samchain/econo-pairs-v1 huggingface dataset:
In an integrated global economy, severe negative consequences can be felt far away from the center of the financial crisis – as they were in Asia in late 2008 and early 2009. This underscores our common interest in promoting financial stability on a global basis. Truly effective reform would generate sizable and widespread benefits. However, there are significant challenges to achieving this. One challenge arises from the fact that we have a global economy with many large, globally active financial firms, but our regulatory regimes are implemented at the national level. Another is that any attempt to improve regulatory standards will inevitably meet with resistance from parties that have a vested interest in the status quo. Today I will comment on the actions underway in the United States and internationally to make the financial system more resilient and robust. I will focus on the logic behind the reform efforts, progress to date, and areas where there still is considerable work to do. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee, the Federal Reserve System, or my international supervisory colleagues with whom I work closely with on a regular basis. The financial crisis exposed significant vulnerabilities in the financial system. Without revisiting all the causes and consequences of the credit boom and bust that led to a boom and bust in the U.S. housing market, the bottom line is that our regulatory system failed in two important dimensions.

Chart: Mainland GDP  1/4  BIS central bankers' speeches  In Norway, growth in the mainland economy picked up through 2017 and the economic outlook improved. Low interest rates, improved competitiveness and an expansionary fiscal stance contributed to the upturn, while oil investment declined at a slower pace after falling sharply for several years. Although the activity level in the Norwegian economy was still somewhat below a normal level, the economy was emerging from the downturn that followed in the wake of the fall in oil prices in 2014. Employment was rising and unemployment was falling. The improvement in the labour market was reflected in a moderate increase in wage growth, which in the preceding years had been restrained by the decline in oil prices, lower capacity utilisation and lower underlying productivity growth. Chart: Consumer prices The depreciation of the krone following the sharp fall in oil prices in 2014 and 2015 gradually fed through to prices and resulted in higher inflation. As this effect faded and the krone appreciated, inflation fell back. Both low imported inflation and weak cost growth in the Norwegian economy contributed to low inflation in 2017. Underlying inflation remains below target, but prospects for higher levels of activity and slightly higher wage growth indicate that inflation will rise in the period ahead. Chart: Debt ratio and interest burden Elevated house price inflation and high debt growth have increased household sector vulnerabilities. After rising faster than household income for several years, house prices began to fall in April 2017.
Foreign exchange market intervention and capital controls, followed by the special reserve requirement on capital inflows into the bond market and high-yielding deposits, insulated the exchange rate from the effects of volatile capital movements, allowing it to develop relatively unhindered and in line with underlying economic conditions. The advantages of a flexible exchange rate therefore prevailed, while the disadvantages were mitigated. This did not make for an uneventful journey, however, because even though the equilibrium exchange rate had clearly risen, it is always subject to considerable uncertainty at any given time, and the risk of overshooting was genuine. This risk may have materialised to some degree, but had the above-mentioned policy instruments not been applied, it would have materialised much more strongly,  1  with the associated risk of an abrupt correction later on, which could have had adverse consequences for economic and financial stability. This economic turning point stems from a turnaround in some of the factors that contributed to the upswing. The global economic situation is not as favourable to us. Terms of trade are deteriorating and not improving. The rise in tourist visits to Iceland has slowed markedly. Therefore, as compared with the last three years, growth in export revenues will ease considerably this year and in the years to come. GDP growth will be lower, as will the rise in our real income as a nation, no matter what we may decide about nominal pay increases in wage negotiations or about how we distribute such increases.

