samchain/econo-pairs-v1 huggingface dataset:
For some time the Riksbank has had a well-designed analytical apparatus for early detection of changes and vulnerabilities that could develop into a serious systemic crisis. Above all, its purpose is the timely detection of vulnerabilities in banks that are of central importance for the payments system, which requires knowledge of the status of the various institutions and how the market functions. This in turn presumes continuous follow-up, where frequent contacts with financial market participants play an important role. These established contacts are essential in a crisis situation, both to determine the type of measure that is needed and to ensure timely implementation. Ten years ago we began to publish stability reports twice a year. These reports provide a basic analysis of financial stability with an emphasis on the four major banks. The report leads up to a comprehensive stability assessment, highlighting the various risks to stability. Financial stability and implementation of monetary policy Monetary policy and financial stability have a fundamental relationship in the payments system. Through its repo rate decisions and by determining the conditions for the banks’ deposits in and borrowing from the RIX system, in practice the Riksbank determines the overnight rate, that is, the interest rate on overnight interbank loans. Through the steering system, the Riksbank aims to keep this shortest market rate close to the repo rate. The overnight rate in turn affects the interest rates offered to the general public, and thereby economic activity and prices.

We are in a situation in which there is hardly any conflict between inflation and real economic considerations in monetary policy. Our decision to lower the interest rate is guided by normal monetary policy considerations – in other words, "business as usual". BIS Review 140/2008  5  When we lowered the interest rate we also noted that the effect of the lower rate would probably be smaller than usual. This is because the confidence crisis in the financial system has led to high risk premiums whereby short-term market interest rates were disconnected from their normal relationship to the repo rate, as I described earlier. The reduction we implemented on 8 October did not lead to an immediate drop in interbank rates. Consequently the mortgage institutions' borrowing costs did not drop either, neither did interest rates for loans to end customers. This clearly illustrates how the impact of monetary policy is dependent on financial stability. Some closing thoughts The Riksbank has worked on two levels during the current crisis. Interest rates were cut to alleviate the effects of the financial crisis on the real economy. In addition, measures have been taken on an ongoing basis to improve the functioning of the financial markets and to support financial stability. The interest rate decisions have been based on essentially the same type of considerations as those on which monetary policy is usually based.
The second part of my status report therefore concerns where we stand in the crisis cycle with regard to the financial system, how the socalled unconventional measures we have taken appear to have worked and how we look upon them in the future. But, before we go on to this – let me give you a brief summary of the “extraordinary” or “unconventional” measures taken as a result of the financial crisis and its effects. “Extraordinary” or “unconventional” measures… When the international financial turmoil escalated into a worldwide crisis in September last year, many countries found it necessary to dig much deeper than usual into the economic policy toolbox to find partly new methods and tools. Governments, central banks and other authorities around the world have taken extensive measures to recreate confidence in the financial markets, to maintain financial stability and to counteract the negative effects of the crisis on economic activity. The central banks’ measures, such as lending to the banks, are reflected in the fact that their balance sheets have increased substantially during the crisis, as can be seen in Figure 7. 6  BIS Review 138/2009  Figure 7.

Another example is that the Riksbank has entered into what are known as swap agreements with the Fed and the ECB, which means that if necessary we can borrow dollars or euro in exchange for Swedish kronor. This type of swap agreement is, put simply, an agreement to buy a currency at a particular time and to sell it back at a later date. A further measure is that we accept more types of security as collateral when the banks borrow money from the Riksbank. Moreover, the Riksbank has in different contexts extended the list of eligible counterparties so that more financial agents will have the chance of easier management of liquidity and funding. Need to coordinate? “Exit strategy” is a buzzword that has been used for a while now. There is currently much discussion on how and when the measures taken around the world during the financial crisis are to be phased out. One question that is highlighted is that international coordination might be necessary for some of these processes. Some of the discussion concerns timing and how “aggressive” one can be when slowing down the powerful stimulation from fiscal and monetary policy. If one eases up on the stimulation too soon and too hard, it may jeopardise the economic recovery. If one instead eases up too late and too little, there is a risk that inflationary pressures will be too strong. Here I believe that every country must make its own assessment, as conditions differ in different countries.
The answer, as in many other areas of complex decision-making, is simple. Or rather, it is to keep it simple. For studies have shown that the frisbee-catching dog follows the simplest of rules of thumb: run at a speed so that the angle of gaze to the frisbee remains roughly constant. Humans follow an identical rule of thumb. Catching a crisis, like catching a frisbee, is difficult. Doing so requires the regulator to weigh a complex array of financial and psychological factors, among them innovation and risk appetite. Were an economist to write down crisis-catching as an optimal control problem, they would probably have to ask a physicist for help. Yet despite this complexity, efforts to catch the crisis frisbee have continued to escalate. Casual empiricism reveals an ever-growing number of regulators, some with a Doctorate in physics. Ever-larger litters have not, however, obviously improved watchdogs’ Frisbee-catching abilities. No regulator had the foresight to predict the financial crisis, although some have since exhibited supernatural powers of hindsight. So what is the secret of the watchdogs’ failure? The answer is simple. Or rather, it is complexity. For what this paper explores is why the type of complex regulation developed over recent decades might not just be costly and cumbersome but sub-optimal for crisis control. In financial regulation, less may be more. Section 2 sets out the reasons why that might be, drawing on examples from outside economics and finance. Section 3 contrasts that thinking with the rapidly rising-tide of financial regulation.

