samchain/econo-pairs-v1 huggingface dataset:
Even though the EU – with an export share of over 60% – remains its most important trading partner by far, 4 there are other more dynamic regions that – measured by their contributions to export growth – are becoming increasingly important for Swiss foreign trade. This is particularly true for China. Since 2001 alone, when it joined the World Trade Organization, the value of Swiss exports to China has increased more than threefold. But also exports to Brazil, Russia and India have grown at an above-average rate. 5 Countries of the Middle East, whose earnings have soared in recent years as a result of high oil prices, are also becoming increasingly important markets for Switzerland. And finally, the share of exports to Central and Eastern Europe has also increased, though only slightly. Overall, the share of Swiss goods exports to developing and emerging economies has risen from around  3  The other fundamental determinant of exports besides the real exchange rate is foreign demand. Yet, how changes in foreign demand and the exchange rate ultimately translate into changes in demand for Swiss products also depends on other, more structural factors. These will be discussed in the remainder of this speech. 4  In terms of imports, the EU is even more important for Switzerland, with a share of almost 80%. Consequently, Switzerland runs a trade deficit with the EU. 5  Last year around 7% of Swiss goods exports went to the BRIC countries.

Jean Monnet already recognised this in 1976, when he wrote in his memoirs: “Europe will be forged in crises and it will be the sum of the solutions adopted for those crises.” 19 As far as Switzerland is concerned, I am optimistic that it, too, will overcome the formidable challenges it faces. As with most countries, Switzerland benefited greatly from globalisation and from opening up its economy. Thanks to its flexibility and creativity, the Swiss economy is well placed to remain internationally competitive. But the Swiss people must recognise that the world does not stand still. In order to preserve and enhance our high standard of living, we must remain extremely flexible in every respect. This is where the real economy, in particular, faces a challenge: ongoing innovation and qualified human capital are of the utmost importance in a high-wage country such as Switzerland. Both of these factors will enable our companies to continue to bring successful new products onto the world market, many of which we aren’t even able to imagine today. Monetary policy can generate neither innovation nor growth. Nonetheless, the Swiss National Bank’s conduct of monetary policy is relevant for Switzerland as a business location. After all, the innovative capabilities of a country also rely on a favourable and stable business environment. The SNB remains firmly focused on maintaining price stability; a task, which is consistent neither with deflation nor with inflation.
The most narrow capital definition on the chart – the ratio of tangible common equity to tangible assets – has risen from a little over 2 percent to almost 6 percent. This reflects both significant raising of external capital as well as dramatic declines in dividends and stock buybacks during the crisis and the early period of recovery. Both of these dynamics have had a significant positive impact on the institutions’ ability to withstand potential future stresses. Figure 4 illustrates the amount and composition of capital – the numerators of the various capital ratios – at the 15 large banking organizations over a four-year period. You can see that there has been an appreciable amount of common equity raised by this group of large banks. The improvement in the quality and quantity of capital is quite striking. An important aspect of this recapitalization has been the supervisory use of stress tests to determine the adequacy of capital, and also in evaluating discretionary capital distributions (such as increased dividend payouts). The supervisory use of the stress tests is relatively new. It is worth noting and discussing the fact that it is not just capital regulation, but also supervision, that has been a driver of the recapitalization process. Stress tests and improving the quantity and quality of capital Now I would like to delve a bit deeper into the role that stress testing has played in encouraging more rapid recapitalization of U.S. banks, during the financial crisis and the early stages of the economic recovery.

