samchain/econo-pairs-v1 huggingface dataset:
64-65), while the appropriate compulsory rules for banks did not then exist, the Bank could have promoted the application of ceilings on the expansion of credit along three different avenues: containing or limiting risk concentration in the real estate development and construction sector; controlling or limiting leverage (the relationship between assets and liabilities, between exposures and their financing); and controlling or limiting the mortgage loan amount as a proportion of the value of the collateral (LTV). But these instruments were not at that time those habitually used by supervision, given that a microprudential approach was followed, focusing on ensuring the solvency of individual institutions. The restructuring and recapitalisation strategy Secondly, I am going to address the strategy adopted as from late 2008, which is analysed in detail in the second and third chapters of the Report. I shall review the main developments using, as the Report does, a timeline that helps better explain the measures adopted in their context at each point in time. I shall later also refer to some of the most frequent or significant questions posed about the strategy that was adopted. From late 2008, at a time marked by the serious downturn in international financial markets following the collapse of Lehman Brothers in September that year, liquidity support mechanisms for the financial system were set in place through the establishment of the Fund for the acquisition of high-quality financial assets and the development of a system for the granting of State guarantees for specific issues.

Firstly, our Report indicates that the Banco de España did not adopt measures that could, perhaps, have checked the sizeable increase in credit to the private sector recorded between 2001 and 2007, in particular in the construction and real estate development 12/14  sectors, and in mortgage lending for house purchases. But it should be pointed out that there were then no legal regulations that could have provided for such action and that other measures adopted in those years – the countercyclical provisions and the more severe treatment of the so-called “special-purpose vehicles” – were effective in helping withstand the first crisis, although they did not suffice to protect our banks from the double-dip recession that began in 2011. Secondly, the treatment of the most characteristic problems of the savings banks through the risk-pooling schemes contained in the institutional protection systems (IPSs) did not suffice to resolve the solvency and governance problems of most savings banks; nor was there much success with certain innovations such as equity units with voting rights, with which it was sought to resolve, or at least alleviate, savings banks’ difficulties in raising resources equivalent to capital. Thirdly, it seems clear that the Banco de España estimated that the 2009 recession would have what the economists call a “V” shape, and not a “W” shape, without anticipating the strong impact of the second recession on many credit institutions’ solvency.
A more pessimistic reading could be that many European economies are instead less flexible and more beset by rigidities, not least in the labour market, so that they have more difficulty in implementing and subsequently benefiting from the new technology. It might be argued that the high stock-market levels in some countries do represent an expectation of higher productivity growth. Stock-market assessments of individual companies are expressed in share quotations; the sum of these assessments and prices gives us an indication of what is expected of the stock market as a whole and this can be presumed to mirror how the total economy is expected to develop. And if current share prices are to be regarded as reasonable, there will clearly have to be an appreciable increase in future profits. This can then be interpreted as expectations of an overall increase in productivity and thus of a higher potential output. An alternative interpretation could be that the stock market is at least partially over-valued. A third possibility is, of course, that the development of share prices is explained by a combination of these two factors. All in all, it seems that one cannot yet be sure that economic relationships in Sweden have changed to such an extent that a higher speed can be maintained continuously without risking an acceleration of inflation.

As shown in the chart on the right of slide 4, this indicator reached unprecedented levels in early 2007 for the Japanese yen, suggesting that carry trading has grown significantly since the beginning of 2006. In Box 4 of the FSR, a close look is taken at the evolution of the foreign exchange carry trades. The conclusion is that, from a financial stability perspective, large outstanding carry trade positions may be a concern if they make the targeted financial markets vulnerable to unexpected changes either in short-term interest rates in the funding currency or exchange rate volatility. A pertinent issue for the outlook for financial stability is whether there have been signs of a turn in the US credit cycle. The assessment of the markets and banks appears, on the face of it, to be somewhat divided. For example, credit spreads on sub-investment grade bonds have narrowed further, but US banks are no longer easing their credit standards on loans granted to firms. The fundamentals of US firms have overall remained strong. Although rating downgrades have outpaced upgrades in the US credit market, this deterioration of credit quality has not translated into higher default rates. It has been suggested that the existence of abundant market liquidity is one of the reasons why rating agencies have, since late 2004, consistently revised their forecasts of rising global default rates, pushing them further into the future (see the chart on the left of slide 5).
Mr. George weighs up the pros and cons of European Monetary Union Speech given by the Governor of the Bank of England, Mr. E.A.J. George, at the Bankers Club Annual Banquet held in London on 3/2/97. I’ve been a follower of Jim Wolfensohn for the past 20 years, and it is a great pleasure to follow him again this evening. I first came across him when he was an extraordinary investment banker reputedly flying the world with his cello strapped securely in the adjacent seat. His eventual appointment to the Presidency of the World Bank was inspired. He brings to it an outstanding professionalism. But - as you have heard this evening - he brings to it also a broad humanitarian vision and total commitment to the World Bank’s task of improving the lives of people in those parts of the world that still need outside official help with their reconstruction and development. President Wolfensohn’s canvas tonight has been global. My own focus will be on Europe, and in particular on European monetary union - though it’s fair to say that EMU could well have significant consequences for the global economy. This country is widely regarded elsewhere in Europe as being bloody-minded and even obstructive about monetary union, largely because there is indeed an intense, and often impassioned, debate going on here about the pros and cons. And so there should be. It’s a momentous enterprise, with potentially enormous implications for Europe’s political and economic future.

