samchain/econo-pairs-v1 huggingface dataset:
12  This judgment was adjusted down from around 2% in June 2018, reflecting revised estimates of the effective lower bound for Bank Rate. See https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-summary-and-minutes/2018/june-2018.pdf 7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  Chart 7: Market-implied start date for QT  Source: Bloomberg and Bank calculations Note: Grey areas indicate where the forward OIS curve never reaches a level consistent with MPC guidance on QT. Waiting for the exit: (b) Delivering our policy goals in the early phase of QT  Our job on the Bank executive is not to decide when to start QT, but to be ready to execute it when asked to do so, and in a way that ensures that the Bank balance sheet continues to deliver all of our objectives. Specifically, that means that we must be able to: maintain control of short-term interest rates; keep the balance sheet flexible enough to meet the financial stability needs of the system (whether through liquidity insurance or opening up the balance sheet to new participants as the financial sector evolves); and remain ready to implement unconventional monetary expansion if the economy were to deteriorate. Just as QE increased the quantity of central bank reserves, QT will reduce it. In the early stages of QT, whilst reserves are still plentiful, the Bank’s policy goals are likely to be best met by maintaining the current floor system. But a floor only works when there is a sufficient supply of reserves.

It is against this background that financial sector supervision should also be directed at financial institutions that pose the greatest risks, such as, non-bank financial institutions. In this regard, the adoption of the risk-based approach allows the supervisor to devote more supervisory effort to those areas that have a high-risk profile. This therefore, entails that supervisory authorities should shift their focus from the traditional Capital, Assets, Management, Earnings, Liquidity, and interest rate Sensitivity (CAMELS) approach to a more risk-based approach. A risk-based supervisory approach would involve the identification of key risks, the level of these risks and the key risk areas. After identifying these risk factors, a comprehensive supervisory framework with appropriate resources is then assembled to mitigate the risks. The amount of resources required is dependent on the level and intensity of the perceived risk. However, suffice to mention that this does not mean that the risk-based supervisory approach ignores the strengths of the CAMELS approach, but rather addresses the weaknesses by putting more emphasis and resources on areas with potentially higher risk. Ladies and Gentlemen As many of us are aware, financial sector operations have become complex nowadays, as they entail, among others, managing financial, market and operational risks, which depend, to a large extent, on public confidence in the financial system. In this regard, proper supervision is critical to minimising risks as well as ensuring the stability of the financial sector and engendering public confidence.
A survey in 2011 asked about the meaning of the words “inflation” and “GDP”, the two central concepts in macroeconomics. Only 16% of the public could clearly define inflation, while only 10% could define GDP. Other surveys have reached similar conclusions, sometimes with slightly higher fractions. 3  4  This unfamiliarity with economic concepts extends to a lack of understanding of these concepts in practice. For example, the Bank of England regularly surveys the general public to gauge their views on inflation. When given a small number of options, less than a quarter of the public typically identify the correct range within which the current inflation rate lies. More than 40% simply say that they do not know. 5  If we turn from economics to finance, the picture is no better. In a recent survey, the UK’s Financial Conduct Authority (FCA) found that almost half the public believed they had “low knowledge” of financial matters. 6  7  Some surveys put the fraction of the public who are financially capable at only around 60%. Fully two-thirds 8  of the public say they are confused when making decisions about money. And the UK consistently performs poorly in international league tables of financial literacy. 9  This understanding deficit appears to extend to economic and financial policy. For example, fewer than one in ten people know that the interest rate in the UK is set by the Bank’s Monetary Policy Committee (MPC). Only around a quarter understand “quantitative easing” and fewer still “forward guidance”.

