samchain/econo-pairs-v1 huggingface dataset:
This means that a credit expansion process is likely to lead to some credit quality problems in roughly that time horizon. The average duration of the economic cycle (from boom to bust) is similar. This implies that if banks only look at contemporary bad loans to determine their credit risk policies, they will restrain credit and increase risk premia in the downturn. The higher cost of funding for bank-dependent borrowers will feed back to activity, reinforcing recessionary forces. I turn now to provisions. In Spain, until year 2000, loan loss provisions were strongly pro-cyclical (as in many other countries), because they were largely linked to the volume of contemporaneous problem assets. This static provisions are backward-looking, they are based on past events. Only are accounted for loan by loan when borrowers fail to repay or in some cases when the situation of the borrower deteriorates significantly. As a consequence, the ratio of provisions to total loans fell therefore during periods of economic growth and tended to rise considerably during downturns (see lower part of Graph 3). As a result of this, the latent risk of loan portfolios was not properly recognised in the profit and loss account under the old system. In periods of economic expansion the fall in doubtful loans went hand in hand with the decrease in provisions, which in turn allowed bank managers to improve bottom-line profits.

The preference for seeking out private solutions was naturally governed by the aim to minimise the impact for taxpayers; but another determinant here was the objective to undertake the necessary reform of savings banks, which were by then subject to well-known problems of governance, it being considered that a strategy of widespread public aid could set back or make this reform more difficult. The question hanging in the air is whether the alternative of strong public aid to credit institutions in the initial phases of the crisis would ultimately have entailed a lower fiscal cost than the gradual approach opted for. But this question is, as economists would say, counterfactual, i.e. attempting to imagine the consequences – desired and undesired alike – of something that did not happen. Whatever interest this question may have, naturally the Report does not go into it, and I do not believe it is for the Banco de España to respond to it. 10/14  A second question is why some of the savings bank IPSs did not withstand the double-dip recession and had to undertake further restructuring measures as from 2012. With hindsight, the IPSs were in most cases clearly but a prior step to necessary and actual mergers, and several of these groups were evidently insufficient when faced with the second recession. Yet it should be recalled that the IPSs were an instrument that provided for the integration of savings banks and of credit cooperatives, which had less flexibility to undertake true mergers.
Some have suggested as a result that Bank Rate be directed not only at meeting the inflation target but also at preventing excessive increases in debt and asset prices. Leaving to one side the feasibility of targeting the latter, the obvious question is how one can meet two objectives with one instrument. The answer of course is by accepting a trade-off between the two objectives. But why should we accept unemployment or high inflation in order to reduce  2  BIS Review 8/2009  financial imbalances? It would be more sensible to use Bank Rate for its traditional task of targeting inflation to maintain a balance between demand and supply in the economy, and to create a new instrument to limit the build up of debt. What is required is an additional policy instrument to stabilise the growth of the financial sector balance sheet. There is an active international debate as to the optimal design of such an instrument, but one way or another it must provide incentives for banks to reduce the volatility of their balance sheet. It is also clear that at the heart of the crisis was the problem identified but not solved at Bretton Woods – the need to impose symmetric obligations on countries that run persistent current account surpluses and not just on countries that run deficits. From that failure stemmed a chain of events, no one of which alone appeared to threaten stability, but which taken together led to the worst financial crisis any of us can recall.

