samchain/econo-pairs-v1 huggingface dataset:
At the same time as they have put a lot of effort into criticising the Riksbank’s policy, they have often said very little about how they themselves view the potential risks and how they should be managed.18 A common argument has been, to simplify somewhat: “Firstly, the risks probably aren’t so great, and if there are risks they can always be managed effectively by macroprudential policy.” Here I think one ought to be able to demand greater clarity from the critics. Do they think that there is no problem with this kind of upward trend? Or will the trend slow down on its own before problems arise, and, if so, what mechanisms will achieve this? If it slows down but at a level where debt and house prices are elevated, what risks will this entail? Is the fact that housing prices and lending have now begun to accelerate after the Riksbank cut the repo rate nothing to worry about? If there are nevertheless risks, how should they be managed? If macroprudential policy is so effective, exactly what measures should be implemented? And what dosage is appropriate? Are macroprudential policy measures enough, or do other policy areas also need to be involved? These questions are very relevant ones and I wish they had been given as much attention in the debate as the Riksbank’s monetary policy.

BIS central bankers’ speeches  11  References Adrian, Tobias and Liang, Nellie (2014), Monetary Policy, Financial Conditions, and Financial Stability. Federal Reserve Bank of New York Staff Report No. 690, September 2014. Andrén Meiton, Louise (2014), Krugman tror att Fed håller räntan två år till. (Krugman believes the Fed will hold its policy rate unchanged two more years) Svenska Dagbladet newspaper, 24 January. Blanchard, Olivier (2014), Where Danger Lurks. Finance and Development 51(3), September 2014. International Monetary Fund. Blanchard, Olivier, Dell’Ariccia, Giovanni and Mauro, Paolo (2013), Rethinking Macro Policy II: Getting Granular. IMF Staff Discussion Note 13/03. International Monetary Fund. Borio, Claudio (2014), Central-Banking Post Crisis: What Compass for Uncharted Waters? In Goodhart, Charles, Gabor, Daniela, Vestergaard, Jakob and Ertürk, Ismail (eds. ), Central Banking at a Crossroads: Europe and Beyond. Anthem Press, London. Carney, Mark (2013), Monetary Policy After the Fall. Speech at the University of Alberta 1 May 2013. Bank of Canada. Financial Times (2014), Sweden slides further into deflation, October 14. IMF (2011), Sweden: 2011 Article IV Consultation. IMF Country Report No. 11/171, July 2011. Jansson, Per (2014), How do we stop the trend in household debt? Work on several fronts Ekonomisk Debatt no. 3, 2014. Jordà, Oscar, Schularick, Moritz and Taylor, Alan M. (2013), When Credit Bites Back: Leverage, Business Cycles, and Crises. Journal of Money, Credit and Banking 45(p2). National Institute of Economic Research (2011), The Swedish Economy June 2011. Krugman, Paul (2014a), Sweden Turns Japanese. The Opinion Pages, The New York Times, April 20.
During 2011, additional activities requested by banks and non-bank financial institutions were approved, consisting in introducing new market products and diversifying the existing products of financial institutions. Moreover, a preliminary approval was granted to new bank branches and agencies (10), but at low paces, whereas the activity of some bank branches and agencies was closed (11). As at year-end, there were 528 bank branches and agencies operating in the country and 1 branch operating abroad. Regarding supervision of the financial activity under the jurisdiction of the Bank of Albania, allow me to reiterate that it remains within the security parameters and is resilient to unexpected shocks. 6  BIS central bankers’ speeches  The Bank of Albania remains committed to monitoring the Albanian financial system rigorously and vigilantly, aiming at identifying early the potential risks and taking corrective measures to prevent them. Besides the foregoing directions of Bank of Albania’s work, I would proceed with some other activities of our work, which contribute not only to fulfilment of our legal tasks, but also to development of the financial system and market economy in Albania. 4. Other Bank of Albania activities    Bank of Albania’s role in the European integration  In the light of the objective for Albania’s integration in the European Union, the Bank of Albania has strived for aligning its activities and regulations with the European Union directives and standards.

