samchain/econo-pairs-v1 huggingface dataset:
In this context, the SNB regularly reassesses the need for a reactivation of the CCyB. Closing remarks Ladies and gentlemen, I now come to my concluding remarks. Are we heading for a big real estate crash? Is there a bubble that will burst soon? If you were expecting me to answer these questions today, I’m afraid I have to disappoint you. To predict the future would require a crystal ball. By their very nature, crises cannot be predicted. 12  Behncke (2020), for example, shows that LTV risks did in fact decrease due to the banks’ self-regulation rules in 2012 and the activation of the CCyB in 2013. Cf. Behncke S., Effects of macroprudential policies on bank lending and credit risks, SNB Working Papers, 6/2020. 13 Cf. Schelling. T and P. Towbin, Negative interest rates, deposit funding and bank lending, SNB Working Paper, 5/2020. Page 11/12  The key question, from our point of view, is: Are there substantial vulnerabilities on the mortgage and real estate markets? We can answer this question with a ‘yes’. According to our assessment, markets today are more vulnerable to corrections in the form of declining prices and increasing numbers of mortgage loan defaults. Thanks to substantial capital buffers, however, most banks should currently be capable of absorbing the associated losses. The capital buffers are therefore essential to financial stability – and will remain so in future.

Among others, we use indicators at an aggregate level that have become known and established in specialist literature as ‘early warning indicators’ for financial crises. 6 These indicators measure vulnerabilities through the deviation of prices and credit volume from the corresponding fundamentals and long-term trends. Examples include the ratio between real estate prices and income (the price-to-income ratio) and deviations in the ratio between mortgage volumes and GDP from their long-term trend (the credit-to-GDP gap). Based on experiences from previous crises, a sharp increase in these indicators points to a higher probability of a crisis. Besides aggregate data, we also consider detailed individual loan data, especially in order to assess whether the mortgage loans granted are sustainable. An important data source in this respect is our ‘Survey on new mortgages’, or ‘Hypo_B’ for short. 7 This survey gives us comprehensive, anonymised individual loan data of newly granted mortgage loans from the 27 largest banks in Switzerland. These banks cover around 90% of the domestic mortgage market. The information gained includes borrower characteristics as well as detailed information on the lending conditions and on the pledged properties. The data allow us to closely monitor developments in credit risk, such as affordability and loan-to-value (LTV) risks. Finally, an essential contribution to our risk monitoring is made by stress tests. These enable us to estimate the losses that banks could suffer in various crisis scenarios. Such loss potential estimates are then compared to the capitalisation of the individual banks.
a sovereign solvency or liquidity crisis, but we were hit by a liquidity and solvency crisis in advanced countries’ financial institutions. Therefore, one lesson from the crisis is that surveillance must be strengthened across the board, including macroeconomic, financial and regulatory areas. It must be both macro- and microeconomic, incorporating systemic risk in particular. In Europe, this issue is going to be addressed by a dedicated committee now named the European Systemic Risk Committee that will operate in close collaboration with the European System of Central Banks. At the global level, the IMF and the FSB have been invited to step up their cooperation to develop early warning exercises. However, the surveillance tools that international institutions have at their disposal or could develop cannot claim to provide exhaustive analysis. Drawing from their own specific expertise, it is therefore important for these institutions to compare their analyses with each other and with other multilateral institutions and national authorities in order to correctly identify all the sources of vulnerability and significant risks of contagion. This work on multilateral surveillance should also act as a safeguard against temptations, which would be extremely detrimental: just when supervision needs to become more international to deal with interdependent risks, we must avoid national myopia through domestic regulation. This is clearly the case in the area of liquidity.

