samchain/econo-pairs-v1 huggingface dataset:
These four institutions have submitted on a precautionary basis their recapitalisation plans to the FROB should they not be able to obtain private capital, although this is a possibility they consider unlikely in pursuing their strategies. Two of them, Bankia and Banca Cívica, are taking steps for a future market launch. If the plans proposed come to fruition, in less than 30 days these institutions will be listed, the process envisaged under the new regulations will have concluded, and they will operate with capital higher than the minimum requirement set in the new legislation. Another two banks, Mare Nostrum and Effibank, are also negotiating placing their capital in private hands, and they intend to conclude the operation within the schedule set, placing the proportion necessary to obtain the level of own funds required to meet the new core capital ratio. In both cases, the avenue being explored, without ruling out other alternatives, is the direct placement of capital with wholesale investors. Turning now to the other four savings banks, all of them have submitted their recapitalisation plans, a pre-requisite for applying for aid. The plans are in two parts: a business plan, with projections for profitability, leverage, liquidity and efficiency (among other variables); and a series of specific commitments regarding corporate governance and cost-cutting.

As initially stated, we are in the final stage of the savings bank restructuring process, implementing the strategy envisaged in Royal Decree-Law 2/2011 approved by Parliament in February. Underpinning this legislation are three pillars. First, a very significant increase in solvency. All institutions shall comply with a core capital ratio, in which only top-quality instruments are eligible, of 8%, rising to 10% in the case of institutions that rely on wholesale markets for at least 20% of their funding and none of whose share capital or voting rights are placed with third parties. Second, FROB backing for those institutions that do not reach these new minimum capital levels by their own means. 2  BIS central bankers’ speeches  Third, new arrangements for the instrumentation of FROB aid, which now ceases to be provided as preference shares, taking rather the form of subscription to shares in the bank resulting from the conversion of the savings banks concerned. *  *  *  On 10 March 2011 the mechanisms envisaged in the new regulations were set in train with the publication by the Banco de España of the situation regarding institutions’ capital. Twelve banks (four commercial banks and eight savings banks) did not reach the figures required to comply with the ratio, needing an aggregate additional amount of € billion. Finally, the number of institutions with a shortfall rose to 13 following the collapse of the Banco Base Institutional Protection Scheme (IPS).
Predictability is about ensuring that the flow is gradual across economic scenarios, including scenarios that are quite different from our central forecast. Achieving this predictability is complicated by uncertainty about agency MBS principal repayments, an issue I’ll summarize briefly. To an extent, mortgage payoffs are driven by the white noise of life, such as homeowners selling their homes as they find new jobs in different areas of the country, have children, or retire, and in the process pay off the mortgage on their old house. There is some uncertainty about how social and demographic factors like these will impact the housing market over the long term, and this therefore creates uncertainty in long-term MBS prepayment forecasts. Over the short term, however, by far the greatest source of aggregate uncertainty in mortgage principal repayments relates to refinancing, the process by which homeowners get a new mortgage with a better interest rate, and pay off their old one in the process. Refinancing results in existing agency MBS, containing the old higher-rate loans, being paid off more quickly, along with greater issuance of newly-minted agency MBS containing the new, lower-rate loans. Homeowners are incentivized to refinance when mortgage rates decline below the rate on their current loan. In contrast, most market participants expect longer-term interest rates, including primary mortgage rates, to rise over policy normalization, and that therefore mortgage refinancing activity will be modest. As a result, most expect mortgage principal repayments to run below the level of the redemption cap set by the FOMC.

As an example, Panel 4 shows a time series 8 / 15  BIS central bankers' speeches  of the expected level of the federal funds rate at the end of 2017 for dealers and for buy-side firms; these two track each other closely. 22 On the other hand, both the dealers and buy-side community responses exhibit substantial dispersion around these medians. One explanation for the adverse reactions to Federal Reserve communications in the spring of 2013 is that the marginal investor is not the same as the median respondent to our surveys. Looking past the survey, I think there are a few key factors that differ between now and 2013 that might explain why the market reaction has been so much calmer this time. The macroeconomic environment is markedly better. Market participants have a better sense for the FOMC’s approach to increasing the federal funds rate, and there is much greater clarity on the respective roles of the balance sheet and the overnight policy rate. The normalization plan is more clearly gradual and predictable. And the balance sheet news this time around may just not have been all that surprising. I’ll talk briefly about each of these. One important difference between now and 2013 is that the labor market is very healthy, with unemployment close to levels most associate with full employment.
These adverse effects arise because public debt absorbs funds that could be put to more productive use and alters the overall financing conditions of the economy, distorting private investment decisions. Moreover, in adverse situations, high indebtedness detracts from the stabilising capacity of fiscal policy. In addition, sustaining high public debt requires maintaining primary surpluses over a prolonged period, which may call for higher levels of taxation or lower levels of productive expenditure. Lastly, one of the key possible adverse effects of high debt is the greater vulnerability of public finances to changes in investor or market sentiment. According to simulations performed in studies published by the Banco de España, under credible assumptions, the process of reduction of Spanish government debt will be very gradual; indeed, several decades may elapse before the debt-to-GDP ratio reaches 60%, which is the benchmark set in the current European fiscal rules framework. In consequence, it is crucial that advantage be taken of the current favourable economic setting to complete the fiscal consolidation process and create budgetary headroom in order to be in a position to address future downturns. The work remaining should take the form of a medium-term programme setting out the measures required to meet the budgetary objectives, together with prudent macroeconomic and public revenue forecasts. Reducing the vulnerability of Spanish public finances is even more important considering the medium and long-term challenge posed by population ageing (see Chart 13).

