samchain/econo-pairs-v1 huggingface dataset:
Fourth, the measure of risk-weighted assets – the denominator of the capital adequacy ratio – is constructed to better capture the risks that banks are taking in their activities. For example, the risks weights on trading account assets and for counterparty exposures have been increased substantially to reflect the lessons of the crisis. Note that due to better capture of the underlying risks, at least initially, aggregate risk-weighted assets in the system are likely to increase. This is not because the inherent riskiness of bank balance sheets has increased, but rather because that riskiness will be better captured. In addition to the 4.5 percent minimum common equity standard, there is also a new capital conservation buffer requirement equal to 2.5 percent of risk-weighted assets. If a bank were to incur losses and fall deeper and deeper into this buffer, increasingly tough limitations would come into play in terms of the bank’s ability to make capital distributions by paying dividends or buying back shares. This capital conservation buffer is designed to forestall the type of behavior that we saw during the crisis – banks continuing to dissipate capital by paying out dividends in order to demonstrate that they were strong. Instead, banks will have an incentive to raise additional equity to exit the buffer and its restrictions on distributions.

When we allow for this the cost – in terms of the lost output of a permanent change to bank capital of +1% of assets – almost halves from just over 3% of annual GDP to about 1.7% Next I allow for less than 30% of investment in the economy to be financed by bank lending. PNFCs’ liabilities with banks are made up of direct loans from banks’, but also banks’ holding of corporate bonds and equities, issued by PNFCs. I assume that only PNFCs’ bank loans are affected by the increase in banks’ funding costs. Chart 5 illustrates that over the past year the share of bank loans in PNFCs financial liabilities has declined from close to 20% to close to its average over the past two decades of 16%. Allowing for this halves again the estimated cost of higher bank capital – which falls from around 1.7% to 0.8% of annual GDP. This estimate is based on the impact of higher cost of bank lending feeding through to a (Cobb-Douglas) production function, and that implies a high sensitivity of investment to the cost of funds (a unit elasticity of substitution between capital and labour). Bank of England research 11 suggests that this elasticity is probably substantially lower. If that elasticity is 0.4, which looks a central estimate, then the cost of higher bank capital (of 1% of assets) falls from 0.8% of GDP to around 0.3%. Table 1 shows the estimated costs of higher bank capital under various assumptions about the economic environment.
There are interesting lessons to be drawn here and challenges for the new millennium. Let me first briefly describe the last century of this millennium in economic terms. This can provide a good perspective for assessments of our future economic prospects. The 20th century was a fantastic century in many respects In many respects, the 20th century has been a fantastic century in Sweden. The standard of living measured as GDP per inhabitant - has risen almost ninefold in a hundred years. Total production, GDP, has increased almost twenty times, while the population has doubled. This can be compared with the 19th century when the standard of living only doubled or at most tripled - the lack of statistics makes it difficult to be more exact. During the 20th century, annual GDP growth has averaged around 3%, though the increase in production has been far from evenly distributed over time. In the 1920s, as well as in the post-war years from the 1940s to the 1960s, growth was above the average for the century. Towards the end of the century, however, the annual increases in production slackened. Growth became increasingly weak during the 1970s, 1980s and 1990s. The average growth rate for the 1990s is in fact the worst in the entire century. However, the average for this decade is pulled down by the negative growth from 1990 to 1993. From 1994 onwards, the growth rate has returned to the previous average and the annual change is close to 3%.

Employment in different sectors during the 20th century 80  80  70  70  60  60  50  50  40  40  30  30  20  20  10  10  0  0 1900  1910  1920  Agriculture  BIS Review 137/1999  1930  1940  1950  1960  1970  Public and private sector  4  1980  1990  2000  Industry  The employment trends in different sectors, as a proportion of total employment, shows the Swedish economy’s transformation during the 20th century. Three different stages are especially clear. Firstly, fewer and fewer people earn a living from agriculture over the years. Having provided employment for around 60% of the labour force at the beginning of the century, agriculture now engages only a couple of per cent. This change reflects a dramatic increase in agricultural productivity and thereby internal migration. The population in rural areas falls and large cities such as Malmö, Gothenburg and Stockholm grow. It is also primarily in these regions that growth is generated. Secondly, the shrinking agricultural sector is reflected in a corresponding increase in industrial employment. Manufacturing occupied over 30% of the labour force in the 1950s when this part of Sweden’s corporate sector was largest in terms of employment. Thereafter, the proportion of employed in this sector has fallen. Finally, the really dramatic development as regards increased employment is the expansion of the service sector.
The promise of high returns is so tempting that individuals who are in other circumstances perfectly rational and ready even to advise others of good investment outlets get carried by enchanting talks and end up losing their money. 2  BIS Review 82/2009  The responsibility of microfinance practitioners The wide-spread existence of spurious microfinance institutions in the society projects the entire microfinance industry as a fraudulent activity in the eyes of the public and law enforcement authorities. This is not a healthy sign for the future of microfinance industry at all. Microfinance practitioners should put a stop to this unhealthy development by establishing a proper governance structure in microfinance institutions. They teach the poor of the importance of and the need for leading a responsible life. This responsible life includes behavioural traits like being truthful, being honest, being respectful and being exemplary. The cultivation of these qualities in life makes the poor wholesome individuals and that is the ultimate goal of any microfinance intervention in the society. If the microfinance practitioners do not practise what they preach, then, it is a serious lapse of the governance structure of microfinance institutions. Since governance principles are rules of good behaviour and there is no effective way of ensuring their proper practice, the practitioners should make an extra effort to follow them. It requires full commitment and devotion on the part of microfinance practitioners and, in turn, depends on the personal qualities which they have cultivated in themselves.

