samchain/econo-pairs-v1 huggingface dataset:
13  All speeches are available online at www.bankofengland.co.uk/speeches  13  Box 1:The effect of the leverage ratio on over-the-counter derivatives  As part of the evaluation of the effects of post-crisis reforms on incentives to centrally clear over-thecounter (OTC) derivatives, Bank staff have undertaken research on the impact of the leverage ratio on client cleared derivatives (Acosta-Smith, Ferrara, Rodriguez-Tous (2018)). 32  Following the Global Financial Crisis, the Basel Committee introduced a leverage ratio requirement: a bank’s Tier 1 capital to total exposures cannot be less than 3%. The UK introduced a minimum requirement in January 2016 for the largest seven deposit-takers in the UK. At the same time, with the aim to reduce systemic risk, regulators also supported a shift towards central clearing in derivative markets, where central clearing refers to the clearing and settlement of OTC derivative trades through a central counterparty (CCP). To support this shift, mandatory clearing for the most liquid forms of OTC derivatives was introduced. This meant an entity engaging in these trades and subject to the mandatory clearing requirement would need either to become a clearing member of a CCP or form a clearing relationship with a clearing member. In the latter case, the clearing member would then clear the derivative transaction through a CCP on behalf of its client – hence the term ‘client clearing’. The number of clients clearing OTC derivatives has increased significantly in recent years, as Chart A illustrates. The interaction between client clearing and the leverage ratio arises in two ways.

loan-to-income and – value limits, Systemic Risk Buffer) 1 July 2020 (estimate)  Interest rate risk in the banking book  (a)  Remuneration rules G-SII score alternative methodology CRR II Fundamental Review of the Trading Book reporting requirement Leverage ratio 1 January 2021 (estimate)  Net Stable Funding Ratio  (b)  Standardised approach for counterparty credit risk Risk weight supporting factors for SME and infrastructure loans Basel III Revised standardised approach for credit risk  1 January 2022  Revised internal ratings-based approach  1 January 2022  Revised credit valuation adjustment (CVA) framework  1 January 2022  Revised operational risk framework  1 January 2022  Leverage ratio  Output floor  Existing exposure definition  1 January 2018  Revised exposure definition  1 January 2022  G-SIB buffer  1 January 2022 50%  1 January 2022  55%  1 January 2023  60%  1 January 2024  65%  1 January 2025  70%  1 January 2026  72.5%  1 January 2027  Source: https://www.consilium.europa.eu/en/press/press-releases/2018/05/25/banking-council-agreement-on-measures-to-reduce-risk/, https://www.bis.org/bcbs/publ/d424_hlsummary.pdf. (a) The Council text for CRD V states that the directive begins to apply 18 months after the directive comes into force. To derive this estimate we have assumed the directive comes into force at end-2018. (b) The Council text for CRR II states that the regulation begins to apply 24 months after the regulation comes into force. To derive this estimate we have assumed the regulation comes into force at end-2018.
Oversimplistic rules such as raising nominal interest rates until inflation returns to target would fall in this category. But this approach ignores the fact that monetary policy is subject to time lags - of up to two years to pass through fully to inflation - and that other factors can affect future inflation. It would put us at risk of overreacting. Making decisions on a meeting-by-meeting basis and the latest available data does not mean that we should be short-sighted, on the contrary forward-looking. At a bit of a stretch of my definition, another example of the “empiricist approach” would be to simply follow the US Federal Reserve, perhaps with a gap to reflect different long-term neutral rates. This is obviously what countries with exchange rates pegged to the dollar do. Of course central banks are aware of what their peers are doing and there are undoubtedly some spill-overs from the actions of the Fed, not least through the effect on the exchange rate, on which I will have more to say later. But it would not make sense for the ECB to blindly follow the Fed: although inflation has dramatically accelerated in both economies, the underlying causes are not the 4  Page 5 sur 14  same and hence the monetary policy stance should be different too. On the one hand, the energy supply shock is considerably more intense in the euro area which is a large energy net importer while the US is a net exporter.

