samchain/econo-pairs-v1 huggingface dataset:
A Transition in Thinking and Action  Remarks given by Mark Carney, Governor of the Bank of England  International Climate Risk Conference for Supervisors, De Nederlandsche Bank, Amsterdam 6 April 2018  I am grateful to Alice Carr, Edd Denbee, Tanveer Hussain, Carsten Jung, Krish Kistnassamy, Alex Michie, Alex Ntelekos, Dimitris Papachristou and Matt Scott for their assistance in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  It is a great pleasure to be here in Amsterdam, at the International Climate Risk Conference for Supervisors, jointly organised by the De Nederlandsche Bank, the Banque de France and the Bank of England. In my remarks, I will take stock of the progress made in addressing climate-related financial risks since the Paris Agreement of late 2015. In particular, I will consider how far there has been a transition in thinking and action. As we’ve heard today, the thinking has coalesced around three channels through which climate risk affects financial stability: -  the physical risks that arise from the increased frequency and severity of climate- and weatherrelated events that damage property and disrupt trade;  -  the liability risks stemming from parties who have suffered loss from the effects of climate change seeking compensation from those they hold responsible; and  -  the transition risks that can arise through a sudden and disorderly adjustment to a low carbon economy. The last risk is the most challenging.

Overall, the improvement in banks’ funding situation, has not led to increased lending to the non-financial private sector, which has declined in recent months. Admittedly, part of this weakness is due to low demand factors. And here also, some fragmentation can be observed. Among countries: credit distribution is more active in Germany or France than in Italy or Spain. And among borrowers: big corporates can issue at very favourable rates while at the same time, too many SMEs are deprived of necessary financing. This divergence is a source of concern, especially since, in our economies, SMEs play a dominant role in fostering innovation and employment. This situation may not reflect a weakness specific to the euro area. In all advanced economies, banks are engaged in a process of balance sheet repair and deleveraging. Recent numbers show major advances for European banks in their efforts to strengthen their capital base, in line with Basel III requirements and, in particular for big international banks, quite comparable to capital strengthening in US banks (when differences in accounting standards are neutralized). To put it simply, in the euro area, banks are responsible for 80% of total financial intermediation, twice as much as in the US. Consequently, the impact is much stronger on the real economy. What can central banks do? Our actions are guided by the following elements. Inflation is firmly under control. Policy rates are very low. In practice, most central banks today are operating close to the zero lower bound.
The New York Fed has hosted a series of informal meetings in New York bringing together banks, securities firms, settlement systems, insurance companies and regulators to help each understand better the perspectives of others around the table. The New York Fed also is participating in joint efforts with several industry associations that focus on Year 2000 contingency planning and on testing. For these two issues, in particular, it is critical that an active dialogue be established between the public and private sectors. The final element of cooperation needed for an effective approach to Year 2000 is cross-industry cooperation. Most financial market participants are not accustomed to gathering extensive information from other industries, such as the telecommunications industry. Yet financial firms, among others, depend critically on the proper functioning of sectors such as transportation, electric power generation, and government services. In the absence of cooperation and coordination, the lack of information flowing across sectors can create serious obstacles to achieving successful Year 2000 outcomes. Errors of omission in coordinating your efforts broadly can be far more significant than you might realize. Based on our experience in the United States, the creation of a government body to assist in coordinating preparations can play an important role. In the United States, the President’s Council on the Year 2000 Conversion has been active in promoting cross-industry discussions and tracking the progress of different industries. Governments in other countries such as Australia, Italy, Japan, Mexico, Saudi Arabia and the United Kingdom have also implemented national Year 2000 strategies.

