samchain/econo-pairs-v1 huggingface dataset:
Lending rates for small and medium-sized enterprises, which provide two-thirds of total private sector employment in the euro area, have declined by over 180 basis points. The sharp reduction in bank lending rates has been accompanied by easier access to funding, as recent ECB surveys on bank lending and access to finance have shown. But it is not just lending rates that are more favourable. Bank lending volumes have also been gradually recovering since early 2014. Annual growth in credit to euro area households increased in January to 2.2% and growth in credit to businesses remained at 2.3% – the highest growth rates in more than four years. Market-based funding conditions, too, have improved significantly in response to the corporate sector purchase programme launched in June 2016. While monetary policy has been the mainstay of the recovery, there are other potential sources of macroeconomic stabilisation. Given the heterogeneity of countries across the euro area, the lack of synchronisation of business cycles, and the absence of fiscal transfers between Member States, capital markets play an important role in mitigating the income effects of region-specific shocks. For example, evidence suggests that capital markets and credit markets together help smooth around two-thirds of a shock to regional GDP in the United States, dwarfing the 13% contribution of federal transfers. In comparison, the overall contribution of markets to risk sharing in the euro area has, on average, been limited.

There was a brief period in the early-to-mid 2000s when capital markets smoothed between 30 and 40 percent of country-specific shocks to GDP, but this declined substantially during the crisis, and region-specific shocks remain mostly unsmoothed (see Chart). Given the importance of risk-sharing through capital markets for macroeconomic stability and 1/2  BIS central bankers' speeches  welfare, we need a Capital Markets Union (CMU) that is ambitious. To be truly effective, CMU will require harmonisation in a number of sensitive areas, including key legislation and policies related to financial products, such as investor protection and bankruptcy procedures. The CMU should come with a roadmap in terms of goals and milestones to be achieved. Broad objectives such as deepening financial integration and achieving risk sharing should be matched with specific proposals such as facilitating funding for corporates in general and for SMEs in particular. Chart: The channels of risk sharing in the euro area, 1991—2015. Note: The Chart summarizes the 5-year cumulative contributions of capital markets, credit markets, fiscal tools, and relative prices to the smoothing, in terms of consumption growth, of a 1-standard-deviation shock to GDP growth. Each bar thus measures the parts of the shock to country-specific GDP that are absorbed by the respective channels. The remainder is interpreted as the unsmoothed portion of a GDP shock, i.e., the part of a shock to countryspecific GDP growth that is reflected into country-specific consumption growth. Contributions sum up to 100 percent, and a negative contribution corresponds to dis-smoothing of consumption growth.
More than 60 per cent now have access to the Swish payment app. 10 [14]  years. Demand from the general public has fallen from almost SEK 100 billion in 2007 to around SEK 60 billion today. 13 Banknotes and coins in circulation falling rapidly in Sweden  Note. Annual average for cash outside the banking sector, that is, cash held by companies, households and government agencies. Source: Statistics Sweden  One can say that the Riksbank's banknote monopoly has almost had its day, as a number of rapid and simple electronic means of payment are being supplied by private agencies. You see, in Sweden, there is no legal requirement for cash to be accepted as a means of payment in the retail trade. Nor do the banks have a legal requirement to supply cash services. The fact that we have gained more efficient means of making payments has on the whole been good for Sweden. But this development also entails a number of difficult challenges, for instance, that the infrastructure for cash management is being phased out in Sweden. 14 15 Most indications are that this development will continue, which raises a number of difficult questions: What happens if the general public no longer has access to cash, or if it is not possible to use cash anywhere? Sweden is on the verge of a situation where commercial interests determine whether the general public shall have access to central bank money and ultimately what payment methods can be used.