One that can explain the motions of both heavenly bodies and subatomic particles. I am on a similar quest this evening. My topic is one of the hottest fields in economic policy— macroprudential policy. A field that has something in common with Newton, for part of the responsibilities of macroprudential policy is to protect the economy from the madness of people. Macroprudential policy is as core to the responsibilities of central banks as their much better known twin, monetary policy. Both are fundamental to the value of money. The relative simplicity of the monetary policy objective and the relatively focused arsenal of monetary policymakers improve the likelihood that agents in the economy can understand the MPC’s reaction function and anticipate its actions, making its job of achieving price stability somewhat easier. 1 This evening I would like to improve the understanding of the FPC’s reaction function by placing its objectives and policies in a more consistent theoretical framework. A common framework can better explain seemingly disparate macroprudential policies and can guide future policy actions. This will be important if, as has happened all too frequently in the past, either a prolonged period of growth or the emergence of new  1 See ‘Guidance, Contingencies and Brexit’, speech by Mark Carney given at the Society of Professional Economists, 24  May 2018. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  era thinking threaten to take financial stability for granted once again, thereby sowing the seeds of a future crisis. II.
When the AIG began its work, it quickly became clear that there was no “one-size-fits-all” approach to implementing Basel II. Rather, implementation should be tailored to the specific circumstances of a bank and the jurisdictions it operates in. In this regard, one of the primary methods the AIG uses to promote convergence is to encourage home supervisors of the 50 or 60 largest internationally active banks in Basel Committee member countries to engage in practical outreach to host supervisors and the banks to open clear lines of communication and cooperation in based on banks’ own implementation plans. Each home supervisor coordinates the work in a way that is most practical in light of the particular bank circumstances and its own supervisory approach. It is clear that successful implementation rests on adequate flows of information, as well as trust among supervisors. As we go forward, we need to strike an appropriate balance between top-down and bottom-up consistency. That is, the top-down rules and the bottom-up convergence of supervisory practices should work together to reinforce a level playing field. This balance will naturally be dynamic. Early on, the scales were tipped toward developing a common set of rules. Now that these rules are in place, the scale is tipping the other way toward enhancing communication and convergence among  2  BIS Review 46/2006  supervisors in the implementation of these rules.

Lessons learned That brings me to my second broad topic, which is the lessons we have learned over the years as we have developed Basel II. I am not looking back simply for the sake of nostalgia. Rather, in looking to the past, I would like to share some thoughts on how the things we have learned and reflected in the process of developing Basel II will help to make Basel II successful in the future, to stand the test of time and to have the impact that we intended. Focus on risk management First, Basel II is fundamentally about establishing incentive-based approaches to risk and capital within the three-pillar framework. We should never lose sight of the fact that Basel II is built around both qualitative and quantitative risk management elements. Why is this so important? As a bank supervisor and central banker, what most concerns me is financial stability. When I review the various reports on this subject that cross my desk, one thing they almost always have in common is an emphasis on the link between sound risk management and financial stability. It is my hope—indeed, it is my belief—that the incentives for risk management in Basel II will therefore promote greater financial stability in the future. Improved and more formalised risk management, as fostered by Basel II, will bring more awareness of risks and better quantification of these risks. To the extent that risk assessment and control methods become more formalised and rigorous, this will lessen the likelihood of making bad decisions.
There may also be a lag between technology adoption and TFP growth, as optimising the use of new technologies – in particular information and communication technology – tends to require parallel investment in intangible capital such as management systems and organisational processes.16 Hence, in the short- to medium-term, perhaps the most effective role that public policy can play in boosting TFP is to strengthen the conditions for reallocation to sectors that are already productive. This is particularly the case in the catching-up economies because, as we saw, weak TFP growth there was in part driven by misallocation of capital inflows. Recent firm-level analysis from the Eurosystem’s Competitiveness Network provides two insights that suggest this could be a promising strategy. The first is that the distribution between the most and least productive firms in individual euro area countries is very large and skewed. Far from being normally distributed – with many firms centred around the average performance level – there are a few highly productive firms and many which have low productivity. The second insight, which applies in particular to Spain, is that the ULC developments of firms at the bottom and the top of the productivity distribution are dissimilar.