4  Conclusions  I wish to conclude simply by emphasising that although the Spanish economy is now entering its sixth consecutive year of real GDP growth, and that this growth pattern is expected to continue, albeit at a progressively slower pace, the risks to the prolongation of the expansionary phase have increased somewhat, especially in the international sphere. Thus protectionist measures, Brexit and the persistence of certain focal points of political and economic uncertainty within the euro area partially explain the slowdown in the global economy in 2018, but further adverse effects cannot be ruled out in coming quarters. In any event, the world economy is now at an advanced stage of the cycle, and the Spanish economy is not immune to developments in the international arena, in particular in the euro area, especially in view of the continuing high level of both external and public debt in Spain. For this reason, efforts to continue to improve the budgetary position of the different tiers of Spanish general government and to bring in reforms to shore up confidence in the various economic agents and boost growth potential should not be delayed. These two conditions are essential to redress the existing imbalances and ensure continued economic growth and job creation. Thank you for your attention. BANCO DE ESPAÑA  16	 TESTIMONY BY THE GOVERNOR OF THE BANCO DE ESPAÑA BEFORE PARLIAMENT IN RELATION TO THE DRAFT STATE AND SOCIAL SECURITY BUDGET FOR 2019
Those distributional differences have, however, persisted and have if anything widened further. Despite having fallen by almost 10% since the crisis, real wages among the top 10% are still over 20% higher than in 1997. But wages for the bottom 20% have fallen by almost 20% since 2007 and are essentially back to where they were in 1997. These polarising forces in the labour market are also evident across industries (Chart 17). BIS central bankers’ speeches  5  Between 2001 and 2007, median annual wage growth across industries was 4% with a standard deviation of 1 percentage point. During 2014, average real wage growth has averaged 1% with a standard deviation of 2.5 percentage points (Chart 18). Wage dispersion has risen markedly. In some sectors wages are growing faster than before the crisis, while in others they are falling in both real and nominal terms. So while strong employment demand has helped sustain wages among the highly-skilled, it has not worked the same magic for the lower skilled. That begs the question – why? The most likely explanation is that rising demand has been more than offset by the rise in the supply of labour for these services. Several factors are likely to have been at play. First, displaced mid-skilled workers may have sought jobs for which they are over-qualified in order to stay in employment. In other words, they have moved down the skill distribution, placing downward pressure on wages. The crisis is likely to have reinforced these trends.

