samchain/econo-pairs-v1 huggingface dataset:
This must be traded off against the benefit one can expect, that is, potentially less negative consequences of a crisis caused by households’ high indebtedness. Low inflation is also a risk In my view, there may very well be situations where it is justified to conduct a monetary policy that leans against the wind, that is, to make the policy tighter than is justified by the prospects for inflation and resource utilisation. This may be the case when there are signs of a strong general credit boom in the economy and credit assessments appear to be less and less prudent.17 However, one condition is that inflation is stabilised at least to some extent around the target. If, on the other hand, inflation is far below the target and has been so for a long period of time, such a policy may create new risks. One such risk is that confidence in the inflation target may be undermined. If long-term inflation expectations fall and begin to deviate too far from the target, it may be difficult to stabilise inflation not just in the short run, but also in the long run. If actual inflation becomes  17  10  For an attempt to describe and define this type of general credit boom, see Dell’Ariccia et al. (2012). BIS central bankers’ speeches  very low, there is a greater risk of new negative shocks to the economy leading to actual deflation, which could entail substantial real economic costs.

These long and short-term risks are, of course, linked – any overall misalignment with climate goals increases the short-term risks from a disorderly transition, possibly caused by extreme weather events or abrupt shifts in climate policy. A system-wide stress test can help supervisors and climate policymakers judge the adequacy of the current transition and whether further actions could be expected. As the Bank of England considers the timing and design of such a stress test, we are working with colleagues in the Network for Greening the Financial System (NGFS) to develop a small number of highlevel scenarios.16 And in our Climate Financial Risk Forum we will work with banks, insurers and asset managers to ensure these scenarios are rolled out effectively within their organisations. Together with our work on this year’s insurance survey, these initiatives will provide a basis for our future assessments of the system-wide exposure to climate risks. The third and final area is return A new horizon brings new opportunities. The IEA estimates that the low-carbon transition could require $ in energy sector investments every year for decades – twice the rate at present. Under their scenario, in order for carbon to stabilise by 2050, nearly 95% of electricity supply will need to be low carbon, 70% of new cars electric, and the CO2 intensity of the building sector will need to fall by 80%. With an estimated $ trillion of infrastructure investment expected between 2015 and 2030, smart decisions now can make sure that investment is both financially rewarding and environmentally sustainable.
This vigorous behaviour of exports is strongly related to the improvement in cost competitiveness and to the need for Spanish firms to search for new markets abroad, all of which has resulted in a significant increase in the diversification of export markets. Deleverage Corporate and households debt has followed a downward path since mid-2010, when it reached its highest levels in terms of GDP. The deleveraging process is now quite advanced. In September 2015 (latest available data), the ratio of debt to GDP for corporates (excluding intercompany loans) stood at 88%, and for households at 69%, 30 and 16 p.p. below the peak levels of 2010. As a result, the gap with the EMU average has been reduced from its peak of 37 percentage points (p.p. ) to 10 p.p. for non-financial corporations, and from 20 to 10 p.p. for families. Since the start of the recovery, the reduction in the indebtedness of the private sector as a whole has not prevented new bank lending from flowing to borrowers with potential profitable projects and/or a good export performance. The share of companies whose credit stock has not declined has shown an increasing trend in the last two years and the rate of decline of NFC aggregate debt has moderated. With regard to the public sector, the ratio of debt to GDP is expected to have stabilised in 2015, according to the official targets.