In the public sector, there are no absolute requirements as to profitability and efficiency. Public enterprises do not go bankrupt, and in many cases the authorities cannot allow a public enterprise to discontinue operations. This is a demanding starting point for a shift to more locally determined wages. The possibility of granting local pay increases might, however, increase efficiency if there are binding nominal budget limits for these entities and clear production requirements. When a higher share of wages is determined at the local level and coordination is reduced, it will be even more important to promote flexibility in the labour market and the labour supply. Otherwise, an increasing number of workers may be excluded from working life and unemployment may rise on a permanent basis, while the foundation for production is weakened. Effective labour market programmes, supported by a sound system for education and infrastructure, can facilitate these adjustments. It is also important to assess working environment and labour market legislation with a view to fostering greater flexibility. Hiring costs may be reduced and flexibility enhanced through greater scope for temporary employment and labour contracting. The throughput in universities and colleges can be improved. The financial incentives and entitlement thresholds in our social security system are also of substantial importance to employment. Pensions  In Norway, the employment rate is among the highest in the OECD area. This reflects both high labour force participation and low unemployment.
Banks were essentially incentivised to focus on aggressively originating loans which were of compromised quality due to lowered underwriting standards. Investors of such bundled risks had then become far removed from their origins. Information was no longer transparent and risks could no longer be fully understood. Economic agents seeking larger returns were in turn encouraged to achieve them through greater leverage, thereby amplifying the vulnerabilities of the financial system and wider economy. 2  BIS central bankers’ speeches  Much attention has also focused on the misaligned incentives of financial services professionals as reflected by the compensation structures that rewarded short-term performance and inadequate reprimand for overzealous risk-taking. This, I believe, was also symptomatic of the growing disembodiment of finance from its consumers and the wider economy. When social bonds are reduced to just profit measures, it provides a weak foundation for sustainable finance. Outcomes for finance need to be measured based on end services to the real economy, reflected for example, by an entrepreneur’s successes or the financial well-being of retail clients. The detachment of finance from its function in serving the economy, results in clients being viewed as opportunities for extracting value and transactions as bets on financial outcomes. The prevalence of mis-selling of complex financial products exemplifies this shift in trend. Future finance: re-anchoring finance to the real economy Allow me now turn to some of the imperatives for re-anchoring finance to the real economy.

The AQR itself resulted in a gross impact on asset values in need of adjustment by € billion, € billion of which did not generate a capital shortfall. So if you add up the € billion with the € billion shortfall, you get the overall impact on the banks of € billion coming from the comprehensive assessment. This you can compare with the expectations in the market. I just quote two examples of publications by investment houses of September, the more recent ones, of two big investment banks. One made calculations for a sample of 37 banks and found that, considering the measures already taken by the banks, the shortfall would be zero, and three banks would fail. The other one considered a sample of 34 banks and concluded that, taking  BIS central bankers’ speeches  1  into account the capital measures taken by the banks in 2014, zero banks would fail and the capital shortfall would be zero. This compares with our result that out of the 25, 12 banks have already taken measures in 2014 that are enough to cover their shortfall. But there are then 13 banks that still have either to exactly apply their restructuring downsizing as it is foreseen in their plans with the European Commission, or they will have to come up with ways to increase their capital. So this is an important explanation of the meaning of the results that we have.
Less positively, a more difficult economic environment contributes to friction between banks and their customers, for example in the greater incidence of default on debt on the one hand and in the greater tendency among banks, in times of tighter margins, to go after that debt. Whether in good times or bad, a certain volume of complaints is a healthy phenomenon because it encourages improvements in service where complaints are upheld, and improvements in transparency where misunderstandings occur. On a subject so important as the way in which banks handle people's money, there will always be complaints, and we need to continue to develop our machinery for dealing with them. Let me deal quickly with the options identified by the HKMA in its survey last year which, if I read it correctly, the debate within the industry and the community is ruling out. The first option of these is the establishment of a separate banking ombudsman along the lines of the practice in some other jurisdictions. This is, in some senses, a Rolls Royce solution in that it would provide a separate agency, to process and resolve complaints, with powers to arbitrate in complaints and award compensation. It would, however, be a costly solution, and it would take a considerable time to implement. Under such a system, the process of handling complaints would probably also be quite resource-intensive, and it is by no means clear that it would be able to address the full range of complaints being made.

