samchain/econo-pairs-v1 huggingface dataset:
In the same vein, automatic rules that are imposed ex ante might also be less risky in terms of potential unintended consequences. When new rules are implemented it is always hard to gauge what the impact will be because imposition of the rule not only changes the economics of borrowing and investing in a particular sector, but also changes expectations about what might happen in the future. When the rule is viewed as likely to be binding in the future – this seems more likely in the case of the ex post measures – it will be very hard to judge how economic agents will respond to a new measure. In this regard, I think back to the Carter administration and the imposition of credit controls to restrain inflation in 1980. Even though the credit controls were not expected to bind right  BIS central bankers’ speeches  3  away, the economy began to contract almost immediately as households and businesses rapidly adjusted their behavior to preserve some credit capacity. The response was a much more powerful downturn in economic activity than had been anticipated, which forced the Carter administration to scrap the credit controls because they worked too well in restraining economic activity. So I see some potential advantages of hardwired rules. But, I think this advantage needs to be set against the practical difficulty of figuring out what rules would need to be in place now to deal with all the potential financial stability excesses that could occur in the future.

In other words, Sweden is now in the sixth year of favourable economic growth. The 3% average is much the same as during the upswing in the 1980s but clearly above the annual average of 2% achieved in the 20 years from 1970 to 1990. It may be more than we can expect to sustain in the long run. An important reason why it has still been possible to keep inflation down in recent years has been the existence of unutilised capacity. This in turn has to do with the deep recession from which the recovery started and the comparatively rapid expansion of capacity since then. Medium-term inflation expectations have gradually stabilised around the 2% inflation target. At times, however, including the recent period, transitory price movements have brought the annual average change in the CPI just outside the lower limit of the target’s tolerance interval. There have even been periods when trend inflation has been lower than expected. For the decision-making of monetary policy, as the Riksbank has pointed out earlier, transitory effects on inflation are normally a secondary consideration. We are working to clarify how the target formulation is applied in order to dispel any uncertainty about how we should appraise direct effects on consumer prices that come from movements in, for example, house mortgage interest costs and indirect taxes. Altered conditions for international developments Last autumn, in the September Inflation Report, the Riksbank pointed to a growing risk of a weaker international trend on account of the crisis in Asia.
The international context The international context is a primary factor of difficulty. The latest analyses and projections show signs of weakness, which can be explained to some extent by the difficulties the European economies are facing in overcoming a sovereign debt crisis that has now lasted for more than two years. While the growth forecast for the world economy as a whole in 2012 stood at around 4% a year back, this has now dipped to around 3%. The forecast for the United States has improved, but that for the euro area as a whole has fallen from growth of 1.1% a year ago to a decline of 0.4%. And the growth forecast for the emerging economies has edged down from above 6% to around 5%. The forecasts for 2013 have also been lowered, especially for the euro area as a whole. The sluggishness of the international economy and, in particular, of the euro area is bearing down on our ability to recover. Euro area governance I would therefore find it useful to start with a comment on euro area governance and its problems. In my appearance before the Economic Affairs Committee last July, I addressed the source of the sovereign debt crisis in Europe and the main reasons for its depth and development. I believe I should reiterate that, to overcome the crisis, a new version of Monetary Union governance will be needed. There have so far been two different stages in the reform of European governance.

Therefore, I will share with you some of the lessons from my own experience. First, I will refer to the importance of having a good fiscal and monetary policy mix. If fiscal policy is relaxing, then the natural reaction is to tighten monetary policy. But one should take  BIS central bankers’ speeches  1  into account that monetary policy cannot always be a substitute to a sound fiscal policy. In other words, not always and in any circumstances can monetary policy steps compensate for fiscal policy measures. Secondly, I will touch upon the risks related to pro-cyclical fiscal policies. We have experimented this in Romania and are fully aware on the risks related to the boom-bust cycles. During booms, as budget revenues pick up there is a strong temptation to spend more and no appetite to publicly debate the issue of structural deficits. On the other hand, when bust emerges one realize how limited your toolkit is and that all measures to address the situation translates in to a prolonged recession and GDP volatility. Last but not least, I will refer to the monetary policy by underlining how essential financial stability is to help achieve our overriding goal which is price stability. As I said before, it is my belief that the two are not conflicting; they may be compatible if your measures are carefully implemented.
Norman T L Chan: Black Bear – Blue Ocean – Wanton Noodle Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Hong Kong Management Association Fellowship Award Dinner, Hong Kong, 26 November 2013. *  *  *  Dennis (Sun), Alfred (Chan), Victor (Lee), Ladies and Gentlemen, 1. I feel very honoured to have been invited to speak at the HKMA Fellowship Dinner tonight. This is not only because the Hong Kong Management Association has been a forerunner in enhancing the standards of management and governance in Hong Kong, but also because the Hong Kong Management Association and the Hong Kong Monetary Authority share the same initials “HKMA”! Hence, attending the Fellowship Dinner tonight has double meanings for me as the Chief Executive of the HKMA. 2. Management is crucial as it embraces knowledge, skills, culture and leadership that would guide and shape the future of an organisation, whether it is public sector or private sector body or whether it is profit-seeking or non-profit-making entity. There is no doubt that, with increased globalisation and technological innovation, markets in different geographical localities have become more interconnected. One author has described the phenomenon as the “World has Become Flat”. 3. An important outcome of the interconnectedness of markets is that competition has become much more intense and ferocious. Talking about competition, let me share with you this story. 4. One day two men went together hiking in the mountain.

