samchain/econo-pairs-v1 huggingface dataset:
While many bankers did place profit ahead of the interest of the customers they serve, it is at the same time increasingly true that customers are also treating banking services more as a commodity. This means that customers shop around for the best bargain in town. They hop from one bank to another without regard to the value of any long term relationship between bank and customer. This shift of mindset from relationship banking to transactioncentric banking is another change that weakens the alignment of interest and of trust between bankers and customers. The introduction of deposit protection schemes in many parts of the world has been motivated by good intentions, but it does produce the side effect of moral hazard in that customers no longer need to care overly much about the trustworthiness of a bank because their deposits are protected by the schemes. Consequently, customers would tend to be drawn to the bank offering the highest interest rate on deposits or returns on investment products. Many customers would also opt for very large banks, regardless of their actual financial strength, in the belief that these banks are “too big to fail”. Unfortunately, this belief in “too big to fail” was proved right during the GFC as some governments in advanced economies spent billions of dollars of public money to bail out some of the largest failing banks and financial firms. 10.

By the way, for those of you who are not familiar with Professor Goodhart, he is a renowned British economist with an economic law named after him, the “Goodhart’s Law”. He had had special ties with Hong Kong, as he served on the Exchange Fund Advisory Committee of the HKMA in the 1990’s. Professor Goodhart was also a long-time advisor to Bank of England, and a member of its Monetary Policy Committee from 1997 to 2000. In his recent article “Has regulatory reform been misdirected?”1, he points out that it is individuals in banks, rather than banks as institutions, that take decisions and exhibit bad behaviour. Following this logic, he advocates that financial regulation challenges should be addressed through governance reforms, rather than a focus on just capital and liquidity management. Regulators should apply fines to the people responsible at the time of an offence, whether or not they have subsequently left the bank. In Professor Goodhart’s words, “if a bank CEO knew his own family’s fortune would remain at risk throughout his subsequent lifetime…, it would do more to improve banking ‘culture’ than any set of sermons and required oaths of good behaviour.” Harsh as it may seem, I do see considerable merit in his argument as that would help tackle the root cause of problems, i.e. the lack of accountability for individuals incentivised by short-term objectives.
We had to expect that this increase would lead to a deterioration in the competitive position of Norwegian manufacturing, either through higher wages or through an appreciation of the krone exchange rate, and with Norway’s relatively higher wage growth, competitiveness has been weakened by approximately 15 per cent since the mid-1990s. The krone exchange rate has been influenced by high oil and gas prices and prices for other Norwegian export goods. Monetary policy has also influenced the path for Norway’s relative costs, but the nominal value of the krone is about the same as ten years ago. Strong growth in public expenditure and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. Even at the beginning of the oil age in Norway in the early 1970s, the relationship between the use of petroleum revenues and changes in industry structure was raised as an issue. Manufacturing industry was scaled back in waves in the course of this period. The last wave occurred around the turn of the millennium, but a substantial decline also occurred in the periods 1977 to 1984 and 1987 to 1992. Prior to these periods, the manufacturing sector’s competitiveness deteriorated. Today, about 55, 000 fewer persons are employed in manufacturing than was the case in 1998. The share of our imports that can be covered by current petroleum revenues and some of the Petroleum Fund will gradually diminish. Competitiveness must therefore be improved.

The scope is relatively moderate, but appears nonetheless to have reduced bottleneck tendencies in some industries where demand has increased sharply. Traditionally, many workers from our neighbouring countries have contributed when the labour market in this country has been tight. In 2001, close to 30 000 persons resident in Sweden were employed in Norway for all or part of the year. Swedes who have registered as residents of Norway come in addition. An increased supply of labour from new EU member states to Norwegian enterprises may lead to a higher-than-normal increase in potential output for a period. Many of the foreign workers work for a shorter period in Norway without being employed in a Norwegian enterprise. Examples include foreign contractors and self-employed in the construction industry who carry out various building projects in Norway, as well as others who carry out other types of projects. Aker Kværner, for example, has contracted 300 consultants based in India to work on the Ormen Lange project in North-West Norway. An increase in the use of these short-term contracts will appear as an increase in Norway’s service imports, and contributes to increasing the supply of goods and services without drawing on domestic resources. Protectionist measures may dampen the impact on the Norwegian economy of an increased supply of labour from the new EU member states. The transitional rules from 1 May last year stipulate that foreign workers shall have Norwegian wages and working conditions.
Legislation on resolution The second major reform I would like to comment on refers to rules on the resolution of nonviable institutions. Traditionally, the principle of constructive ambiguity has prevailed when action is taken by authorities in the face of problems of bank solvency. Under this approach, financial institutions’ liabilities – except for guaranteed deposits – do not formally qualify for specific legal treatment, aside from the seniority established in the case of bankruptcy in accordance with conventional commercial law. However, the authorities have used discretionary power to protect the holders of banks’ debt instruments – through capital injections which have prevented the winding up of such banks – when they have considered that their bankruptcy could entail undesired systemic effects. In the recent past, it has become evident that the systemic effects of banking crises can be very marked, even when they affect institutions of no great size. Consequently, constructive ambiguity has resulted, at least in the first stage of the crisis, in widespread public action to assist ailing institutions. This has confirmed the existence of an implicit public guarantee of bank liabilities which, when activated, has generated considerable costs for the public finances of the countries most affected. Constructive ambiguity generates an incentives system which makes it difficult for institutions and their creditors to manage risk appropriately. Thus, the restoration of an effective incentives system needs to limit confidence in public support schemes being activated across the board.

