samchain/econo-pairs-v1 huggingface dataset:
First, conducting monetary policy based on the view that potential is permanently lower – without clear evidence that this is the case – could prove self-fulfilling and costly. The evidence increasingly shows that destroying demand also affects supply. Research on recessions over the last fifty years has found that deep contractions – including those driven by monetary policy – lead to long-lasting effects on real GDP compared to the pre-contraction trend. [20] This suggests that current macroeconomic policies should be designed to avoid unnecessarily heightening the risk that the increasingly likely contraction in coming months becomes a severe and protracted one, which would scar the economy. This requires that energy and fiscal policies remain targeted and contribute to dampen inflationary pressures, helping to keep inflation expectations anchored while preserving productive capacity. But it also requires that monetary policy does not ignore the risks of overtightening. [21] If we were to compress demand in an excessive and persistent manner, we would face the risk of also pushing output permanently below trend, irrespective of whether the initial shocks were temporary or not (that is, even if a harsh policy reaction was unnecessary). And that could not be easily reversed by subsequent policy easing, not least because expansions do not rebuild supply nearly as much as contractions destroy it. [22] Second, even if we were to conclude that supply shocks will lower potential durably, we would still need to examine their effects on demand before deciding our policy stance.

Companies report a decline in production, employment and orders for both the export and domestic market. Many companies have moved abroad or are planning to move all or parts of their production out of Norway. In recent years, the shipbuilding and engineering industries have sustained the activity level in Norwegian manufacturing. Shipyards experienced a sharp increase in new orders before end-2000 prior to the elimination of support to the shipbuilding industry in Norway and many European countries. The level of new orders has since then been very low, and the order backlog is nearly exhausted. A sharp increase in petroleum investment could provide positive growth impulses to the offshore-related industry. The demand impulses from petroleum investment to the mainland economy may, however, be weaker than has been the case earlier. Construction and installations with a high import content will account for a large share of the increase in investment from 2002 to 2003. Due to the high cost level in Norway, a growing number of contracts are also being awarded to foreign companies. At the same time, Norwegian shipyards are increasingly using foreign subcontractors in low-cost countries. This is having an impact on the Norwegian engineering industry. Many service industries have had to adjust capacity in pace with changes in operating parameters. Investment in service sectors has fallen sharply, and is expected to continue to fall. There is considerable excess capacity in the commercial building market.
That being said all central banks, in periods like this where you have inflationary threats that are coming from commodities, have to go through the hump and be very careful that there are no second-round effects. This is what we are doing. WSJ: When you hiked rates in 2008 there were signs of those second-round effects. Do you see evidence they are starting to take hold in Germany or elsewhere? TRICHET: At this stage, we do not see this. And everybody knows we would not let secondround effects materialize. We will continue to deliver price stability. WSJ: Could the ECB raise interest rates while still maintaining nonstandard measures including unlimited loans to banks? TRICHET: It is our doctrine since the beginning of the turbulence that interest rates on the one hand and non-standard measures on the other hand are decoupled. We design the monetary policy stance; we decide interest rates to deliver price stability in the medium term. Non-standard measures are there to help restoring a better functioning of monetary policy transmission. We are disconnecting both measures. We can move interest rates on the one hand, and we can move non-standard measures on the other hand independently. WSJ: Euro member states are working on comprehensive measures to address the debt crisis. What elements should be in that package? TRICHET: These decisions are the responsibility of governments. We have in particular a very strong message, which is that we need a “quantum leap” in the strengthening of governance of economic and fiscal policies.

