samchain/econo-pairs-v1 huggingface dataset:
In fact - in one of many examples of how Basel II seeks to reflect reality - the new framework draws on the tremendous advances that many firms have already achieved in quantifying their exposures to credit and operational risk. This reflects as well one of the Committee’s goals to build the new framework on sound risk management practices in use today and to provide sufficient flexibility for it to evolve with advances in the future. At the same time, the Committee knows that mathematical formulas and financial models are only as good as the assumptions they make. At best, therefore, they serve as supplements to our insight: they do not replace our need for expertise and judgement. Even Einstein warned of the dangers of confusing mathematical certainty with reality. He said once that, “As far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality.” Reasonable supervisors and bankers know that we cannot rely purely on the apparent mathematical certainty of models and formulas to make decisions for the uncertainty of the future. Likewise, some banks may engage in unique activities that are not captured in the minimum standards. To guard against overdependence on quantitative models, we have included qualitative provisions to ensure that strong risk management and internal controls are adopted throughout the organisation and to ensure the involvement of boards and senior management. The New Accord also stresses the importance of independent assessments and audits.

All of these factors reflect the design and intent of the new framework as well as the process that we followed to develop it. The third and final topic that I would like to address this morning concerns what supervisors are doing right now to prepare for Basel II’s implementation - and what banks can do as well. 4. What are we doing to prepare for Basel II’s implementation? Now that the framework has been published, the Basel II project has entered a new phase focusing on implementation. Over the coming months and years, reality checks will continue to play a role for both bankers and supervisors in ensuring Basel II’s validity and feasibility as we implement the new framework. For our part, I believe that we can divide supervisors’ preparations into three main areas of  BIS Review 66/2004  3  focus. These include reviewing the calibration of the new framework; adjustments to the framework to reflect advances in risk management practices; and fostering a more consistent application of Basel II across jurisdictions. I’ll take a few moments to outline our work in each area. a)  Evaluate calibration of Basel II  First, the Committee has long expressed its commitment to ensuring that the framework performs as intended before it is implemented. This includes reviewing whether the framework delivers the amount of capital that we believe is necessary to protect the safety and soundness of individual banks on the one hand, and the broader banking system on the other.
The institutions cut their lending margins and in some cases also lowered their collateral requirements. When the US central bank raised its policy rate from 1 per cent to 5.25 per cent between 2004 and 2006, households’ loan costs also rose. The construction of subprime loans meant that they were particularly vulnerable. This is because they often have a low interest rate during the first two years. After that the loans are renewed at market rate with a substantial increment to compensate the credit institutions for the high credit risk of the borrowers. A higher policy rate made the market rate higher and interest costs for many households with subprime loans rose substantially. When US property prices slowed down last autumn, the increase in borrowers’ wealth was subdued. They could no longer use rising house prices to increase their borrowing and thereby finance the higher interest rates. This meant that more households in the subprime sector experienced difficulties in paying their loan costs. These developments have led to a number of US loan institutions that specialised in the subprime going bankrupt. This has led to newspaper headlines and there has been much discussion of what the consequences might be. However, the effects should not be so great that they threaten the stability of the US financial system. It is still only a minor part of the total US mortgage market that has been affected. Subprime loans account for around 13 per cent of all mortgages in the United States.