This project is essential to overcome the problems of fragmentation which still beset European markets and which cause the perception of risk associated with banks’ liability instruments to differ depending on the jurisdiction in which they operate. However, as you know, to ensure that non-viable banks are resolved in the same way in the various Member States of the euro area, it does not suffice to have a set of common regulations; rather, it is necessary to have a single resolution authority to ensure that the regulations are applied uniformly in all countries. Similarly, the financial support needed for orderly bank resolution must be available under similar conditions whenever required. Clearly the lack of a full European resolution mechanism (including uniform rules, a single authority and a common fund) would limit the effectiveness of the single supervisory mechanism. In that case, the single supervisory mechanism would have to resort to a complex system of interaction with the national authorities (which would have to continue using their resources to cover the fiscal effects of the problems of non-viability detected by the supervisor) to ensure financial stability. In this respect the draft legislative proposal submitted by the European Commission (EC) last July for the establishment of a single resolution mechanism is very timely. The EC proposes the creation of a single resolution agency or authority, which would manage a common fund fed by contributions from the industry and ultimately report to the European Commission.
Assuming that the annual rate of credit growth decelerates gradually, and monetary conditions are tightened significantly in the final quarter in line with policy measures taken in October, inflation is expected to be, with 70 percent probability, between 7.8 and 8.8 percent with a mid-point of 8.3 percent at the end of 2011, and between 3.7 and 6.7 percent with a mid-point of 5.2 percent at the end of 2012. Inflation is expected to stabilize around 5 percent in the medium term (Chart 14). I would like to reiterate that any new data or information regarding the inflation outlook might lead to a change in the monetary policy stance. Therefore, assumptions regarding the monetary policy outlook underlying the inflation forecast should not be perceived as a commitment on behalf of the CBRT. In sum, short-term inflation forecasts were revised on the upside mainly due to exchange rate developments and hikes in administered prices. I would like to underscore that these factors reflect a movement in relative prices rather than a permanent increase in inflation, as the monetary tightening envisaged in the last quarter in the context of the CBRT’s recent strong policy reaction will prevent second round effects. 8  BIS central bankers’ speeches  Distinguished Guests, I would like to highlight once more that the recent tightening in the CBRT’s policy stance aims mainly to prevent deterioration in inflation expectations triggered by inflationary pressures from the exchange rate.

•  So the PRA’s approach to prudential supervision entails making judgments of the kind:  •  Your bank isn’t as strong as you think it is  •  Cut back on the risk in your book  •  I’m afraid you’re not fit to run the bank  •  your business could not be resolved in an orderly way if it fails. •  This shift from rules to judgment changes the relationship between the regulator and business, and is an important example of what this series of talks is about. •  Challenge is how to make a judgment-based approach acceptable when we use it in earnest. Is our society really ready again for judgments from the Old Lady? •  Part of the solution is public law. The Bank must follow due process when it deploys its statutory powers, and that is subject to judicial review in the courts and appeal tribunals. •  But there is also a wider question about how society as a whole will keep us accountable or, more simply, just see what is going on during the periods, sometimes years, in which banks do not fail and the financial waters are – or at least seem to be – calm. Which brings me to our monetary and macroprudential roles, which indirectly touch every business, and household, in the country.
Higher interest rates make it more attractive to take krone positions and borrow in foreign currency. As a result, higher interest rates normally lead to an appreciation of the krone. This reduces prices for imported goods. We call this the exchange rate channel. Interest rates also influence inflation indirectly via domestic demand. When interest rates rise, it is more profitable to save and more costly to borrow. This has a dampening impact on consumption and investment. Lower demand in turn curbs the rise in prices and wages. In addition, a strong krone reduces activity, profitability and the capacity to pay in the internationally exposed sector. This is what we call the demand channel. In addition, changes in inflation expectations influence price and wage inflation. Inflation expectations are, for example, important for wage negotiations. Enterprises do not want to change prices too often. Hence, they take inflation expectations into account when they set prices. Interest rate changes may influence expectations and thereby inflation itself. This is the expectations channel. Monetary policy channels are further described in Svensson (2002). It is important to be aware of the relationships between employment, output and inflation. If there is a shortage of labour and other economic resources, a tight monetary policy stance will reduce inflation by affecting aggregate demand. Conversely, when unemployment is high, low interest rates stimulate  2  BIS Review 59/2002  demand, which will contribute to stable wages and prices.

