samchain/econo-pairs-v1 huggingface dataset:
As well as lowering homeowners’ wealth, falls in house prices reduce their collateral and so their access to credit. This tends to drag on consumption. Preliminary Bank analysis suggests the most highly mortgaged households have tended to cut their consumption very materially in times of economic stress. 2 And investment in the construction of homes and other property has had a tendency to fall sharply in downturns, with this component of spending accounting for around half of the peak to trough variation in GDP growth across the 2008–9 recession. This combination of lower property prices and a fall in spending across the economy, can, through a rise in defaults, damage banks and contribute to a tightening in credit conditions, creating a further drag on economic activity. The distribution of indebtedness is also likely to matter. Given their sensitivity to a change in economic conditions, a long tail of highly indebted households could represent a vulnerability for both the banks and the economy. The data suggest that the size of this tail is increasing. Gross lending has increased and the share of new mortgages for house purchase at a loanto-income ratio above 4.5, at 8%, is back around its pre-crisis level. These households tend to have borrowed for long maturities and to carry higher levels of unsecured debts. These factors could, therefore, explain why, across countries, recessions associated with housing busts have tended to be over twice as severe as those without.

So it is particularly important at present to ensure that the current low levels of interest rates do not mask the likely cost of mortgages and so create more headroom for prices to rise. It is possible that affordability constraints, reinforced by lenders’ underwriting standards, will increasingly act as a brake on the speed at which house prices are growing and as a brake on mortgage debt. In that case, having recovered much of their fall following the crisis, we will see house price growth slow to match the pace of earnings growth – a soft landing. This is not without precedent. In 2004, having risen at an average rate of almost 20% over the previous 2 years, house price growth began to slow with the annual growth rate falling to just 2% by the middle of 2005. The 125bps increase in Bank Rate in the 13 months to September 2004 was no doubt part of the story. It proved, however, to be short lived episode. Amid a period of easing credit conditions, the pace of house price growth began to rise again through 2006, reaching double-digit rates by 2007. But it is probably an example of how affordability can brake the market. However, there is another way the story can play out – a major overshoot in prices and build up in debt followed by a sharp correction with negative equity and an overhang of debt for many households.
Third, there is room for an intermediate level of integration, as shown in a simple but illustrative matrix:  BIS central bankers’ speeches  5  I would call it “full coordination of national policies”, a presently missing link between integration, as we have for monetary policy decision-making, and rule-based surveillance, as it is currently the case for national fiscal policies in Europe and which is clearly lacking teeth. And I don’t think we are ready for a fully-fledged fiscal union with a common fiscal capacity and the great mutual trust it requires. In addition to the completion of banking union, the needed part of EMU reform is to set up a strong institution to fully coordinate national fiscal and structural policies. It would help to make the euro area more than the sum of its parts. Jean Monnet famously declared that “nothing is possible without men, but nothing lasts without institutions.” The idea of a Finance Minister of the Euro area is not new: Marcel Fratzscher and the DIW for instance recently advocated for “a joint finance minister”, aware that a single currency “requires an economic convergence process and close coordination of economic policy with common rules”3. But let me specify her/his concrete tasks. I see four of them. First, the Minister would be in charge of preparing the euro area-wide collective strategy to fulfill its sustainable growth mandate and collectively agreeing the division of tasks through the setting of individual performance targets for Member States.