I believe that the Association would be the first to admit that the amount of work required to pull this off has been staggering. As time grows ever shorter, such industry-wide tests may prove impractical for some markets. Many market participants are also considering the role of proxy testing, in which the tests are conducted by a third party, such as a user group, rather than by each institution for itself. Needless to say, there is some risk in such an approach. However, proxy testing may be appropriate where it is not practical for every user of a service to conduct point-to-point testing with every other user. In terms of advice, Year 2000 testing obviously is critical, but each market must consider what is achievable in the time that remains. Internal testing is the most critical, and no institution should be allowed to go forward with a Year 2000 plan that does not allot ample time for internal testing. External testing also is important, and payment and settlement systems in particular should make external test facilities available to participants. The degree of elaborate external testing that can be achieved will then be a function of the time available to adequately plan for such a test. It simply does not make sense to devote considerable resources to a test plan that is not likely to be realized. A key goal of testing programs is to build confidence that systems will work as expected on January 3, 2000.
It needs to be enough to withstand extreme but plausible events for long enough to allow an assessment of whether the firm can be rescued as a going concern – or whether changes in the external world have holed the business model below the water line: no amount of capital can keep a broken business model afloat for ever. Rather, capital is like the bulkheads in the sinking ship: they don’t necessarily need to hold back the water forever, but must slow down its ingress for long enough to get the passengers and crew safely into the lifeboats. How long the defences are needed depends on the design of the ship – where are the lifeboats, are they clearly signposted, how many stairwells are there from the lower decks, and so on. So ease of exit is a crucial factor in capital adequacy too: how confident are we that policyholders can be protected in a worst case scenario, i.e. that if the firm is closed to new business the run off will be a solvent one. Do existing concentrations get worse or new ones arise during run off? Do new liabilities or exposures appear e.g. through higher collateral requirements or even forced close out by derivatives counterparties? The less confident we are that the firm can exit in an orderly way, the more remote we need to make the prospect of failure and the larger the cushion of financial resources we will need to see at the point of intervention.

On the basis of current oil futures prices, which are well below the level observed a few weeks ago, the expected path of annual HICP inflation in 2016 is now significantly lower compared with the outlook in early December. Inflation rates are currently expected to remain at very low or negative levels in the coming months and to pick up only later in 2016. Thereafter, supported by our monetary policy measures and the expected economic recovery, inflation rates should continue to recover, but risks of second-round effects should be monitored closely. A more comprehensive picture of the impact of oil prices and other external and domestic factors on the outlook for HICP inflation will become available in the March 2016 ECB staff macroeconomic projections, which will also cover the year 2018. Turning to the monetary analysis, recent data confirm solid growth in broad money (M3), with the annual rate of growth of M3 standing at 5.1% in November 2015, after 5.3% in October. Annual growth in M3 continues to be mainly supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 11.2% in November, after 11.8% in October. Loan dynamics continued the path of gradual recovery observed since the beginning of 2014. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) increased to 0.9% in November 2015, up from 0.6% in October.
Bruno, V. and Shin, H. S. (2015a), “Cross-Border Banking and Global Liquidity”, Review of Economic Studies, Vol. 82(2), pp. 535–564. Bruno, V. and Shin, H. S. (2015b), “Capital flows and the risk-taking channel of monetary policy”, Journal of Monetary Economics, Vol. 71, pp. 119–132. Ca’ Zorzi, M. et al. (2019), “Monetary Policy and its Transmission in a Globalised World”, ECB discussion papers, forthcoming. Cetorelli, N. and Goldberg, L. (2012), “Banking Globalization and Monetary Transmission”, The Journal of Finance, Vol. 67(5), pp. 1811–1843. Chen, Q., Lombardi, M., Ross, A. and Zhu, F. (2017), “Global impact of US and euro area unconventional monetary policies: a comparison”, BIS Working Papers, No 610. Chen, Q., Filardo, A., He, D. and Zhu, F. (2016), “Financial crisis, US unconventional monetary 4/6  BIS central bankers' speeches  policy and international spillovers”, Journal of International Money and Finance, Vol. 67(C), pp. 62–81. Curcuru, S. E., De Pooter, M. and Eckerd, G. (2018), “Measuring Monetary Policy Spillovers between U.S. and German Bond Yields”, International Finance Discussion Papers, No 1226, Board of Governors of the Federal Reserve System. ECB (2019), “A bird’s-eye view of the resilience of the European banking system: results from the new macroprudential stress test framework”, Macroprudential Bulletin, March 2019, forthcoming. Ehrmann, M. and Fratzscher, M. (2005), “Equal Size, Equal Role? Interest Rate Interdependence between the Euro Area and the United States”, The Economic Journal, Vol. 115(506), pp. 928– 948. Farhi, E. and Maggiori, M. (2018), “A Model of the International Monetary System”, The Quarterly Journal of Economics, Vol. 133(1), pp. 295–355.

