samchain/econo-pairs-v1 huggingface dataset:
I would also like to cite a curious example from our own monetary history 9 : The Norwegian state took advantage of a fall in the value of money when it was to redeem government bonds issued between 1896 and 1909. France was one of the primary bondholders. The bonds were issued during the gold standard period when the value of the krone was directly linked to the value of gold. The lenders were promised repayment in “monnaie d’or” (gold coins). When the bonds fell due, the Norwegian government insisted on repaying the debt using banknotes that had lost a substantial share of their value. France took legal action. The case was brought before the Norwegian Supreme Court in 1962, and the Court invoked a law from 1923 stipulating that the gold clause, i.e. repayment in gold coins, did not apply when the redemption obligation was suspended, which it was definitively in 1931. The Supreme Court also invoked “society’s vital interests” in its argumentation behind the decision. The cost of repaying the gold coins that were borrowed 60 years earlier would have been excessively high for Norwegian state. The ruling is probably an example of the limited benefit to be gained by a creditor when such a case is tried by the debtor country’s legal apparatus. For Nicolai Rygg, governor of Norges Bank from 1920 to 1946, the value of money was a moral issue.

We examined a range of balance sheet and income statement items, market indicators, and organizational structure data to draw some preliminary conclusions. The results, reported in the appendix, are generally supportive of the notion of greater homogeneity among the largest banks, but a more rigorous assessment of these preliminary conclusions would be a fruitful area of investigation. Why Do We Care? I now turn to a final question – does this matter for supervisors and regulators? I think it does. I will consider four potential reasons why this shift is relevant for the official sector’s concern for 3/5  BIS central bankers' speeches  safety and soundness and efficient financial intermediation: a firm’s risk management approach, the evolution of supervisory focus, the development of macroprudential risks, and allocative efficiency of financial services. I’ll begin with our core microprudential focus on ensuring that banks develop and implement the appropriate risk management infrastructure for their evolving risks. While this is more linked to the changes in business models than greater similarity, the underlying drivers are the same. As banks respond to environmental factors by expanding into new activities or shifting their strategic focus, they naturally face new risks and must adapt their risk management infrastructures along with their evolving business models.
This in a sense underscores the importance of Tinbergen’s augmented policy rule – that there should be as many policy tools as there are complex sub-systems – when managing a complex system of systems. None of the models so far considers global spill-overs, either through trade or financial channels. Generally-speaking, there is a dearth of macro-economic models which take seriously these international spillovers in an analytically-coherent fashion. Even if modelling this behaviour is over-ambitious in the short-term, there may be merit in improved monitoring of these global flows of financing over time, given their importance for the stability of economies and financial systems. Elsewhere, I have likened this to the creation of “global weather map”. This could be used to track and map the source, scale and nature of cross-border capital flows in close to real-time (Haldane (2012, 2014) and IMF (2013)). Plotting this complex, rapidly-adapting web would be a natural precursor to using it to address “what if” questions. What, for example, would be the impact of a rise in US interest rates on the international flow of funds? The IMF would be the natural guardians of this surveillance-cum-stress-testing machine. (c)  Policy design  Significant changes have been made to the macro-financial policy architecture since the crisis. In general, these frameworks have moved closer towards meeting Tinbergen’s rule of having as many distinct policy tools as there are complex layers in the macro-financial system.