As economic agents underestimate the total risks of their positions, the volume of investment in financial –and, in some cases, also real estatemarkets rises at a strong pace, and with it, asset prices and the overall level of credit, perhaps, with both being further fuelled through the feedback mechanism operating between collateral value and credit capacity. In that situation, there is a risk that a sharp asset price reversal might have a sizeable impact on the stability of the whole system. Therefore, an otherwise beneficial context of price stability and low financing costs might sometimes sow the seeds for the emergence of financial imbalances. This latter, somewhat ironic conclusion has spurred a recent debate on the role to be assigned to monetary policy as an instrument of use in correcting financial and real estate market excesses. Should central banks react to asset prices over and above their direct effects on purely monetary goals, such as inflation? The answers vary depending mainly on the confidence that one places in the ability of central banks to detect price misalignments early and to undo them without causing major damage to the economy. I tend to think that while in normal conditions monetary policy should react only to changes in economic variables insofar as they bear some influence on inflation dynamics, there are exceptional circumstances in which policymakers have enough signals to conclude that the economy, as a whole, is facing significant risks, thus warranting a more pre-emptive policy approach.
By design, Basel II served as an incentive device for banks to upgrade their risk management technology. As a by-product, there was a step change in the granularity of the Basel framework. Risk exposures were no longer captured at a broad asset class level. And risk weights on these exposures were no longer confined to five buckets. That meant greater detail and complexity. Reflecting these changes, Basel II came in at 347 pages – an order of magnitude longer than its predecessor. 10 The ink was barely dry on Basel II when the financial crisis struck. This exposed gaping holes in the agreement. In the period since, the response has been to fill the largest of these gaps, with large upwards revisions to the calibration of the Basel framework. Agreement on this revised framework, Basel III, was reached in 2010. In line with historical trends the documents making up Basel III added up to 616 pages, almost double Basel II. 11 The length of the Basel rulebook, if anything, understates its complexity. The move to internal models, and from broad asset classes to individual loan exposures, has resulted in a ballooning in the number of estimated risk weights. For a large, complex bank, this has meant a rise in the number of calculations required from single figures a generation ago to several million today (Haldane (2011)). That increases opacity. It also raises questions about regulatory robustness since it places reliance on a large number of estimated parameters.

Like disease detection, frisbee catching, sports prediction and stock-picking, living a moral life is a complex task. The Ten Commandments are heuristics to help guide people through that moral maze, the ultimate simple rules. They have proven remarkably robust through the millennia. Less has been more. (3)  Finance – more is more? The response to the financial crisis by banks and regulators has been swift and sizeable. Gaps in risk management have been filled, deficiencies in regulation plugged, errors by regulators corrected. This is a self-healing and familiar response. Past crises have also been met by a combination of more risk management, more regulation and more regulators. More has been more. (a)  The Tower of Basel  The foundations for today’s financial regulatory framework were laid in the 1980s. The Basel Accord of 1988 was a landmark. It was the first-ever genuinely international prudential regulatory agreement. For the first time in financial history, a minimum standard had been established for all internationally-active banks. Yet despite its breadth, the Basel I agreement was only 30 pages long. 8 This brevity came courtesy of focussing on a limited set of credit risks measured at a broad asset class, rather than individual exposure, level. Only five different risk weights were defined under Basel I, varying from zero to 100%. Calculating regulatory capital ratios was possible using pad and pen. In taking this simplified approach, the Basel Committee fully recognised its limitations. It was recognised that the role of regulatory rules was not to capture every raindrop.
With the collapse of Lehman Brothers in September last year, the crisis entered a new phase: it intensified greatly and abruptly, spread across economic sectors, and broadened globally. Risk aversion rose dramatically and confidence plummeted, stresses in the banking system increased, the money market became dysfunctional, and world economic activity weakened substantially accompanied by a sharp drop in world trade and a marked decline in commodity prices. The sudden and substantial deterioration in financial market conditions and the macroeconomic environment changed the outlook for price stability and inflation risks diminished significantly in the euro area and globally. At the same time, the risks to financial stability increased. In response, the ECB and other major central banks eased monetary policy and injected large amounts of liquidity, also employing non-standard policy measures. Over the past seven months, since the financial crisis deepened and broadened, the ECB has reduced its key policy interest rate by 325 basis point, to now 1%. The magnitude of the monetary policy easing over such a short period of time is unprecedented. 4  At the end of September 2008, the size of the balance sheet of the Eurosystem was EUR 1013 billion, an increase of 11% compared to its size at the end of June 2007, before the turmoil erupted. BIS Review 65/2009  3  Indeed, the provision of liquidity by the ECB to the euro area banking system has been extraordinary in size and scope, and has involved implementation of non-standard measures.