Then you will have the best possible guarantee to reap the full benefits of monetary union. Thank you. BIS Review 53/2003  3  Fig. 1 (forecasts) selected acceding countries 20022004 0,0 -1,0 -2,0 -3,0 -4,0 -5,0 -6,0 -7,0 -8,0 -9,0 -10,0 2002 2003* 2004* Poland * according to budget draft for 2004  2002 2003 2004 Czech Republic public sector deficit  2002 2003 2004 Hungary  2002 2003 2004 Slovakia  cyclically adjusted deficit Source: Pre-accession Economic Programmes 2003 update  4  BIS Review 53/2003
At present we worry that democracy is threatened by the ease at  34  The International Fact Checking Network’s code of principles includes a commitment to non-partisanship, transparency, openness about funding sources, methodology and honest corrections. See www.poynter.org/fact-checkers-code-of-principles. 35 See for example Copeland, P (2016) How to Make Media Literacy Popular, The Legatum Institute 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  which disinformation about civic issues is allowed to spread and flourish.”  36  In a world where information is  plentiful, the future of education will be about critical thinking and creating citizens with an ability to learn and make judgements. 4. Listen to the other side Humans are prone to “groupish righteousness” argues Jonathan Haidt in a thoughtful book about how 37  people come to moral judgments about important issues. Social media exacerbates this tendency by providing the ability to communicate exclusively among the like-minded and with the shrillness enabled by anonymity. But we can all make an effort to engage with views that are different from our own and resist 38  algorithmic channeling into an echo chamber . Perhaps there could even be algorithms that enable such bubble bursting? At the end of the day, even when all of the facts are truthfully established, differences of opinion can legitimately exist, even amongst experts.

17  Young people are particularly reliant on social  media, with 28% of 18-24 year olds saying it is their main source of news, putting it ahead of television (Chart 1). Media has always been open to the criticism that it tells people what they want to hear rather than 18  the difficult truth . But the selection and delivery of news by algorithms which guess users’ preferences based on content they have previously read and liked would seem to dramatically increase the risk of living one’s life in an informational echo chamber. 14  Estimate by Harvard School of Public Health cited in Nichols, Thomas (2017), The Death of Expertise, Oxford: Oxford University Press. 15 Popper, Karl (1963) Conjectures and Refutations: The Growth of Scientific Knowledge, London: Routledge. 16 There have been several recent examples where the release of data and attempts to replicate results has fostered healthy debate. See for example Reinhoff and Rogoff (Growth in the Time of Debt, NBER Working Paper No. 15639) and Thomas Herndon, Michael Ash and Robert Pollin (Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff, Cambridge J Econ (2014) 38 (2): 257-279), and Picketty (Capital in the 21st Century, translated by Arthur Goldhammer, Harvard University Press) and Giles (‘Data problems with Capital in the 21st Century. See https://www.ft.com/content/9bb07a8f-11bc-366b-98bb-fb2d450f1189). 17 Newman, N., Fletcher, R., Levy, D.A., Nielsen, R.K. (2016) Reuters Institute digital news report 2016, Reuters Institute for the Study of Journalism.
This is all the more important in the context of the “originate and distribute” model given that the effectiveness of the risk transfer instruments on the basis of which the latter has developed requires sufficient liquidity both on the part of agents and markets. It is, incidentally, worth noting that the Committee of European Banking Supervisors (CEBS) and the Basel Committee are working on a revision of the current regulations regarding liquidity. Moreover, concerning risks incurred by some activities such as asset management, it appears necessary to gain a better insight into the transmission channels of these risks between activities carried out for banks’ own account and for third parties as well as the liquidity requirements generated by the latter. More generally, the methods used to assess and capture some risks such as reputational risk and strategic risk, notably in the context of Pillar 2, need to be developed. I would like to stress the very important role that Pillar 2 must play in improving banks’ management practices i) regarding new risks not covered by Pillar 1 and ii) in areas that supervisors deem, specifically, liable to become new sources of vulnerability. In practice, for some activities, there are still no universally accepted standards for risk management. This does not mean, however, that banks’ risk management  BIS Review 11/2008  5  processes in these activities are always sufficiently stringent, but rather that there is a wide range of instruments available for this purpose, each with its advantages and disadvantages.