There are those who sometimes give the impression that they think the Euro could - by regulation or restrictions - be confined to within the territory of the Euro area, and that this would be “a good thing”. That I have to say is not our experience. In practice unnecessary or ineffective domestic regulations or restrictions have often been the cause of financial activity growing up elsewhere. In any event we live in a global financial world and the Euro is bound to become a widely-used and actively-traded currency internationally. Its liquidity is likely to be a key attraction to domestic and foreign users alike. The City of London both contributes to, and thrives upon, liquid markets, and the Euro-market, or the euro-Euro-market if we are an “out”, will be no exception. That can only be good for the development of financial activity - the provision of competitive financial services - across Europe as a whole, because we are not talking here about a zero-sum game. Euro-activity in London is likely to stimulate financial activity in other centres and vice versa; and much of that activity will be undertaken by branches or affiliates of the same major financial firms. The first ecu-Euro bond raised last week by a European borrower and managed from London by a Swiss/British and a French bank and by another French bank in Paris, is a good example not just of London’s international role as it is today, but of how it is likely to continue.
This culminated in the development of a blockchain-based prototype for digital multi-currency settlement in Phase 5. Through this project, the benefit to the industry had become clear, along with private incentives for commercialisation. With Project Ubin having paved the way, industry players are now better placed to pursue commercialisation opportunities. DBS Bank, JP Morgan and Temasek are leading the development of a digital multi-currency payments network aimed at enhancing commercial cross-border clearing and settlements globally. Looking back, this has been a great collaboration journey. MAS and the industry learnt from each other, created new knowledge, and strengthened relationships, and we created a strong ecosystem that is willing to collaborate to build better together. We will utilise the same model to explore the opportunities offered by other promising emerging technologies in future. Addressing Two Key Challenges 9. Looking ahead, central banks can play an active role in two key challenges: supporting sustainable growth through green finance, and enhancing cross-border payments to facilitate trade and investment. Let me start with sustainable growth. Harnessing innovation to support sustainable growth 10. Green finance today is hampered by challenges that reduce the incentive for investors to invest in green projects. Technology can be an enabler to overcome two of these challenges. First, to accurately verify and monitor the carbon footprint and resource consumption across an entire supply chain. This is necessary to address greenwashing and to build trust.