Rather, they served as a backstop to banks’ own risk assessments. Basel rules were there to support, not supplant, commercial risk decisions. During the 1990s, the bluntness of the risk judgements embodied in Basel I came increasingly to be questioned – and arbitraged. Basel I was perceived as lacking risk-sensitivity, at least by comparison with the new wave of credit and market risk models emerging at the time. Change came in 1996 with the Market Risk Amendment. 9 This  8  Basel Committee on Banking Supervision (1988). 9  Basel Committee on Banking Supervision (1996). 6  BIS central bankers’ speeches  introduced the concept of the regulatory trading book and, for the first time, allowed banks to use internal models to calculate regulatory capital against market risk. With hindsight, a regulatory rubicon had been crossed. This was not so much the use of risk models as the blurring of the distinction between commercial and regulatory risk judgements. The acceptance of banks’ own models meant the baton had been passed. The regulatory backstop had been lifted, replaced by a complex, commercial judgement. The Basel regime became, if not self-regulating, then self-calibrating. A revised Basel Accord, Basel II, was agreed in 2004. It followed closely in the footsteps of the trading book amendment. Internal risk models were allowed as a means of calibrating credit risk. Indeed, not so much permitted as actively encouraged, with internal models designed to deliver lower capital charges.
Besides the increase in basic food prices, April’s inflation rate has reflected also the secondround effects, being materialised in higher prices of several services. The Bank of Albania judges that the Albanian economy should find space to face the external supply shocks or international price fluctuations by promoting domestic production in some key sectors. Annual inflation of tradable goods sector resulted 4.9% in April, accounting for about 73% of the headline inflation rate. High inflation rate of this sector of the Consumer Price Index (CPI) basket continued to be affected by high primary commodity prices in global markets, nonoptimistic mid-term anticipations related to them, and depreciated exchange rate pass-  BIS central bankers’ speeches  1  through. On the other hand, the decline in this item’s share to determining the headline inflation was an outcome of entry of domestic agricultural supply into the market. Nontradable goods inflation, reflecting better the domestic inflationary pressures, settled at 2.5% in April, attesting to a slight upward trend. April’s core inflation, which strips out the temporary effects, was close to 3.3%, reaching historical highs. Monthly paces of inflation rise, which are a better signal about inflation expectations trend, however, registered slower paces than in the previous months. Core inflation shows that the economy’s inflation expectations, although reflecting a relatively higher rate, remain well anchored at the Bank of Albania’s target.