According to the August Inflation Report forecasts, they will continue to ease in the period ahead. BIS central bankers’ speeches  1  •  Asset prices have risen significantly, boosting economy-wide wealth. Since 2009, UK equity prices have risen by over 50%, UK ten-year government bond prices by around 15% and UK house prices by around 20%.1  •  Perhaps most striking of all, employment in the UK has risen by almost 1.8 million since its trough and by around 750,000 in the past year alone. The unemployment rate has fallen from a peak of 8.4% to 6%. According to the August Inflation Report forecasts, it is expected to fall further in the period ahead, to close to 5%. Economists since Arthur Okun have often combined macro-economic measures into a single index.2 It speaks volumes for economists’ psychological state that they tend to call these “misery indices”. Although something of a dog’s breakfast, misery indices provide a simple summary statistic of macro-economic health. I have constructed an index of unemployment, inflation and GDP growth in the UK. The higher GDP growth, and the lower unemployment and inflation, the higher is the index and the healthier is assumed to be the economy. The choice of these measures, and their weighting, is rather arbitrary.3 To buck Thomas Carlyle’s image of the economist as dismal scientist, let’s call this an “ecstasy index”. Chart 1 plots the ecstasy index for the UK since 1970.
The interest rate differential with abroad is still too wide, although it has narrowed considerably since the SRR was imposed in June 2016. Given how high the real exchange rate is, this is not a good time to take the risk of pushing it higher than economic fundamentals warrant. If forecasts materialise, the conditions for lowering the SRR will improve in the coming term, as Iceland’s positive output gap is projected to keep narrowing and global interest rates are expected to rise. When the SRR was introduced, there were still broad-based restrictions on capital outflows. The SRR was justified in part with reference to the liberalisation process, and there were concerns that the offshore krónur that exited via the Bank’s June 2016 auction would re-enter immediately in search of a new carry trade opportunity. It is surely counterproductive to open the gates for large-scale carry trade before the carry trade positions from the last spree have been closed out. On the other hand, there will be grounds to revisit the level of the SRR and the asset classes affected by it when the final capital account liberalisation measures are taken. The Bank’s large international reserves, which have been financed domestically for the most part, are the result of the strategy of building up large enough reserves to reduce the risks associated with capital account liberalisation, and of the positive shocks that made it possible to build up the reserves without foreign borrowing.

To a degree, the authorities have responded to this risk: last year the Financial Supervisory Authority imposed a ceiling on residential loan-to-value ratios, following analysis and discussion within the Systemic Risk Committee, which works for the Financial Stability Council, and upon receiving an opinion from the Council. Developments in the real estate market will continue to be monitored closely in this respect, and the possibility of applying additional macroprudential tools will be considered. Another risk factor that the Financial Stability Council has identified is uncertainty about future developments in the tourism sector and the potential impact that a setback in the industry would have on the position of the banking system. At the end of 2017, lending to the tourism sector accounted for 9% of the large commercial banks’ total lending, but because growth in tourism has eased recently, this ratio has held broadly steady. The Central Bank of Iceland conducts an annual stress test in consultation with the Financial Supervisory Authority, in which it examines the impact of macroeconomic scenarios on the commercial banks’ resilience. The results are published in the autumn issue of the Bank’s Financial Stability report. The last stress test assumed that there would be a recession in trading partner countries, plus a drop in major export prices and a steep decline in the number of tourists visiting Iceland. In this scenario, the banks’ capital ratios would fall by an average of 3½ percentage points, to a level close to the minimum capital ratios currently required by the Financial Supervisory Authority.
However, private and public consumption also picked up, after having registered only lacklustre growth in the first half of the year. Momentum in equipment investment, by contrast, remained weak. In part, growth was also boosted by special factors, including an unusually large increase in value added in the healthcare industry. Despite the positive developments of the third quarter, utilisation of economic capacity remains unsatisfactory. We are assuming that growth will be markedly lower in the fourth quarter. In particular, export demand and value added in manufacturing are likely to contribute significantly less to growth than in the previous quarter. As a result of the comprehensive revision of the national accounts, the reported figures for previous quarters are higher, and therefore GDP growth for the current year should also be somewhat higher than we assumed in September, by 1.5– 2%. However, the underlying economic momentum has not changed. For next year we expect to see GDP growth of about 2%. Under this assumption, the underutilisation of economic capacity will decline only gradually. We are also expecting only a modest recovery on the labour market. Monetary and financial conditions I will now turn to monetary and financial conditions. After a long period in negative territory, inflation has been hovering around zero for over a year. The minimum exchange rate has prevented deflationary developments, but inflation still lies towards the bottom of the range that we equate with price stability. Moreover, according to the available surveys, medium-term inflation expectations have fallen steadily in recent years.

