samchain/econo-pairs-v1 huggingface dataset:
By strengthening investment in new and sustainable technologies, the euro area can accelerate its transition towards a digitalised and low-carbon economy. The COVID-19 crisis forcefully demonstrates that digital transformation is not an option, but a must. The medium-term implications of COVID-19 for monetary policy When prospects for the economy and inflation are highly uncertain, central banks essentially have to act as risk managers: they need to take action before the risks materialise to shelter the economy from further and deeper harm. Tail risks, in particular, may cause the economy to react in a non-linear and disruptive way. In spite of the receding stress in financial markets, there was therefore unanimous understanding at the June meeting of the ECB’s Governing Council that further strong policy support was needed to prevent medium-term inflation from moving further away from our inflation aim of below, but close to, 2%. Two broad decisions had to be taken. The first was the choice of the appropriate instruments. The second was the calibration of the instruments, taking into account potential side effects. These two decisions are, of course, interrelated. The choice of instruments ultimately hinges on the assessment of which instruments can address the risks to the outlook most effectively. Instrument effectiveness, however, is often highly state and time dependant. Persistent periods of market stress, for example, may weaken the transmission of changes in our key interest rates.

Such means of payment, adapted to the demand of users in the digital age, would (i) preserve the accessibility and usability of  Page 3 sur 7 central bank money, (ii) support our monetary sovereignty, and limit the risk that “external” digital assets – be they cryptos or non-European CBDC – would be used as settlement assets in the euro area, (iii) support the strategic autonomy of the European continent – and hopefully contribute to the emergence of a pan-European payment solution e.g. the European Payments Initiative, which could be used as a vehicle for the distribution of a digital euro. In the light of these challenges, and under the leadership of my Board colleague Fabio Panetta, the Eurosystem wisely decided on a two-year investigation phase on the issuance of a digital euro, before taking a decision about whether to go further by the end of 2023 / early 2024. I don’t say it’s done yet; but it’s our strategic – and yes, sovereign – responsibility to study the issue seriously, and then to decide. I would hence suggest we don’t focus too much our discussion on this “why” question, but on the “how”, together. And here I come to my third principle. 3. Our possible future digital euro must be designed and developed altogether, and be as decentralised as possible I stressed it here last year: a CBDC will be created with banks, not against them nor in spite of them.ii I don’t have any word to change to this commitment.
In this sense, just as the leveraged lending issue is akin to the UK mortgage risking-up issue, these margin loans have an echo of the problems we’ve been tackling on capitalisation of equity-release mortgages – complexity creates a weakness in the system. Another area our scanners are always interested in is the border zone between different industries – and in our case, in particular the border zone between banking and insurance, given we oversee both of these industries. There are a number of cross-border activities which we are keeping an eye on. One is the use of credit insurance to optimise capital positions of banks. This is a perfectly legitimate business and not one that we object to on either side of the border. But we do of course need to be satisfied that a risk which disappears from a bank’s capital requirement has genuinely been moved across the border 2, and that the receiving insurer is properly reserving and capitalising for that liability. Another area of interest is where insurers are taking on illiquid or structural risks from banks, for instance assuming the risk on long-dated inflation swaps. It is natural that some of these risks should gravitate towards the parts of the financial system which can bear them more efficiently. But we need to be sure that this isn’t just because regulation on one side of the border is missing something which has been captured on the other.

Nor is this a complete assessment, focusing as it does on the prudential angle as opposed to market liquidity considerations. I make them to illustrate the point that it is sensible for us to maintain a spirit of active enquiry about these sorts of issues, and to track developments so that we can intervene if we are concerned that the regulatory system is being arbitraged or simply encouraging the wrong behaviour at firms. Conclusion  We, together with many others, have done a huge amount to make the financial system safer over the last 10 years. But the lesson of financial history is that unless we are absolutely vigilant, and keep questioning both firms and ourselves about evolving and emerging developments in the markets we oversee, then this safety can easily slip through our hands. So our horizon-scanning will be an important part of our effort in the coming period. And as the PRA is holding itself to a flat nominal budget this year I would like to finish by asking any birdspotters present here today to lend us their binoculars, in the national interest.
In the Bank of England’s monetary policy operations – the STR OMOs and the OSFs – eligible collateral includes only securities  BIS central bankers’ speeches  3  issued by those sovereign issuers of the highest credit quality and which are expected to remain liquid in all but the most extreme circumstances. In providing liquidity insurance operations, the policy objective is to provide liquidity under stressed conditions and this can be most effectively done against a wider collateral set, although similar adverse selection concerns can apply. Where collateral is of differing market value, that ideally needs to be reflected in the price of lending so that there are no market distortions. The Bank has a number of different collateral pools to reflect this. The (first) “wider” pool is available for use in the Bank’s Indexed Long-Term Repo (ILTR) operations and includes both the narrow collateral set and certain private sector securities which would be expected to remain liquid in most conditions (including the debt of a number of other sovereigns and certain third-party originated ABS). The ILTRs allow firms to bid to get reserves against either the narrow or this wider collateral set at different prices. The Bank decides how much is allocated against wider collateral, depending on how much the commercial banks bid for it (ie reflecting market demand).5 It also meets other policy objectives such as providing a signal about the degree of stress in the market. A yet wider range of collateral is eligible in the Bank’s Discount Window Facility (DWF).