There could be economic policy mistakes; for instance, if the Central Bank’s real rate declines more than is justified by fundamentals, or if fiscal policy provides a similar stimulus. Were this to happen, the output gap would remain open longer and inflation would be higher. The correction, when it came, would be steeper, and the adverse impact on GDP growth would be more pronounced. The markets could undershoot or overshoot, derailing the economy at least temporarily. External shocks could strike as a result of trade disputes or further increases in oil prices, and indeed, the alternative scenario in the most recent Monetary Bulletin includes just such factors. Wage negotiations could result in broad-based pay rises far larger than the already sizeable ones provided for in the Bank’s forecast. The inflation outlook would then deteriorate, which would call for interest rate hikes. GDP growth would weaken as a result, perhaps even ending in a contraction. 2  But there is always some uncertainty in both directions, and naturally, we could end up on the receiving end of positive shocks that improve the situation. But under these conditions, it is likely that the risk to GDP growth is tilted to the downside. In this connection, it is important to remember that we have seldom, if ever, been as well prepared for adverse shocks as we are now. Our external assets exceed our external liabilities. Our international reserves are close to an all-time high and are almost entirely financed domestically.
Consequences of cross-border banking The increased globalisation of banking has brought both benefits and costs to the economy. For a long time, the benefits have appeared to outweigh the costs, but the recent global financial crisis has put this issue in a new light. I will talk about the economic costs of cross-border banking shortly. But let me first say something about its benefits. A general problem with the banking sector is that it is highly concentrated, which makes it especially prone to anti-competitive behaviour. An interesting question in itself is why the banking sector is so concentrated. One reason is surely that it is heavily regulated. Regulations create entry and exit barriers. From my viewpoint, however, it also seems as if the mechanisms of banking crises are such that you end up with an even more concentrated banking sector after a crisis than before. When some banks run into difficulties, a common solution is to let them be acquired by a more healthy-looking competitor. In Sweden, we went from seven large banks to only four as a consequence of the acquisitions that occurred in connection with the banking crisis in the early 1990s. Four banks now hold around 80 per cent of the total market. That is a highly concentrated market! 13  Williams (2002). 14  See e.g. “Mapping of large European groups with a significant cross-border banking activity for the year 2008” prepared by the Banking Supervision Committee (restricted edition).

They do not, for example, cover how the supervisors of the large EU banks active in London will cooperate with the UK supervisory authorities to  8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  provide assurance about the risk being imported into the UK. Or how the EU authorities – at European and at member state level – will manage the pooling of EU risk in the global markets of London. We have a good basis on which to build. Most obviously we leave the EU with the same legislation and regulation – ‘equivalence’ at the starting point of this new relationship should not take the regulatory authorities on either side very long to establish. The Financial Policy Committee of the Bank of England has made clear that it is committed to maintain a level of financial sector resilience that is at least as great as that currently planned, which itself exceeds that required by international standards. On the supervisory side, the Bank of England has over the last 18 months signed 30 MoUs with EU and EU member state authorities covering pretty much all aspects of financial sector activity. The Financial Conduct Authority has done likewise. The issue therefore is not the starting point but how our regulatory frameworks and supervisory practices and cooperation will develop over the future. The UK has been very heavily involved and instrumental in the development of the EU regulatory framework. That will no longer be possible.
So there are a number of lessons for today’s exchanges, to do with the need to respond to market needs, the need to make full use of available technology, and so on. Role of clearing houses It will be very little surprise to many of you that, as the central bank, the aspect of these developments which interests us most is the management of risk. BIS Review 50/2000  2  Clearing houses have traditionally played a central role in the derivatives markets and continue to do so as those markets expand. They are also increasingly active in the underlying cash markets. It’s clear to see why the markets value their service and it is fortunate that, in the London Clearing House, London has a first class central counterparty. But clearing houses concentrate risk at a single point. And, by serving multiple markets, they provide a route for disturbance to be transmitted between markets. So the way they manage their risk, particularly as they expand their activities, is important to you, I hope, as much as to us. Diversifying across products can provide benefits, particularly if this simultaneously diversifies a clearing house’s exposures across existing clearing members. And expansion into new markets where existing members are already active provides clearing houses - and potentially regulators - with more information on members’ overall trading books which they can use to manage their risk more effectively. Diversifying across markets does not, of course, help when, for some reason, the markets all move together.