This argues for the authorities in all jurisdictions to review whether the liquidity standards that they currently impose are still appropriate, given the nature of firms and their activities. But globalization also means that there is a case to look again at consistency of liquidity standards across jurisdictions. As central banks or regulators we are each seeking to achieve a high level of soundness in our respective financial systems. But the soundness of any of the global firms that are a major part of those systems is a function of the standards imposed on the group and its major subsidiaries in many jurisdictions. None of this necessarily argues for full harmonization of liquidity standards in the way that capital standards have been harmonized. But each jurisdiction inevitably relies to a degree on liquidity standards imposed elsewhere to ensure the soundness of potentially systemically significant firms. Central banks and regulators need at least, therefore, to come to a common understanding of what they are individually seeking to achieve with liquidity regulation. Are we, for example, seeking with such regulation to limit the likelihood of crisis, or the impact of a crisis should one arise, or both? What sort of liquidity problems are envisaged in the regulation? Most importantly, we should seek a common understanding of the dividing line between ex ante insurance, and ex post resolution. 5. Conclusion  This is my last Financial Stability speech as Deputy Governor and I would like to leave you with several thoughts.
That’s quite something given the general rate of inflation in the 1970s and 80s. In real terms – relative to the rest of the consumer basket – they fell by over 80%. This has brought significant benefits for consumers. It’s hard to say what would’ve happened in the absence of globalisation. But let’s suppose that, in that event, real clothes prices would have continued to fall at the 1%-or-so pace we saw prior to the mid-1970s (and since 2008). By comparison the actual decline in prices over the past 40 years has added just over 3% to real household incomes. At the same time the domestic production sector has clearly suffered (Chart 6). It didn’t start in a great position, it should be said. In 1975 it was a comparatively unproductive industry: per capita value added was 30% below the UK average. It required and employed relatively low-skilled labour: the average full-time wage was £ a year – barely £ per hour in today’s money and over a third lower than in the rest of the economy. Even then the country was buying more clothes than it produced: the balance of trade in clothing and textiles was already in deficit. Ricardo may have chosen British cloth as his quintessential example of a comparative advantage. But by the 1970s, if not long before, the position had been reversed. Faster productivity growth in the same sector in other countries, and in other sectors at home, had turned that into a comparative disadvantage.

20  These percentages should be considered as the lower bound of the total impact of the interest rate rise, as this would also reduce agents’ income, through its negative impact on economic activity, and would curb the accumulation of wealth on account of the higher net interest burden. 13  As far as general government is concerned, the steep rise in the public debt-to-GDP ratio seen since 2007 also means that public finances are more sensitive to interest rate movements. However, the fall in interest rates of recent years has led to a continuous decline in the interest burden as a percentage of GDP, while at the same time, longer average debt maturities (currently standing at more than eight years) limit the short-term impact of higher issuance costs. Specifically, incorporating the current market expectations for rising interest rates into the Banco de España’s latest macroeconomic projections, the public debt burden would increase from 2.2% of GDP at end-2021 to 2.5% in 2024. Under this updated scenario, an additional 100 bp increase in short and long-term interest rates, with all other variables remaining constant, will further drive up interest payments by around 0.4 pp of GDP by 2024. 14  As regards the impact of rising energy prices, variations similar to those observed between the Banco de España’s December 2021 and March 2022 projections21 would have moderate average effects on the degree of financial vulnerability of firms, albeit with notable crosssector heterogeneity.
The largest part of the debt portfolio inflows was driven by the government borrowing, reflecting its financing needs amidst expansionary fiscal policy and favorable terms of financing on the international market. The decline of the long term yields, as well as the fact that since the end of 2014, ECB started to purchase sovereign bonds and absorbed part of the market, opened more room for governments to borrow. Although it is difficult to draw any firm conclusions, the data point to possible spillover effects of the asset purchase programs to the region through the portfolio channel, in particular for the government sector. As for the other flows, the most notable slowdown is observed for the other debt instruments. In the last couple of years even a repayment of other debt instruments is registered. The downward adjustment of the other debt instruments is observed in the CEE countries, while in the other two groups mild increase of the debt financing is seen in the most recent period. The more granular data reveal that this deleveraging refers to the banking system, and it is present across the board. This is consistent with the findings of the CESEE Bank Lending Survey, where banks report a reduction of the intra-group financing. Thus, this data does not provide any evidence for spillover effects of the quantitative easing through the banking liquidity channel that is the increased liquidity of the EU banks has not led to increased cross-border lending to their subsidiaries in the region.