But as it was the exaggerated commercial property prices that contributed to the banks’ major losses in the 1990s, I consider that we should monitor future developments in these prices a little extra closely. In recent years foreign investors have become more interested in the Swedish commercial property market. In 2006 foreign investors accounted for just over 40 per cent of all investments in the market. In terms of financial stability, this development has both advantages and disadvantages. More foreign participants mean that the risks are spread to different types of investor, which is positive. It also contributes to making the Swedish property market more liquid. At the same time, it is also conceivable that potentially negative developments in the international market could more easily spread to the Swedish market. If, for instance, an investor were to make losses on another country’s market, it is conceivable that the investor would sell Swedish property to cover the loss. Prices could thus change quickly even without any change in the underlying factors. That was the commercial property market. What about the housing market? Why have house prices risen so much? As you know, house prices have also risen substantially since the mid-1990s. A person who bought a house ten years ago would be able to sell it now for a price more than double what he paid for it then. Prices of tenant-owned apartments have probably risen even more 1 . It is more difficult to analyse prices of tenant-owned apartments. The statistics are more uncertain.
GDP in Sweden Annual percentage change 5  5  4  4  3  3  2  2  1  1  0  0  -1  -1  -2  -2  -3  -3  -4  -4  -5  -5 -6  -6 00  01  02  03  04  05  Note. Broken columns represent the Riksbank’s forecasts. BIS Review 98/2009  06  07  08  09  10  11  Sources: Statistics Sweden and the Riksbank  13  13. Survey indicator Index 120  120  Survey indicator Meanvalue +/ - one standard deviation  115  115  110  110  105  105  100  100  95  95  90  90  85  85  80  80  75  75 70  70 00  01  02  03  04  05  06  07  08  09  10  Source: National Institute of Economic Research (NIER)  14.

Next year we are expecting largely zero growth and after that a fairly weak increase. Domestic demand in particular is expected to be weak for a long time to come in the euro area. The weak domestic demand means that the euro area is dependent on a boost from abroad – in particular the United States and other important trading partners – to be able to make a recovery. Since the Monetary Policy Report was published statistics received from Eurostat have reinforced the picture of production in the euro area beginning to stabilise at a lower level following the heavy fall at the beginning of the year. GDP fell by only 0.1 per cent between the first and second quarters of the year, which was much better than we had estimated. In addition, it can be noted that the purchasing managers’ index for the euro area rose in July for the fifth month in a row (see Figure 9). Both the manufacturing and service sectors show an improvement in July. However, the index is still below 50, which is the level indicating growth. Employment is continuing to be weak and unemployment rose to 9.4 per cent in June. Inflation measured in terms of the EU harmonised index, the HICP, was -0.7 per cent in July. The HICP is not affected by interest rate cuts in the same way as the Swedish CPI, but it is affected by energy prices.
In the spirit of Abraham Lincoln’s words, who stated that “the best way to predict your future is to create it”, we are all jointly responsible for setting in train the reforms that can obtain a better future for us and the coming generations. Thank you. 10

Whether this is a result of proportionality – our efforts to lower barriers to entry – or barriers to growth is a key question. Second, more novel if perhaps less fundamental: there appear to be minor discontinuities around the thresholds of £ £ and £ and a more substantial flattening and bump at £ These may be worth investigating further. 6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  Complexity Another thing we’ve been looking at afresh is the complexity of our prudential rules. The scale of the global financial crisis resulted in part from the huge complexity of the financial system, and the many gaps in the rules that sought to regulate it. Fixing these gaps required more regulatory constraints and more regulatory discretion – a necessary increase in ‘essential’ regulatory complexity.5 But when should we start worrying about ‘too much’ complexity? This is important for at least two reasons: first, excessive complexity may well be counter-productive in terms of our safety and soundness objective6; and second, complexity may be anti-competitive if it is harder for small firms to bear the cost of mastering it. Designing a framework to trade off costs and benefits of complexity is an emerging research question. But there’s a complementary, empirical step: we have wanted to measure the framework’s complexity – to say how complex it is. Legal and linguistic scholarship suggests the information burden of understanding individual rules, as well as the nature of the interactions between them, both matter here.
In fact, I would say that there is no other international regulatory initiative that gives more attention to these questions. For the sake of brevity, I will give you just three examples of how the new framework encourages banks to consider how risk determinants change over the cycle and in stressed conditions. First, banks are expected to use sufficiently long time series of historical data in designing their rating systems. The aim is to capture as much data as possible about how relevant factors have behaved in the past. Furthermore, when assigning ratings to borrowers, they should also consider how the borrower’s ability to meet contractual obligations may change in the future as a result of possible changes in economic conditions over the course of the cycle. Second, banks’ LGD estimates should reflect economic downturn conditions. The potential for realised losses to be higher than average during times of high default rates may be a material source of unexpected credit losses for some exposures. The Committee has elaborated principles that banks are expected to fulfil in this respect, and will continue to monitor industry practice and encourage the development of appropriate approaches to this issue. Third, Basel II places much emphasis on stress testing in the assessment of capital adequacy. Indeed, the new framework sets specific stress test requirements for banks using the advanced approaches to credit risk, but also encourages the use of these tests more generally.