Here, the emphasis should be on ensuring that these financial market utilities can open for business the day after the failure of one or more of their participants. Credible resolution regimes for large banks and securities firms—and credible recovery regimes for CCPs and other critical financial market utilities—should help support confidence during times of stress. These measures would make the financial system less prone to booms and busts. Financial intermediaries would be more robust to stress when busts inevitably occur, and contagion to the broader system would be reduced when a systemically important firm fails. Such changes should reduce the likelihood of the failure of a large, systemically important firm and the negative consequences of such a failure on the broader financial system. These steps should help to ensure that credit flows can be sustained throughout the business cycle. Considerable progress So, where are we relative to what is needed? As I see it, there has been considerable progress. The nation’s largest banks are much safer as a result of substantially higher capital and liquidity requirements, as well as robust stress tests. This enhanced resiliency has been achieved without a significant negative impact on the broad availability of credit—recognizing that it is now more difficult for households with low credit scores to obtain a mortgage. Most importantly, improving the capacity of such firms to continue to lend during times of stress should make the overall economy more stable. We have also made significant progress in addressing many of the structural weaknesses uncovered by the financial crisis.
The FSPB’s objective is to drive the development as well as the advocacy of professional standards, ethics and continuous professional development across the financial services industry. I would strongly urge the AFA to work together with the FSPB to develop and implement industry codes of conduct and ethics for its member firms and representatives which should express in very clear terms the professional responsibilities that a financial adviser must demonstrate towards its clients. This should be accompanied by an effective mechanism for investigating and addressing complaints on a breach of these responsibilities, and the ability to act against errant members in order to preserve the integrity of the profession. In line with efforts to ensure a high level of professional competence among financial advisers, the Bank also intends to require qualifying and continuing professional development programs for financial advisers to be formally accredited by the Finance Accreditation Agency (FAA). As you may already know, the FAA is an independent quality assurance and accreditation body for the financial services industry that was established by the Bank and the Securities Commission in 2012. It provides programme accreditation, individual accreditation and institutional accreditation services for learning initiatives within the financial services industry locally and internationally. Since its inception, FAA has registered 28 training providers and accredited 18 professional and academic learning programmes offered in Malaysia, the Middle East, Asia, and the United Kingdom, including those offered and recognised by highly reputable and established international professional bodies. FAA has also developed Continuous Professional Development Guidelines for the financial services industry.

We will continue to set a high bar on professional integrity and quality of advice, and we welcome your ideas and input on how we can continue to encourage firms to grow within the industry and bring financial advisory services to a wider spectrum of the public. The Association of Financial Advisers has a very important role in this process and has been a focal point for the Bank’s engagements with the industry. I look forward to your continued cooperation in achieving our shared goal of developing a financial advisory industry in Malaysia that truly serves to improve the well-being of financial consumers in this more challenging environment, and one that we can all be proud of. Thank you very much for your attention. 4  BIS central bankers’ speeches
0 1998 2000 02  04  06  08  10  12  14  16  Sources for both charts: Bank of International Settlements  What do these actions have in common? What guides the choice of macroprudential policy tools and their calibration? Is there a unifying framework that articulates success for macroprudential policy? There are several reasons why defining a unifying framework for macroprudential policy is more complex than for monetary policy. First, the gravitational pull of monetary policy is greater because its performance is easier to monitor. But whereas the objective of monetary policy—price stability—is readily and frequently observed, the objective of macroprudential policy—financial stability—is most easily defined in its absence. Financial stability is the opposite of the financial instability of bust, crises and panics.6 Second, macroprudential policymakers deploy a large number of very different tools in order to address a wide range of systemic risks. 5 See ‘True Finance – Ten years after the financial crisis’, speech by Mark Carney given at the Economic Club of New  York, 19 October 2018. 6 While most definitions of financial stability are based on its absence, a positive definition of financial stability would be the sustainable provision of financial services, and confidence in the financial system to withstand future shocks without major disruption to those services, where these are integral to the real economy’s pursuit of strong and sustainable economic growth.

Over the past decade, a flurry of macroprudential policy actions have been taken to address the fault lines that caused the crisis including raising bank capital minima and buffers, introducing liquidity buffers for banks, reducing bank interconnectedness and improving their resolvability, targeted restrictions on mortgage  4 Macroprudential policy is distinct from microprudential policy. Microprudential policy concentrates on promoting the  safety and soundness of individual institutions. Macroprudential policy addresses risks arising from interactions between institutions and sectors within the financial system, and interactions between the financial system and the real economy. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches  7  lending, transforming fragile OTC derivative markets, and winding down the toxic forms of shadow banking and building up more resilient market-based finance (Chart 1).5  And with these policies have come a flurry of speeches too (Chart 2). Chart 1: Increasing use of macroprudential meaures over time  Chart 2: Flurry of macroprudential policy speeches post-crisis  Use of macroprudential measures over time  Number of speeches 250  14 12  200  10 150  8 6  100  4 2  50  0 1995-2000  2001-06 AEs  2007-12  2013-18  EMEs  Bars show the average number of macroprudential measures per year and per 10 economies in each group of economies.
Lower demand in turn curbs the rise in prices and wages. Higher interest rates make it more attractive to invest in NOK and borrow in foreign currency. Therefore, higher interest rates normally lead to an appreciation of the krone. This makes imported goods cheaper. In addition, a strong krone reduces activity, profitability and the ability to pay in the internationally exposed sector. Expectations in the US as to how far the interest rate will fall have been adjusted downwards considerably since summer 2002. Last summer, market participants expected the key rate in the US to be increased to about 5 per cent towards the end of 2004. Now interest rates are believed to have reached their lowest level and are expected to remain at 1 per cent until the end of 2003, with a gradual rise to about 2.5 per cent in 2005. Clearer signs of the expected upswing have emerged recently, however. GDP grew by 3.1 per cent (seasonally adjusted, annual rate) in the second quarter. Optimism among participants in the financial markets is increasing; both equity prices and long-term interest rates have risen. Despite improvement in the US economy, some aspects still give rise to uncertainty as to whether the expected upswing will be sustained. Capacity utilisation in manufacturing is still low. The household saving ratio is low and household debt is high. The current account is showing a large deficit.