In its featured plenary and multi-track programmes which include the Regulators Forum, the International Shariah Scholars Forum, the Global Islamic Liquidity Management Conference and the Global Islamic Finance Taxation Forum, a new highlight is the Bridging Economies Forum that aims to discuss the Islamic finance prospects and opportunities across regions, and to explore possible market linkages that can be generated through Islamic finance. Several important signings of MoUs will also be taking place during this Forum, highlighting increased commitment and international cooperation. Let me now conclude with an extension of our appreciation to the panel of distinguished speakers for their contribution to GIFF 2012. I would also like to once again, express our gratitude to the Honourable Deputy Prime Minister of the Republic of Turkey, His Excellency Mr. Ali Babacan for being with us today to speak at this event. BIS central bankers’ speeches  3
Now let me touch briefly on risk management in Turkey’s banking sector. From the risk management standpoint, we are well supplied with well-developed methods for managing risk and supervising the risks that we do accept. As to the financial standing of Turkey’s banking sector, Turkish banks have achieved a level of financial and institutional development not to be underestimated. But besides these strengths, there are various threats to the well-being of the Turkish banking sector which should be mentioned. Turkish banks, are mostly exposed to credit risk, liquidity risk, interest rate risk, and foreign exchange risk. This is true even when there is no global crisis or macroeconomic risks stemming from political uncertainty. I should mention that all these different kinds of risk have been thoroughly monitored by the supervisory authorities, who put preventive measures in place before the effects of any problems that were found could threaten financial stability. Under this regulatory system, the banks must submit annual, quarterly, BIS Review 41/1999  4  and even daily financial data to the Central Bank and the Treasury. And besides frequent financial evaluations of banks by off-site examiners, on-site examinations are conducted to verify the accuracy and reliability of the data reported and clarify any special issues found during off-site examinations. Let me conclude my remarks by underlining once again how important it is to assess, manage, and reduce financial risks to ensure a sound financial system.

To construct the decile plot, we calculate PageRank for each provision, rank the provisions (separately for 2007 and 2017), and then split them into ten bins (deciles). We display the mean for each bin, and the 95% confidence intervals (vertical lines). Now, you might say: so what? Different measures give us reads on different aspects of complexity – but of course they don’t tell us, in and of themselves, if it’s ‘good’ or ‘bad’. Banks and we are engaged in complicated lines of business, so unsurprisingly the regulations are complicated. There is a good deal of sense in that perspective, in my view. Perhaps more interesting is what these new analytical capabilities can help us do as a regulator, particularly for the effectiveness of our communications. For example, they can inform policy design by telling us ex ante how a future change in one PRA rule could affect the interpretation of others. And they could identify rules where language could be tightened and which are frequently accessed by web users. And we do want to look harder at the competition aspect. Small firms tell us that complexity is a real challenge and my instinct is that a simpler – simpler, not weaker – regime for small firms could benefit both our safety and soundness and competition objectives. A weaker regime for small banks would be a bad idea, particularly given the steps we have taken under our competition objective to encourage new entrants, who are by definition new and not yet tested in a downturn.
Tourism is feeling the effects of competition from nearby destinations offering packages similar to those of Spain at very competitive prices. The negative contribution of external demand to GDP growth thus continued to expand over the course of 2004, without any signs of a turnaround in 2005. On the contrary, according to National Accounts data for Q1, the contractionary effect of net external demand has stepped up significantly, against a backdrop of stronger domestic demand pressures driven by high consumption and vigorous construction spending combined with a clearer take-off in investment in capital goods. Among the factors influencing this negative behaviour of net external demand, the causes and repercussions of which I shall return to later, are the persistence of inflation differentials. Indeed, the inflation differential with the euro area widened during 2004, reflecting a relatively sharper impact of dearer oil on Spanish prices. Moreover, although the growth rate of labour costs eased, it remained relatively high. As a result, the 12-month increase in consumer prices rose from 3.2% in December to 3.5% in April. It is expected to moderate in the coming months, however. Indeed, the initial estimate of the HICP for May (3.1%) suggests it already has done. At the onset of 2005 the Spanish economy was highly buoyant. This robustness continues to be based on the momentum of domestic expenditure and on high job creation.