6  BIS central bankers’ speeches  Changes in market prices can, of course, affect the value of the collateral the Bank has taken in its operations. As a result, the Bank calls margin on any shortfall.8 In its sterling operations, the Bank calls margin daily and is moving to that standard for all other transactions. Limits The Bank also manages the risk on its balance sheet using concentration limits. Those serve two purposes. First, they help the Bank diversify across institutions – for example, counterparties can only bid for a maximum of 30% of the funds on offer in the Bank’s ILTRs. That helps ensure that any single counterparty doesn’t corner the market for reserves (intentionally or by accident). Second, they help diversify across instruments in the wider collateral pool – for example, the Bank requires that the adjusted market value (AMV) of securities that any single issuer delivers to the Bank as wider collateral in OMOs is less than the greater of £ million or 25% of its total OMO collateral delivered. Other recent policy initiatives The Bank has, for a number of years, been refining and improving its collateral policy. In November 2010, the Bank announced that it would allow counterparties to use “raw” (i.e. unsecuritised) loans as collateral in the DWF. By removing the need to securitise assets, that initiative expands the range of collateral that banks would be able to use in times of stress.
More information can be found in Regulation D.  4  BIS central bankers’ speeches  short-term rates like GC repo have tended to be more variable and have, more than in the past, fluctuated with sometimes unpredictable spreads to federal funds. These periodic episodes of weaker linkages suggest that although the IOER rate effectively influences the marginal unsecured funding rate for eligible depository institutions, it may not be representative of, and may currently lie above, the marginal cost of funds more broadly across money markets, for example, secured financing costs faced by repo market participants. This weakening of the relationship between short-term interest rates represents a reduction in the precision with which the Desk is able to control them over the very short term. It’s difficult to know, though, whether the shift in dynamics across money markets we’re seeing is permanent or temporary. While some of the changes could be indicative of an increasing desire by market participants to focus on collateralized rather than uncollateralized markets, it could also reflect more transitory factors related to an elevated level of reserves that leaves banks with no need to borrow funds given the abundance of deposits. Of course, it’s also difficult to know with certainty how money market rate relationships will respond when the FOMC eventually begins to remove policy accommodation in an environment with a high volume of reserve balances.

In short, the search for yield has broadened and deepened. We have, in one sense, been here before. Pre-crisis, low volatility justified high prices and high prices low volatility. The constellation of asset prices appeared consistent. Larry Summers famously commented that finance theory tells us how to price two bottles of ketchup, assuming you know the price of one bottle.8 Pre-crisis, the second bottle of ketchup looked fairly-valued relative to the first. But even if asset prices are consistent among themselves, this need not imply they are consistent with reality. So it was pre-crisis, as the price of risk became far too cheap relative to fundamentals. With the first bottle of ketchup woefully over-priced, finance theory ensured that the second bottle was similarly marked up. In this way, the seeds of the crisis were sown. 8  9  Summers (1985)  BIS central bankers’ speeches  Stein (2014)  5  The risk of this cognitive dissonance is once again rising. Low volatilities are being used to justify high valuations and vice-versa. The ketchup bottle looks fairly valued relative to other sauces. But what about the price of ketchup relative to fundamentals? Is the price of risk again becoming too low? Or is it the price of safety which this time is too cheap? I do not have clear answers, but I do know these are serious questions. In one sense, rising risk-taking is evidence of the monetary medicine working.
It is an important step towards ensuring that we have the appropriate institutional set-up in place to handle internal and external threats to financial stability in the future. Concluding remarks The Riksbank was formed in 1668 and in the nearly 350 years since then has seen many crises of many different shapes and sizes. I have experienced some (but not all!) of them. And in its time the Riksbank will have seen many different reforms and changes in response to the various crises. It seems extremely unlikely that we will be able to achieve what has eluded my predecessors in the Riksbank; namely, introducing changes that will eradicate all crises from our future. But it is still worth remembering the words of George Santayana, that “those who cannot remember the past are condemned to repeat it”. Ultimately, in the long-run, we may be condemned to repeat the past, but we can put structures in place that make the repetition less frequent and less costly. Institutions have a longer memory than individuals, so an important element of the current reforms to the regulatory structure and financial system is to create frameworks to ensure that the mistakes made in the run-up to this crisis are not forgotten and repeated once the key actors in this crisis are gone. In this context, three factors are key: fiscal sustainability, stable prices and sound financial stability policies. BIS central bankers’ speeches  5