The most narrow definition of capital,4 tangible common equity, is a measure of capital widely used by investors (and increasingly so during the crisis) because it focuses on the “core” capital readily available to cushion the bank against losses. The tangible capital measure – specifically the ratio of tangible common equity to tangible assets – was a bit above 2 percent for Wachovia and about 3 percent for WaMu,5 providing only a small cushion against the losses accumulating from their subprime exposures. The regulatory capital ratios use broader definitions of capital, relative to risk-weighted assets. To be considered adequately capitalized, a bank needs to have at least 4 percent Tier 1 risk-based capital to risk-weighted assets, and at least 8 percent total risk-based capital to risk-weighted assets. To be well capitalized a bank needs to have at least 6 percent Tier 1 risk-based capital to risk-weighted assets and at least 10 percent total riskbased capital to risk-weighted assets.6 Figure 1 shows that under these definitions both banks were well capitalized in their final quarter – despite the fact that more narrow definitions of capital indicated only a very small capital buffer. Figure 2 plots the capital ratios for the period leading up to the “run” on Wachovia. The broader definitions of capital – Tier 1 and total risk-based capital – were actually rising in the period when holders of Wachovia’s liabilities were becoming concerned, and thus the broader definitions of capital were not particularly informative.
While accountability should produce similar benefits for the other objectives of central banks, this is still very much an unexplored issue. As regards financial stability, one probable reason for this is that it is much harder to define financial stability than price stability. Another may be that the central bank seldom has sole responsibility for financial stability, sharing responsibility instead with the Ministry of Finance. A clear division of tasks among the authorities is important for producing accountability. In Sweden, a large part of the responsibility for financial stability has been delegated to the Swedish Financial Supervisory Authority. The Riksbank and the Swedish FSA recently signed a so-called Memorandum of Understanding which outlined the responsibilities of the two authorities in the area of financial stability. The aim of this is to facilitate co-operation and increase efficiency in the work of each authority towards the common objective of financial stability. According to the Riksbank, the three most important factors for financial stability are the soundness of the financial institutions, contagion, and the efficiency of the financial infrastructure. The main role of the FSA is to ensure that institutions operating in the system are sound. The Riksbank, on the other hand, is responsible for the oversight of systemic risks and the efficiency of the infrastructure. This framework, however, should be open to question. For example, it might have to be altered in order to accommodate changes in the  BIS Review 24/2003  1  financial system.

For instance, in some countries the central bank is responsible for bank supervision, while in others this is the task of a special financial supervisory  4  BIS Review 24/2003  authority. Countries also differ with respect to the private sector's involvement in fulfilling certain objectives. In some countries the private sector provides services that in other countries are provided by the central bank. Here, I believe that more empirical work could be done. The BIS has a natural role to play in this respect, and that was also the reason that I first contacted the BIS when I got the idea for this workshop. I also believe that more comparisons could be made within the European System of Central Banks to help us all improve our efficiency levels. Final remarks Let me conclude by referring back to my opening remarks. Questions of efficiency have been at the top of our agenda for a long period of time, and there are good reasons for central banks to pay extra attention to their costs. It is true that central banks provide public goods and that minimising costs is therefore not always the best solution. However, we should be aware that the pressure to at-tain efficiency is weak, as central banks are protected from competition. Private enterprises that compete with each other are forced to be efficient and profitable in order to stay in business and satisfy their shareholders. Central banks generally lack such pressure.
The first challenge is what we might think of as data innovation, and the second is data stewardship. With data innovation, the big challenge is to use our imagination and to think hard about what data may be able to say about a particular problem. This includes both novel uses of existing  BIS central bankers’ speeches  1  data as well as the collection of new data. To illustrate what I mean by this, let me describe one effort, among many, here at the New York Fed. Consumer Credit Panel I’ll describe our Consumer Credit Panel, which we created in 2010. At the onset of the financial crisis, it became apparent that our knowledge of the liability side of household balance sheets was inadequate. At that time, the main data sources on consumer debt consisted of loan-level data sets on specific categories of loans, such as mortgages, as well as aggregated data on household sector debt from the Board of Governors’ Flow of Funds statistical release. While providing a useful aggregate overview of household debt, the Flow of Funds release defines the household sector as a residual sector that also includes nonprofit organizations, such as schools, hospitals and churches, as well as hedge funds and private equity funds. Furthermore, the overview it provides is limited to outstanding balances and lacks important information on the origination, repayment, and delinquency status of household debt.