Erroneous price signals lead to mistaken investment decisions, that is, to a less efficient use of resources, which reduces the economy’s productive capacity and, ultimately, its growth. There is abundant evidence of the harmful effects of inflation on long-term growth (Barro, 1995; De Gregorio, 1995). But, why does inflation tend to be higher when the central bank is not autonomous? To begin with, there is a need for public expenditure financing. There are various reasons why there is always pressure to increase public spending. Many of them are well-known and it is beyond the purpose of this presentation to discuss them. The truth that this tendency to raise public spending combined with the fact that the inflation tax is easy to collect, creates a natural pressure towards higher inflation. BIS Review 156/2009  1  Numerous episodes where fiscal objectives have dominated price stability goals have resulted in significant inflationary spirals, which are very costly for society. This fact is wellknown in Chile and in the rest of our region. A second element behind the inflationary bias has to do with the so-called dynamic inconsistency problem. In parallel with the tendency of the government to increase public spending comes the incentive to boost economic activity above sustainable levels. There are several reasons for this to occur. Potential market failures may result in a less than socially optimal output level, or political cycle motives can lead the central bank to try to boost economic activity beyond the level believed to be sustainable in the medium term.
Chart 5  Chart 6  Changes in international equity indices since trough(a)  European corporate bond spreads  Interest rates Expected earnings  Implied risk premium Total  Per cent 100  Basis points (log scale) Illiquidity premium (a) 10,000 Compensation for credit risk (b) Great Depression (c) Current (d)  80 60 40  1,000  20+ 0 20  100  EuroStoxx  S&P500  FTSE 100  40  Current  March  Current  March  Current  March  Current  March  Current  BIS Review 10/2010  March  Sources: Bloomberg, IBES, Thomson Datastream and Bank calculations. (a) Based on a three-stage dividend discount model. See Panigirtzoglou, N. and Scammell, R. (2002), 'Analysts' earnings forecasts and equity valuations', Bank of England Quarterly Bulletin (Spring), pages 59-66. (b) Taken as 9 March 2009. 10  Sources: Citigroup, Moody's Investors Service, UBS Delta and Bank calculations. (a) Spread of iBoxx € corporate bond index over iTraxx Europe credit default swap index. (b) iTraxx Europe five-year credit default swap index. (c) Credit risk premium for realised default rates on US corporate bonds issued in 1931. (d) Credit risk premium for Moody's current default probability forecast for European corporates.

Philipp Hildebrand: Globalisation and current developments in the financial markets Summary of a speech by Mr Philipp Hildebrand, Vice-Chairman of the Governing Board of the Swiss National Bank, at the Swiss Institute of International Studies, Zurich, 13 March 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Fundamentally, globalisation is not a new phenomenon, and yet the world has changed dramatically in the past twenty years. This is also evident in financial markets, where, since August 2007, a local event like the correction in the US residential property market has rapidly developed into a global event. We are now experiencing the first truly major crisis of financial globalisation. The longer the crisis lasts, the harder it will be – but also the more important – to keep in mind the advantages of financial globalisation and preserve them in the long run. There is a need for regulatory correction, and such a need will remain in the future. The existing system of regulation and supervision should be further improved. The regulation of liquidity and equity, in particular, needs to be fine-tuned, strengthened and adjusted to the latest developments in financial markets. However, it is possible that more will be needed than just the fine-tuning of regulations. The buffers in the financial system have to be strengthened. In simple terms, what is ultimately required is that international banks strengthen their capital backing. At the same time, bigger liquidity cushions are needed.
At the same, we are seeing signs of a cooling housing market. House prices fell more than we had expected in September, and the number of unsold homes has increased. According to Statistics Norway's business sentiment survey, the prospects for manufacturing have weakened. The labour market is tight, and the employment ratio is high. The number of employed appears to be slightly higher than expected, while the number of unemployed has been a little lower. The number of job vacancies is high, but the number of new vacancies has decreased slightly. Chart 4: Inflation is high Inflation has continued to edge higher and is markedly above our target of 2 percent. In the year to September 2022, consumer prices rose by almost 7 percent. Energy prices were a main driver, but prices are also rising rapidly for a range of other goods and services, both for domestically produced and imported goods and services. In September inflation was higher than we had expected, with a surprisingly sharp rise in transport prices, which tend to vary widely. The Committee judges that a higher policy rate is needed to bring inflation down towards the target. Inflation has increased more than projected, and the labour market appears to be a little tighter than previously anticipated. These developments could suggest raising the policy rate by more than 0.25 percentage point at this meeting. On the other hand, there are signs that some areas of the economy are cooling down, and prospects for lower-than-expected freight and energy prices may curb inflation ahead.