Such a scheme would be justified as one which reallocates resources from current to future consumption, and the reallocation would occur only during a time of relative prosperity. 5  See F. Holme-Hadulla, S. Hauptmeier and P. Rother, “The impact of numerical expenditure rules on budgetary discipline over the cycle”, ECB Working Paper Series No 1169, April 2010; see S. Hauptmeier, J. S. Fuentes and L. Schuknecht, “Towards expenditure rules and fiscal sanity in the euro area”, ECB Working Paper Series No 1266, November 2010. BIS central bankers’ speeches  7  While this on its own would not ensure the sustainability of the pension system, it would be an important component in the process of pension reform, and, as I have already mentioned, I would suggest that it would be appropriate for deliberation at the MCESD. The phenomenon of population ageing raises sustainability challenges also for the public provision of healthcare, which represents a significant share of government expenditure. It must be recognised that the extent of provision of free healthcare and other services by the State must ultimately be financed by the taxpayer. The earmarking of certain revenue measures or particular revenue streams for this purpose may also be an appropriate topic for consideration by the social partners. The sustainability of funding the government’s capital expenditure programme, particularly in relation to the infrastructure and the public utilities through fiscal resources may also have to be reviewed.
It is also necessary to ensure that the behaviour of the organisation is in practice aligned with these values and that employees buy into them, so that the organisation actually practises what it preaches. Let me try to put some flesh on these arguments with some practical examples of ethical dilemmas involving banks that have been in the news recently. I have said that banking business is becoming more complex. One aspect of this is the globalisation of business activities which may be summed up as the tendency of the world to become one market place. As banks reach out beyond their home market, they become exposed to unfamiliar business environments and customers whose ethical standards may be very different from their own. This puts extra strain on the “know your customer” policy upon which regulators are so insistent. Business dealings with Russia are a case in point. Here you have the situation of a country that is making the transition from a communist to a capitalist economy. This naturally creates profit opportunities for Western banks. It could indeed almost be argued that these banks have a moral responsibility to assist in transforming the Russian economy. Unfortunately, somewhere along the line, this transformation has gone wrong, and the borderline between what is legitimate and illegitimate business in Russia has become blurred, to say the least. In this situation, what should a bank do? The decision can obviously be viewed in strictly commercial terms. But there is an ethical dimension as well.

Section 7 of the Banking Ordinance goes on to say, among other things, that our functions include the following aspects that have a distinct “ethical” flavour: •  taking reasonable steps to ensure that authorised institutions operate in a “responsible, honest and business-like manner”;  •  promoting and encouraging “proper standards of conduct and sound and prudent business practices” ;  •  suppressing “illegal, dishonourable or improper practices”. These specific functions can be related to our general function of promoting the stability of the banking sector. Clearly, if banks are involved in illegal or improper activities (such as fraud or money laundering) this may threaten the reputation not only of the bank concerned but also of the banking system as a whole. This in turn may lead to a loss of public confidence in the banks. I believe however that our functions also imply a broader interest in the concept of “fairness” in the provision of banking services. This is not to say that the HKMA should act as a “consumer watchdog” in investigating and adjudicating on disputes between banks and their customers on matters such as the cost or quality of banking services. But at the same time we should not be indifferent to how banks treat their customers in general. If banks consistently provide a bad or unfair service, this may damage the reputation of the banks and destroy customer loyalty and confidence.
Main instruments used to achieve this objective are training, to promote awareness of international standards and best practices in public financial management and central banking, as well as provision of technical assistance. Also, it serves as a platform for exchange of information and for discussing and learning about different policy challenges. By closely monitoring the implementation of the reforms and mapping further reform needs, it designs up-to date and demand-driven capacity building programs. The CEF serves as a regional network that focuses on the regional issues offering regional solutions, to the extent possible. At the same time, as one shock does not always symmetrically affect all of us, and not all the policy responses are alike, by gathering all of us, sharing of valuable experiences is enabled. Looking forward, the EU integration  BIS Review 165/2010  1  remains a main anchor for the macroeconomic policies in the region. We are all facing similar problems and challenges in our efforts to bring our national economies up to the EU standards. The convergence process appears to be a bumpy and thorny road, but worthy as it will finally lead to better living standards of our nations, which is a final objective of each government. In this light, I strongly believe that the CEF will continue to play a crucial role on our way towards the EU integration. This event will be focused on a topic that emphasizes the importance of human capital as one of the essential assets of each institution.