The aftermath If the famous philosopher Erasmus of Rotterdam were to have lived in our times, he would certainly have added an additional chapter to his satirical masterpiece “The Praise of Folly”, with its pointed attacks on human weaknesses and excesses, to describe some of the practices in financial markets 3 and corporate behaviour that have been so blatantly evident in recent years. Some, as we know, have used the expressions “irrational exuberance” and “infectious greed” to describe these 4 developments. I have nothing to add to these statements. Unfortunately, when stock prices came down sharply, the costs of the excesses became evidently clear. Since their peak in March 2000, stock prices in the euro area - as measured by the broad Dow Jones Euro Stoxx index - have fallen by roughly 57% as at the end of April 2003. It has been calculated that buying a thousand Deutsche Marks' worth of beer would have been a better investment than investing the same amount of money in Frankfurt's Neuer Markt at the height of the bubble - at least with the beer you could have made some return by selling the empty cans. The fall in the value of financial assets since 2000, associated with the fall in equity prices, has led to an increase in leverage ratios of non-financial corporations. The decline in the value of collateral has led to an increase in risk premia when taking up loans or issuing debt securities.
the leverage ratio, the Spanish banking system as a whole shows, on the contrary, slightly higher levels than the euro area average. Also, Spanish banks evidence, overall, a sound liquidity position, with their LCR ratio above the European average. Regarding the resolution of institutions, in recent years a number of regulations have been approved in Europe establishing a common framework for the EU, and defining the circumstances in which banks with financial difficulties should enter wind-up or resolution processes. In this setting, a new category of senior non-preferred debt instruments has been created, which ranks below senior debt in the payment priority of insolvency proceedings, with a view to facilitating compliance with the minimum requirements for own funds and eligible loss-absorbing liabilities, known as MREL. The MREL requirements that the Single Resolution Board has started to set for significant European institutions are an added reason for Spanish banks to strengthen their capital in the present environment of recovering profitability and an economy that is growing at a significant pace. More recently, December 2017 saw the completion of the second phase of reforms in the Basel III framework. The reforms include, inter alia, the improvement of the standardised methods for calculating credit and operational risk, restrictions on the use of internal models and changes in the leverage ratio. These changes will be implemented in two phases that will conclude in 2027.

This is associated with the adaptation to a more demanding regulatory framework that involves higher requirements in respect of own funds and liquid assets, along with other additional demands derived from the new resolution regulations. These regulatory changes, which have been introduced globally, are the response by the economic authorities to the shortcomings highlighted by the international financial crisis. Their essential aim is to increase banking systems’ resilience in the face of adverse shocks and to prevent taxpayers from having to bear the cost of the resolution of ailing banks. The first raft of reforms, known as Basel III, which was designed between 2010 and 2011, focused on increasing the volume of bank capital and improving its quality, and on the introduction of new minimum liquidity requirements and counterparty exposure limits, and of macroprudential instruments, such as the so-called countercyclical capital buffer. All these requirements will be effective, practically in their entirety, in late 2019. Spanish banks have already largely adapted to these new requirements, with their liquidity and capital ratios currently standing above the minimum levels stipulated. In any event, as 6/8  regards the CET 1 and Tier 1 solvency ratios, their aggregate levels – albeit with significant dispersion across banks – are, as at March 2018, low compared with those of the euro area banking systems, according to data from the European Banking Authority. This once again highlights the need for Spanish banks to adopt capital-strengthening strategies. With regard to the solvency regulatory measure, which does not take into account risk weightings, i.e.
This is why we at the ECB stress the need to be extremely  BIS Review 66/2004  3  vigilant against the materialisation of second-round effects that may result from a rise in oil prices. The ECB’s commitment to maintaining price stability in the euro area over the medium term implies that it will react promptly if there are indications that second-round effects are likely to emerge. Asset prices and monetary policy As has become clear from the previous discussion, monetary policy-makers may face very difficult choices in the event of large swings in important economic variables - like the price of oil and other raw materials - that can have a significant impact on the state of the economy. The same is true for large movements in asset prices, especially when markets - notably equity and housing markets - are seen to be moving out of line with what could be considered fundamentals. Such asset price misalignments, or “bubbles”, and their eventual correction, can potentially have severe economic costs. Asset prices are important for monetary policy, not just because abrupt changes in asset prices may have severe implications for macroeconomic stability, but also because asset prices play a key role in the transmission of monetary policy. Through balance sheet effects and through their influence on the cost of capital, wealth, and confidence, asset prices affect spending decisions by households and companies. In addition, asset prices provide useful information to monetary policy-makers, notably about private sector expectations.