As you know, the Governing Board adopted the expert group's conclusions and indicated to the Federal Council that, based on the profit figure following revaluation, an amount corresponding to half the gold holdings could be earmarked for purposes other than monetary policy. The possible uses for the sales proceeds have been the subject of much political debate. None of the proposed solutions have succeeded in attracting a consensus among the population or in the Federal Parliament. On 16 December, the parliamentary debate was concluded without an agreement being reached. Thus, a sum of CHF 21.1 billion, corresponding to the proceeds of the gold sales, has been included in the usual profit distribution procedure. Some people fear that, following this transfer, the National Bank will no longer have sufficient currency reserves. I have a word of reassurance for them. This issue has been examined in depth and has been discussed by our Bank Council. Our currency reserves total CHF 60 billion – an amount which may be considered appropriate by comparison with other industrialised countries. BIS Review 30/2005  3  But nor are these reserves excessive. Furthermore, it is important that the currency reserves evolve over time, in tandem with the size of our economy. This is why, in accordance with Article 99 of the Constitution and Article 30 of the National Bank Act, the SNB has adopted a provisioning policy that provides for gradual growth in its currency reserves.
Inflation Expectations of the Players in the Money Market Agents)  In flation Expectation s of th e Players in th e Mon ey Market Agen ts Per cen t 5  5  J an .’95 4  4 3  F eb .’ .’9 96  CP I  No v .’ .’9 97  2  2  F eb .’ .’9 98  1  3  1  F eb .’ .’9 97  0  0  -1  -1 94  95  96  97  98  99  00  01  02  So u r ce cess : St at i s t i cs S wed en an d Pr o s p er a R es ea r ch  BIS Review 14/1998  -9-  Question 7: Is the policy asymmetrical? It takes time before a change in the instrumental rate affects the economy and inflation. Therefore monetary policy always has to be formulated with the aid of forecasts of future inflation. When the Riksbank formulates monetary policy it is done with the aid of a forecast one or two years into the future. A simple rule of thumb should be able to describe monetary policy: if our overall assessment of inflation – assuming that the instrumental rate remains unchanged – indicates that inflation will deviate from the objective for two consecutive years, the instrumental rate must be changed in the corresponding direction.

In countries with relatively independent central banks – that is, in which the political regime has only limited possibilities to influence monetary policy immediately – the fight against inflation has been more successful. However this should not be over-interpreted; the problem of inflation neither can nor should be solved solely by a few simple changes in the law. The central bank’s position certainly depends on what the attitude to inflation is among the general public. It may very well be that in countries with a strong aversion to inflation, they have elected to give the central bank a comparatively independent position. (Diagram 3. The Relation Between a Central Bank’s Degree of Independence and Inflation)  In Sweden the Riksbank has, in practice, had a very independent standing in recent years, which compares quite favourably with that in other countries. This policy has also had a successful impact on price stability. This practice that has been developed has now received support in the form of a broad multi-party agreement to strengthen the position of the Riksbank. The agreement has led to a bill, which the Government introduced last November. This bill provides, inter alia, for the price stability objective to be confirmed by law and for the Riksbank to have a management that can formulate monetary policy independently.
The banks have also increased their capital levels over the past few years. As a result, the financial system in Norway is now more resilient to shocks. An accountable and credible macroprudential policy must be based on an understanding of how systemic risk arises. The academic research on macroprudential policy issues is growing, but is still at an early stage. Some conclusions seem, however, to be robust. Many studies single out rapid credit growth in particular as a symptom of rising systemic risk. This is in line with the recommendations from the Basel Committee and the EU, which state that decisions on the countercyclical capital buffer should be based on the credit gap. Chart: Basis for advice on the countercyclical capital buffer: key indicators In preparing its advice on the buffer decision, Norges Bank adds three other variables as key indicators. The three variables are, as shown in the chart: house prices, commercial property prices and banks’ wholesale funding ratio. Together, the four indicators contain a considerable amount of information about how cyclical systemic risk evolves. Chart: Early warning models for financial crises A number of studies have indicated that credit growth, real estate prices and banks’ wholesale funding ratio show a systematic pattern ahead of financial crises. At Norges Bank, we have examined data from 16 OECD countries to see whether such a systematic pattern exists. 2 We have developed empirical models for estimating the probability of a crisis.