It would be foolish to declare categorically that the Bank of England has eliminated stigma or moral hazard. But we can say that these regulatory reforms have made it easier for the Bank of England to provide liquidity insurance to solvent institutions. In turn, this has allowed us to increase the availability and flexibility of our liquidity facilities and to give more clarity around the circumstances under which that insurance would be provided. These changes should help to reduce the stigma attached to the use of central bank liquidity facilities, and encourage earlier take-up to limit contagion and protect financial stability during future crises. 4  See Hume (1758). 5  See Carney (2013) and Shafik (2015). 6  See Hauser (2014) and Tucker (2014). 2  BIS central bankers’ speeches  3. Are sovereigns like banks? Attention more recently has turned to sovereign rather than banking vulnerabilities and two issues in particular have brought this into sharper focus. First, do fundamentally sound emerging market economies have access to the right form of liquidity insurance to deal with the challenges posed by lower growth, falling commodity prices and potential spillovers from the possible exit of exceptional monetary policy in advanced economies? And second, how can we manage the tension between the need to recognise when one sovereign’s debt has become unsustainable and the need to avoid contagion across countries in times of stress? There are many ways in which sovereigns are like banks in terms of the liquidity risks they face.
Our experience may indicate that inflation expectations remain stable even if inflation varies somewhat as long as the interest rate is used actively to dampen the effects and monetary policy is oriented towards achieving the inflation target over time. The interest rate was reduced to a very low level when inflation fell and approached zero. At the same time, we indicated that the interest rate would remain low until there were clear signs of a renewed pickup in inflation. If low inflation were solely associated with economic downturns, it would have been necessary to reduce the interest rate even further and keep the interest rate lower for a longer period. At this juncture, it our view that inflation could be brought back to target over a longer period because output has increased markedly. We are currently adjusting the interest rate, in small not too frequent steps, towards a more normal level. Since June 2005, the key rate has been increased by a total of 1 percentage point and we have signalled that further interest rate increases are in the offing. We expect inflation to rise through 2007  1  The chart is from Archer. D. (2005): “Central-bank communication and the publication of interest rate projections”, presented at Sveriges Riksbank’s conference: “Inflation targeting: implementation, communication and effectiveness”: http://www.riksbank.com/templates/Page.aspx?id=15814. 4  BIS Review 49/2006  and be close to the target of 2.5 per cent at the end of 2008. This is supported by a number of factors. Capacity utilisation in the Norwegian economy is picking up.

Although there will still be considerable uncertainty, it will be easier for economic agents to assess interest rate developments. This makes monetary policy more effective. The prospect of a gradual normalisation of interest rates may curb credit growth and the rise in house prices. There may be objections to our producing interest rate projections. Producing an explicit interest rate projection may be stretching our knowledge quite far. It may be argued that market participants’ overview and insight are just as good as ours and that our analyses do not add much beyond the information embedded in market rates. Another objection is the risk of the interest rate path becoming a target itself and that deviating from the interest rate projection would be perceived as a drawback, even if economic developments should so imply. It is important to stress that the interest rate path is conditional on economic developments and our understanding of the functioning of the economy. This is reflected in the fan chart bands surrounding future interest rate developments. The central bank of New Zealand has experience in producing interest rate projections, and actual interest rate developments have on many occasions differed from the projections 1 . We must also expect deviations from our projections. The interest rate will deviate from the projections if economic developments are different from the assumptions applied when the interest rate projection was published or if we change our view of how the economy functions.
By linking public investment and growth-enhancing reforms, it will help ensure a stronger and more uniform recovery across the euro area and accelerate the green and digital transitions. Euro area banking sector developments and financial stability issues The improving economic environment has contributed to a decline in near-term financial stability risks. Continued fiscal support helped the corporate sector recover from the pandemic, although the situation continues to vary across industries and firms. With corporate insolvencies remaining subdued, bank loan performance turned out to be more resilient than initially feared, although it is still too early to assess the full impact of the pandemic. Positive asset quality and financial market developments supported the return of bank profitability to pre-pandemic levels, and the ECB’s stress test results published in July showed that the euro area banking system would be resilient to adverse economic developments. Amid reduced uncertainty, the Supervisory Board of the ECB decided not to extend its systemwide recommendation on banks’ capital distributions. Instead, it returned to the previous supervisory practice of discussing capital trajectories and dividend or share buy-back plans with each bank in the context of the normal supervisory cycle. The ECB reminded banks to remain prudent when deciding on distributions and not to underestimate the risk that additional losses may later have an impact on their capital trajectories. As the economic recovery takes hold, financial vulnerabilities associated with an upswing are building up.