These two countries have much in common, yet some things (and not only the Danube!) still separate us. As I have already mentioned on previous occasions, to a certain extent, the speed of convergence was, in the case of Romania, fuelled by the flexibility of our exchange rate regime. By contrast, adopting a currency board more than two decades ago, during a crisis, Bulgaria shifted to a fixed exchange rate regime, out of which the only exit strategy is joining the euro area. What we need in order to move forward on the convergence path towards euro adoption is, first of all, to understand there is no substitute for a coherent economic policy mix, which should remain so even in election years. We need economic convergence, but the process should be a balanced one, so as to preserve macroeconomic equilibria and safeguard competitiveness. It is important that Europe remains united. Therefore, I want to pay homage to Baron Snoy, who has been instrumental in promoting Romania’s and Bulgaria’s further integration into the Economic and Monetary Union. I have known him since the first event we hosted in June 2011, and have always found in him not only a wise man, dedicated to the European Project, but also a friend of Romania, with a vast knowledge of our history and culture. He has also played an important role in bringing together Europhile experts that are trying to find solutions to the daunting issues facing Europe nowadays.
Sweden remains a ‘pre-in’; we will have to consider euro adoption again at some point in the future. Therefore the evolution and enlargement of the euro area concerns us. Secondly, Sweden is probably one of the EU nations that will benefit most from the enlargement of the European Union. Our economy is one of the EU’s most integrated with acceding countries, with surging East-West trade and FDI. Also, should Estonia, Latvia and Lithuania adopt the euro, we would be directly affected because Swedish banks own most of the Baltic banking system. I would therefore like to share some reflections with you on two subjects of relevance to euro area enlargement: the risks associated with ERM II membership and long-term frameworks for fiscal policy. However, before doing this let me stress two things: First, the long-term advantages of euro area enlargement are evident. I believe the advantages would be roughly the same for acceding countries as they would be for Sweden: integration of trade and capital markets stimulates growth for both the euro adopter and the euro area. In the case of acceding countries, there are probably additional advantages of monetary integration; it gives added stability after the difficult years of transition and is important for their underdeveloped financial sectors. So the issue is not really euro area enlargement as such, but rather its timing and preconditions. Second, from the perspective of the euro area itself it is hard to see how acceding countries could pose any major risks to price stability.

Specifically, the primary balance of the public sector is targeted to shift from a deficit of 2.75% of GNP in 1999 to a surplus of 2.25% of GNP in 2000. This primary surplus will increase further to 3.7% of GNP in 2001, and will remain around that level in 2002 as well. Most of the measures needed to achieve an improvement of over 5% in the public sector primary balance in the year 2000 have already been taken. It will be recalled that these measures included increasing the rates of the VAT and of the withholding tax on bank deposits and repo transactions by two percentage points; increasing the rate of withheld taxes on income from fixed assets and self employment by 5 percentage points; imposing a windfall tax on interest earned on government securities; and various one-off measures, including raising the rates of personal income taxes, corporate taxes, and property and motor vehicle taxes. These revenue measures were accompanied by spending cuts as well. For example, the social security reform law passed by the parliament last fall is expected to save 0.5% of GNP in social security expenditures in 2000. As a result of the improvement in the primary balance, and the increase in privatization receipts, some of which can be used to retire public debt, the cash debt-to-GNP ratio is expected to level off at around 24% this year and to begin a gradual decline in coming years. Privatization proceeds are expected to reach $ 17.7 billion over the program period.
The progress made in the reform of the prudential regulation of banks needs to be accompanied by further reflection about the functioning of the financial system as a whole and the different ways of improving the management of liquidity risks. That is why, as a complement to the regulatory responses, banks need to take immediate action straightaway regarding their internal risk management policies, which play a crucial role both in terms of liabilities and assets. I would like to say a few words about this. 1. On the liabilities side  •  First of all, it seems to me important to not wait for the final calibration of the new rules to gradually increase the duration of bank liabilities. The management of maturity gaps, which is the primary responsibility of treasurers and ALM managers, cannot only be dictated by regulation; it also needs to be adapted to the risk profile of each institution. In the current context, we can only encourage banks to increase the proportion of medium- and long-term liabilities issued on the markets, so as to be less dependent on more volatile sources of funding. They should also reduce as far as possible their short-term vulnerability vis-à-vis unsecured market funding, notably in foreign currencies. •  Second, the treatment given to customer deposits in the one-month liquidity ratio could justify a form of reintermediation of money market funds and increased competition in banks’ deposit-taking. We are monitoring these developments very closely.