As I recalled recently7, since the onset of the global financial crisis, the top 20 European banks have increased capital, net of share buy-backs, by higher amounts than the corresponding top 20 American banks: USD 289 billion by EU banks against USD 179 billion by U.S. banks. And according to the FDIC, the leverage ratios of the biggest European banks, calculated according to the same accounting standards, are very close to their American peers8. Furthermore, since midlast year in particular, European banks have implemented write-offs and increased provisions and capital, partly anticipating the Comprehensive balance-sheet Assessment that the ECB is conducting this year. Our estimates based on public information indicate that SSM banks (comprising 128 institutions) have, from July 2013 to April 2014, strengthened their balancesheet by EUR 104 billion. Measures taken include: EUR 34 billion through issuance of quoted shares (implemented and publicly announced), EUR 15 billion through the issuance of contingent capital hybrids or EUR 19 billion relating to additional provisioning. As a result, confidence in the euro area banking sector has improved and since the first quarter of last year, banks’ stock prices have risen at almost double the rate of the market average growth. But even if we were to agree that completing the strengthening of European banks is a necessary condition to consolidate the recovery, it is far from being a sufficient condition for jump starting growth in Europe.
It does not stimulate a culture of appropriate risk management, may lead to an inefficient allocation of resources in the economy and does not, therefore, promote stability. “Pillar 2” reminds bank managers that ultimately they are responsible for the adequate capitalisation of their institutions, and creates an incentive for banks to conduct their internal reviews carefully and responsibly, on the basis of a well-defined strategy. Finally, “Pillar 3” recognises that markets can serve as an ally to official supervision when participants have access to sufficient and timely information on a bank’s risk profile. Together, the three pillars are intended to complement each other and promote a more flexible, forward-looking and comprehensive approach to capital supervision. Elements of all three pillars certainly already exist in the supervisory systems of leading economies: but Basel II represents a concerted effort to apply those pillars more consistently across countries within a common framework. That, in turn, will help to reduce the burden on internationally active banks and promote a more level playing field for global competitors. 2  BIS Review 3/2005  While Basel II is a large step forward for safety and soundness standards, in many ways it is building on the advances that banks have long been developing on their own. We believe that it is important to recognise those advances so that supervision remains relevant to banking activities today.

Also from a European perspective, I believe that the EU should seek to implement the trading book changes at the same time as other major countries. Moving now to the second initiative, the Basel Committee has long intended to conduct work to re-confirm that the new framework meets our objective to broadly maintain the aggregate level of capital requirements, while keeping incentives to adopt the more advanced approaches that are offered. In order to establish a common data set on which to base this review, the Committee has decided to begin a recalibration exercise in autumn this year, some months earlier than anticipated. As I said earlier, I don’t believe that this will imply a significant change to the framework. We are already satisfied that the new capital framework clearly differentiates the degree of risk in particular transactions on a relative basis. What we need to confirm is that the absolute requirements are right and that the appropriate incentive structure is maintained. 5. Conclusion  In my testimony today, I have sought to outline the reasons why Basel II matters so much and how it will support the continued safety and soundness of the banking system. When we motivate banks to improve their understanding and approaches to risk, I believe that banks will become less sensitive to the ups and downs of the business cycle, better able to weather periods of distress and better able to serve as a source of credit and growth to the economy.
It started being phased in at the start of 2015 and reaches full application by 2018. The LCR consequently makes short-term funding less attractive to banks and holding HQLA more attractive. The requirement to meet this ratio is likely to be a contributory factor in market volatility around reporting dates. The NSFR is designed to reduce bank reliance on short-term wholesale funding relative to more stable sources of funding. It penalises short-term funding, including repos of shorter maturity than one year, particularly those under six months. The NSFR also penalises matched book transactions, since the negative impact of the reverse repo leg more than offsets the positive impact of the repo leg. Overall, the impact from the NSFR on short-term repo is reckoned to be lower supply, reducing volumes and increasing the price. The leverage ratio, which has been implemented in the United States for some time, is a deliberately simplified way to assess banks’ riskiness. Traditional bank capital ratios are calculated as capital over risk-weighted assets. The leverage ratio is calculated approximately as capital over total assets, with no attempt to employ risk weights. This is important for the repo market because sovereign bonds typically attract a zero risk weight. As such, carrying out repo as a large volume, low margin activity is threatened by the leverage ratio. Although the exact parameters of the leverage ratio regulations have not been 2/5  BIS central bankers' speeches  finalised, euro area banks are required to report leverage ratios.