WSJ: You have said bond purchases are meant to ensure the transmission of monetary policy. If EFSF buys bonds, wouldn’t that take a monetary function away from the ECB and give it to a fiscal authority? TRICHET: As all our non-standard measures, the securities purchase is indeed meant to help restoring a better transmission mechanism of our monetary policy. It is clear that if markets are functioning better more generally then we have less problems in the transmission of monetary policy. In any case, the main tool to improve the situation is to restore the credibility of individual governments themselves. WSJ: Should countries be able to borrow money from the EFSF for bank recapitalization without having to apply for a full bailout? TRICHET: These are the responsibilities of the governments. We are asking to demonstrate full responsibility for economic and financial stability through a quantum leap as regards the economic governance in the euro area, a quantum leap in conditionality and greater flexibility in their utilization of the mechanism. WSJ: You have said there is a sense of urgency to improve the EFSF. Governments appear to have put off any changes until March at the earliest. Do you think leaders are showing a sufficient sense of urgency? TRICHET: Since the beginning of the turbulence, I have said we needed to demonstrate – all of us, all authorities – a solid sense of direction, a sense of responsibility and the awareness of the necessity to be ahead of the curve and not behind the curve.
Many large financial firms have increased their attention to misconduct risk and cultural drivers in the wake of serious frauds and enforcement actions over the past several years. But, the degree of commitment and progress in these efforts has not been even across the industry and serious or persistent misconduct continues in some firms. So, why wouldn’t a firm do more? One can turn to traditional economic theory to offer an explanation for why a firm might underinvest in cultural capital. Firms may operate with levels of cultural capital beneath both the social optimum and even the private optimum due to different types of market failures. Today I will consider three well-known phenomenon— externalities, principal-agent problems, and adverse selection—that may explain why misconduct risk persists and why firms might underinvest in cultural capital relative to what might be socially optimal. Externalities Externalities are the impact that one actor has on other, unrelated actors. Externalities can drive a wedge between private and socially optimally outcomes and, from a supervisors’ perspective, lead firms to underinvest in their own resiliency by ignoring the broader impact of bad outcomes on the financial sector and the real economy. In other contexts like environmental policy, externalities such as pollution motivate government intervention.

But for an NCB member of the Eurosystem, the micro analyses have a particular importance within the European Credit Assessment Framework if it is recognised as an In-house Credit Assessment System. Those NCBs which run an ICAS (currently Austria, France, Germany and Spain) use balance sheet data for the assessment and prediction of default risk under a set of precisely defined conditions. The ICAS statute is demanding but it is worthwhile because it can play an important role for monetary policy operations. For this purpose, we need to rely on a good methodology, commonly agreed and depending to a large extent on an ability to deliver a sound and solid assessment of non-financial companies. This helps NCBs to fulfil one of their core functions, which is the refinancing of commercial banks and we experience that daily. On this very important subject – the ability to assess credit risk of non financial companies as offering a possibility to expand the amount of eligible collaterals – I took note that several NCBs are about to join the four present ICAS: this is a signal of the  BIS central bankers’ speeches  1  relevance of this mechanism to help the commercial banks to develop their loans and, hence, support economic growth.
This means an increase in provisions and a decline in bank profits during expansionary periods, just when credit risk expands the most. When the downturn arrived and expected losses turn into real losses, the impact of provisions on profits would be lower since a significant amount of the expected loss had been previously acknowledged. To the extent that the extra volatility of bank profits is the result of an insufficient recognition of expected losses, dynamic provisioning only restores part of the distortion created. From a prudential point of view, it is clear that dynamic provisioning limits dangerous capital erosions in times of plenty, requiring banks to provision expected losses and avoid paying out dividends (remember the insurance case). Some observers mention that there is no need for ex ante provisioning since future margin income is enough to cover expected losses. For supervisors, however, to rely on future margin income might be an overly adventurous stance. 6  BIS Review 35/2002  Let me expand more on this. First of all, experience has painfully shown us that the pricing of a loan is not always properly adjusted to the risk involved in the operation (even taking into account fees and future customer relationships). I have already talked about strong competition for market share or over-optimism. Secondly, even if the risk is properly priced, the proceeds from a high margin could have been paid out to shareholders by the time the impairment appears.