The Swedish banks are dependent on foreign funding 160 140 120 100 80 60 40 20 0  2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017  Note. Per cent. Swedish banking system’s foreign funding in relation to GDP Foreign funding refers to Swedish banks’ (including Swedish subsidiaries but excluding foreign subsidiaries) market funding and borrowing in foreign currency. The increase is due to Nordea’s previous bank subsidiaries with effect from the start of the year being incorporated into the Swedish parent company. Source: Statistics Sweden  If we also include the funding in foreign currency that remains in the major Swedish banks’ foreign subsidiaries, including Nordea’s mortgage lending companies in Denmark, Norway and Finland, the funding in foreign currency amounts to around 175 per cent of GDP, or SEK 7,650 billion. Part of the bank's borrowing in US dollars and euros is exchanged for Swedish krona and other Nordic currencies to finance assets in these currencies, including lending to households and companies. 6 And it is thus the banks’ international financiers, rather than the normal - protected by the deposit guarantee depositors who should be most disposed to withdraw their financing when the going gets tough. If these investors stop buying the banks’ bonds and certificates, the bank may very quickly suffer liquidity problems with a high risk of being forced to close down.
4  BIS central bankers’ speeches  The expansionary monetary policy has had an effect. There are signs that inflation has now bottomed out and is on the way up. Food prices began to rise faster in 2014. Prices of services also began to rise faster last year. On Tuesday the inflation figures for the month of March were published. Over the past twelve-month period, consumer prices have increased by 0.2 per cent. When adjusted for interest-rate cuts the increase is 0.9 per cent. If, moreover, we disregard the effects of energy prices, the rate of inflation is 1.3 per cent. Yesterday the most recent survey of inflation expectations was published. Expectations of inflation two years ahead are now at an annual rate of 1.3 per cent. If we instead look at the longer term, five years ahead, yesterday’s figure was 1.9 per cent. There are thus several signs that the expansionary policy is showing results and that inflation has begun to rise. Inflation expectations have also begun to rise. But inflation is still a rather long way below the target. There are also threats to the upturn in inflation. The krona strengthened at the end of February and the beginning of March. This risked stopping the upturn. That was why the Riksbank decided in March to cut the repo rate further and to extend the purchases of government bonds to supplement the decisions made in February.

•  A second reason is that the changes in relative prices and wages that are necessary for the economy to develop can occur more easily if there is a low, positive inflation rate than if there is no inflation. In other words, some inflation can function as a lubricant in the economy. •  A third reason, and the one that has perhaps received most attention in recent years, is that if an inflation target is set too low, it will leave insufficient scope to stimulate the economy by cutting interest rates in a deep recession. Important that the inflation target remains in place But the most important thing is to choose a certain level for the inflation target and then build up confidence in this level. Such confidence can hardly be created if the inflation target is constantly being adapted to actual inflation. Many economic agents now assume that inflation will be around 2 per cent in the coming period. It is important that we can rely on this being the case. This does not mean that the Riksbank can ensure that inflation will always be 2 per cent. It is not possible to formulate monetary policy with such precision. Inflation will deviate from the 2 per cent level during certain periods. One reason is that unforeseen events will always occur, another is that it takes time before changes in monetary policy have a full impact.
Developments in recent years, with strong production growth and falling or only slightly rising employment are examples of how contradictory the signals can be. One weakness in this context is that production data is revised regularly. This makes it particularly difficult to estimate the amount of spare capacity there is in the economy at present. The picture of how high capacity utilisation was at a particular point in time can look different when new data are received and earlier outcomes are revised. One example worth mentioning is that the first data regarding GDP growth in Sweden during the first quarter of 2005 was 1.4 per cent, while the most recent calculations indicate that the figure was actually 2.1 per cent. The fact that there is considerable uncertainty regarding such a central variable as capacity utilisation is, of course, a problem. Everything would be much simpler if it were possible to quantify capacity utilisation in the same way as inflation can be measured. However, as it is not possible, I believe it is wise not to pretend to have this knowledge. For similar reasons, precise money supply measures have also been abandoned. Our forecasts of growth and inflation must nevertheless essentially be based on a view of the position of the economy with regard to a situation with normal capacity utilisation. In practice, a large amount of information from different sources must be weighed together to make an overall assessment.