First of all, in a Monetary Union which covers an area stretching from Lapland in the north of Finland to Andalusia in the south of Spain, we cannot expect complete homogeneity of the economic cycle or of economic conditions in a more general sense. Therefore, it makes sense for the euro area Member States to maintain control over the remaining tools of economic policy so as to be able, if necessary, to respond to developments which are particular to their own economies. On the other hand, when formulating their economic policies, euro area Member States must give sufficient consideration to the impact that these policies will have on the rest of the euro area economy. This is particularly important in EMU since euro area countries are no longer exposed to the discipline of financial markets to the same extent as used to be the case when they conducted their own autonomous monetary policies. Prior to the introduction of the euro, unsustainable economic policies were penalised by the markets in the form of higher interest rates, substantial risk premia and exchange rate pressure. In EMU, however, where financial markets take an increasingly euro area-wide focus and where the exchange rate risk associated with national currencies no longer exists, the effects of inappropriate policy choices in any one country tend to be largely spread across the entire euro area. Only relatively small risk premia remain.
To facilitate such heterogeneity, many FICC markets have historically been built around a “market-making” trading model, in which participants trade bilaterally with an intermediary, rather than directly with other investors. For example, in corporate bond markets a market maker will build up an inventory of different corporate bonds when there are net sales from end investors, and run it down when there are net purchases. An important advantage of the market-making system is that, when it works effectively, it provides investors with continuous two way markets. Government and corporate borrowers can generally be confident that they will be able to borrow at a time, in a currency, and for a duration that suits them. Similarly, investors can feel confident that they will be able to trade smoothly in and out of sometimes large positions without unduly affecting the market price. 1  http://www.fca.org.uk/your-fca/documents/final-notices/2014/lloyds-bank-plc-bank-of-scotland-plc.pdf  2  http://www.fsa.gov.uk/static/pubs/final/barclays-jun12.pdf  3  I am particularly grateful to Nicholas C. Barberis for this exposition. 4  Daniel Kahneman (2011), Thinking Fast and Slow, Macmillan. BIS central bankers’ speeches  3  The downside of the heterogeneity of many FICC assets is that the market in specific instruments can sometimes be thin, and hence it may be difficult to gauge what a fair price is. Publicly available quotes can be based on a limited number of small transactions, making them more vulnerable to manipulation. Another characteristic of FICC markets is that they tend to be dominated by large professional counterparties.

With fiscal consolidation beginning next year when the economy firmly recovers, the scheme sets a limit of fiscal burden at approximately 60% of the GPD which is still quite a manageable limit. The environment is therefore becoming more optimistic, the business prospects are becoming bright, and one should now plan for growth. What then, ladies and gentlemen, are the issues that we should pay attention to when we plan for growth? Preparing for rapid growth For emerging markets like ours, I think we have to address issues both at macro and micro levels. At the macro level, the authority has to ensure that there is adequate infrastructure to handle high volume of transactions safely and efficiently. The need here covers not only that of the point of sale hardware and communication technology. The problem is that these things become obsolete quickly and one has to ensure that the domestic system in use is compatible with the international system, as well as the level of security required. But far more important is the financial and legal infrastructure. I will highlight a few, starting with First, the need to clearly define the rights and obligations of card issuers, card users and other parties involved in the transactions particularly in case of frauds. In Thailand, we have now drafted the Credit Card Act to set this framework but its enactment is still pending. Secondly, the need to set up a good credit information system to help card issuers in their risk management.
UND1X, UNDINHX and import prices  UND1X, UNDINHX and import price for goods: outcome and scenario Percentage 12-month change 5  5  4  4  UNDINHX  3  3  2  2  1  1  UND1X 0  0  -1  -1  Import prices  -2 1998  -2 1999  2000  2001  2002  Sources: Statistics Sweden and the Riksbank  Diagram 8. Wage costs and inflation  Development of labour costs in the business sector and of the CPI Per cent 25  25  Inflation Labour costs  20  20  15  15  10  10  5  5 0  0 71  73  75  77  79  81  83  85  87  89  91  93  95  97  99  Sources: National Institute of Economic Research and Statistics Sweden  At this stage of economic recovery, the labour market has functioned better in some respects than the Riksbank, and many other observers too, expected. Nominal wage increases have, as I said before, been moderate and vacancies have been filled without this leading to any substantial shortages. At the same time, it would be premature to breathe a sigh of relief. The labour market and the wage formation system have not yet been tested to the full.