Despite the case for its inclusion in the regulatory regime that I made earlier, some people have questioned the merits of a leverage ratio. But given the very high levels of leverage that could be generated under the risk-based regime, it is a sensible measure to include as a backstop in the regulatory framework. And the case for a leverage ratio will only grow further if risk-weight variability is not adequately dealt with. In sifting through these potential actions and trying to find the preferred policy mix, it is important that supervisors and the industry engage in a constructive dialogue on the best way forward. Banks have a keen interest in ensuring that their risk measurement methods are seen as robust and credible: not only does this affect confidence in the reliability of their capital ratios, but any doubts also call into question their stress-testing results and their risk management systems more generally, since these are invariably all built on the same foundations. Thus the Committee is keen to hear from banks and other interested parties what their preferred course of action is. Recent initiatives by the industry groups, such as the International Institute of Finance (IIF) and by the Global Association of Risk Professionals (GARP), to foster improved understanding of these issues, are therefore very welcome. Concluding remarks Let me sum up some of the key points I have made this morning. First, it is important that bank capital is seen to be of sufficient quantity, quality, consistency and reliability.
Ahead of the referendum, I believed that the advantages of a single currency in Europe outweighed the loss of a monetary policy adapted to a specific level of Swedish economic activity. The debate ahead of the referendum sometimes gave the impression that the monetary policy regimes in Sweden and the euro area are different. In actual fact our monetary policies are similar, as we both have an inflation target, a floating exchange rate and an independent central bank. One difference is that monetary policy in Sweden is based on Swedish conditions, while that in the euro area is based on average developments in prices and economic activity in the area as a whole. The Nordic countries have different economic-policy situations. Sweden, Finland and Denmark are members of the EU. But Norway and Iceland, who have chosen to remain outside the EU, also enjoy the four freedoms, i.e. free movement for capital, goods, services and labour, through the EEA Treaty. Finland has taken a step further in the EU cooperation by participating fully in EMU since 1999. Consequently, Finland no longer has its own currency and does not conduct a national monetary policy. Denmark has not introduced the euro but participates in the exchange rate mechanism, ERM II. This means that the Danish krone has a fixed exchange rate with the euro and that interest rates in practice track those of the euro area. In Norway monetary policy is now similar to that in Sweden, with an explicit domestic inflation target.

As you will have gathered from my earlier summary, many comments have focused, as in the past, on the minimum requirements laid out in Pillar 1, but as we get closer to finalisation, comments about implementation are becoming more important. I would like to take a few minutes now to talk about these other aspects of the New Accord that deserve equal consideration. Let me address four specific issues: ·  Pillar 2 and consistency  ·  Home / host implementation issues on a world-wide basis  ·  Accounting Standards and Basel II  ·  The recognition of diversification  Pillar 2 and consistency On the first of these subjects, as you well know, the innovation of the New Accord does not rest solely on the refinements to the quantitative measures of risk. Another innovation, and one of the most beneficial, is the incorporation of supervisory review into the international framework. This represents a real breakthrough for all of us, since supervisors in each jurisdiction have until now found their own ways to evaluate the adequacy of a bank’s capital base. That is an unsatisfactory solution since it can lead to inconsistencies in the way that a global banking organisation’s operations are supervised at a local level. By incorporating into the New Basel Accord the requirement for supervisors to evaluate the internal processes behind a bank’s view of its need for capital, the Committee expects that bankers and supervisors will engage in a more focused discussion of risk management.
Second, the SURE programme [a European instrument for temporary Support to mitigate Unemployment Risks in an Emergency], which will provide additional lending of € billion to avoid job losses during the most acute phase of the crisis. And lastly, the European Stability Mechanism (ESM), which provides low-conditionality precautionary credit lines and already has € billion available, which can be increased up to € billion. Following the agreement the Eurogroup reached on Thursday, governments will be able to use the ESM to access the equivalent of 2% of their GDP and thus finance healthcare spending related to the pandemic. The Eurogroup has finally reached an agreement. The ESM, which was the sticking point in the negotiations, will offer loans to finance the healthcare response of up to 2% of a country’s GDP. That aside, ESM loans continue to have the same conditions attached as they did before. Do you think this will be enough? Or will recourse to this fund go beyond that? The funds the ESM is making available, of up to 2% of GDP to finance healthcare spending, have no additional conditions attached. For Spain, this means access to around € billion. In any case, the most important part of this agreement is that it represents a commitment that points in the right direction. It sends a clear signal of the willingness of the euro area countries to act together in the economic and budgetary realm.

