policy rule. This rule meant that if the forecast for inflation deviated from the target one to two years ahead, given an unchanged repo rate, the interest rate would be changed. From the point of view of communication the rule worked well for a long time. But the focus on the inflation forecast exactly two years ahead which this in practice led to was not without problems. The CPI forecast often deviated from the inflation target two years ahead, not least because of the direct effects on household interest expenditure of our own policy. But as the effects were expected to subside just beyond the two-year horizon, there was no reason to change the interest rate.
As Benoît Coeuré rightly stressed last July, more research is needed on what their expectations are, and how they form them. v Third, there is still much we do not know about how firms and households form expectations on future interest rates, and on how these expectations affect their spending decisions. We know that standard DSGE models tend to assume too much foresight from private agents. How to incorporate more realistic behavior is a central issue, especially when forecasting the effects of our new instruments such as forward guidance vi. To be sure, some uncertainty over the response of the economy to our policies will always remain, especially when firms and households are themselves still learning how our new measures affect the economy, and how to live with very low or negative interest rates. vii  Page 5 sur 11 A last topic deserves, I believe, particular attention: the possible side-effects of our  monetary  tools  on  financial  stability,  especially  the  effects  of  unconventional monetary policies. 2. Monetary Policy and Financial Stability 2.1  Prudential Policies and Monetary Policy are Complements not Substitutes  To address concerns over financial stability, regulation and supervision, both microprudential and macroprudential, are of course available and essential. On financial regulation, ten years after the financial crisis, we must resist the temptation to unpick what has been done, and the complacency to believe that “this time is different”. Macroprudential policy is essential to foster financial stability. However, macroprudential policies have their limits.

It is now up to other policy makers to do theirs, starting with the fiscal authorities. As Mario Draghi pointed out yesterday in front of the European parliament, “We need a coherent economic strategy in the euro area that complements and enhances the effectiveness of monetary policy”. 1.2  Specific Challenges for Monetary Policy  Page 4 sur 11 This is not however a call for self-congratulation: we have to do our homework on some renewed research questions, where we cannot live with our old metrics and our present lack of knowledge. For that, we need more than ever your research and our dialogue. First, the measurement of key structural determinants remains surrounded with uncertainty. I mentioned the uncertainty surrounding the trend in R*. But similar uncertainty pertains to the measurement of potential output and the natural level of unemployment U* iv. We should also intensively work on the economic effects of climate change as a long-term but significant shock, and its interaction with monetary policy. How to best measure inflation expectations is a second key issue. We know that expectations are key determinants of inflation, but it remains unclear what the most relevant measures of inflation expectations are. Expectations of professional forecasters (at 1,7 %) and market-based measures (at 1,3 %) have received most of the attention until now, but the expectations of firms as well as households – which can be significantly higher – matter at least as much for aggregate demand and price-setting.
Fraud, unethical practices, and monopolistic and unfair practices would, if left unchecked, adversely affect public opinion and confidence in the banking system, with consequences on the financial performance of individual institutions. Indeed, in order to preserve corporate reputation and sustain public confidence, banking institutions must be sensitive to the impact of their policies and practices on their customers and other stakeholders. It is, therefore, in the interest of the industry to collectively ensure that public confidence in the system is maintained at all times. BIS Review 10/2005  3  Ladies and Gentlemen, The recent issue on the fees and charges imposed by the banking institutions received significant attention by the public. Bank Negara Malaysia's policy has been to gradually deregulate the rules on fees and charges, as a way to drive improvement in the performance of banking institutions and promote innovation. Nevertheless, the flexibility given needs to be judiciously enforced so as not to result in any erosion of public confidence in the banking sector. To protect consumer interest, Bank Negara Malaysia will balance the competing expectations of banking institutions and consumers. While it is recognised that enhancements to products and delivery channels involve substantial investments, any realignment to the pricing structures on products and services need to be supported by the adequate costing and justification that also takes into account cost savings. More importantly, it must be accompanied by improvements in service quality.

However, today I would like to return instead to the subject of liquidity regulation. 1  One important pre-requisite is that the authorities have access to up-to-date and accurate information about financial firms, on which they can base shared assessments of the position of individual firms and the likelihood of a crisis affecting the financial system as a whole. The information needed includes, inter alia, a firm’s group structure, capital, liquidity asset holdings, large exposures, and its involvement in markets and in payment, clearing and settlement systems. This information can be collectively thought of as a ‘Fact Book’ on a firm. In some countries much of this information is already available. The FSA recently published a paper outlining the information that the UK authorities collectively deem it necessary to have in a financial crisis, and asking for firms’ cooperation in making available a limited amount of additional information that is not already collected on a routine basis. 4  BIS Review 79/2005  The potential willingness of the authorities to supply discretionary—as opposed to routine—liquidity in a crisis is likely to give rise to moral hazard, because in the real world, faced with incomplete information, it is difficult or impossible to identify ex ante a ‘pure’ liquidity crisis. By, for example, relaxing normal criteria on collateral quality authorities may move from the injection of liquidity to what is effectively the provision of risk capital.