I am rather doubtful myself, for several reasons. First, in the absence of single accounting standards, a comparison between banks belonging to different accounting universes will mean absolutely nothing. Second, that sort of ratio did exist in the United States and proved of no help, precisely in the country where the crisis emerged. Finally, in the present circumstances, it could add to the reluctance of banks to be active lenders in the interbank money market, therefore reducing market liquidity and still increasing the over-reliance of the banking sector on the central bank counterparty. That said, it is essential to enhance the counter-cyclical nature of capital requirements. For instance, implementing a forward-looking provisioning system and an additional capital requirement at the cycle peak would be effective measures to make capital requirements more contra-cyclical. In this regard and especially in the light of the profits announced by the major banking groups and the large payouts to traders, CEOs or shareholders in the form of dividends, I would like to stress that these profits should primarily be used to bolster capital ratios and allow banks to focus on their core task of financing the economy. All in all, I praise international standards in the field of prudential rules.
This, considering that few bank credit operations are performed at rates higher than 41 and 39 percent, the actual TMC levels for the third quarter in operations between UF 0 and UF50, and between UF 50 and UF 200, respectively. Still, such provisions regarding the TMC are still in the process of being implemented, so future reductions  BIS central bankers’ speeches  5  are expected, which might have a greater impact because of the significant number of operations that are performed with interest rates in the 35 to 40 percent range (figure 13). Bank financial indicators are sound and stress tests show that capital levels are adequate to confront a severe stress episode (figure 14). Although bank profitability has increased lately, this was boosted by the temporary effect of higher inflation. The interest rate spread has been stable over 2014 and continues to be the main contributor to the banking system’s profits. The impact of the stress scenario involves a drop in profits similar to the one in the previous IEF, but as the initial profitability was better the banks can obtain a positive closing ROE in this scenario. Bond issues, locally and abroad, have helped to diversify the banks’ funding sources (figure 15). Lower funding costs have favored debt issues locally and abroad, increasing the duration of liabilities. Some banks operate with high dependence on wholesale sources, which can be a significant vulnerability if these investors change their portfolio decisions or flows become more volatile.

But nested within these objectives is an instruction that our objectives are to be advanced by avoiding adverse effects on the stability of the UK financial system. In other words, although our work is primarily microprudential we have an important role to play in ensuring financial stability. What does this imply for how the PRA should take an interest in operational resilience? It implies that we are interested in operational resilience for its own sake, not just because its absence can have a financial consequence for firms. But we are interested only to the extent that it could have a negative impact on safety and soundness and/or the stability of the UK financial system. That is a fairly high bar. In practice this is likely to mean that we put more emphasis on operational resilience for larger firms doing activity whose disruption could have a financial stability impact. For smaller firms we are only strongly interested where something is going on that is big enough to threaten the firm’s safety and soundness. So for example: if you are a big bank you can expect us to take an interest in your ability to process payments; if you are an insurer with a large annuity book, we will want to know what the operational risks are to your ability to supply people’s retirement income; and if you are a smaller firm spending huge sums on a 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  major IT project, we will be interested in that.
In addition, the BoE launched an 18-month, £ billion corporate bond purchase program in September 2016. The monetary policy framework of the Bank of Japan (BoJ) now targets both the levels of interest rates across the yield curve as well as the pace of expansion of Japan’s monetary base. Its current interest rate targets include a negative deposit facility rate at –10 basis points for the short-end and a 0 percent yield target for the 10-year yield. Of note, the BoJ’s three-tier deposit system exempts the majority of its system reserves from the negative rate. As for the quantity target, the BoJ pledges to maintain an expansion of “around” ¥ trillion per year until realized inflation exceeds a 2 percent target in a sustainable manner by purchasing primarily Japanese government securities. 5 During the Bank of Japan’s Quantitative Easing Program, which lasted from 2001–06, the BoJ targeted the  liability side of its balance sheet by explicitly targeting the level of bank reserves. This was accomplished via repurchase agreements and purchases of Japanese government bonds with a remaining maturity of less than 5 years. 6 In a speech on January 13, 2009, then-Federal Reserve Chairman Ben Bernanke discussed the differences  between “Quantitative Easing” and “Credit Easing". 7 A prominent exception is the central bank of Chile. See Section 27 of theBasic Constitutional Act of the Central  Bank of Chile.