For the G20 as a whole that is $ By eroding these costs, financial reform alone can therefore more than deliver the G20 commitment to raise GDP by more than 2%. The Basel Committee found these costs to be minimised only if risk-weighted bank capital ratios were raised above 15%.28 The Basel III requirements did not go this far, in part because they anticipated the additional requirements for loss absorbing capacity that G20 Leaders have just endorsed. Once implemented, the combined effects of the reforms will take the system much closer to the degree of safety needed to minimise the costs of financial crises. That authorities have reached this point in a measured way – allowing both equity and forms of debt to qualify as loss absorbing capacity – shows our sensitivity to the potential costs of greater safety. What are those costs? Three points are worth emphasising. First, the Basel Committee study judged that each 1% increase in capital ratios could reduce output by just 0.1% as higher bank funding costs were passed through to borrowers. However, even that small number seems an upper bound. It fails to take account of the fact that monetary policy can offset the impact of higher lending spreads on effective borrowing rates.29 In fact, the need to offset the impact of higher lending spreads is one reason why some advanced economy central banks, such as the Bank of England, are so clear now that interest rate increases, when they come, will be gradual and limited.
One particularly positive effect of this pattern of behaviour in the current situation is that the institutions’ practice of keeping credit risks on their own balance sheets has acted as a powerful incentive for them to ensure that their risk  BIS Review 134/2007  5  quality controls continue to work properly. Also, since the securitisation processes used by Spanish institutions have aimed to raise fresh funds rather than redistribute risks, instruments such as covered bonds or asset-backed bonds have been used, which are not very complex and are much easier to price than the structured products that have proliferated in other parts of the world. These sources of solidity should not lead us to overlook the danger that an excessive prolongation of the current bout of turbulence could ultimately have undesirable effects on investor confidence. These effects might extend above and beyond a desirable and healthy correction of abnormally low risk premiums and volatility levels, and substantially reduce the capacity of financial markets to offer useful yardsticks by which investors can discriminate the true credit quality of the different instruments. If this were to happen, the need for the Spanish economy to turn to the international markets to finance a large part of the investment spending of Spanish households and firms could become an obstacle to continued high buoyancy in the future.

I believe that the role played by the Banco de España in promoting this accumulation of provisions is well known, so I shall not dwell on this point. I will, however, point out that there are various idiosyncratic factors in the performance of Spanish institutions that have limited their exposure to the current shocks. I have already mentioned that in the euro area there is no equivalent to the US sub-prime mortgage market, an observation that applies fully to Spain. Rather, the credit quality of Spanish mortgages is high, as shown by the low doubtful assets ratio and the moderate levels of the average loanto-volume ratio and of the collateral required. Along these same lines, the weight of the assets linked to the sub-prime mortgages on institutions’ balance sheets is completely marginal, as is also their indirect exposure through any lines of credit granted to other financial intermediaries that may actually hold such assets. The fact is that intermediaries of this type have not proliferated in Spain’s financial system. One of the factors that has probably contributed most to preserving the quality of assets in the Spanish financial system is the persistence of a traditional banking model in which, unlike in other countries (especially the United States) in recent years, institutions have used asset securitisation mainly to fund the expansion of activity and not to transfer to third parties the risks associated with their loan portfolio.
We refer to this as the lack of a macroprudential perspective. 3 In general, we have not taken enough account of systemic risks; that is risk that can spread throughout the financial system. In a capital adequacy context, the lack of a macroprudential perspective is reflected in the fact that the banks have calculated their capital adequacy requirements on the basis of the risks to their own operations. They have thus ignored the negative external effects that banks may have on the system as a whole. This has led to a banking system with too high a level of risk and too small buffers in terms of capital and liquidity. It has also led to the risk of distorted market prices for risk, capital and liquidity. Another example is that the models that the banks have used to calculate their capital requirements for market risks systematically underestimate the risk of losses under stressed market conditions. As a result, the calculated capital adequacy requirements have been too low to enable the institutions concerned to manage the losses that occur in serious economic downturns, like the one we have just experienced. A third and closely-related example is that the banks have not held sufficient capital for the counterparty risks that they are exposed to in their derivatives trading. As financial assets, including derivatives, are accounted in accordance with the real value principle, changes in counterparty risks enter the banks’ balance sheets via their income statements.

In addition, the lowest permitted level for total Tier 1 capital is raised from four per cent to six per cent. Basel III also introduces a capital conservation buffer of 2.5 per cent, consisting of Core Tier 1 capital. This means that the banks should have a Core Tier 1 capital holding of at least seven per cent. If a bank falls below the seven per cent limit, its entitlement to pay dividends and to conduct share buy-backs will be restricted. The proportion of profits that must be retained within the bank increases the further below the seven per cent limit the bank goes. The idea behind this is to force the banks to accumulate their profits as capital instead of paying them as dividends to the shareholders. However, this will not affect Sweden, at least not directly. Swedish banks are well capitalised and have a quota for Core Tier 1 capital that is already above seven per cent. We will, however, see effects at the international level and, as we are highly affected by what happens abroad, Swedish banks and Sweden in general will also benefit from the fact that banks in other countries will become more resilient. Apart from the changes in levels, there are also stricter requirements regarding the quality of the capital held by the banks. As equity constitutes the difference between assets and liabilities on the balance sheet, both the size and quality of the capital will be highly affected by how a bank’s assets and liabilities are valued.
One which particularly exercises me is ensuring that we should always have the option of closing down a large firm in an orderly way, even if we need to use emergency liquidity assistance as a bridging loan to do so (rather than as a step towards keeping the firm open). Looking further ahead, it is clear that these interest groups should not remain inward-looking. In order for any preparations for crisis to be relevant, authorities will need to ensure that they are informed by firms’ plans and views – for example on their likely own actions in crisis, where they see their vulnerabilities in managing a problem, what they expect the authorities to do, and where arrangements could be improved. So the ongoing dialogue that the relevant authorities have with firms may well inform, and be informed by, the work of interest groups. What role could the FSF play in promoting these kinds of bilateral or small multilateral discussions and exercises on practical topics regarding specific firms and markets? As we all know, it is not the role of the FSF to manage cross-border crises. But my view is that the FSF does have a role in this area. To me it seems the ideal group to draw out the common messages and lessons that may emerge from these interest group discussions, and to establish a common framework for handling crises which will be of use both to its members and more widely. 4  4  http://www.bis.org/press/p021210.htm  BIS Review 112/2006