Sakvithi episode is a classic example of the ability of shrewd persons to exploit society’s desire for accumulating quick wealth by skipping the hard path which it should normally take. Hence, it is also an exploitation of people’s desire to become rich. This desire is embedded equally in both the poor and the rich: the poor to get out of poverty quickly and the rich to become richer and more influential. Hence, the schemes of quick high returns are craftily designed to satisfy this psychological desire. Many schemers who pose as micro-financiers too resort to this tactic and the poor unknowingly fall victim to their schemes. BIS Review 82/2009  1  The modus operandi of such schemers has been the same. They would form a microfinance institution because it is in high vogue today and the society is ready to accept it as social responsibility which one should perform for community’s benefit. This explicit social legitimacy allows them to operate under the umbrella of microfinance which is artificially boosted by appropriate marketing and fitting propaganda. In this manner, savings are mobilised from the poor and funds are raised from the donors. Eventually, the end-use of resources is not for helping the poor, but for siphoning for other activities. When such activities do not generate a continuous income sufficient to meet the obligations to depositors, the micro-financier is not left with a choice, but to default the savers who had placed their trust in him.
Against that background, a number of economists have recommended that inflation-targeting central banks should not only adjust interest rates on the basis of forecasts for inflation and the real economy but also should respond ”separately” to changes in assets prices. The debate on this subject has not been all that easy to follow, not least because the various conclusions from the debate are based on different models with their specific assumptions.2 However, I think you can say that the dominant view today, at least in the central bank world but – as I have understood it – also in academic circles, can be described as follows. A flexible inflation-targeting policy is a sufficiently good “tool” for dealing with problems that can arise via price developments in asset markets. A forward-looking central bank should keep in mind the long-term consequences of, for example, a prolonged rise in asset prices when making interest rate decisions, but there is no reason to take account of asset prices over and above their consequences for the ultimate objectives – price stability and real stability. On the other hand, in some situations it may be necessary for the central bank to attempt to look further into the future than normal in order to ”include” the impact on inflation and the real economy that asset price developments may give rise to in the long term. This is an important dimension of the flexibility in a flexible inflation-targeting policy.

Stefan Ingves: Basel III is simpler and stronger Op-ed by Mr Stefan Ingves, Governor of the Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision, published in the Wall Street Journal, 15 October 2012. *  *  *  The economic cost of the global financial crisis during the past five years has been frighteningly large. One clear lesson from the crisis is that regulatory capital requirements for the banking system were too low. Or in other words, leverage was too high. Under the pre-crisis rules, banks were allowed to increase their leverage to unprecedented levels. This increased risk in the financial system and when the crisis hit, the implicit guarantees resulted in massive public bailouts around the globe. The Basel Committee’s capital reforms, known as Basel III, substantially raise capital requirements from pre-crisis levels to reduce the probability of bank failures and the associated risks to taxpayers and to financial stability. Recently, much has been made of the perceived shortcomings of Basel III. Some argue that Basel III, which comes into effect next year, is not enough. Others argue that Basel III is too complex and should be replaced by a simple leverage ratio, calculated as tangible equity to non-risk weighted assets. In my view, the Basel III agreement fundamentally enhances national and global financial stability by both raising the level of capital required by banks, and by simplifying the regulatory framework. It is no small task to reach a global consensus on these often quite technical matters.
10 However, in the second half of 2022 and so far in 2023 this depreciation has partially reversed. In this context, this could also be passed through to lower consumer prices. As in the case of energy prices, this raises two questions. First, how long depreciation will persist. Second, whether its effects will be symmetric in both speed and amount. This is again an issue we need to monitor in the coming months. Developments in labour markets and wage pressures The evolution of wages and mark-ups will be another key determinant of inflation looking ahead. In particular, if higher inflation is significantly transmitted to wage increases, this could lead to further increases in prices, in particular if firms attempt to preserve or even increase their profit margins. The Eurosystem December forecast projected wage growth, as measured by compensation per employee, to increase from 4.5% in 2022 to 5.2% in 2023 before declining to 4.5% in 2024 and 3.9% in 2025 as inflation declines. The latest signals from negotiated wages would be in line with such projections. In particular, contracts signed during the fourth quarter of 2022 set an average wage increase for 2023 almost 1 pp higher than those agreed during the third quarter, while an indicator of wage growth in new online job openings 11 declined for two consecutive months to 4.9% in December (from 5.2% in November and 5.3% in October).