As I have already noted, the fact that the Riksbank should take into consideration how economic activity develops receives support in the preliminary work to the new Sveriges Riksbank Act. 2  See the memorandum “The Riksbank’s inflation target – clarification and evaluation”, 4 February 1999, registration number 1999-00351 DIR, or Heikensten, L. (1999), “The Riksbank’s inflation target – clarification and evaluation”, Sveriges Riksbank Quarterly Review, 1999:1. BIS Review 29/2006  3  Communication regarding monetary policy As monetary policy is to a large degree concerned with making decisions under uncertainty, it is important that we are always as open and clear as possible regarding the basis for interest rate decisions. The intentions behind monetary policy must be understood and accepted in order to preserve the legitimacy of our activities and our actions. A well-balanced application of the inflationtargeting policy makes it particularly important to clearly explain the motives behind monetary policy decisions. There should be no grounds for suspicion that the considerations taken are used in an arbitrary manner. The Riksbank communicates its monetary policy in a number of different ways, including press releases and minutes of monetary policy meetings, press conferences and not least our Inflation Reports. The Inflation Reports contain our analyses of the deviations from the inflation target that have occurred, and forecasts for when inflation is expected to be back on target, given a particular monetary policy stance.
2  BIS central bankers’ speeches  Similarly meaningful structural reforms are not easy or popular to implement during a recession. Since it takes time for these microeconomic measures to generate the so-called macroeconomic dividends, correction of the excessive debt ratio often requires a sharp fiscal correction, which brings in its wake a slowdown in economic activity. The lessons to learn from this experience are that fiscal prudence and the safeguarding of competitiveness have to be an ongoing and constant endeavour. It becomes difficult to apply fiscal discipline and structural reforms when the need becomes urgent or during an economic slowdown. As a number of countries have grossly breached the deficit and debt rules of the Stability and Growth Pact, they have not only threatened their own economic sustainability but also undermined the stability of the euro area as a whole. As a result, there is a broad recognition across the EU that fiscal governance has to be strengthened and that the Stability and Growth Pact should be reinforced once again. There is the search for mechanisms that would ensure the effective and concrete intervention of the European Commission when Member States breach the deficit and debt rules as set out in the Pact. Of course, the eventual changes in the system have to be decided through negotiations. Perhaps it is worthwhile to take heed of recent comments by the outgoing President of the ECB, Mr Jean-Claude Trichet, who recently expressed his personal view on this subject.

The ensuing reform of the Pact in 2005 thus ushered in a greater degree of tolerance, and political influence was permitted in dealing with EU member states’ fiscal imbalances. It is true that the average deficit ratio in the euro area improved through 2007, aided by the upswing in economic conditions. However, only a few countries earnestly engaged in substantial budgetary consolidation efforts. At the same time, financial market scrutiny was mild, and as a result the less fiscally-responsible governments were able to meet their borrowing requirements at a relatively small spread on the benchmark interest rate. This changed after 2007, when the onset of the financial crisis found several Member States poorly prepared for what lay ahead. It became difficult to undo the accumulated imbalances and vulnerabilities. The debt burden worsens when the interest rate exceeds the growth rate of the economy. This is reinforced when the primary balance is in deficit, in which case the dynamics of servicing the debt could easily make the debt burden unsustainable. Fiscal consolidation, which is necessary even in less serious circumstances, carries the risk of downward macroeconomic adjustment. In today’s circumstances, there is the danger of a vicious cycle in the form of a negative macroeconomic spiral. This is because weak economic growth leads to lower government revenue that raises the fiscal deficit ratio, and therefore requires further budgetary tightening. 2  L. Schuknecht, Ph. Moutot, P. Rother and J. Stark “The Stability and Growth Pact, Crisis and Reform” ECB Occasional Paper Series, No. 129, September 2011.
Prices for imported goods and services will increase. A weaker currency strengthens the competitive strength of a country’s enterprises and indirectly increases output, employment and inflation. Most inflation-targeting countries base their monetary policy on inflation targeting that is more flexible and use some time to bring inflation back to target, i.e. flexible inflation targeting. Such a policy has a less pronounced effect on demand and output than stricter inflation targeting. We see that real economic developments among the first inflation-targeting countries have become more stable. Growth has also accelerated. For all OECD countries in the first group of inflation-targeting countries, growth has been higher since inflation targeting was introduced than before. With confidence in the inflation target, monetary policy can make a greater contribution to smoothing fluctuations in the economy. Inflation expectations have also fallen and are stable at the target.7 On the whole, we may conclude that the inflation-targeting countries have had low and stable inflation. Growth has increased and become more stable. Nevertheless, we cannot necessarily conclude that inflation targeting alone has been responsible for these favourable results. Other countries have also had favourable economic developments in the last ten to fifteen years. The results must be seen in the light of the fact that all of these countries have conducted a sound monetary policy. Low and stable inflation is an important and often the only monetary policy objective.