While such ambitions are quite legitimate, most of them would find achieving this goal very challenging. Why? Because an IFC, by definition, serves not only domestic customers on its own turf, it also captures financial businesses and money-flows either from a large hinterland or the neighbouring areas or both. This is a big challenge because it entails serving customers from the other jurisdictions or cross border transactions. It also entails the need to deliver consistent and efficient financial services in order to be competitive in international financial business. The truth of the matter is that only a small number of cities can successfully become international financial centres because IFCs need a critical mass and market depth. It should be noted that international financial transactions and money tend to migrate towards those centres that provide the most efficient and competitive services to customers. In other words, domestic financial centres will need to go through very fierce competition before a few of them can emerge as successful IFCs. Given Hong Kong’s accomplishment as one of the region’s premier IFCs, there are many study groups from abroad coming here to learn the tricks that have helped achieve what we have today.
While every situation is unique, and in some cases not all of the facts are known, many of the recent corporate governance breakdowns appear to have several factors in common:  BIS Review 38/2005  1  -  The board of directors failed to understand the risks that the firm was taking, and did not exercise appropriate oversight or questioning of senior managers’ and employees’ actions;  -  Conflicts of interest and a lack of independent board members and senior executives resulted in decisions that benefited a few at the expense of the many;  -  Internal controls were either weak or non-existent, or appeared to be adequate on paper but were not implemented in practice;  -  Internal and external audit “fell asleep at the switch” and failed to detect fraudulent behaviour, and in some cases even aided and abetted such behaviour;  -  Transactions and organisational structures were designed to reduce transparency and prevent market participants and regulators from gaining a genuine picture of the firm’s condition;  -  And perhaps most importantly, the corporate culture fostered unethical behaviour and discouraged questions from being raised. Fortunately, none of the high-profile corporate scandals of recent years have brought down banks. I would like to think that strong, effective banking supervision has been very helpful in that regard and I also believe that a sound risk management culture has become increasingly present in the banking sector in recent decades.

SPEECH DATE:  9 December 2022  SPEAKER:  Deputy Governor Per Jansson  VENUE:  Swedbank  Monetary policy when inflation is too high – prerequisites and challenges* “There are decades when nothing happens; and there are weeks when decades happen.” The words are said to be Vladimir Lenin's, but it is disputed whether that really is the case. Nevertheless, the quotation is very well suited to what I intend to talk about today. Once a year, I usually make a longer speech, which is also published on the Riksbank’s website. The most recent was in December 2021.1 My speech then was about the division of roles in macroeconomic policy, and my main message was that in the future fiscal policy needs to be more active than has been the case in recent decades.2 I emphasised in my speech that the inflation target needs to be symmetrical, that is, it is as important to counteract too low inflation as it is to counteract too high inflation. But at that time, too high inflation was not regarded as a particularly pressing threat, nor was it something I specifically mentioned in the speech. The situation has changed rapidly To recall how the situation looked at the end of January this year, one can look up the inflation forecasts of Swedish forecasters at that time. As energy prices had begun to rise, all forecasters believed that inflation in 2022 would be higher than the target of 2 per cent.
Although gearing is part and parcel of the lending business, that growing access to  10  BIS Review 45/2005  international financial markets entails a higher cost of financing which puts upward pressure on the average cost of borrowing and negatively affects income, which is something to be taken into account in forward-looking strategies. The last line of defence is own funds and, within these, tier 1 capital. Indeed, only ordinary shares, reserves and preferential equity holdings allow both the absorption of possible losses and the continued engagement in banking operations. This, along with its long-term presence in own funds, explains why supervisors and markets pay particular attention to this component of regulatory own funds. Regarding preferential equity holdings, their long-term nature, their preferential use in absorbing losses and their non-participation in dividend distributions have led the Banco de España to allow them to rise to 30% of tier 1 capital. In addition, the characteristics of these securities and their frequent distribution through the network have led the Banco de España to remind institutions that they should take special care when distributing such a complex product to their retail customers, given the reputational risk in which they may incur. Looking ahead, it is advisable to strengthen this policy. For example, it would be clearly desirable that, when the issues are marketed among retail customers, the pricing mechanisms should be based on the intervention of institutional investors.

Fiscal stability and fiscal discipline are basic assets of Spanish economic policy which, however, are not always easy to manage, as shown by the vagaries of the European fiscal framework. It is thus very important that the review of the Fiscal Stability Law and of the Autonomous (Regional) Government Financing system should not lead to a weakening of fiscal discipline. In a situation in which it is necessary to make headway simultaneously in job creation and in productivity gains, the role of supply-side policies geared to improving the workings of the economy and expanding its potential growth is crucial. One of the main messages in the Annual Report presented today is precisely that it will become increasingly difficult for the Spanish economy to keep raising its levels of well-being if it does not make progress on both these fronts. Maintaining high levels of job creation is, and will continue to be, a powerful means of expanding the economy’s growth potential, but it will be impossible to sustain economic momentum in the long term if the economy does not improve its competitive position in the increasingly dynamic international setting. And to do this, it is essential to significantly improve the poor performance of productivity. Under this approach, labour market reform heads the list of transformations that are needed.