In such a situation the EU member states have a “common interest” in discussing how confidence in economic policy can be enhanced. During the spring there has been a discussion in Sweden about the exchange rate tendency in connection with the move to Stage Three of EMU. What will happen if, for instance, companies adopt the euro as their unit of account? The Riksbank has underscored that it does not see any strong reasons for large currency outflows on account of the monetary union. And if such outflows were to occur and the krona suddenly weakened, we consider that countervailing forces would act in financial markets. The value of a currency is determined by numerous factors, of which the most important is confidence in the country’s economic policy. The general trend towards internationalisation in recent years has entailed relatively large currency outflows due to portfolio diversification among resident investors. But at the same time the krona has displayed an appreciating trend as growing confidence in economic policy generated a compensatory currency inflow. All in all, conditions for a stable exchange rate between the krona and the single currency should be good. There are many indications that the European Central Bank will define a price stability target that resembles Sweden’s. Similar inflation trends, together with confidence in economic policy as a whole, should result not only in stable nominal and real exchange rates between the euro and the krona but also in conditions for a reasonable valuation of the krona.
These operations have helped to stabilise bank lending to the private sector as well as the banks’ holdings of government securities. However, the effectiveness of these operations has been reduced, as banks have preferred to place a substantial part of the additional funds with the ECB’s deposit facility. BIS central bankers’ speeches  1  In fact, in Chart 2, the blue line shows the sharp increases in the volume of bank liquidity provided by the ECB through its longer term operations over the course of the crisis. The red line shows the increases in the volume of funds placed by the banks with the ECB deposit facility. The inflow of funds into the ECB’s deposit facility has neutralised a substantial part of the added liquidity. This reflects a persisting lack of activity in the interbank market and a hesitation on the part of the banks to provide more credit to households and businesses. This accumulation of excess liquidity comes at a cost to the banks, currently amounting to 0.75% – the difference between the 1% MRO rate charged by the ECB on the LTRO and the 0.25% paid by the ECB at its deposit facility. In a similar manner Chart 3 shows the path followed by various monetary aggregates during the crisis. The monetary base – shown as the blue line – includes mainly bank deposits with the central bank. The base consists of those central bank liabilities that form the foundation for expansion of the money supply – M3, represented by the red line.

In line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. Over recent quarters, these risks appear to have become manifest as inflation has trended upwards. Not least in the face of the ongoing tensions in financial markets, the monetary analysis helps to support the necessary medium-term orientation of monetary policy by focusing attention on the upside risks to price stability prevailing at medium to longer horizons. While the growth of broad money and credit aggregates is now showing some signs of moderation,  2  BIS Review 105/2008  reflecting the policy measures taken since 2005 to address risks to price stability, the strong underlying pace of monetary expansion points to continued upside risks to price stability over the medium term. The currently flat yield curve has given rise to a substitution from longer maturity assets into monetary instruments, which offer similar remuneration but greater liquidity and less risk. This substitution has led the current headline rate of M3 growth to overstate the underlying pace of monetary expansion. At the same time, shifts out of overnight deposits drove the annual growth rate of M1 down further in July. These effects, as well as other temporary factors, must be taken into account when assessing monetary developments and their implications.
However, the majority of these non-banking financial intermediators is controlled by financial groups headed by commercial banks. A relatively low share of investment companies and investment funds were negatively influenced by missing regulation and supervision in this field, however, there has been gradual improvement in recent years. In the area of pension funds we also witness gradual improvement caused mostly by government incentives, but we can expect quicker development if the government proceeds with intended pension reform. Increasing Role of NonNon-banking Intermediation 9,0 8,0 7,0 6,0 Insurance C. Financial Leasing Investm ent C. Pension Funds Other Credit Unions  5,0 4,0 3,0 2,0 1,0 0,0 1996  Total  1997  1998  1996 21,2  1999  1997 17,9  2000  1998 18,6  2001  1999 20,0  2002  2000 19,0  2001 20,6  2002 21,7  10  4  BIS Review 53/2003  The banking sector generally consists of previously state owned banks [since privatized to foreign banks], new banks established after 1990 as private institutions, and subsidiaries and branches of foreign banks. The approach to bank privatization differed in the new member states, but the results are now rather comparable. The banking sector is dominated by institutions governed by foreign banks [mainly from the EU], with exceptions being Slovenia, Malta and Cyprus.