Caleb M Fundanga: A brief look at corporate governance in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of corporate governance guidelines for banks and non-bank financial institutions, Lusaka, 28 November 2006. *  *  *  ♦ The Chairperson of the Bankers Association of Zambia; ♦ The Chairperson of the Institute of Directors; ♦ The Chief Executive Officers of banks and non-bank financial institutions; ♦ Deputy Governors, Bank of Zambia; ♦ Representatives of Professional Bodies; Media Colleagues; ♦ Distinguished Invited Guests; ♦ Ladies and Gentlemen. I wish to welcome you all to the launch of the corporate governance guidelines for banks and nonbank financial institutions, in particular, deposit taking non-bank financial institutions. As you all may be aware, the recent debacle of corporate scandals has resulted in the resurgence of interest in good corporate governance. These scandals have not been restricted to large businesses in the US or Europe, but have surfaced in emerging economies as well, with equally devastating effects. This, together with concern about our environment and globalisation, has played an important role in this resurgence of interest in how companies are managed, directed and controlled. Here in Zambia, the collapse of a number of banks in the mid-1990’s has largely been attributed to poor corporate governance. Some characteristics of this included dominant key shareholders, poor transparency and inadequate disclosure.
This usually contributes to lower wage and inflationary pressures in the short term. The Riksbank therefore also closely follows resource utilisation in the labour market. In the short term, a central bank can to some extent lower unemployment by increasing demand and inflation with expansionary monetary policy (in the Riksbank's case, by cutting the repo rate). This leads to companies increasing production and taking on more employees. Using the same reasoning, unemployment would therefore rise if inflation was pushed down by tightening monetary policy. It is this relationship that is usually described with the aid of what is known as the short-term Phillips Curve. Some of the criticism aimed at monetary policy in recent years appears to be based on the assumption that there is a clear-cut long-term relationship between inflation and unemployment. However, it is not possible to buy lower unemployment in the longer term by allowing inflation to rise. Sooner or later wage-earners will require compensation for the higher inflation by raising their wage demands. As prices and wages rise, the stimulating effect of monetary policy will wane. Demand will fall again and employment will decline. In the long term, unemployment will return to its long-term equilibrium level. A systematic, expansionary monetary policy would only have the consequence that inflation and inflation expectations would soar. This correlation is usually illustrated with the aid of the so-called long-term Phillips curve. There is currently a broad consensus on this, both in central bank circles and the academic world.

30.08.2022  Central bank money for the digital age: reflections on the new paradigm Keynote address/ Central Bank Research Association (CEBRA) Annual Meeting Margarita Delgado Deputy Governor  It is with great pleasure that I take up the opportunity of addressing such a distinguished audience tonight with a topic that I very much feel falls within CEBRA’s remit. In that respect, given the turbulent times we are living in, leveraging a space where an open and constructive dialogue between us and the academia can take place is sure to prove even more instrumental now than it has been the case in the past. Yet, over and above the daunting challenges of inflation, climate change, macroeconomic stability and many others which you are touching upon in this year’s conference programme, in the next few minutes I would like to turn my attention on to something very different. I am talking about the so-called central bank digital currencies, one of the most prominent examples of financial innovation. Being digital is no longer a prophecy awaiting realization as Nicholas Negroponte 1 once forecasted in his now renowned examination of the frontiers of digital technology and its effects on the future of our society. Instead, it has already become an all-encompassing phenomenon which the pandemic helped expedite by a few decades. Being digital in the financial industry means new opportunities for incumbents to acquire new clients, to expand their current share of the wallet and to obtain efficiencies unheard of.
Although the degree of aggression may have somewhat subsided in the aftermath of this crisis, banks are still extending loans to persons they assess as creditworthy. Outside the banking system, credit availability by non-bank financial institutions has also increased in many forms with annual growth in direct loans disbursed by microfinance institutions and leasing finance institutions showing a significant rise. Chairperson, although these developments are encouraging and commendable, I do not think we should be fully satisfied with them. It is not enough to merely increase the number of financial institutions, nor is it enough to concentrate on building consumer loan portfolios to salaried workers only. In my view, the real gains should arise not only from increased accessibility to financial services by more of our people, but also the cost at which such accessibility is made possible. I am sure you will readily concur with me that access to finance in Zambia is still relatively low at 37.3% as at end July 2009. This is hampered in part by the continued high cost of finance and the limited financing options available to the larger part of the Zambian business sector, particularly the small and medium enterprises (SMEs). One can attribute this state of affairs to several factors which broadly are influenced by the macroeconomic environment as well as micro-structure and practices of our financial system.