Therefore, the IOB has worked on developing two programs, namely, •  Personal Financial Planning Program. •  Wealth Management Program. These two programs have been designed according to the latest international scientific standards. They have been designed after the model of capabilities required in a successful and professional financial planner and wealth manager. A number of members of the training staff in the Institute of Banking have participated in this process, and experts have also been hired from prestigious universities and educational institutions outside the Kingdom. As a result of this model, more than ten programs in financial planning and four programs in wealth management have been carried out. The programs have been commended by Saudi banks. Dear Attendance, Management of investment operations requires specialists enjoying necessary knowledge, required skills, and professional conduct. The role of a financial advisor has gained more importance, and it should be practiced by qualified professionals who care, in the first place, for the interests of their customers who have put their confidence in them, and they should comply with the application of the policies of the supervisory authorities and financial institutions to which they belong. The importance of transparency and responsibility increases with the increase in investment awareness and competition among financial institutions. Here arises the evident need to develop standards and ethics of the profession and to implement such standards in a very professional and scientific integrity. Dear Graduates, The responsibility entrusted to you must be borne with professional enthusiasm and competence.
6 An alternative interpretation is that the true expectation of market participants is for Bank Rate to increase more quickly than that, but that they are particularly worried about downside risks and are happy to accept a lower expected return in exchange for insurance against bad outcomes. 7 This would be consistent with the risks to the world economy that have come to the fore over the past year as emerging economies grapple with the twin challenges of transitioning to slower potential output growth and lower commodity prices. Although the direct trade links between emerging economies and the UK are relatively small, the indirect effects of a more dramatic emerging market slowdown through confidence and financial channels could be significant. I suspect this latter interpretation is closer to the reality. Personally speaking, should the downside risks from the world economy fail to materialise, and absent further shocks, once wage growth has returned to a level consistent with inflation returning to target I would expect the economy to warrant a path for Bank Rate that increases more quickly than implied by the market yield curve used to condition the November Inflation Report. I think it is interesting to note that surveys of economic forecasters – a more direct measure of the expected future path of interest rates – show expectations for a faster pace of increases in Bank Rate. Having said that, I think all agents, and all members of the MPC, expect the future path to be gradual and limited. 3.

4  BIS central bankers’ speeches  have some effect within the first year. Comparisons between the US and the UK indicate that the transmission mechanism may be a bit quicker in the UK than in the US, perhaps reflecting the prevalence of longer term fixed rate mortgages in the US. However, these estimates are generally based on the experience of changing policy when rates are positive – relatively little is known about the transmission of negative interest rates which have only begun to be used quite recently in parts of Europe. As for QE, we can be confident that it was effective in reducing the severity of the impact of the financial crisis. For example analysis by Bank staff suggests that QE had a peak impact on the level of real GDP of around 2.5%, 8 and helped limit the long term impact of the recession on the economy. However, our knowledge of how QE affects the economy is based only on what we can learn from its use since 2009 – a much more limited sample than that available for changes in Bank Rate. And it may well be that were it used in different circumstances its effect could be quite different. In light of the uncertainty about the transmission of unconventional monetary policies, the MPC has expressed a preference to use Bank Rate as the marginal instrument for monetary policy when the time comes to tighten.
5  All speeches are available online at www.bankofengland.co.uk/speeches  5  In their current form, these innovations are simply a new front-end to the banking system where FinTech providers take a slice of customer revenue and loyalty but none of the associated risks. They have generally avoided undertaking traditional banking activities. So for now, absent a substantive change in business models or scale of activities, the FPC is unlikely to want to bring these firms into the regulatory perimeter. 11  The changes to customer relationships resulting from FinTech competition could, however, reduce customer loyalty and the stability of funding of incumbent banks. If this happens, the Bank of England would need to ensure prudential standards and resolution regimes for the affected banks are sufficiently robust to these risks. Figure 2: Financial Services Value Chain and Our Infrastructure  10  For an overview of the changes occurring further along the value chain see: “The promise of FinTech: something new under the sun?”, a speech given by Mark Carney on 25 January 2017, at the Deutsche Bundesbank G20 conference on “Digitising finance, financial inclusion and financial literacy”, Wiesbaden. Available at: http://www.bankofengland.co.uk/publications/Pages/speeches/2017/956.aspx 11 Were any FinTech providers to become systemic in their own right, they could be brought into the regulatory perimeter; this could be under the existing statutory framework for designating systemic financial market infrastructure (FMIs), for example.