In particular, there has been a shift from bank to bond funding in the last decade, with bond debt increasing from 16% to 24% of non-financial corporations’ total debt. The faster policy pass-through to bond rates than to bank rates implies faster transmission. Moreover, loan origination is contracting rapidly judging by the short lag from the first rate hike. The evidence available shows a strong econometric relationship between Bank Lending Survey (BLS) credit standards and a so-called credit impulse a couple of quarters later, and likewise between the credit impulse and GDP growth. 15 The first link in the chain – between the BLS and the credit impulse – is already evident. We should expect to see the latter link to real activity assert itself soon. Third, as regards the cash flow channel of monetary policy, we have seen a significant shift of funds between overnight deposits (with very low remuneration) and time deposits (whose remuneration is more sensitive to market interest rates). Furthermore, in net terms, money supply is decelerating rapidly, with M3 growth slowing from around 9% in September to 4% in January. Fourth, the housing sector is a key area to watch given the turnaround in financial conditions, as well as the sharp increase in house prices in some economies over the last decade. There was significant evidence of exuberance in this market in some countries before the pandemic, as has been repeatedly emphasised by the European Systemic Risk Board.
Progress has already been made on the financing of infrastructure projects and businesses, thanks to two amendments that came into effect in April 2016 and September 2017, respectively, which adapted the calibration of capital requirements. More generally though, the reviews of the standard formula and long-term guarantee package measures planned for 2018 and 2020 respectively, are important opportunities to make essential improvements. The work is already underway and I welcome the proposal published by EIOPA early in November to reduce the capital requirement for unrated debts and unlisted equities under certain conditions. The Commission specifically requested that it look at those unlisted or unrated investments. But we may want to look more widely and encompass other types of long-term investments with innovative proposals for amending Solvency II, with the aim of striking the right balance between effective supervision and the financing of the real economy. It is now up to the industry to seize this opportunity to share its views and experience: tomorrow’s regulation should benefit from your ideas. Looking at the overall picture of solvency calculation, the correlation between assets classes, for example, to fully recognise the benefits of the diversification of long-term investments, could be an innovative way forward. 3. Technological innovation Let me now elaborate on my third and last point: technological innovation. The digital revolution is creating many opportunities for both financial players and consumers, including an increasing number of more accessible financial services, and more complete customer satisfaction.

François Villeroy de Galhau: Insurance and pensions – institutional innovation, economic innovation, technological innovation Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the7th annual EIOPA Conference, Frankfurt am Main, 22 November 2017. * * * Ladies and Gentlemen, It is a pleasure to be in Frankfurt today for this 7th Annual EIOPA Conference and I wish to warmly thank EIOPA’s Chairman Gabriel Bernardino for his kind invitation. I must say that I feel at home, since we are not far away from the ECB building where I take part in the meetings of the Governing Council at least every two weeks. But today I will speak in my capacity as President of the French supervisory authority, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), which belongs to the board of supervisors of EIOPA, and which is in charge of the supervision of both insurance companies and banks in France. This is an important responsibility as the French insurance market is the second largest in the European Union, just behind the United Kingdom, with an aggregated balance sheet of approximately EUR 2,600 bn. Given that I am speaking before the panel dedicated to innovation, I will take this opportunity to focus on three kinds of innovation, which in my view can lead us to rethink insurance and pensions: institutional innovation, economic innovation and technological innovation. 1. Institutional innovation Let me start with institutional innovation.
The Albanian banking sector remains sound, despite the challenges posed by the pandemic. The immediate operational measures taken by banks, as well as the macro and micro prudential measures taken by the Bank of Albania, ensured not only a continuation of the operation of the critical functions of the banks, but also satisfactory financial intermediation despite the great shock suffered by the economy. Credit to economy is growing (it grew by 6.3% in the third quarter 2020), capital is adequate and the banks’ balance sheets remain healthy, signalling their ability to withstand first-round shocks. We are optimistic that the economic activity is expected to revitalize over the next two years. However, the economic outlook for the future is accompanied by a high level of uncertainty and downside risks. In the short term, the risks are mostly related to 1/3  BIS central bankers' speeches  the uncertainty of the pandemic itself, its severity, duration, and potential return of restricting measures. In the long run, the risks relate to the long-term damage sustained by the productive capacities and domestic demand, as well as potential structural change sustained in the economy as a result of the altered behaviour of economic agents. We are sure that research based evidence, analysis and forecasts will provide accurate and timely information for policy orientation and coordination. Research in the area of monetary policy, financial stability and banking supervision has always dominated the topics of our workshop. This year COVID-19 has entered the agenda by brute force.