6  On the “risk channel” of monetary policy, see Stein and Hanson (2012), “Monetary policy and long-term real rates”; Tucker (2012), “National balance sheets and monetary policy: lessons from the past”; and Borio and Zhu (2012), “Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?”. 7  This is broadly comparable to shifts in the velocity of money affecting the interpretation of the rate of growth of the money stock when monetary aggregates were used as targets by UK governments in the 1980s. BIS central bankers’ speeches  3  it was as if UK monetary policy was being switched back on.8 With monetary stimulus maintained, now within the framework provided by the Committee’s Forward Guidance, recovery will continue to be underpinned – although of course the road will be bumpy. That is a key element of what, in our internal discussions, I have called the Keynesian part of the Bank’s policy response to the crisis. The Funding for Lending Scheme; the liberalisation of our liquidity insurance to the banking system – through the Extended Collateral Term Repo scheme and the liberalised Discount Window Facility; and the Financial Policy Committee’s related Recommendation to the Prudential Regulation Authority to relax liquidity requirements on banks – all these fell under the same broad heading. “Keynesian” because we are supporting demand in order to help smooth the adjustment the economy is going through. But a central bank’s monetary and liquidity interventions cannot remove the need for adjustment.
Chart 4: MPC over-predicted demand coming out of the pandemic  Sources: ONS, Bank of England, Bloomberg Finance L.P. and Bank calculations.Chart shows the cumulative percent change in real consumption relative to its level in 2021 Q2. The ‘monetarist’ forecast is based on an error correction model of consumption estimated over 1992-2019 that includes separate terms for liquid assets and illiquid assets in both the long-term relationship and short-term dynamics. It is based on a consumption function set out in Aron et al (2011)  . Second, inflation driven purely by a monetary expansion might be expected to raise all prices equally. That’s very clearly not what’s happened over the past couple of years. As Chart 14 illustrates, there have been huge variations in relative prices – some have risen much faster than others. In 2021, the inflation was most marked in prices of core traded goods. In 2022 the big jumps were in energy and food prices (Chart 15). Page 25  Chart 14: Big shifts in relative prices since the pandemic  Sources: ONS and Bank calculations. Chart 15: Large increase in global prices of durable goods in 2021, then those of energy (especially in Europe) in 2022  Sources: ONS, FRED and Bank calculations. Page 26  Furthermore one can readily identify things that account for this pattern. The pandemic caused a big shift in global consumer demand towards goods (and away from services) while at the same time impairing their supply.