Anita Angelovska Bezhoska: Enabling environment for capacity building Opening speech by Mrs Anita Angelovska Bezhoska, Vice-Governor of the National Bank of the Republic of Macedonia, at the Center of Excellence in Finance (CEF) coordinators meeting, Skopje, 1 December 2010. *  *  *  Dear ladies and gentlemen, Dear CEF coordinators, distinguished representatives of central banks and ministries of finance in the region, dear representatives of the International Monetary Fund, International Labor Organization and, last but not least, dear organizers of this event, representatives of the CEF (Center of Excellence in Finance), I wish you all a warm welcome. I am delighted that this year the traditional meeting of the CEF-coordinators takes place in the Republic of Macedonia and it is focused on a very important topic: “Enabling environment for capacity building”. No doubts that the knowledge does not have boundaries. All of us, during our lifetime do try to compile as much wisdom as possible, to broaden our knowledge horizon and augment what we already know. In our professional life, we face a constant intellectual and public debate, which tries to challenge the existing paradigms, to offer new insights and to establish new norms. All of this, of course, for the purpose of building stronger intellectual and analytical capacity for efficiently coping with forthcoming professional challenges. Sometimes, unprecedented events are needed to reveal the deficiencies in the currently accepted system of knowledge. These types of events underscore the weaknesses and pinpoint the missing parts of the puzzle.
Jean-Pierre Roth: Global and Swiss economic outlook Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 10 December 2009. *  *  *  By and large, our assessment of the economic and monetary situation is the same as in September 2009, with economic and financial developments running according to expectations. Risks remain significant, and for this reason we are maintaining our expansionary monetary policy. Global economic outlook Before I address the outlook for the Swiss economy, allow me to briefly examine economic developments at the international level, since they affect the outlook for Switzerland. Signs of a recovery in global economic activity gathered strength during the second half of 2009. The ongoing normalisation of conditions on the interbank and financial markets, together with the monetary and fiscal stimuli, supported a recovery in production, especially in the manufacturing industry. However, the legacy of the crisis still weighs heavily. The economic rebound of the past few months is largely the result of public sector intervention, and is not yet anchored firmly enough. Except in emerging Asia, the rebound has only partly redressed the losses sustained in 2008 and early 2009. Capacity utilisation rates are still generally low, and access to bank lending remains difficult in some countries. Moreover, both the labour market situation and the need to restore savings levels are weighing on household consumer spending.

The share of banks reporting a further slight tightening of conditions for corporate lending has fallen considerably, from 40% at the time of the previous quarterly survey to 3% for this quarter. Households appear to be benefiting from a similar trend, as no banks have announced a tightening of their lending conditions for households,  2  BIS Review 167/2009  whereas in the previous quarter 50% of banks reported a further slight tightening of lending conditions for non-mortgage loans and 20% for mortgage loans to households. The survey also suggests that demand for loans has stabilised. The share of banks experiencing increased household demand for mortgages has fallen from 40% at the beginning of this year to 10%. The situation in Switzerland is thus very different to that observed in other economies. Not only is there no credit crunch, but we have also witnessed a substantial increase in the volume of mortgages. There are also signs of a relaxation in lending conditions for mortgage loans. We would like to sound a note of caution, both to banks and to firms and households, as regards the risks inherent in a relaxation of discipline in real estate financing. Inflation outlook Monetary policy influences the medium and long-term inflation outlook. By contrast, it has very little effect on short-term developments. The past two years have been a perfect illustration of this. Inflation peaked at 3.1% in July 2008, before plummeting to –1.2% in July this year.