And like many great scientists, he was always looking to solve new problems and to identify areas for improvement. His famous essay in the Mind journal where he sets out the Turing test concludes: “We can only see a short distance ahead, but we can see plenty there that needs to be done.” At the time he was talking about machines and artificial intelligence. Let’s each of us take that same lesson and use it to build a more inclusive work environment. Webster, J.R., Adams, G.A., Maranto, C.L., et al. (2018) “Workplace contextual supports for LGBT+ employees: a review, meta‐analysis, and agenda for future research”. Human Resource Management. Vol 57, No 1. pp193–210. 7  5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6
However, there is no natural limitation of the indebtedness of the private sector and this becomes a particularly important issue when the repo rate is low. This has led to major problems on two previous occasions. In the 1990s, there was an excessive expansion of credit and many loans were used to fund the purchase of commercial properties. More recently, we imported problems via the banks’ excessive lending in the Baltic countries. Today I am talking most about household indebtedness, but the issue is a general one. We need to focus more than previously on debts and the stock of debts in our analysis apparatus. More specifically-targeted tools are possibly more effective than the repo rate to deal with household indebtedness, for example amortisation requirements and higher risk weights for mortgages. Higher risk weights for mortgages mean that the banks must hold more capital for their mortgages. This is something that the Riksbank has pointed out earlier on a number of occasions and that we analyse in more detail in our latest Financial Stability Report. The issue has also been discussed by the council for cooperation on macroprudential policy set up jointly by Finansinspektionen and the Riksbank. Finansinspektionen recently proposed a floor of 15 per cent for risk weights for mortgages in Sweden. 4 However, of the conceivable concrete measures for preventing risks on the housing market in Sweden, the mortgage cap is practically the only one in place today.

While Asia is one of the most diverse regions in the global economy, it has been able to take advantage of the complementarities in the region to generate significant expansion in intra-regional trade, intra-regional investment activities and increased intra-regional financial flows. Vision of Asia This award speaks to the growing importance of Asia within the world economy. Allow me to touch on three major trends in Asia that are likely to influence Asia’s role in the world as we advance into the future. First, the role of the growing cumulative domestic demand in Asia for the regional and global output. Second, the role of Asia in the more efficient intermediation of funds mobilised in Asia arising from the more pronounced regional financial integration. BIS Review 91/2010  1  Third, is the policy strategies being adopted by the region to address challenges and the model for the management for international relations. The economic transformation of Asia in this decade has resulted in Asia becoming an important source of cumulative demand in the global economy. Rising incomes, low unemployment, a young demographic structure that has higher propensity to consume, relatively low level of household debt and policies to encourage consumption have spurred consumption demand. Other measures being initiated include putting in place social safety nets in the form of schemes and programmes for education, healthcare, retirement and unemployment benefits. This has not only resulted in significant expansion of the retail trade sector in the region but Asia is increasingly becoming an important consumer in the global economy.
Since the 1970s, capital injections to the banking system have averaged around 8% of GDP at crisis time. 12 Taken together, this evidence paints a consistent picture: a progressive rise in banking risk and an accompanying widening and deepening of the state safety net. There is a ratchet. This ratchet is evidence of a policy time-consistency problem. 3. Time-consistency and the banking safety net  What explains this time-inconsistency? A simple framework is developed to explain the existence of, and ratchet in, the safety net. It focuses on the incentive structures facing owners of banks and the risk strategies they pursue. The run-up to the present crisis provides several examples of those incentives and strategies at work. Take the payoff profile facing a bank shareholder. Assume that the sensitivity of the bank’s assets to aggregate risk – in the language of finance, its beta – equals 0.1. So for every 10% movement in the market as a whole, the bank’s assets move by 1%. Assume too that the beta of the bank’s deposits is zero and that the bank has an equity capital ratio of 10%. While arbitrary, these numbers are broadly plausible. Conveniently, under those assumptions the  10  Laeven and Valencia (2009). 11  Logan (2000). 12  Laeven and Valencia (op.cit.). 4  BIS Review 139/2009  beta of the bank’s equity equals one. Figure 1 shows the payoff profile facing owners of the bank. The return on a bank’s equity lies on a 45 degree line when market returns are positive.

In recent years, this tendency has been amplified by high immigration and hence strong population growth. BIS central bankers’ speeches  7  In spite of vigorous building activity, the number of completed dwellings is still low in relation to population growth. This housing gap has developed over several years and is pushing up house prices. A tight labour market and low interest rates are pushing in the same direction. The rise in house prices and the rate of debt accumulation are closely linked. Since the mid1990s household debt in Norway has risen appreciably faster than income. On average, household debt is now twice as high as disposable income. A rising share of households are facing a debt burden that makes them vulnerable when the interest rate again moves up to a normal level or if economic developments in Norway should take a turn for the worse. In such a situation, many households might find it challenging to service their debt and may reduce household spending. A pronounced fall in household demand will have a negative impact on corporate earnings and enterprises’ capacity to service loans from Norwegian banks. The key policy rate influences a number of variables, including the krone exchange rate, debt and house prices. In its interest rate setting, the Bank seeks to take into account all the key relationships in the economy, those that influence the real economy and inflation. But there is a limit to the tasks that can be given to monetary policy.