The benefits of these measures abound. For example, the fiscal deficit has been constrained to within the allowable limits of below 3% of GDP. Lower fiscal deficit coupled with prudent monetary policy have contributed to current low and stable inflation rate. As you are aware, annual inflation stood at 9.9% at end-December 2009 and further declined to close at 8.2% at end-July 2010. The growth in the economy has also been robust,  2  BIS Review 105/2010  underpinning the sustainability of policy reforms. Real economic growth has averaged above 5% for most part of the past decade. Concern has also been raised that Government borrowing competes with the private sector for scarce funds thereby pushing up interest rates and perpetuating the high cost of finance. However, in recent years, the Government has scaled down its domestic borrowing requirement in order to free resources for the private sector. On the other hand, due to banks appetite for risk free debt instruments, competition for government securities has intensified exerting a downward pressure on yield rates. Chairperson, these achievements attest to the importance Government attaches to reviving this economy and making Zambia a middle income country by the year 2030. Distinguished Ladies and Gentlemen, part of the reason financial intermediation has been limited has been because of the inadequate supporting financial and legal infrastructure. A well developed financial infrastructure is essential for fostering investor participation and expanded access to financial services.
•  Seventh, greater emphasis on standardisation of products may facilitate improvements in market infrastructure. Pressure will continue for more products to be traded on exchanges rather than OTC. That should also help control counterparty and other operational risks. Section 6: Conclusion 45 Financial engineering facilitates the transformation and reshaping of risk. It thus supports the development of new products that decompose, transfer and pool risks to match user needs. Innovation thus delivers a broadening of financial choice that enables companies and households to improve their management of risk, with attendant gains in economic welfare. 46 There are, however, a number of frictions and market imperfections that lower the effectiveness of financial innovation. There may be insufficient information to gauge the risk in new financial instruments. And indeed information can get lost when a chain of parties are involved in the creation of new financial instruments. If these parties do not retain an economic interest in the performance of the instrument, its inherent risk can grow as incentives to screen and monitor weaken. In addition, the benefits of tailoring the risk profile to meet the demands of specific investors can be offset by the poor liquidity that might apply to a bespoke component. These frictions have become much more apparent during the credit crisis of the past year, during which time primary market issuance and secondary market trading of some innovative financial instruments has fallen sharply.

For instance, a large proportion of new  2  BIS central bankers’ speeches  mortgages granted for owner-occupied residential property still have a loan-to-value ratio of over 80%. Furthermore, the share of new loans with stretched affordability has also remained at a high level. At the same time, the interest rate margin of domestically focused banks narrowed further in 2012, while interest rate risk remained historically high. In view of the persistently low level of interest rates, there is the risk that, despite the measures already implemented, imbalances on the Swiss mortgage and real estate markets will continue to build up. This would increase both the likelihood and the consequences of a price correction in the medium term. Such a price correction could be triggered, for example, by a sharp increase in interest rates. Against this background, domestically focused banks should therefore continue to ensure that their resilience is sufficiently high, irrespective of the regulatory requirements, and make adjustments where necessary. They should be able to maintain their economically important functions, even if real estate prices were to fall sharply and interest rates were to simultaneously rise. In particular, domestically focused banks should make sure that the currently high direct interest rate risk is assessed and managed using conservative assumptions. In this context, the assumptions applied by banks with regard to savings and sight deposits are especially important. In an environment of historically low interest rates, these deposits have proven to be very stable sources of financing in recent years.
Second, inflation gradually increased in 2007 and 2008 to over 4 per cent. Inflation increased rapidly even if the effect of rising mortgage rates is discounted. This was largely due to rising energy and food prices. These price rises, as I mentioned earlier, were rooted in the expansionary monetary policy and the high level of growth in the world as a whole. The impact of monetary policy comes after a considerable time lag and the rate of inflation we see in these years is affected by monetary policy in previous years (see Figure 7). Third, inflation expectations also increased. The fact that inflation expectations one year ahead increased is natural given that the measured inflation rate also increased. However, inflation expectations five years ahead can be interpreted as an indication of whether monetary policy is credible or not. As long as these expectations are close to the inflation target, then this is a sign that the respondents expect the Riksbank to attain its target in the long term. The fact the long-term inflation expectations increased to over 2.5 per cent was therefore more worrying (see Figure 8). Fourth, there was a rapid expansion of credit and a rapid increase in housing prices. Lending to non-financial companies and to households increased by 10–15 per year in the years preceding the crisis and house prices increased by around 10 per cent per year. The prices of tenant-owned apartments increased even more rapidly.