This is the worrying trend that we are seeing at the moment with respect to housing loans: margins on housing loans – veritable loss leaders – are being compressed in order to attract customers who become captive due to their borrowing. In these circumstances, the level of margins may not be sufficient to cover the cost of the risk, or even the cost of the funding. * *  *  I would like, finally, to underline the need for accurate traceability of funding flows. From this perspective, improving the management of liquidity risk linked to OTC-traded derivatives requires stronger supervision of markets and market participants. That is why the Banque de France supports all of the initiatives taken to this end: –  the clearing through central counterparties (CCP) of all products deemed sufficiently standardised. The management of margin calls and collateral is more robust here than in OTC-trades;  –  the recording of trades by dedicated infrastructures (trade repositories) in order to identify all of the systemic players;  –  extending the scope of regulation to include players that are part of the unregulated or “shadow banking” sector. Several reforms are already well under way as they correspond to G20 guidelines. The United States adopted the Dodd-Frank Act in July 2010. At the European level, the draft EMIR regulation should be adopted in summer 2011. * *  *  By way of conclusion, I would like to stress the persistence of a number of warning signals that are still present.
But whether they are appropriate or not is a subsidiary question, and it is one that is related to the political economy of how to ensure the transparency of policy, the accountability of those responsible for it, and the way in which households and firms form expectations of policy: monetary, fiscal or other. Since the political economy varies from one country to another, so will the appropriate method of achieving price stability in particular, and economic policy stability in general. The crucial and overriding point is that a market economy cannot flourish if policymakers behave in ways that lead private agents to expect future economic policies – be those future monetary, fiscal, or legal policies – to be subject to arbitrary or capricious changes. Of course, an expectation of a stable regime will rarely translate into stable outcomes, and it would be irresponsible of policymakers to let such a misconception take hold. A well designed set of institutions will lead to responses being predictable, but cannot guarantee that outcomes will be. And there is a pressing issue here. In the US, inflation has been both low and rather stable. Over the past decade it has varied between 1.0% and 3.8%, so we can with some justification say that inflation no longer “materially enter[s] into the decisions of households and firms.” In the UK inflation has, if anything, been even more stable. But this success carries a risk for the future.

Alan, of course, has stressed this in the context of price stability. But it applies  1  Transcript of FOMC meeting 21/05/1996. BIS Review 56/2005  1  equally well to the system of taxes, property rights and public goods provision on which prosperity in a market economy relies. Alan famously defined price stability in the following terms: “price stability is best thought of as an environment in which inflation is so low and stable over time that it does not materially enter into the decisions of households and firms.” 2 I would suggest that implicit in this is a prescription that Alan might write for all economic policies, not just monetary policy: namely, that economic policy stability is best thought of as an environment in which the decisions of households and firms are not materially affected by the need to insure against future arbitrary or mischievous changes in government policy. Just as Alan would define a good monetary policy as one which leads people to stop talking about inflation, I think he would call a good tax policy one under which people stop talking about the tax system. In the last decade we have had a debate about whether such stability should be implemented by quantitative targets or not. In monetary policy we have seen the spread of ‘inflation targets’, and targets have begun to permeate other areas of economic policy too. You will not be surprised to learn that I think that such numerical targets have a role.
The Federal Reserve has a more explicit focus on reducing spreads on those markets that are considered to be important to the financial system, but has recently also begun to buy government securities on a large scale. Both quantitative easing and credit easing are examples of a type of policy that is only used in special and unusual circumstances and whose effects we therefore do not really know very much about as yet. I think it is important to be clear about this: the situation that has arisen is new for practically all central banks in countries with well-developed financial markets. It would be wise to address the question of how to best handle the situation with a great deal of humility. So what is the situation here in Sweden – will we need to implement as extensive measures as those now being implemented by, for example, the Bank of England or the Federal Reserve? The answer to this question is that we simply do not know yet. What we can say is that we are prepared to do what is required, when it is required, within the existing frameworks. We also have the advantage of being in a situation where we can get an indication of how well the unconventional measures taken by other central banks have worked, even though the differences between countries of course mean that we cannot draw too far-reaching conclusions.

5  See also Siven, C-H. (1998) "Penningteori utan pengar – hundra år med Knut Wicksell", Ekonomisk Debatt 1998, year 26, no. 6. 6  Wicksell, 1898 [1936], p. 189. 7  See also Orphanides, A. (2207), "Taylor Rules", Board of Governors of the Federal Reserve System, January 2007. 16  BIS Review 41/2009  lending. In the same way as the policy rate can be expressed as a Taylor rule, it should be possible to express the banks’ capital adequacy requirement as a function of, for instance, the lending gap, or growth in lending in the economy and the output gap. Image 10: A ”Taylor rule” for capital adequacy  (  )  (  c t = c + α L Lt − L* + α Y Yt − Y  )  Here the capital adequacy requirement the banks are subject to depends on the development of total lending in relation to a long-term trend and economic activity. The idea is that the capital adequacy requirement will increase when lending increases too substantially, and will decrease when lending declines. In this way the banking system will be forced to build up capital reserves in good time, which can in turn be used to cover losses when times are hard. One creates a model that evens out cycles rather than reinforcing them. The current capital adequacy rules are sometimes accused of being procyclical.