I will also elaborate on the main elements of our investment strategy. Historical background Chart: GDP per capita in Norway, 1970–2015. Indexed to OECD To put the Norwegian economy and our wealth position into some perspective, let me start by going back in time. When the first oil was brought to the surface in 1971, income levels in Norway were low compared with other western countries. The picture has reversed since then. We have gradually caught up to the wealthiest nations. Measured by GDP per capita, Norway now ranks close to the top. Even excluding the oil sector, Norway’s mainland economy has shown relatively robust developments. But there is no doubt that the extraction of oil and gas has played a major role. Given the high oil prices of the past fifteen years in particular, a booming oil industry has been an important driver of economic growth. Last year, the petroleum sector accounted for more than 50 percent of our exports, and more than 20 percent of GDP. Chart: Business investment The high oil prices of recent years have spurred investment in the petroleum sector to record-high levels. The level of investment in this sector in 2014 was as high as total investment in domestic non-oil industries. The positive spillovers to the oil service industry and other business sectors have been substantial, in particular through the past decade. Norwegian employment has remained high and unemployment low, even when the financial crisis hit in 2008.
It also underscores the power of incentives to drive individuals and firms to do things that are imprudent and/or unethical.4 And, the governance and control framework that the banks and the LIBOR administrator had in place proved woefully insufficient to prevent misconduct that stemmed from poor incentives. In this context, one could say it was a situation ripe for exploitation. The openness and brazenness of misconduct as captured in the recorded transcripts also point to serious deficiencies in bank culture. My New York Fed colleagues and I have commented frequently on the need for sound culture and incentives as a complement to effective regulation and supervision. While there has been some progress on this issue in recent years, the LIBOR and other rate-rigging scandals—not to mention more recent breakdowns at individual banks— point to the need for further strengthening of bank culture.5 I look forward to the discussion with Minouche and Andrew on improving culture in the fixed income, currency, and commodity markets in the following panel. One of the key lessons from the financial crisis was that critical pieces of financial system infrastructure must be both strong and resilient, and the LIBOR scandal underscored this need.6 The essential problem with LIBOR is the inherent fragility of its “inverted pyramid,” where the pricing of hundreds of trillions of dollars of financial instruments rests on the expert judgment of relatively few individuals, informed by a very small base of unsecured interbank transactions.

This is noteworthy because these are the maturities that are referenced by the bulk of financial contracts.9 In light of the history of LIBOR—and in the context of more than $ billion in overall misconduct fines since the crisis—banks are naturally reluctant to assume the legal risks associated with submitting quotes based on very shallow markets.10 Indeed, that is why some banks have left individual LIBOR panels in recent years.11 Andrew Bailey drove home this point in his July 2017 speech. He explained that the Financial Conduct Authority had to press hard to persuade banks to remain on the panels and voluntarily submit LIBOR quotes through the end of 2021.12 LIBOR’s potential cessation after 2021 poses a clear risk to financial stability, and prudent risk management means that all of us must prepare for a world without LIBOR. The Official Sector Response In recent years, international and domestic authorities alike have actively worked with the private 2/6  BIS central bankers' speeches  sector to address LIBOR’s shortcomings and to find alternative rates. One notable development has been the publication of an international set of principles for financial benchmarks, developed by the International Organization of Securities Commissions (IOSCO) in 2013.13 These principles—which include 19 specific standards across governance, benchmark quality, methodology, and accountability—have emerged as the international standard. IOSCO has rightly focused on tying benchmarks more closely to observable, arms-length transactions. This represents an important step toward eliminating excessive reliance on expert judgment.