We already did the same successfully under the SMP, which has now come to an end. Barely a year after the announcement of OMTs, the positive effects are obvious, and this development has certainly also been enabled by the reform efforts as a whole. First, banks and firms regained access to the capital market. Second, the spread between the yields on Spanish and German ten-year government bonds fell from more than 6 percentage points in July 2012 to just under 3 percentage points in May 2013. At the same time, the premium on Italian bond yields was halved, down from more than 5 percentage points. One further sign of the normalisation of developments – one that is important for German savers – is the fact that yields on German government bonds increased by around one-quarter of a percentage point over the same period. Third, TARGET balances – which are an important indicator of fragmentation within the euro area – have declined noticeably. They are down by € billion – around 25% – compared with their peak in 2012, so they are now back at the level observed at the end of 2011. In conclusion, we can see that the announcement of OMTs significantly contributed to the stabilisation of the situation. Firms, banks and households throughout the euro area benefited from this measure. Destructive extreme scenarios were ruled out and the damaged transmission mechanism was, to a certain extent, repaired.
10  BIS Review 65/2009  Table 1 World growth (*) (annual change, percent) Average Average 90-99 00-05 World World at market nominal exchange rate United States Euro zone Japan China Rest of Asia Latin America Commodity exporters Trading partners  2007  2008 (e)  2009 (f) Report Jan.09  2010 (f)  Report Report May 09 Jan.09  Report May 09  2.9  3.8  5.2  3.2  1.2  T -1.2  3.3  T  2.1  2.4 3.1 2.2 1.5 10.0 5.5 2.7 2.7 3.0  2.9 2.5 1.9 1.6 9.4 4.8 3.0 3.1 3.1  3.8 2.0 2.7 2.4 13.0 5.9 5.7 3.2 5.0  2.2 1.1 0.9 -0.6 9.0 3.0 4.2 1.0 3.0  -0.3 -1.8 -1.9 -2.4 7.5 1.2 1.2 0.2 0.4  T -2.3 T -3.0 T -3.5 T -7.2 T 6.5 T -1.9 T -2.0 T -1.7 T -1.5  2.3 2.0 1.0 1.2 8.0 3.2 2.7 1.8 2.7  T T T T T T T T T  1.4 0.5 0.4 0.9 7.5 1.4 1.5 0.9 2.0  (*) Regional growth rates weighted by share in world GDP at PPP as published by the IMF's World Economic Outlook (WEO, April 2009). (e) Estimate; (f) Projection. Source: Central Bank of Chile based on a sample of investment banks, Consensus Forecasts and International Monetary Fund.

Figure 8 Contribution to annual GDP growth (1) (real annual change; percentage points) 16  16  12  12  8  8  4  4  0  0  -4  -4  -8  -8  -12  97  98  99  00  01  02  03  04  05  06  07  08  Net exports (2)  Private consumption  Gov't consumption  Change in inventories  GFCF  GDP  09  -12  (1) GDP of first quarter of 2009 corresponds to averaged published Imacecs. (2) Exports of goods and services minus imports of goods and services. Source: Central Bank of Chile.
That complexity externality is currently largely unrecognised and un-priced by regulatory rules. Indeed, under the current Basel rules intra-financial system exposures carry a much lower capital charge than exposures outside the financial sector. 26 From a system-wide complexity perspective, this may be the wrong relative risk-ranking. (e)  Structural change  Over the past 30 years or so, the regulatory direction of travel has been towards pricing risk in the financial system, rather than prohibiting or restricting it. In the language of Weitzman, regulators have pursued price over quantity-based regulation (Weitzman (1974)). That makes sense when optimising in a risky world. It may make less sense when optimising in an uncertain world. Quantity-based restrictions may be more robust to mis-calibration. Simple, quantity-based restrictions are the equivalent of a regulatory commandment: “Thou shalt not”. These are likely to be less fallible than: “Thou shalt provided the internal model is correct”. That is one reason why Glass-Steagall lasted for 60 years longer than Basel II. Quantity-based regulatory solutions have gained currency during the course of the crisis. In the US, the Volcker rule is a quantity-based regulatory commandment: “Thou shalt not engage in proprietary trading”. In the UK, the Independent (“Vickers”) Commission on Banking has also proposed structural, quantity-based reforms: “Thou shalt not co-mingle retail deposit-taking and investment banking”. Yet even these notionally simple, structural proposals run some risk of backdoor complexity. For example, the consultation document accompanying Volcker already runs to 298 pages.