The ECB recently published the methodology and results of our economy-wide climate stress test, showing that there are clear benefits for both banks and companies if they act early and ensure an orderly transition. The exercise will also be used to inform the 2022 supervisory climate stress test that will be conducted to test banks’ preparedness to assess climate risks. ECB Banking Supervision has also asked banks to conduct self-assessments in the light of the ECB guide on climate-related and environmental risks and to draw up action plans. The preliminary results were published in August and show that banks have made some progress in adapting their practices, but they are still moving too slowly. Next year, ECB Banking Supervision will conduct a full supervisory review of banks’ risk management and disclosure practices. As regards the digital economy, the ECB will continue to contribute to the G20 initiative to enhance cross-border payments to make them faster, cheaper and more inclusive, and to address the opportunities and challenges of the digitalisation of finance. At the ECB, we have launched the investigation phase of a digital euro project that will address key issues regarding the potential design and distribution of a digital euro, which would be a complement to cash, not a replacement for it. International cooperation on digital currencies will remain essential in the period ahead. 4/4  BIS central bankers' speeches
It is in this context that it is important that we are now introducing a requirement that is not risk sensitive to complement the risk-weighted capital requirement. The leverage ratio requirement is a simple and transparent measure that will limit the banks’ capacity to borrow too much regardless of what operations they conduct. More specifically, a bank’s leverage ratio is its capital in relation to its total assets. The Basel Committee has previously agreed on a lowest leverage ratio requirement for banks of three per cent and for global systemically important banks an even higher leverage ratio requirement. For the last two years, the Riksbank has been recommending that a leverage ratio requirement of five per cent should be introduced gradually for the four major  5 [12]  Swedish banks. However, it is not self-evident what level the leverage ratio requirement should have. There are several academic studies in this field which indicate that a leverage ratio requirement should be much higher than the levels now being discussed. One reason for this is that the risk-weighted requirement plays less of a role in a crisis situation. It is then the value of the assets that is important, together with the quality and size of the equity capital. The Riksbank, like the IMF and the OECD, has pointed to several reasons why a higher level than the minimum requirement should be applied. The Swedish banking system is large from an international perspective and Swedish banks have extensive operations in the Nordic and Baltic countries.

Moreover with the introduction of a floor for risk weighted assets, small banks could compete with large ones on more similar terms. This is because small banks generally use standardised methods and not internal models. It is therefore a good idea to have a floor for how low the banks’ internally-calculated capital requirements may be in relation to the capital requirements for small and medium-sized banks. This is a reasonable balance to ensure that competitiveness is not disrupted. So the future regulation of the banks’ capital levels will probably contain a leverage ratio requirement, a risk-weighted capital requirement and a floor for risk-weighted assets. Some of you may wonder why so many different types of capital requirement are necessary and the answer is quite simple: because each individual requirement has its own strength that offsets the weaknesses in the others. Let me give some examples. As I mentioned earlier, a floor for risk weighted assets is needed to prevent the risk weights declining too much. In addition, a leverage ratio requirement is needed to limit the banks’ capacity to take on too much debt. If only a leverage ratio requirement were present, this could give the banks an incentive to move to higher  7 [12]  risk assets. To counteract this, we need the current risk-based framework that compensates with a higher capital requirement for higher risk assets. How much capital do the major Swedish banks have?
The banking sector is now in a prime position for the next step in evolution. The foundation for the development of a more efficient, effective and stable financial system has been laid. The task is now for the industry to move forward and undertake the necessary actions towards realising goals as envisaged in the FSMP. Nevertheless, this journey does not end in 2010. We should also look forward towards what lies beyond 2010. As an open economy, we should also be cognisant with the developments that take place around us. I believe that the Malaysian financial services industry is ready to take on this challenge to elevate the performance and standards of the sector. With this, I wish you a productive summit. BIS Review 55/2006  7

Central Bank of Chile July 2020  “The Chilean Peso as an Eligible CLS Currency: Second Workshop CLS-CBC” Opening remarks by Mario Marcel, Governor of the Central Bank of Chile July 21st, 2020 – Santiago, Chile (via WebEx) I.  Welcoming remarks  Good morning everybody and welcome to the second joint workshop between CLS and the Central Bank of Chile (CBC) dedicated to the “Nostro” service, a fundamental business in the CLS payment system operation. This event is part of the process of incorporating a new currency into the CLS System. This belongs to the due diligence and analysis phase that CLS and the CBC are respectively finalizing. Then we should move to the implementation phase. This workshop complements the provision of information on CLS and the bilateral meetings that bankers have been holding with CLS and the CBC for some time, to assist banks in assessing the benefits, prospects and opportunities in participating in the system, either as a Settlement Member or Nostro. I am looking forward to the banking sector’s active participation in this workshop that features representatives of the Nostro banks and CLS experts. II. The Chilean Peso incorporation process  •  The process of incorporating the Chilean Peso in CLS, started last year when we sent the Letter of Intention to CLS to demonstrate our commitment to the process and initiate the engagement stage.