The sector has been restrained by several factors including the large shadow inventory making its way through the foreclosure pipeline, tight underwriting standards for new mortgage origination, and the sharp slowdown in household formation. Although the corporate sector as a whole is now relatively healthy, there still is a significant constraint on the availability of credit to small business. Business investment continues to expand, but at a restrained pace. I presume that this partially reflects uncertainty over the economic outlook, including the risks around the evolution of U.S. fiscal policy and the crisis in Europe. Fiscal policy has already become restrictive as state and local governments have cut expenditures in response to revenue shortfalls. Moreover, we face the so-called “fiscal cliff” at the start of next year. At the beginning of 2013, federal fiscal policy is scheduled under current law to become sharply contractionary, with abrupt increases in taxes and cuts in spending. Businesspeople tell me that the uncertainty about how Congress and the Administration will deal with the fiscal cliff – and our fiscal challenges more broadly – is already inhibiting hiring and investment. The fiscal cliff represents a threat to the recovery that is wholly avoidable. But we will only avoid it if our politicians act responsibly. We need a credible strategy for bringing down the federal budget deficit over time in a manner supportive of ongoing economic recovery. Any plan should start slowly, but build steadily over time.
The weakening of the krone came to a halt in winter 2004. Again we started seeing signs of a stronger krone. At the same time, inflation remained low. We therefore placed emphasis on interest rate developments in other countries, and in May 2004 Norges Bank thus stated: “The inflation outlook in Norway implies that Norway should not be the frontrunner when other countries increase interest rates.”3 At the monetary policy meetings between September 2004 and February 2005, after key rates had been raised in several other counties, the formulation was changed to the following:”that we should lag behind other countries in adjusting interest rates to a more normal level.”4  3  See Norges Bank press release of 26 May 2004. 4  See press releases following the monetary policy meetings in the period between 22 September and 2 February 2005. BIS Review 38/2005  3  In February, we no longer used this formulation. The background for this is that central banks in other countries such as the US, Canada, UK, Australia, New Zealand and Switzerland had raised their key rates. Our closest neighbouring countries – Sweden and the euro-area countries – and Japan have left their key rates unchanged. On average, the key rates among our trading partners have increased by 0.3 percentage point during this business cycle.

Inflation is low, but the indices are also influenced by temporary and erratic disturbances. Mainland fixed investment has also shown a gradual increase. In its monetary policy assessments in the previous Inflation Report, the Executive Board indicated that growth in the Norwegian economy has become more self-driven. Capacity utilisation is close to normal and rising. Moreover, the Executive Board has also highlighted several sources of uncertainty such as the considerable trade and balance-of payments imbalances in the world economy. BIS Review 38/2005  5
However, the usefulness of such disclosure depends very much on the level of breakdown in the risk disclosure. Furthermore, the US President’s Working Group on Financial Markets recommends (a) a reporting framework for large hedge funds to disclose more meaningful and frequent market risk information to the public, and (b) a requirement on public companies to disclose information about their material financial exposures to HLIs. A challenge here is for other authorities to take similar steps to require such standards of disclosure, as this would help to avoid the possibility of regulatory arbitrage. At the market level, a working group set up by the G10, and led by Jean-Pierre Patat of the Banque de France, studied the feasibility of collecting and disseminating aggregate positions data in the foreign exchange market. I believe the initiative, if implemented, could have helped smaller and open markets in better understanding their currency markets and the accumulation of highly concentrated positions. However, in November 1999, the G10 Governors decided not to proceed further with work in this area. In making this determination, the G10 found that there were a number of practical limitations to the proposal, including the difficulty in obtaining compliance, the unfeasibility of producing the data in a timely manner, and the substantial costs involved. The demise of this initiative left a vacuum in the area of transparency on market concentration. This is unfortunate and the international community should explore other alternatives to bridge the information gap.

Zeti Akhtar Aziz: Malaysia - encouraging savings in a dynamic economy Opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the launching of the Merdeka Savings Bond, Kuala Lumpur, 2 January 2004. *  *  *  Ladies and Gentlemen, It is my honour and pleasure to welcome you to the launch ceremony for the Merdeka Savings Bond. The launching of this bond marks another step forward in our efforts to enhance the diversity of financial products for Malaysian consumers. In this more dynamic environment, the Malaysian economy has continued to expand with per capita income rising to exceed levels prior to the Asian financial crisis. This growth has been supported by comprehensive pro-growth policies and the development of a much stronger banking sector that is able to better manage new risks and challenges. As a trade-oriented economy, external developments will continue to be important in affecting our growth prospects. In order to reduce our vulnerability to adverse external developments, increased attention has been given to promoting domestic demand. Policy strategies have therefore been directed at promoting domestic consumption and investment. Low interest rates, together with policies to increase disposable incomes, have led to higher consumption and a recovery in private investment. These trends have been important in sustaining growth. As a high savings country, Malaysia has the potential to promote a higher level of consumption without undermining the prospect for financing of private investment from domestic sources.