At the same time, we have to recognise that, when executing lending policy, a central bank functions much like a private financial intermediary. Of course, a central bank loan creates money, which is not the case for private loans. But the lending side of the operation is essentially the same. The granting of private credit is accompanied by restrictions imposed on the borrower which limit its ability to take risks that might endanger the value of the loan. Likewise, when a central bank provides credit against collateral, it must follow up with a frequent re-evaluation of the credit conditions so as to safeguard its funds and make sure its commitment is not abused. Also, by the very act of declaring an asset eligible for monetary policy operations, a central bank has to be aware that it might affect its price. This argues in favor of a graduated system of collateral valuation, in which haircuts reflect the underlying fair value along a continuous scale, possibly with less threshold discontinuity than at present. These are issues for further analysis. 2. In any case, while central banks will be called upon to support market functioning in liquidity crises when the integrity of the transmission mechanism is threatened, they cannot be asked to rescue insolvent issuers – whether private or public institutions. In line with this principle, the SMP is meant to repair the integrity of the transmission mechanism, not to finance public debt. Conclusions Let me briefly summarise the thrust of my message.
It is important to note that each country has its own characteristics and every country has to design the policy framework according to its own needs. From the Turkish perspective, financial stability risks under the current conditions are most evident as the rapidly increasing current account deficit fueled by short-term capital inflows. The divergence between domestic and foreign demand growth coupled with a rapid credit expansion is increasing the current account deficit, thereby raising financial stability concerns. Moreover, the recent developments and related policy decisions in the European and US economies have been exacerbating these risks, necessitating a different domestic policy mix than we have implemented in the past. BIS central bankers’ speeches  1  What do we mean by policy mix? When the external and internal equilibrium requires different interest rates, monetary policy has to use more than one instrument. In our case we utilized two more instruments to limit the macro-financial risks associated with short term capital inflows coupled with appreciating currency and rising current account deficit. Let me explain these extra tools in turn. In order to curb the domestic demand and widening current account deficit, our first aim was to control the rapid credit expansion. Therefore, we have made it clear that one of the goals of our current policy mix should be reducing the pace of credit growth. To this end, we stated that reserve requirement ratios should be used as an active monetary policy tool.

In such a scenario the Swedish economy could experience a more pronounced slow-down. Focus on the U.S. economy… During the 1990s the United States experienced its longest economic upswing ever without any serious signs of accelerating price inflation. A more productive economy, with strong competition and more efficient product and labour markets, accompanied by advances in computer and telecom technology, are said to have contributed to a higher rate of potential growth. Even so – or perhaps as a consequence of this – the euphoria led to growing imbalances. The rapidly rising stock markets in the late 1990s seem to have stemmed from unduly high expectations of future profits and incomes. Partly in view of the booming stock market, households stepped up their expenditure on consumption in excess of current income. Corporate investment expanded rapidly to meet the growing demand. High share prices stimulated the procurement of venture capital and generated a plentiful supply. The growth of demand in relation to the expansion of the U.S. economy's supply side was proceeding at a rate that was based on expectations that simply could not be fulfilled. American households pledged future incomes for current consumption to such an extent that their savings no longer sufficed to finance corporate investment. The saving deficit in the private sector grew, as could be seen from the rising deficits on the current account, and large amounts of capital had to be imported.
Probably, a greater elasticity of housing supply contributed to limit the increase in prices (Glaeser et al., 2008). Maybe, the creation of a bubble was avoided thanks to the way in which mortgage loans and related collateral securities are granted. I consider that a highly probable hypothesis is that, in view of the income levels prevailing in Chile, which are far below those of the developed countries, expansion of consumer loans is more oriented towards financing consumption of durable goods than houses. This issue remains open, but differences are evident. Anyway, this is an area which will have to be particularly addressed in the future (Figure 2). Besides, there were countries which had a housing boom, with housing prices soaring far above their fundamentals, such as Spain and Australia, but whose banking systems have shown much more resilience.3 Consequently, what happened in the United States was rather a growing fragility of its financial system, which passed unnoticed to the market and regulators. There was a deficient assessment of risks. They mistakenly felt that they were adequately covered and diversified by the new “originate and distribute” banking model. Prudential regulation, as well as internal policies on risk assessment of financial agents, resulted in a spectacular failure. This leads me to another important issue in the recent debate on monetary policy: whether monetary policy should take into account asset prices when making decisions on interest rates.