All the prominent scholars who are presenting papers today will analyse some of the aspects of how and why market risk premiums vary. Financial regulations and financial frictions are  BIS central bankers’ speeches  1  important to our understanding of why risk premiums change over time. A thorough understanding of financial regulations and financial frictions might also be important in identifying unique investor characteristics. Axel Weber will shed light on the implications of financial sector regulation on the functioning of markets and the pricing of assets. Lasse Pedersen has provided valuable research on the micro structure of funding markets and how liquidity risks create systemic problems. In particular, he will cover frictions in financial markets. It is quite clear that the Government Pension Fund differs from the average investor in important respects. In addition, we need to understand how variation in risk premiums can be consistent with highly competitive financial markets. Why don’t all investors buy “value” or rebalance? Ken Froot will talk about rare events and disaster risks, how these events are priced in markets. He will also give insights on individual investor characteristics which give comparative advantages in holding these priced risk premiums. Ken French will speak about two ways for an investor to generate excess returns: informational advantages and systematically harvesting risk premiums which the investor has a comparative advantage in holding. Both Froot and French will mainly talk about average portfolio weights in highly competitive markets.
It is still difficult to judge on many of these issues, but we are here to identify the strengths and weaknesses, to express the pros and cons, to present our estimates and results that will certainly extend our mutual knowledge and wisdom for better guidance through the recovery process and beyond. Changes in the global environment Many changes in the regulatory framework, policy implementation, even in the way of reasoning and perceiving the actual developments, have taken place in the last seven years. The developed economies, besides zero bound lowered rates, also needed additional monetary policy accommodation through the quantitative easing. They also turned into using a kind of forward guidance framework as a tool for announcing monetary policy stance in a longer horizon than the usual one. Central banks around the globe, depending on the circumstances, were using a range of non-standard measures designed in a way to tackle specific drawbacks of the crisis. Exceptional conditions called upon exceptional measures, including “whatever it takes” approach in the euro zone in the peak of the debt crisis, which in total, mostly gave a positive feedback towards economic recovery. Considering the fact that this crisis originated from the financial system, a comprehensive reform of the financial regulatory framework has been launched during the crisis through Basel III – new capital and liquidity requirements are waiting to be implemented in practice.

Market interventions in 2000 and 2001 depleted the Central Bank’s foreign reserves, creating a pressing need to strengthen it. The  2  BIS Review 45/2003  Central Bank has been engaged on this task and will continue to do so. It had purchased foreign currency for the equivalent of 30.7 b.kr. since September 2002, which has undoubtedly exerted some impact on the króna in the short run, although the long-term effect is negligible, if any at all. The exchange rate for the króna plummeted in 2000 and 2001, and for quite some time was substantially below a level reconcilable with long-term equilibrium. This occurred at a time when the price of key exports was very high, making the years 2000 and 2001 especially favourable for the export sector and in fact also for import-competing sectors. Enterprises in these sectors understandably felt the effects of the rise in the exchange rate in the first half of this year. It is not to be expected, however, that the same conditions will re-arise in these sectors as prevailed, for example, during 2001 and in the early part of 2002. The exchange rate remained very stable from spring to early winter 2002, when the króna entered a strengthening phase which continued until the beginning of February. The Central Bank has stated its view that the appreciation over this period was primarily the effect of planned aluminium-related investments in East Iceland.
That makes it all the more important to resist every kind of nationalism or isolationism. Both are however on the rise. That worries me a lot. BILD: In the United Kingdom there will even soon be a vote on a complete withdrawal from the EU… Draghi: I cannot and do not wish to believe that the British would vote to leave, because we are stronger together. But if they do, it should be clear to them that they would lose all the benefits of the Single Market. BILD: If you had a spare wish for Chancellor Merkel, what would that be? Draghi: That she continues to fight for Europe. BILD: And one last question. The Bundestag has invited you again: will you go? Draghi: Of course. It will be my pleasure. BIS central bankers’ speeches  3

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