Over the past few years we at the New York Fed have hosted and visited colleagues at the Bank of England, Bank of Korea, Bank of Japan, and the Bank of Mexico to exchange ideas and discuss some of our data projects. Much can be learned from sharing experiences in creating and managing new data products. The information uncovered in some countries’ well-designed data collections can help other countries to direct their own data-gathering efforts. For example, other countries are very interested in what can be learned about the household sector from credit bureau data like the CCP. We have taken suggestions for particular questions from other countries’ surveys. We can also benefit tremendously from learning through direct collaboration. In a new research project with the Dutch Central Bank, we are investigating how the interview mode affects the survey response rate and response accuracy when asking people about financial issues. More specifically, we are evaluating whether soliciting personal financial information through the Internet elicits more accurate and complete responses than securing the information through face-to-face interviews – a pattern observed in the case of other types of sensitive information. Given the increasing prevalence and popularity of web-based surveys, which are considerably less costly and provide more flexibility, the results are likely to be of relevance to any central bank considering conducting or already implementing a survey on household finances. Of course, in my brief tour, I have not even touched on the extensive regulatory data collections we undertake.
A review phase of the standard formula and the long-term guarantee package is  Page 6 sur 7  scheduled at the European level for 2018-2020. This step provides an opportunity for improvement in at least three areas: -  Firstly, the simplification of the regulatory framework. The complexity of the standard formula is neither desirable for the industry which has to produce these new calculations, nor for supervisors, nor for financial markets. -  Secondly, insurers should remain a genuine lever for financing the economy. The insurance sector is the largest institutional investor in the European Union, with almost EUR 9,800 billion invested in the economy in 2015. You have often brought this issue up with me... and it has now been clearly identified at the European level. There are already plans for improvements in two areas, upstream of the review phase: infrastructure corporates on the one hand – EIOPA has proposed a revision; highquality securitisation products on the other. More generally, it is essential to consider the potential deterrent effect of Solvency 2 on more “risky” investments, which are necessary to ensure the proper functioning of our economy: equities, whether listed or unlisted, loans to SMEs and MTEs but also green assets or investments in innovative companies. -  Finally, we know that Solvency II is more volatile than the previous regime. Measures have already been integrated to limit the procyclical effects of a market value-based balance sheet.

The figure shows the unrealised capital gains recorded by all insurance companies  (including mutual and provident insurers) on all asset classes. The unrealised gains on the bond holdings of insurers covered by the Insurance Code amounted to EUR 151 billion in 2015. Page 3 sur 7  inhabitant. The low interest rate environment is squeezing insurers’ profits: it is creating a situation where the returns on new securities added to investment portfolios are lower than the rates paid out on insurance policies. In response, insurers have already started to lower the rates paid to policyholders: in 2015, they fell by an average of 25 basis points compared with the previous year. However, this is still insufficient when compared, in particular, with the fall in 10-year OAT yields: a drop of 80 basis points over the same period. I would therefore urge insurers once again to show moderation and to be realistic when setting rates of return on euro-denominated life insurance policies for 2016. The low rate environment also raises a fundamental question about the diversification of savings products. 2015 was marked by a shift among savers towards unit-linked products: net inflows almost doubled compared with the previous year, to EUR 11.4 billion, while inflows into euro-denominated products declined by 25% to EUR 10.5 billion.2 However, unit-linked policies are almost certainly not the only answer, especially as their rise in popularity will need to be accompanied by a high standard of financial information, to ensure that policyholders are fully aware of the associated risks.
The inflation target and consideration of the real economy The Riksbank has the statutory objective of maintaining a low and stable inflation rate, or of “maintaining price stability” as it is expressed in the Sveriges Riksbank Act. We have specified this task as ensuring that CPI inflation is around 2 per cent a year, with a tolerated deviation interval of +/1 one percentage point. As long as confidence in the inflation target is not threatened – or, as it is usually expressed, as long as the nominal anchor for setting prices and wages is not at risk – we also have the opportunity to take into consideration how the real economy, such as production and employment, develops. Although the latter has not been written into the Act, it was stated in the preliminary work to the new Sveriges Riksbank Act that came into force in 1999 that it was natural that the Riksbank should support the economic policy objectives of sustainable growth and high employment without neglecting the long-term price stability objective. This was considered a natural consequence of the Riksbank being an authority under the Riksdag (the Swedish parliament). It was therefore considered unnecessary to specify any further objective than price stability in the law text. There were probably also some fears that statutory objectives for the real economy could give the wrong impression – that monetary policy could also govern long-term developments in growth and employment, for example.