John taught Tiger about opportunity costs. Immediately afterwards, Tiger left college and joined the pro tour. Clearly, a decision that paid off. But back to John Taylor again. Today, he will talk about ‘Ideas and Institutions in Monetary Policy Making’. Before giving him the floor, I will briefly introduce him. Born in Yonkers, New York, John Taylor earned his A.B. from Princeton University and his Ph.D. from Stanford. He taught at Columbia University from 1973–1980 and at Princeton University from 1980–1984. And since 1984, he has been teaching and researching at Stanford. John is the perfect economist. He is outstanding as a researcher, policy advisor and teacher. In acknowledgment of his exceptional services, he has received a number of prestigious awards for excellence in all these three fields. Let me say a few words about each of these areas, beginning with John Taylor the researcher. His research topics range from work on rational expectations to wage and price dynamics, macroeconomics, econometrics, fiscal policy, and, of course, monetary policy. He has written an impressive number of influential articles in leading journals and important books. It is impossible to summarise his research in a few sentences. Therefore, I will limit myself to two topics. The first topic dates back to the second half of the 1970s, when John initiated a research strategy that would have a profound and lasting impact on our profession. It was a time when the new-classical macroeconomists were claiming that monetary policy was powerless when it came to steering the economy.
However, even if liquidity worked,  4  BIS Review 22/2005  their impact on interest rates and the exchange rate would be broadly the same as raising the policy rate, although the transmission mechanism might be different, and they would affect individual segments of the credit system unevenly. In addition, changing the minimum reserve requirement is not a transparent measure and its impact on expectations is unpredictable. The Central Bank firmly advocates that housing costs should remain part of the reference index for the inflation target, and believes that by and large the best available methodology is being used by Statistics Iceland to evaluate them. This is because housing costs are a major item in household consumption in Iceland, where the level of owneroccupancy is 80%. Excluding changes in housing prices would ignore a large proportion of household expenditures. Experience also shows that housing inflation has the advantage, from the perspective of central banks on an inflation target, of being a leading indicator of general inflation later on. Presumably this is because the housing market is independent from foreign markets. Increased housing demand cannot be channelled out of the economy, unlike various other goods and services, nor is foreign competition present to any significant extent. When demand surges, housing prices often rise sooner and by more than prices of goods and services in general.

Thus the task has primarily involved controlling the way that developments unfold, and in the Central Bank’s view the worst path would have been if the real exchange rate had been driven up by domestic inflation. We are familiar with such cycles from historical experience and neither businesses nor households benefited from them. The Central Bank’s approach was therefore to raise its policy interest rate, causing a corresponding increase in the nominal exchange rate, in an attempt to prevent the real exchange rate from rising in step with inflation. An easier monetary stance may lead to a lower nominal exchange rate in the short run, but not to a lower real exchange rate in the long run. Lower interest rates would eventually lead to more inflation and wage rises, which in the final analysis would probably move the real exchange rate to broadly the same level as if monetary policy had been kept tight from the outset. The chief difference would simply be a much higher rate of inflation when the inevitable exchange rate adjustment arrived as the aluminium-related investments came to an end. There is no question that the high real exchange rate has squeezed the export and traded goods sectors, but it was known that such difficulties would emerge when the investments peak, so it should not have come as a surprise.
And it will head off potential bouts of financial fragmentation and promote inflation convergence towards our medium-term objective in a sustained fashion, in line with our commitment to symmetry. Second, in the current phase of the crisis in which problems are more concentrated in specific sectors, the policies aimed at supporting firms should be adjusted so as to focus on those most affected by the shock. Further, we should consider a more selective focus that prioritises support to viable business projects. In the specific case of the public loan guarantee programmes, some of their parameters may need to be adjusted to encourage the granting of bank financing to viable firms. Striking the right balance between continuing to provide the necessary protection and maintaining a sufficient degree of selectiveness will require practically continuous evaluation and adaptation of these instruments in the coming quarters. Third, fiscal support to date has focused on avoiding the materialisation of liquidity risks. This strategy has been successful but, as a result, firms have amassed more debt. A greater accumulation of debt might prove unsustainable for firms that already have a high level of debt. Admittedly, the extension of the grace period and maturity of loans under the ICO guarantee facilities, approved by the Government this month, will help to alleviate the financial pressure borne by many companies. But in some cases it would also be advisable for them to strengthen their solvency position by means of capital instruments.

24.11.2020  The impact of the pandemic on the Spanish business sector’s financial situation 1st International Management Congress. APD. Purposeful Business Pablo Hernández de Cos Governor  *English translation of the original speech in Spanish  Good afternoon, ladies and gentlemen. First, let me begin by thanking the organisers for kindly inviting me to take part in this Congress. My presentation today will focus on the impact of the COVID-19 crisis on the Spanish business sector’s financial situation and on the role that economic policy is currently playing and should continue to play to mitigate that impact. Business activity has been particularly affected by the crisis. Many of the economic policy measures adopted have been designed precisely to minimise that effect. These measures are and will continue to be crucial, to prevent the temporary shock caused by the pandemic from resulting in the closure of many businesses and, ultimately, in persistent damage to our productive capacity. However, despite the policy measures taken, many businesses have seen their financial situation deteriorate since the start of the crisis, and how we address this deterioration will have important repercussions for the macroeconomic outlook in the short and medium term. Firms that are most financially vulnerable generally invest less and hire fewer employees than those that are financially sound.1 At the same time, there are now signs that the pandemic may give rise to some structural changes in consumer demand.