Yet, at around 1%, they are still close to the long-term average inflation rate. Interest rates, too, have remained very low across all maturities in the past few quarters. Mortgage rates have declined further, reaching a new low in October. Government bond rates have also fallen to new lows. My colleague, Fritz Zurbrügg, will discuss developments on the financial markets in more detail. Despite falling mortgage rates, mortgage lending growth slowed again. At the same time, real estate prices continued to rise. However, as in 2013, price momentum is weaker than in previous years. This suggests that the measures to contain developments on the mortgage and real estate markets are starting to have an impact. Yet the imbalances that have built up on these markets in recent years remain the same. It is still too early for an all-clear. The SNB will continue to monitor the situation closely. My colleague Jean-Pierre Danthine will discuss this topic in more detail in his presentation. 2  BIS central bankers’ speeches  Since the last monetary policy assessment, the Swiss franc has moved closer to the minimum exchange rate, and has thus strengthened against the euro once again. At the same time, both it and the euro have depreciated against the US dollar. Overall, the exportweighted real external value of the Swiss franc is virtually unchanged compared to last year, and thus continues to lie considerably above its long-term average. The Swiss franc is still high.
We have seen some idiosyncratic instances of such a dynamic in the UK – with funds having to gate investors as a result. These have not given rise to financial stability risks. But if we saw this happen on a wider front, if for example investors lost confidence in a less liquid asset class, there is a risk of redemption pressures that could not easily be met and consequently contagion and firesales that could damage the financial system. These are international markets so we need to work internationally to assess these risks and any structural remedies that might be warranted. Risks to financial stability don’t all arise in the financial system, however. There is a borrower for every lender. Over-indebtedness in the real economy can amplify economic downturns. That in turn could also lead to larger losses for lenders than the initial downturn alone. The borrower or the lender? If there is risk in a bank lending to a borrower, should an FPC policy focus on the lender or the borrower? Our approach has been that the policy should address the vulnerability as directly as possible. In principle it is most efficient and effective to act on the origin of the vulnerability. Lenders and borrowers do not respond to credit cycle shocks in the same way. If the risk originates in the lenders’ balance sheet, if lenders are not able to absorb losses in a severe but plausible stress, action should focus on reinforcing the resilience of the lenders to losses.

This is likely to be particularly true when there is increased uncertainty about unemployment.15  The literature suggests that both channels can be important. For example, Danish research finds evidence in favour of over-consumption in Denmark over 2003 to 2009.16 This captures consumption financed by mortgage equity withdrawal or second mortgages, although the results may in part be driven by consumer credit, as the study does not distinguish between mortgage debt and consumer credit. The authors of the study think of the subsequent cuts in consumption as ‘spending normalisation’. In the UK, however, research shows that a credit availability channel is best able to explain the historical movement between leverage and consumption.17 And studies in the US point to a range of channels, including credit availability and liquid assets.18  This variation in findings is not surprising. One would expect the channels to vary over time and across countries. But what does it mean for policy? 13  For example Andersen et al (2016), Kovacs et al (2018), Dynan and Edelberg (2013) and Fagereng and Halvorsen (2016). For example Bridges et al (2017) and Jorda et al (2016). For example, in Japan, Nakajima (2018) finds that precautionary saving – in particular due to concerns about potential unemployment and old age – played a significant role in explaining consumption cuts by highly indebted households. 16 Andersen et al (2016). 17 Kovacs et al (2018). 18 Dynan and Edelberger (2013) and Baker (2018).
On the other hand, supplementary pensions may be financed by a fund where the pension is determined by the individual’s contribution to the pension fund and the return on the fund’s investments. Labour is our most important resource. The decline in average hours worked cannot continue if we are to have a sustainable pension system. The current evaluation of our public pension system must focus on the incentives to work and the effects on the average retirement age. A fund-based system may be an appropriate approach and at the same time make pension savings transparent for each individual. This may in itself provide an incentive to increase working hours. Conclusion The Norwegian economy is changing. Even a gradual increase in the use of petroleum revenues will change the industry structure substantially in the next decade. It appears that we may see an increase in locally determined wages. This will generate considerable gains, but in the absence of reforms in the labour market and in the social security and pension system, the growth potential and sustainability of our economy may weaken, labour may be displaced and unemployment may rise. Monetary policy provides the economy with a nominal anchor. The guidelines hold the promise of a fiscal policy that is anchored in a long-term strategy. When fiscal policy is predictable, monetary policy can also contribute to stability in aggregate demand and output. The social partners, businesses, borrowers and investors can act on the assumption that the inflation rate will be 2½ per cent.

The statement therefore indicates that it is therefore sensible for business and the country to plan on the basis that, in this Parliament, the government does not propose to enter a single currency. However, the government has said that if a single currency works and is successful, Britain should join it. The BIS Review 110/1997  -3-  government believes that we should therefore begin now to prepare ourselves so that, should the economic tests be met, a decision to join a successful single currency can be made early in the next Parliament. To help with the essential preparations, the Chancellor has invited the Governor of the Bank of England and the heads of the two main bodies representing industry and commerce, and two other Ministers, to join him on a Standing Committee to lead the preparations for EMU. 12. In the UK wholesale financial markets, practical preparations are accordingly proceeding apace. 13. We at the Bank of England have been taking an active role in helping the UK financial markets to prepare for the euro. We do this because, even though the UK will not be in at the start, it is plain that banks and financial institutions in the UK, in their wholesale business for their corporate and institutional customers, in the UK and overseas, will want to be able to offer the full range of financial facilities in the euro from the outset.