BIS Review 119/2009  3  The winding down of extraordinary measures has started In Norway, it has been appropriate to start winding down the unconventional measures earlier than in other countries. In recent months, liquidity has not been supplied through the currency swap lines or liquidity in foreign currency. Loans at long maturities have not been provided since February – several of the loans have now matured. As the markets are now returning to normal, the supply of liquidity will be adjusted so that the money market rate reflects the key policy rate. We want the banks to redistribute liquidity in the interbank market. The underlying structural liquidity in the banking system, i.e. liquidity excluding Norges Bank’s liquidity provision, has been negative in recent years. Structural liquidity was influenced by ingoing and outgoing payments via the government’s account in Norges Bank and is projected to increase ahead, primarily because the government can partly finance increased lending to state banks, payments from the Government Bond Fund and the State Finance Fund and share subscriptions by drawing on their large deposits in Norges Bank. The banking system’s demand for central bank loans can then decrease considerably. The swap arrangement involving covered bonds in exchange for government securities has made a considerable contribution to securing banks’ long-term funding. This spring we saw that the covered bond market started to reopen. The minimum price in the swap arrangement is thus adjusted to the interest rate forming in the market.
We are benefitting from strong demand for our exports – especially E&E and commodity-based products. Our diversified export products and markets will continue to support our export growth. Importantly, we are seeing increasing strength in domestic demand. Domestic spending, especially consumer expenditure is on the rise. In fact, retail sales, debit card transactions and consumer goods imports have exceeded their pre-pandemic levels. The economy is also benefiting from a strengthening job market. While unemployment was at its peak of 5.3% in May 2020, it is now at 3.9%. Almost 26,000 new jobs were created in the first three months of this year, similar to pre-pandemic levels. Job vacancies and wages are also rising. This will further reinforce the recovery in domestic demand going forward. That said, there is some unevenness in the economic recovery. Certain segments continue to experience hardship and remain vulnerable. These include low-income households who are disproportionately affected by rising price pressures. The rise in food prices in particular, has affected this group to a larger extent. Improvement in employment for women and youth is also significantly slower. Indeed, rising prices is a global phenomenon. For Malaysia, the direct impact from elevated oil prices to headline inflation has been largely dampened by price controls on fuel and essential food items. Yet, there are still indirect effects from high global commodity prices, as they are a key driver of the rise in producers’ input costs.

The recent crisis raised many issues for which clear solutions, or even consensus, have yet to emerge, including on the propensity for home bias in the policy responses, suitable approaches to cross-border resolutions, and the significant challenge of coordinating policies across different legal and institutional frameworks. This is an area where the legal framework remains highly fragmented. A sustainable solution will require legal reforms in particular, to provide certainty and clarity in dealing with crises. As events in the current global environment have demonstrated, central banking has become significantly more challenging. The issues confronting central banks today are far more diverse and complex, prompting the re-examination of the role of central banks, the capacity to manage and contain risks to monetary and financial stability, and the governance  BIS Review 113/2009  1  arrangements and the policy instruments that are needed to support the effectiveness of central banks. The new Central Bank of Malaysia Act 2009 which was passed by Parliament in July this year represents the culmination of more than two years work to address the issues and challenges that are confronting Central Banks in this rapidly changing environment. The Act elaborates extensively giving greater clarity on the mandates for which we are accountable and providing enhanced powers to undertake these mandates. In the principal objective of promoting monetary stability, it is recognised that price stability is to be achieved in an environment of sustainable growth of the economy.
The proposal did not receive support. When the zeal for control was turned towards wage determination, the degree of control and coordination became excessive. Extensive regulations did not contribute to stabilising the economy. There were substantial fluctuations in the Norwegian economy in the 1980s. With a policy of low interest rates and devaluations, inflation took root. Nominal interest rates were kept at a low level even though inflation and the value of tax-deductible interest rose. High and  BIS Review 65/2002  1  variable inflation also contributed to wide swings in output and employment. The substantial fluctuations in the economy culminated in the credit and spending spree of the mid-1980s. This was followed by a deep recession and high unemployment towards the end of the decade, accompanied by a crisis in the Norwegian banking system. Today, very little remains of the extensive system of regulation from the post-war period. Our experience in the 1970s and 1980s showed that this structure was not sufficiently robust. We know from experience that fiscal policy alone cannot ensure a high level of employment. Jobs are not the result of centralised planning or Storting decisions, they are the sum of many local decisions. The structure of the labour market and of wage determination is probably of considerable importance in this context. The direct regulation of credit, interest rates and capital movements broke down and was phased out at the end of the 1980s. The krone exchange rate is no longer steered directly. It is now floating.