I began by saying that the State Bank of Vietnam is currently in a situation similar to that of the Swedish Riksbank just over a decade ago. However, it is also the case that the conditions are different in certain respects. One difference is that the Swedish credit and money markets had been deregulated completely during the 1980s and early 1990s. This meant, for instance, that the central government issued bonds, through public auctions and at predetermined times, and actively attempted to promote the development of a secondary market. Thus, there was already a clear channel through which monetary policy could have an effect. Another difference was that we in Sweden had the support of a long tradition of comprehensive production of public statistics that made our work easier. These are factors that, as I understand it, do not apply to the same extent here in Vietnam, at least not yet. Vietnam has thus – like all countries – its own special conditions that may need to be taken into account and may make it difficult to formulate monetary policy as an exact blueprint of the system in  7  For a detailed discussion of “central bank transparency”, see, for instance, Chapter 1 of Blinder, A.S., (2004), The Quiet Revolution – Central Banking Goes Modern, Yale University Press. 6  BIS Review 21/2006  another country 8 .
When I was out ice skating at Norrviken not far from here a couple of weeks ago a metaphor came to mind for the way the Riksbank has to adapt to different conditions as they occur. It should be appropriate in this winter holiday period. Say that the ice you are skating on is good, but seems to become gradually worse the further you go. Then there is no harm in going a bit further – waiting and seeing what happens – as long as you are observant. Perhaps you will change course slightly to be on the safe side. More than that is not necessary. But let us say instead that the ice is suddenly really thin. Then it is no longer a good idea to keep on going and wait and see what happens further ahead. A minor change of course is not enough. If the conditions become really bad you will have to do even more – turn around immediately – to get back onto safe ice. What I am trying to say is not that we are skating on thin ice. What I mean is that decisions are linked to, and must also be assessed on the basis of the situation in which they are taken – what information is available and what one believes lies ahead. Like when you are wondering whether you should carry on skating on ice that may be uncertain. How much do you need to change course for everything to go well?

Two particularly important exceptions have been the gradual fixing of the exchange rates between members of the European Union, culminating in monetary union, and the more or less formal policies of the newly industrialised Asian countries and Japan to keep the value of their currencies stable against the dollar. Moreover, the Asian central banks have been accumulating large dollar reserves. For most of the post-war period, the quantity of central bank reserves held by Asian central banks was of the same order of magnitude as the reserves held by the G-7. Over the past 15 years, both Japan and non-Japan Asia have rapidly increased their reserves, which are now nearly ten times as large as the combined reserves of the rest of the G-7. Two thirds of these reserves are in dollars, a much larger proportion than the US share of world output. The counterpart to the Asian bloc’s current account surpluses and acquisition of dollar reserves has been large current account deficits in the US. There is nothing inherently wrong with such ‘imbalances’. In principle, they reflect the use of financial markets to allocate savings from around the world to the most profitable investment opportunities. But there is likely to be a limit to the amount of debt that one country can issue as a result of persistent deficits before investors start to worry about its ability or willingness to repay.
In normal times, monetary policy impulses are transmitted to the real economy – where goods and services are produced, bought and sold – via the interest rate channel. Reductions in the rate at which banks can borrow from the central bank are supposed to feed through to the complete range of retail interest rates (loan and deposit rates for bank customers) as well as market determined interest rates (e.g. yields on corporate or sovereign bonds) and a wide spectrum of prices of non-fixed income assets. 2  BIS central bankers’ speeches  But during the crisis, the interest rate channel of the monetary policy transmission mechanism was jammed, initially because the interbank market was dysfunctional, then because illiquidity and fear led financial players to be less willing to make use of price differentials between different maturities. In response, the ECB engaged in a sequence of non-standard measures to restore a proper transmission of the monetary policy signals. The first action was to conduct lending operations through a fixed rate tender procedure with full allotment. This means that banks’ demand for liquidity would be fulfilled without any other limit than the constraint coming from the need to post eligible collateral for the loans. In response to the seizing up of term lending, it was also decided to provide more liquidity with longer maturity than the usual one-week and three-month operations.

More specifically, the TALF was designed to support the market for securitized credit. Overall, the TALF performed impressively in meeting that objective. The program contributed to a substantial improvement in conditions in the securitized credit market, facilitating an increase in the availability of credit to households and businesses. Moreover, it achieved this outcome with limited risk to the Federal Reserve’s balance sheet. Let me begin with some general background information on securitized credit markets. Securitization is an important funding source for bank and nonbank lenders. When a lender extends credit, it makes the decision of whether to keep loans on its books or to securitize and sell them to other investors. If kept on the lender’s books, the holdings have to be financed, either by borrowing or by using funds that could be deployed for other purposes, including making other loans. Thus, in many circumstances the lender finds it advantageous to sell assets through the securitization channel, allowing other investors to ultimately hold the assets and hence bear the risk. The amount of credit financed through securitization rivals that provided directly by banks. Indeed, even excluding the sizable securitization markets for mortgage credit, approximately $ trillion in loans to consumers, students, and businesses were securitized over the past decade. 2 The securitization market became significantly disrupted during the financial crisis in 2008 and 2009 in all areas outside of conforming agency mortgage-backed securities. Liquidity for securitized products deteriorated, leading to an unprecedented widening of spreads.