The rise in broad money during the pandemic and the current inflation So the lesson of history is that most movements in broad money occur independently of variations in the size of the central bank’s balance sheet. Nor are many of them driven by exogenous changes in supply with no accompanying shift in the demand for money. They’re not necessarily Friedman’s “helicopter drops” and accommodating them needn’t have any implications for asset prices or for demand. However, there may be times at which this is the more appropriate description. Arguably, the significant growth of M4 during the pandemic – and specifically the build-up of money in households’ bank accounts – counts as one such episode. Unable to spend during the lockdowns, but still receiving income (in part thanks to the government’s furlough scheme) households accumulated significant “excess deposits” (Chart 3). This was surely involuntary (hence the word “excess”) and was always likely to support the recovery of consumer spending once lockdowns were lifted. And monetary authorities – including the MPC – treated this issue very much through this somewhat “monetarist” lens. There was every reason to expect a strong recovery anyway, whatever the form of that additional wealth. As we emerged from the last lockdown in the spring of 2021 the level of consumer spending was still extremely low and, given the additional impetus provided by the rise in “W”, even equation [1], which makes no distinction between monetary and non-monetary assets, would have predicted a very rapid bounce-back.
Mr McDonough’s statement on the work done at international level by the Basle Committee on Banking Supervision on banks’ dealings with highly leveraged institutions Statement by the President of the Federal Reserve Bank of New York, William J McDonough, before the Subcommittee on Financial Institutions and Consumer Credit of the Committee on Banking and Financial Services, US House of Representatives, on 24 March 1999. Good morning Chairman Roukema and members of the Subcommittee. I appreciate the continued attention that you and your colleagues on the Subcommittee and on the Banking Committee as a whole have brought to bear on the complex and important issues under discussion today. The near-failure of Long-Term Capital Management last fall raised a number of issues regarding the activities of highly leveraged institutions. Since then, banking supervisors have been hard at work to assess where banks have been deficient in their dealings with hedge funds and other highly leveraged institutions, which I will refer to as “HLIs”. This work has resulted in the issuance of supervisory guidance, both internationally and in the United States, with the aim of improving banks’ policies and practices regarding HLIs. I am happy to be appearing before you with my colleague Governor Meyer – who I understand will concentrate on discussing the Federal Reserve’s policy guidance to banks regarding hedge funds – and Deputy Comptroller of the Currency Brosnan.

Ultimately, if risks materialise, could one of the options be a further extension of the programme into 2019? As our President, Mario Draghi, said last week, the asset purchase programme is now an integral part of our “toolbox". It is definitely an option, but, last week, we announced our anticipation of the end of net asset purchases, which reflects our confidence that inflation is on course to reach levels below, but close to, 2% over the medium term. Well, are you being vigilant? We are alert to the tail risks that may, for example, stem from protectionism and, potentially, from an associated sharp fall in confidence. Might another option be to increase the monthly pace of purchases for the last three months of the year, to purchase more than € billion, if the situation deteriorates? The asset purchase programme remains an integral part of our “toolbox". This being said, our monetary policy decisions altogether maintain the current ample degree of monetary accommodation that is still needed for inflation to converge towards our aim. This includes, first, our enhanced forward guidance on interest rates, which we expect will remain at their present levels at least through the summer of 2019 and in any case for as long as necessary, and, second, our very large stock of assets for which we intend to reinvest the principal payments from maturing securities. The reinvestment policy plays a very important role, as the amounts are sizeable. How long will the reinvestments last?
During the past year, however, there have been certain signs of incipient tensions between demand and supply. Firms are already having difficulties in recruiting some categories of labour. Shortages have not yet reached alarmingly high levels in general but each measurement is higher than the previous one. Moreover, the situation is more strained in some parts of the country than in others. It also seems to be considered that those in work have increased their negotiating strength. How else is one to explain that, according to the negotiating parties, wage demands in the coming round are higher than on the previous occasion? That at least is the picture which has emerged in recent weeks. Could this be a sign that the Swedish economy is approaching the point at which the increase in wage costs begins to accelerate, albeit from moderate levels? If that is the case, it can be concluded that, if the present rate were to continue, the Swedish economy is moving towards a situation where resource utilisation will be unduly strained. A gradual adjustment of demand to the long-term growth trend can result from a spontaneous slowdown in the economy, for instance because external demand slackens. It could also come from more subdued household demand for durable goods after the extensive purchases in recent years. Another possibility is a damper on demand from a diminishing effect of the positive supply shocks that have depressed prices and thereby benefited real wages.

It is generally true to say that never before have things become so much better so quickly for so many people as they have during the past twenty years of globalisation. Take Asia, for instance, where six persons out of ten were living in absolute poverty in 1975, while today the proportion has fallen to two out of ten. This positive picture is reinforced by statistics on other parts of the world. Studies show that in twenty years, countries with a liberal trade policy have become six times more prosperous than countries where policy has been more protective. This illustrates the potential conferred by economic integration. We must, however, bear in mind that all the problems are far from being solved. Still, globalisation has contributed to growing prosperity throughout the world. The economic processes created by globalisation have been accentuated by many of the impressive innovations we have seen, in computer technology and telecommunications, for example. The new technologies in turn are providing additional facilities for further internationalisation. Measures for making economies function more efficiently are being taken in many quarters to benefit from the opportunities that internationalisation offers. The ongoing integration can be described as the second wave of globalisation in economic history. Before the crises in the 1930s and particularly before World War One, there was a period characterised by openness, increased cross-border trade and growing international capital flows. Major technical advances in the 19th century were introduced successively as the production of goods and services gradually become more modern.