For more information see: https://www.hyperledger.org/ 15 See FCA Discussion Paper on Distributed Ledger Technology (April 2017) at: https://www.fca.org.uk/publications/discussionpapers/dp17-3-discussion-paper-distributed-ledger-technology 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Figure 3: The Promise of FinTech  As it does, risks will evolve. Changes to customer loyalties could influence the stability of bank funding. New underwriting models could impact credit quality and even macroeconomic dynamics. New investing and risk management paradigms could affect market functioning. At the same time, the resilience of the system could also be built, through greater diversity in provision of financial services as well as increased redundancy. A host of applications could reduce costs, improve capital efficiency and strengthen operational resilience. The challenge for policymakers is to ensure that FinTech develops in a way that maximises the opportunities and minimises the risks for society. We are ideally positioned to realise FinTech’s promise in the UK. The Bank will work with the market and other authorities to build the hard and soft infrastructure the system needs to support innovation and growth, consistent with the City’s best traditions. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9
In other words, we should be trying to prevent banks getting into difficulties in the first place. This requires effective management by the banks themselves as well as careful monitoring by the banking supervisors. The first of these we have tried to address through our recent Guideline on the Corporate Governance of Locally Incorporated Authorised Institutions. This is intended to encourage high standards of management in such institutions and thus help them to deal with the challenges ahead. These challenges also require enhancements to our system of banking supervision. As recommended by KPMG/Barents, we are introducing a more risk-based approach. This aims to be more forwardlooking than the old style of supervision. It focuses more precisely on the various types of risk being run by individual banks, the quantity of such risks and the quality of the system used to manage them. If used properly, it should lead to a less intrusive and less burdensome supervisory approach towards well-managed institutions. We have been developing this approach over the last year and have applied it to a number of the local banks. We intend to roll it out to cover foreign banks next year. It is important that the whole process should be transparent and to assist in this we intend to issue a framework document quite shortly which will outline the new approach. We are also engaged in a major rewrite of our supervisory guidelines to make them more user-friendly and to put them into a common format.

This is a substantial project that will take about a year to complete. In the meantime, we shall be issuing new and revised supervisory guidelines in the new format as they come off the production line. Conclusions To sum up, our reform package is not intended to be revolutionary. The Hong Kong banking system is already well-managed and competitive. But even good players need to improve their game as conditions become tougher. The main responsibility for doing this in the Hong Kong banking context will rest with the banks themselves. We in the HKMA are trying to do our bit by removing possible barriers to change in a cautious manner, and by making sure that our supervisory approach remains appropriate to the changing market environment. 5  BIS Review 69/2000
By structural change, I mean not only domestic consolidation, but also increased cross-border cooperation and mergers. In short, the euro area banking sector is expected to look and behave more like the banking sector of a single economy in the future. Economies of scale and scope may have been changing in different areas of banking and may even have taken different directions. However, the general picture is that the banking industry needs to be in a position to adjust to a new reality. Indeed, since the introduction of the euro, a number of bank mergers in the euro area, including mergers between relatively large institutions, have been announced. Such “high-profile” mergers are likely to contribute towards an acceleration of the pace of both the consolidation and integration process of the banking systems in the euro area. The recent pattern of consolidation constitutes a continuation of a longer-term trend in the European banking industry, as is highlighted by the large decline in the number of credit institutions in the euro area countries over the past decade or so. In the mid-1980s, there were more than 11,000 credit  3  BIS Review 83/2000  institutions in the euro area countries, compared with around 7,500 now. This reflects a decrease of 3,500 credit institutions over 15 years, or an average annual decrease of around 230 institutions. The changeover to the single currency seems to have intensified the consolidation trend in the euro area banking sector.

We have already seen some evidence of more diversification in the sources of finance of private firms in the euro area, in particular the increasing use of securities financing.1 The euro will continue to act as a catalyst in further integration of national financial structures of the euro area into a truly euro area-wide financial structure. The euro’s function as catalyst is particularly important for the banking sector. It will reinforce already prevailing trends in the EU banking systems, such as pressure for the reduction of excess capacity, increased internationalisation and conglomeration, and further mergers and acquisitions.2 I intend to approach the relationship between the euro and the banking sector from two different angles. First, I shall discuss the factors underlying the changing structure of the financial system, in general, and the banking sector, in particular. Second, I shall touch upon the impact of the euro on the euro area banking sector in the field of both wholesale and retail business. Factors underlying the changing structure of the financial system and the banking sector Widespread deregulation and liberalisation, accompanied by technological development, have changed the environment in which banks are operating. In addition, globalisation and the increased and transformed wealth of individuals have affected the operations of financial institutions, in general, and of banks, in particular.