Svein Gjedrem: Monetary policy in an open economy Speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Confederation of Higher Education Unions, Kongsberg, 13 November 2002. The address is based on the assessments presented at Norges Bank's press conference following the Executive Board's monetary policy meeting on 30 October and on previous speeches. Please note that the text below may differ slightly from the actual presentation. Charts in pdf for this speech can be found on Norges Bank’s website. *  *  *  The long-term task of monetary policy is to provide the economy with what we call a nominal anchor, in other words low and stable inflation. Price stability is the best contribution monetary policy can make to economic growth and prosperity. Low and stable inflation is also Norges Bank’s operational objective. We have had four periods of very high inflation over the past 100 years; during the two world wars, the Korean War and a 15-year period from the first half of the 1970s to the second half of the 1980s. In Norway, very high inflation is a wartime phenomenon and a 1970s and 1980s phenomenon. The fourth period of high inflation was unlike the three previous periods. In the 1970s and 1980s, inflation accelerated gradually. It was not as high as during the two world wars, but it took a long time for the level to fall. The fixed exchange rate system of the post-war period, the Bretton Woods system, broke down in 1971.
Because they are an essential element for the financial sector: they deliver creativity and they understand new needs rapidly. And they bring to the forefront French scientific expertise and technology: artificial intelligence, cryptography, distributed ledger technology, etc. Regardless of how they are integrated into the financial sector – via cooperation or direct competition with established players – they make the industry more dynamic. This is also true with regard to the entry into financial services of the Bigtechs, which are often less keen on competition. I'm not just saying this to please the Fintechs that are here with us today. It is a deeply-held belief and a commitment, on my part and on that of the entire ACPR. But what, I hear you ask, are you doing concretely to help the Fintechs in their development? Let me start by reminding you that the Banque de France is working with Fintechs on two levels: via its mission of providing services to the economy – to businesses and SMEs – and via its mission of safeguarding financial stability. Our role as a central bank and supervisor, is to reconcile confidence and innovation. If you would allow me to borrow a metaphor from the history of the railroads – which were originally a major innovation in the 19th century, but also one that was not without its risks – our role is to prevent the train from derailing and to make sure the passengers aren’t afraid to get on board.

What is more, the European payment ecosystem has become extremely reliant on non-European players – today the global card schemes, and tomorrow the Bigtechs – with the result that it now has limited control over the management of personal data. In parallel, the rise of crypto-assets and above all of stablecoins means they could potentially try to replace central bank and commercial bank money, even though they offer none of the same guarantees in terms of liquidity, service continuity and neutrality. In light of this situation, Europe needs to develop a payments strategy. I have often pushed for 2/3  BIS central bankers' speeches  this over the past two years. Recently, we have made decisive progress thanks to the strong involvement of the ECB and the Commission. We now have to put this into action and “deliver” – this is urgent for the next two years. This strategy notably combines three elements: 1/ European regulation on stablecoins: on 24 September, the European Commission published its MiCA project, which in our view provides a good basis for reconciling innovation with consumer protection and financial stability. 2/ An acceleration on the European central bank digital currency (CBDC), the “digital euro”. We haven’t yet decided on it, but we need to be ready to decide if it becomes necessary, and as soon as it becomes necessary.