Finally, we turn to the layer at the base of the system – the Instruments, or forms of money that should confer the properties of a public good. 2/4  BIS central bankers' speeches  The decentralisation of instruments is most clearly associated with the emergence of alternative currencies to those issued by central banks. Technology firms with large ecosystems, or technology itself can create new non-fiat currencies. While today’s crypto instruments (e.g. Bitcoin) have failed to become money, we should not discount the possibility of better algorithms leading to viable cryptocurrencies as a global medium of exchange in the future. But the widespread use of private cryptocurrencies could lead to an erosion of the nation state’s monetary sovereignty. This will in turn have implications for central banks’ ability to safeguard financial stability. As Mark points out, the continued centrality of public money in the financial system is key to safeguarding the soundness and stability of all money in the economy. A pre-condition for this is that state-issued currency remains the domestic economy’s predominant unit of account. The currencies of small, open economies may be particularly vulnerable to loss of monetary sovereignty. They do not have the global network effects that currencies of larger nations enjoy. Markus Brunnermeier and others have highlighted the possibility of “digital currency areas” that transcend national borders with even larger and more powerful network effects. Currency competition is not a challenge that we are unfamiliar with.
Euro-area corporates’ cash balances have risen to the tune of € billion, or 3% of GDP, since the crisis, for example. Modest cross-border equity flows mean inadequate risk sharing. Moreover, by design, there are virtually no cross-border fiscal flows so fiscal space is separated from fiscal needs. The burden of adjustment has been concentrated on efforts to improve competitiveness. Some of these efforts are entirely worthy. Boosting productivity reduces the burden of a debt overhang as extra supply creates extra demand and incomes. But that takes time, during which debt dynamics may become oppressive. Improved competitiveness will also support exports to the rest of the world, but it is unlikely to be decisive in a listless world economy. More important for a given country in the euro area is to improve competitiveness against other members via internal devaluation. As you know, this is not easy. 17, 18 Irish workers and citizens deserve great credit for the flexibility they have shown. Wages in Ireland fell by almost 9%. In Spain they rose by 3%. Even though Irish unemployment rose to painfully high rates, it peaked at only a little over half the rate reached in Spain. That flexibility, by keeping unemployment lower than otherwise, has undoubtedly helped to reduce the risk that high unemployment becomes entrenched and destroys future economic capacity. For three reasons it is no panacea, however. First, internal devaluations simply reallocate demand within the currency union. They do not boost aggregate demand in the euro area as a whole.

Supervisors will have the responsibility to review firms’ compensation policies and structures with institutional and systemic risk in mind and, to apply corrective measures, such as higher capital requirements, to those firms that fail to implement sound compensation policies and practices. Supervisors would also have the ability to modify compensation structures in the case of firms that fail or require extraordinary public intervention. 33. As I already alluded to, supervisors should pay a major attention to financial firms’ governance. As it stands, prudential regulation to a large extent is build on trust in their ability to value, manage and control their risks. Supervisors should have the power to hold boards responsible for the performance of their institutions. They should ensure that boards and individual directors are sufficiently empowered and informed to understand and to respond appropriately to their risk taking policy. 34. In light of the crisis, proper liquidity risk management should also stand high in firms’ own agenda. In many respect, the recent crisis revealed wrong liquidity pricing and poor liquidity risk valuation by financial firms. There is ample evidence that in an environment of excess global liquidity prior to the recent crisis many financial institutions were led to (i) overestimate the liquidity of their assets, (ii) have overly optimistic assumptions on their ability to refinance, and (iii) ignore, or pay insufficient attention to, liquidity risks in their internal pricing processes. 35. One should never forget that liquidity has a price.
In the current liquid conditions, therefore, the large banks have been able to cut their standard savings rate. They are therefore seen by some analysts as the winners from deregulation since they now have another lever to adjust their net interest margin. The unanswered question is whether they will be able to get away without a significant erosion of deposits in savings and current accounts. A certain amount of switching of accounts has gone on. But there is not enough evidence at this stage to conclude whether deregulation has resulted in any significant redistribution of deposits among banks. So we cannot tell how interest elastic the demand for savings accounts may prove to be, particularly in today's somewhat artificial conditions of high liquidity. However, what can be said is that deregulation does offer the smaller banks an enhanced ability to compete for savings accounts and for those customers which the large banks may be less eager to retain. While the smaller banks may have to pay a higher rate for their savings deposits, they will still benefit if they can substitute such funds for even higher cost, and less stable, time deposits. Consumers will also benefit from deregulation through greater choice of savings products and, for those with larger balances at least, from higher interest rates. However, we have to face the fact that not all depositors will be better off in the deregulated world.

On the other hand, banks need to appreciate and accept that they must revamp the way they offer financial services to their customers. It is true that, compared with unregulated entities, there is a high degree of public trust in banks, but customers now demand much faster and convenient services, not just in payments but also over a wide range of financial services, many of which are now made possible by the advancement in technology. Banks must become more “customer-centric” by offering highly personalised services to meet what the customers actually want rather than pushing out products or services that the firms think the customers should have. So what does it mean on the ground? I believe that in a couple of years’ time, there will be a high degree of convergence in the way in which banks and tech firms conduct their businesses and compete in the arena of finance. This means that the landscape of banking and finance will undergo a profound change during this process of convergence between banking and technology. So how does Hong Kong move from here to there and what role will the HKMA, as 1/6  BIS central bankers' speeches  bank supervisor, play in preparing the banking sector for the change? First of all, let’s take stock of where we stand at present on electronic or digital banking. Hong Kong is the premier international financial centre in Asia, and has been at the forefront of smart banking in terms of digital or internet banking.