All in all, this indicates that growth will be higher than we had assumed in June, even taking into account the fact that expectations of repo rate increases have been adjusted upwards over the summer. The upward revision in growth prospects has not led to any major revision in our inflation assessment. Although the high GDP growth in itself indicates that inflation may rise more rapidly in future, the strong productivity growth is at the same time expected to contribute to cost pressures being lower this year than was assumed in June. Cost developments in the somewhat longer term are very difficult to assess. If productivity continues to develop strongly, companies may postpone recruiting new staff, which would mean a delay in the labour market upturn and continued low cost pressures. However, there are a number of indications that the labour market is now strengthening and a more rapid increase in employment will probably contribute to rising cost pressures in future. During the summer inflation has been slightly higher than expected, which was mainly due to rising energy prices. The inflationary impulse this entails is to some extent counteracted by the low unit labour costs, but inflation this year will probably be slightly higher than we had assumed in our June forecast. Our assessment is that the effects of the energy prices will subside at the beginning of 2007.
But the opportunity lies in its abundant resources: savings exceed investment by  Page 3 sur 5  EUR 350 billion per year in the euro area, which is more than 3% of GDP. An obvious way to boost growth in the EU is therefore to better steer our abundant savings towards the financing of investment and innovation across borders. We will thereby be able to address the persistent “investment crunch" that followed the financial crisis – the share of investment in GDP remains below its value at the turn of the century, standing at 20% in 2016 compared to 22% in 2000-2005. The success of this Financing Union lies in the capacity to provide businesses with more equity financing solutions, supporting the scaling-up of SMEs. Europe is lagging far behind in this area: such financing only represents 68% of GDP in the euro area compared with 128% in the United States in the fourth quarter of 2016. Naturally the building blocks of such a Financing Union already exist with the Capital Markets Union, which supports the diversification of private financing; the Juncker Investment Plan, which channels public and private investment into the real economy; and the Banking Union, which tackles the fragmentation issue. These initiatives have to be brought together into the Financing Union in order to go beyond administrative or bureaucratic borders, create synergies, and therefore give new impetus to this agenda.

In common with supervisors in the more developed markets, we face the challenge of limited internal resources and expertise with which to implement the IRB Approach. Moreover, banks and supervisors are often competing between themselves for the relevant expertise. In addition, the support to supervisors in Asia from external parties, such as academia, vendors, consulting firms and rating agencies, is more limited than in the developed markets. Finally, both banks and supervisors face a very steep learning curve in familiarising themselves with  2  BIS Review 120/2007  the basic concepts and techniques on which the IRB Approach relies, and need to become more conversant with these types of risk management technique. A particularly important issue to consider that is highly relevant to today’s event is the standards that bank supervisors will apply in deciding whether or not to approve a bank to use the IRB Approach. To ensure that the capital charges computed by the IRB systems are sufficient for banks to withstand the credit risks they have incurred and to absorb the potential losses resulting from borrower defaults, the estimates of the risk components must be accurate in capturing the relevant aspects of risk. As a consequence, validation of banks’ estimates of the risk components, and the underlying internal rating systems, is crucial to the implementation of the IRB Approach. This is one of the greatest implementation challenges confronting bank supervisors in Asia, where the development and understanding of the IRB Approach by banks is generally still at an early stage.
If the central bank is successful in pursuing, over a number of years, a constant rate of inflation, then unemployment BIS Review 103/1998  –9–  cannot remain above the natural rate indefinitely. Not only can central banks not bring unemployment down below the natural rate for long, neither can they be accused of keeping unemployment persistently above the natural rate. Monetary policy cannot influence levels of employment in the long run. There should be no surprise about this. A central bank can use its chosen instrument – interest rates – to hit a nominal target – such as an inflation target, or a target for the exchange rate or even the growth of nominal GDP – but it cannot use a nominal instrument to target some desired level of a real variable, such as the growth rate of output or the level of unemployment. None of the above means that monetary policy has no impact on unemployment. To the contrary, monetary policy does affect the movements of employment and unemployment over the business cycle. And the remit of the MPC makes clear how we should take this consideration into account – as I explained a year ago in a lecture at the LSE. By aiming consistently and symmetrically to hit the inflation target, the MPC should ensure that inflation is, on average over a number of years, close to the target of 22%.

While the ratio of financial sector liabilities to GDP has broadly stabilised, euro area large and complex banking groups have steadily increased the median core Tier 1 ratio from 8.3% in 2009 to above 11% in 2013.7 To strengthen their capital position banks have issued equity, converted hybrids, received capital injections and raised the levels of retained earnings. The stronger capital positions also mean that the relative share of debt in financing is reduced and substituted by more equity, which should provide a better buffer against economic shocks. After all, debt is a relatively inflexible form of financing as it requires repayments on time and in full. But the stronger capital positions have also meant that banks have been shedding assets, a process which depresses credit growth and puts a drag on the economy. In addition, as households and non-financial corporations also reduce their indebtedness, they are demanding less financing from banks. Taken together, we can expect that bloated balance sheets will contract further. It is important that this deleveraging process occurs in an orderly manner by balancing the adjustment of assets and liabilities. Most of all, unnecessary fire sales generating detrimental falls in asset prices and credit rationing for productive investments need to be avoided. Throughout the crisis, the ECB has demonstrated its ability to actively mitigate these effects by ensuring abundant funding to the banking sector through its liquidity operations.