In that respect, I might mention, since we are in Stockholm and since I have drawn some parallel with the other Nordic Countries, that the Swedish krona fell in broadly similar proportions over a period of time after the exchange rate was floated in late 1992. The depreciation of the Icelandic króna fed into domestic prices and inflation picked up significantly. Late last year, the exchange rate had clearly overshot sharply on the downside. Then expectations turned around again. It was clear, among other things, that the economy was cooling down and that the current account deficit was shrinking fast. Optimism also arose once prospects improved that the inflation spike, which followed the exchange rate depreciation, would subside quickly again. The króna began to appreciate and has by now regained an important part of its earlier value. Inflation has subsided sharply again this year and expectations are that the inflation target of 2½ percent will be achieved before the end of the year. The large current account deficit recorded in the year 2000 also began to shrink rapidly, it fell by more than half in the year 2001 and the outlook is for approximate balance this year. These developments demonstrate the resilience and adaptability of the Icelandic economy; moving from a very large current account deficit to virtual balance in the course of two years and reducing inflation from bordering on a two-digit rate to 2½ percent within one year.
4  The measures incorporated into the Plan would reduce the average inflation rate in 2022 by between 0.5 pp and 0.8 pp. This is a very important consideration that must steer the debate about what role the different economic policy instruments should play. In my view, given it is a common shock, the optimal response would be forceful pan-European action that mitigates, in the short term, the economic effects, particularly for the most vulnerable agents. Furthermore, in the medium term, this crisis stresses the need to boost Europe’s strategic autonomy in terms of both energy and defence. Indeed, joint European action, ideally through the pooling of budgetary resources, is once again the most effective means of funding the resulting increase in public expenditure. This common response should stave off a persistent deterioration in the economic outlook and, in tandem, eliminate a potential new source of financial fragmentation in Europe. As part of the RePowerEU initiative, the European Commission has proposed a plan to reduce the EU’s demand for Russian gas by 60% by the end of 2022. Spain has a key role to play here, given that it accounts for 25% of the EU’s regasification capacity. However, to fully exploit this capacity investment will be required in cross-border interconnections to eliminate the existing bottlenecks. In response to rising energy prices, under the plan options would also be explored to optimise the design of the electricity market in view of the foreseeable changes in the energy mix.

The measures included in this plan would have a positive impact of 0.2 pp on the average GDP growth rate. situation, use of the Next Generation EU (NGEU) funds and financing conditions that, while somewhat tighter than in previous quarters, remain favourable. Turning to the inflation forecasts, in step with the paths of the corresponding futures markets, the upward pressures of the energy component are expected to peak in the second quarter of 2022 and then decelerate. The inflation projections rest on two assumptions: (i) that, in line with the information from the EBAE, the pass-through of higher intermediate costs to final prices will only be relatively moderate (albeit more forceful than envisaged in the December projection exercise); and (ii) that the second-round effects will be limited, i.e. scant feedback effects between inflationary pressures on prices and wages. Inflationary pressures will be partly alleviated by the measures contained in the National Plan to respond to the economic and social consequences of the war in Ukraine.4 Furthermore, these projections do not yet include the possible changes in prices on the electricity market that are currently being negotiated in the European Union. Against this backdrop, the projections see inflation standing at 7.5% in 2022. It will then fall in 2023 to around 2%, thanks, above all, to the moderation of the energy component. Underlying inflation will not start to decline until end-2022, once the upward pressures on firms’ costs associated with energy prices and bottlenecks have corrected.