The use of this type of extreme scenarios, which are plausible but have a relatively low probability of occurring, is an integral characteristic of the main international stress tests and is consistent with the goals of prudential regulation which require that banks have sufficient capital to absorb unexpected losses. The adverse scenario simulates a further increase in energy prices and a greater impact of bottlenecks on global trade. This drives up inflation and, consequently, accelerates the monetary policy response. It also entails a worsening of financial conditions.31 Under the severe scenario, the price shocks are slightly more significant than under the adverse one, but the main difference is the inclusion of a more marked worsening of households’ and firms’ confidence, which causes further falls in the main domestic demand variables (consumption and investment).32 The adverse scenarios for the foreign economies that are important to Spanish banks are calibrated so that their severity is consistent with the impact of the shocks on the Spanish economy. These scenarios thus enable a rigorous analysis of the banking sector’s resilience to the risks deriving from the current geopolitical setting. 31  Specifically, further increases in the sovereign risk premium and the spreads in bank lending to households and firms, and a decrease in the value of the assets that make up household wealth, with substantial falls in stock prices and house prices.
Regarding the tighter liquidity requirements (modeled as a 25% increase in the holding of liquid assets, combined with an extension of the maturity of banks’ wholesale liabilities) MAG’s estimations point to a median increase in lending spreads of 14 basis points and a fall in lending volumes of 3.2% after four and a half years. This is estimated to be associated with a median decline in GDP in the order of 0.08% relative to the baseline trend. An IMF study dating as of February 2012, reports similar results to MAG’s research, finding that in the absence of any monetary policy response, a permanent synchronized global increase in capital requirements for all banks by  1  For instance the EBA requirements and the Volcker Rule, within the Dodd-Frank Law in US. 2  Banco Bilbao Vizcaya Argentaria. 4  BIS central bankers’ speeches  1 percentage point would cause a peak reduction in GDP of around 0.5 percentage points, of which around 0.1 percentage point would result from international spillovers. Their findings show somewhat higher losses in EMEs as compared to AEs (0.74 percentage point loss in GDP in EMEs as compared to 0.46 percentage points in AEs) due to higher estimated spillover effects. The third point of transmission relates to development of financial markets EE’s. The development of deep domestic financial markets can improve the economy’s ability to absorb shocks and manage financial risks.

And as the EE’s are currently the main engine of growth in the world economy, and the economic prospects of the advanced world are highly conditioned on the economic health of emerging countries, it appears that this is a question of a mutual interest. Improving the home-host cooperation to avoid conflicts of interest between home and host supervisors may also help in mitigating the possible adverse effects. What I have talked above, for sure does not exhaust all the issues, but I think it gives a map of the main points which are being heavily discussed, as they can possibly impair the financial and economic prospects of the EE’s. By now, many shortcomings of the reforms have been identified, and efforts for addressing some of them have already been made. But, the timeline of the financial regulatory changes is rather long. Hence, a continuous discussion on the characteristics of the proposed financial reforms is of a great importance. Discussions and forums in this area can help for a timely identification and removal of the possible weaknesses that can easily evolve into causes of a next (global) financial crisis. 6  BIS central bankers’ speeches
London, of course, has much of the European economy in addition to the United Kingdom economy. Hong Kong has the Mainland of China, the third largest trading partner, the fourth largest economy, the largest foreign reserve holder and home to participants in the key financial markets that collectively form the largest player in the world. The second point I wish to make is that, under "One Country, Two Systems", there are two financial systems in China, both in a position to serve the interests of the country in the allimportant function of financial intermediation. This is unique and there are no relevant precedents in the financial history of the world. Because of the uniqueness of this arrangement, there is understandably considerable scepticism both internationally and within China on how it might work. Let me tell you. The two financial systems are different in a variety of ways, with the financial system on the Mainland operating in the developing environment of a socialist market economy and the one in Hong Kong operating in the familiar environment of a capitalist free market economy. We all know that where there are  BIS Review 58/2008  1  differences, there are opportunities for exploiting relative strengths, addressing relative weaknesses and maximising synergies between the two systems, remembering always the national interest of making financial intermediation more efficient for the country as a whole. In other words, there is a need to develop a complementary, mutually-assisting and interactive relationship between the two financial systems.

In 2014, payment cards were used for more than 47 billion transactions in the European Union, that is to say a level almost identical to the overall combined number of transactions involving credit transfers and direct debits, respectively the second and third most used payment instruments. In France, payment cards were used in more than 50% of all non-cash payments transactions, amounting to nearly 9.5 billion operations in 2014, compared to only 3 billion transactions in 2001. The specificity of card payments is that they occur for transactions of a relatively small amount € in average in France), making it the strongest alternative to cash for proximity payments. This situation is the result of years of efforts made by market stakeholders to build a secure, efficient and convenient payment instrument. The French community was at the forefront of such evolution with the early adoption in 1992 of chip for payment cards, which has been followed by the introduction and the subsequent widespread adoption of the EMV standard. This latter evolution has been the cornerstone of the uptake of payment cards by allowing fast and secure transactions through Europe. This predominance of payment cards may nonetheless be at stake nowadays, with the conjunction of three main trends that have a disruptive effect on the market: new solutions, new behaviors and players, new regulations. First, innovative payment solutions based on SEPA schemes are very likely to emerge.