Source: Bank of England and Bank calculations. (a) Spread between quoted rate on two-year fixed-rate mortgages and gilt yields (before August 2008) or overnight interest swaps (from August 2008) of matching maturity. Chart 3: Household debt and consumption growth  Chart 4: Distribution of loan to income ratios  over 2007-12(a)  on new owner-occupier mortgages, 2014 & 2017  Sources: Flodén (2014) and OECD National Accounts. (a) Change in consumption is adjusted for the pre-crisis change in total debt, the level of total debt and the current account balance. See ‘Did household debt matter in the Great Recession?’ (Flodén, 2014). Source: FCA Product Sales Data and Bank calculations. (a) Proportion of new regulated mortgages, bucketed by loan to income ratios in increments of 0.25. Excludes remortgages with no increase in principal. 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  Chart 5: Net lending to the household sector by lender type  (a)  Source: Bank of England and Bank calculations (a) Calculated as the 12-month moving average of the net flow of lending to households. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12
0109  0108  0107  0105  0909  0509  0109  0908  0508  0108  30  0907  0 0507  70  0107  100  0106  110  200  Source: Bloomberg. Source: Goldman Sachs. The course of food prices is another important assumption for inflation forecasts. Contrary to the upward trend in previous years, the seasonally adjusted food prices displayed a decline in the third quarter (Figure 33). This change was mainly driven by the decline in unprocessed prices fuelled by prices of fruits and vegetables decreasing at a faster pace than seasonal averages. Unprocessed food prices had displayed an upswing in the first half of the year. Deceleration in annual inflation in processed food prices continued as well and prices fell compared to the same period of the previous year for the first time in the history of the index (Figure 34). The July Inflation Report envisaged food inflation to be 7.5 percent at the end of 2009 and 6 percent for the following years. However, better than expected outcomes regarding food prices necessitated a downward revision in food inflation to 5.8 percent for end-2009, while the projection of 6 percent was maintained for the following years. 14  BIS Review 143/2009  Figure 33: Food Prices  Figure 34: Food Prices  (Seasonally Adjusted,  (Annual Percentage Change)  Quarterly Moving Average)  2 1,5 1 0,5 0 -0,5  Source: TURKSTAT, CBRT.

In a possible downturn, authorities can release the CCyB, as many did during the pandemic, freeing up capital that banks can use either to absorb losses or to lend to the real economy. This mitigates the likelihood of a downward spiral of emergency credit  2  At the end of 2020, total banking sector assets stood at roughly CHF 3,800 billion. This is equivalent to around 500% of Swiss GDP – a high ratio by international standards. tightening. Finally, the activation of a CCyB could increase lending costs and reduce credit growth, thereby dampening the build-up of vulnerabilities. In theory, the range of feasible instruments is broad. In practice, the design and character of macroprudential instruments are typically adapted to country-specific circumstances in order to increase their acceptance and effectiveness. Let me explain how we have achieved this in Switzerland. In Switzerland, three agencies share a mandate to contribute to financial stability: the SNB, the Swiss Financial Market Supervisory Authority (FINMA), and the Federal Council and administration. These authorities have directly involved banks in the design of macroprudential instruments. In fact, the borrower-based instruments implemented in 2012 build on a pre-existing tradition of qualitative self-regulation guidelines of the Swiss Bankers Association concerning mortgage lending. Authorities and banks have worked together to complement these qualitative guidelines with quantitative requirements concerning the degree and speed of amortisation and the necessary down payments by borrowers. These quantitative guidelines serve now as minimum standard requirements.