At the same time, employment and labour force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years. This supports real disposable income and thus consumption growth, although purchasing power is being dampened by the impact of higher energy and food prices. The uncertainty surrounding this outlook for economic growth remains high, and downside risks prevail. In particular, risks relate to the potential for the financial market turbulence to have a more negative impact on the real economy than previously anticipated. Moreover, downside risks stem from the dampening impact on consumption and investment of further  BIS Review 57/2008  1  unanticipated increases in energy and food prices. Risks also arise from protectionist pressures and the possibility of disorderly developments owing to global imbalances. With regard to price developments, annual HICP inflation has remained above 3% for the past six months. According to Eurostat’s flash estimate, it was 3.3% in April 2008. This outturn confirms the ongoing strong short-term upward pressure on inflation, resulting largely from sharp increases in energy and food prices at the global level in recent months. Looking ahead, on the basis of current futures prices for these commodities, the annual HICP inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008. Accordingly, we are currently experiencing a rather protracted period of high annual rates of inflation.
If we gain access to the remainder of the loans from the IMF and the Nordic countries, it will be possible to strengthen the reserves by another 2½ billion euros. The reserves would then amount to 3.9 billion euros, almost half of GDP and nearly 21 months’ worth of imports, before the loan payments. Of course, this is a much larger reserve fund than we need for the long term, and it will be costly. For this reason, we will continue to refine our projections of how much, and when, we need these supplemental loans. In this context, we must also bear in mind that we will only need maximum foreign reserves for a short period of time, while we are setting the stage to lift the capital controls and getting beyond these large loan instalments. The Central Bank has decided, in connection with its macroeconomic forecast this coming May, to prepare a new balance of payments estimate for next year, as circumstances have changed somewhat since the last such estimate was prepared in connection with the IMF economic programme. Then it will be easier to assess what kind of pressure instalments and interest payments from all Icelandic parties could place on the króna in the months to come if nothing else changes, and our need for foreign exchange reserves will be further clarified as  6  BIS Review 39/2010  well. One thing is clear, however: for a period of time, we will need to maintain larger foreign reserves than we currently do.

But as the weight of exchange rate-linked items in domestic balance sheets declines, and as confidence rises and the foundations for the exchange rate itself are strengthened, monetary policy can devote greater attention to the slack in the economy and the inflation outlook. In this context, three factors are most important: returning domestic financial institutions to full functionality, converting foreign-denominated debt to domestic currency, and restoring access to foreign credit and financial markets. It is important to enhance the effectiveness of the Central Bank’s monetary policy instruments and improve the transmission mechanism of monetary policy. While confidence in the financial market remains limited, the Central Bank’s policy instruments will not be fully effective because, under these circumstances, financial institutions have every reason to consider it more beneficial to do business with the Central Bank than among themselves. The Central Bank has set a framework for the money market, foreign exchange market, and bond market, thereby contributing to their resurrection, in co-operation with the authorities and the financial institutions. At this point in time, it is primarily the bond market that has  BIS Review 39/2010  3  shown signs of recovery. However, financial institutions’ conduct still shows that they are uncertain about the future, and the premises for trading are distorted to some degree. Finding a solution to this will be an important task in the coming months. At present, investment in Iceland is close to a post-WWII low.