28-29 March, BIS, Basle. 13 Heikensten, Lars (2005), “Introduction on Monetary Policy” speech to the Committee on Finance, Swedish Parliament, Stockholm, 15 March. 8  BIS Review 43/2005
12  BIS Review 16/2009  A number of countries have had their credit rating downgraded and have lost their economic room for manoeuvre, obliging them to seek support from neighbouring countries and the IMF. In the euro area, a number of states with high debt or large deficits are paying dearly for their credit. In monetary policy, the interest rate weapon is being deployed to the full. In the US, Japan and Switzerland, the interest rate is close to zero. But the instruments that are benefiting the economy now may weaken the growth potential further ahead. Large budget deficits must be reduced over time and growth in government debt preferably scaled back. Households may begin to save more in order to be prepared for higher taxes or lower state benefits in the future. This will weaken the current and future effect of the measures now being implemented. Governments that have provided capital injections or loans to banks and firms are relieving owners of risk. This may foster the idea that the government will also pick up the tab next time. Risk may then again be priced too low, leading to a new round of debt accumulation. Norway is more fortunate than most. Government finances are sound, with substantial net wealth and a trade surplus. Unlike many other countries, our banks have not overexpanded. The level of activity in the Norwegian economy was high without expectations of higher inflation when the downturn occurred. Inflation was low and stable.

But who could have foreseen in 1990 that we were on the brink of a golden decade that would see a boom in the IT and communications industry? And who would have imagined in 2002 that Norwegian manufacturing would experience a new wave of growth? Fortunately, there are also many examples of innovation, particularly when times have been bad. Nokia managed to make the transition from rubber boots to new technology when the Finnish economy collapsed at the beginning of the 1990s. In Norway, the Norwegian telecom system was deregulated and Telenor developed into a large international company. During the downturn at the end of the 1980s, Tandberg started developing video conferencing systems. In the industrial centres Mo i Rana, Raufoss and Kongsberg, rich technological communities emerged after the collapse of government enterprises in the 1980s. The merchants behind the grocery chains Rimi and Rema started business on a small scale during the downturn at the end of the 1970s. The furniture producer Stokke – makers of the world-famous Tripp Trapp chair for children – started operations in western Norway in the midst of the economic crisis in the 1930s. Economic policy The measures now being implemented are intended to provide a bridge until market economies generate new growth under their own steam. The authorities in many countries are now testing the boundaries of active economic policy. And some have overstepped them.
This allows us to maintain the ambitious scope of the exercise, and gives firms enough time to engage with their customers and invest sufficiently in their capabilities to deliver to a high standard. We expect firms to make good use of this time. And to support that we will publish after the summer a ‘roadmap’ on how we will engage with and support firms in the period up to the launch of the stress test. As with disclosure and risk management, the stress test will not be a straightforward task. We will test risks under not one, but three scenarios. The first where no additional policy action is taken and where, by continuing on our current emissions path, warming exceeds 3 degrees above pre-industrial levels. The second where policy action starts now enabling us to achieve net-zero in an orderly fashion by 2050. And the third where policy is implemented late, leading to a disorderly transition to net-zero. 16  CFRF Guide 2020 The Financial Policy Committee’s July 2019 Financial Stability Report set out that there would be a climate change related Biennial Exploratory Scenario (BES) in 2021. A discussion paper on the climate BES was published in December 2019.

This has required the adoption of a strategy to permit banks to use their own internal measurement approaches – subject to quantitative and qualitative criteria and, on a transitional basis, to a minimum or floor capital charge. Assessing and validating different internal risk mitigation measures would be a regulatory challenge. 13. The Basel Committee has put forward a framework consisting of three options for calculating operational risk capital charges in a ‘continuum’ of increasing sophistication and risk sensitivity. There are three approaches under Pillar I: (i) the Basic Indicator Approach for Operational Risk I, which requires a flat rate of 15% or a fixed percentage of gross annual income; (ii) the Standardized Approach for Operational Risk II which requires a risk charge based on annual income per each business line, multiplied by a risk factor per business line; and (iii) Advanced Measurement Approach for Operational Risk III which requires full reliance on bank’s internal risk management system subject to supervisory review. Many Central Banks including the Central Bank of Sri Lanka propose to initially allow banks to adopt the Basic Indicator Approach for computing regulatory capital for operational risk. They are expected to move along the range towards more sophisticated approaches as they develop acceptable operational risk management systems and practices, which meet the prescribed qualifying criteria.