samchain/econo-pairs-v1 huggingface dataset:
Jean-Pierre Danthine: Swiss monetary policy facts… and fiction Speech by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the Swiss Finance Institute Evening Seminar, Geneva, 19 May 2015. *  *  *  The speaker would like to thank Till Ebner and Claudia Strub for their outstanding support in preparing this speech. He also thanks the SNB Language Services for their assistance. Introduction I am very pleased to return to the Swiss Finance Institute almost six years after my departure for a final speech in my capacity as Vice Chairman of the Governing Board of the Swiss National Bank (SNB). My soon-to-end tenure at the SNB has been marked by significant deviations from textbook monetary policy orthodoxies, both on conceptual and on operational levels. In many respects, it was a time that was anything but conventional: Central banks around the world stepped up their efforts and made use of increasingly expansionary measures, many of them new, to fight off the risk of a second Great Depression in the wake of the global financial crisis, and then to try and reanimate their economies in the troubled times that immediately followed. The SNB, for its part, has taken exceptional measures as well, notably the minimum exchange rate of CHF 1.20 per euro in place from 6 September 2011 until 15 January 2015.

For at least the following two  3  In fact, removing tail risks from markets was a key objective of putting central banks’ balance sheets to use during the crisis. BIS central bankers’ speeches  3  reasons, the risks associated with such a policy would have increased substantially, and were no longer justifiable. The first reason is that the policy risks linked to monetary policy normalisation further down the road would have been substantial. Policy normalisation at some point in the future will inevitably require reabsorbing excess liquidity in order to contain potential inflation risks. In this context, it is worth remembering that at more than 90% of GDP, the SNB already has the largest balance sheet of all major central banks in relative terms. The challenges and the risks involved would have increased disproportionately in the event of a further massive expansion of the balance sheet. While the technical means to reabsorb even massive amounts of liquidity are at our disposal, such an expansion would have had put us in completely uncharted territory. Attempting policy normalisation with a balance sheet several times larger than GDP has never been done before, and is certainly not for the faint-hearted. A less than perfectly controlled exit carries very significant risks for price stability, as well as the potential for policy reversals which could be very costly for the economy. Given these considerations, it is a fact that any significant balance sheet expansion amounts to what is called “exercising an option” in finance.
The arguments against a possible Swedish membership of the EMU have often touched on the opportunity to pursue an independent stabilisation policy. The starting point for this is that the Swedish economy could for one reason or another find itself out of synch with economic developments in the eurozone, what is known as an asymmetrical shock. Having an independent monetary policy and currency would then give us the opportunity to stabilise our economy ourselves - act as a form of shock-absorber, which we will lose if we have a joint monetary policy governed by the prospects for inflation and the business climate throughout the eurozone. This was also the primary reason why the Calmfors Commission's report on the consequences of 1 Swedish membership in the EMU came to the conclusion that Sweden should wait until its labour market and wage formation showed sufficient flexibility to deal with a serious disturbance. However, it should be noted that the Commission was envisaging a “small” eurozone with around 6 countries taking part, whereas now we are talking about 12 countries, representing 40-50 per cent of Sweden's trade. Moreover, in practice the Swedish business climate has rarely come seriously out of synch with the eurozone. When Sweden has done so, it has mainly been the result of mistakes in Sweden's own economic policy and not due to any unforeseeable external disturbance that has afflicted the Swedish economy.

Aside from the important role that the solutions being considered in the European Union to better control budget deficits must play, overcoming the recessionary tendencies experienced by the Spanish economy since 2008 requires the correction of some structural features that hinder its ability to adapt. The fall in employment, which has been much greater in Spain than in the other euro area countries during the crisis, is largely explained by the insufficient adaptation of labour conditions. Indeed, wages and prices continued to grow as if no significant cyclical change had occurred. The labour market reform has addressed the serious distortions that have existed in this area for decades. Their effects on wage moderation have already begun to be noted and, although the improvement in terms of job creation is taking longer, I have no doubt that it will materialise, if the possibilities opened up by the reforms are fully harnessed and completed. The sharp deterioration in public finances since 2008, which only began to be corrected seriously in 2012, has unavoidably required the implementation of severe and unpopular austerity measures and reforms. Despite their initially restrictive impact, they are vital for restoring confidence in the sustainability of our public finances and for normalising our access to international financing, which is essential for our exit from recession and for the resumption of growth in the euro area.
In practice what that would be likely to mean in our present situation is substantially lower interest rates: the intended effect would be to stimulate external demand, but it would inevitably also involve further stimulus to domestic demand. In effect, it implies that we should acquiesce in increasing overall demand pressure leading inevitably to faster inflation. That might conceivably even BIS Review 31/2000  2  provide some relief to the suffering sectors in the short term. But increasing demand pressure, including labour market pressure, and accelerating inflation would - as we’ve repeatedly seen in the past - ultimately need to be brought back under control, involving a more abrupt tightening of policy. That frankly would not do the suffering sectors themselves much good at least for very long - and it would have a potentially serious destabilising effect on the economy as a whole. That is precisely what we are trying to avoid. And there, I do rest the case for the defence - at least in relation to the principal charge of malice aforethought - or even malice as an after thought. Just as some of you would like to see the euro strengthen from your microeconomic standpoint, so too would I, from a macroeconomic perspective, because it would help to restore a better, more sustainable, balance within the economy.

We are among the most transparent central banks anywhere in the world. Our debate is informed by a huge input from our very able professional staff both in London and in our Agencies throughout the UK, and I’d frankly be surprised if you were able to identify any relevant issue that we have not considered in one way or another. Indeed I would very much hope that you would let me know if you did. I don’t plead ignorance; I plead intrinsic uncertainty. Monetary policy operates with a lag, having its full effects only after about a couple of years. Unlike some outside commentators apparently we know we don’t have a crystal ball. Our judgements are necessarily based upon a very careful assessment of the balance of risks at the time, continuously updated in the light of the constant flow of information of all kinds relevant to that assessment. That’s the nature of the process. Given that, I would not expect, and you would not reasonably expect me, to be able to demonstrate to you that we have precisely the “right” answer at any particular time. But I can promise that if the evidence changes in either direction so too will our assessments. You can of course question our processes, our interpretation of the data or the quality of our analysis - it’s there for all to see. But ultimately the proof of the pudding is in the eating, and it is only on average and over time that our policy decisions can sensibly be judged.
The end result is the deep suspicion which the poor would have about the entire microfinance industry. The authorities too would view microfinance as a destabilising and fraudulent element in the financial system. This leads to a credibility issue and a reputation risk in microfinance industry. Once the industry loses its reputation, it is difficult to regain the same irrespective of whatever is being done by some genuine microfinance practitioners. The damage to the industry is done by some “black sheep” who are not controllable by other genuine performers. In this manner, the quick returns are earned by “ill-willed” practitioners, but the social cost has to be borne by the entire industry. Hence, the major challenge faced by microfinance industry today is to save itself from the spurious micro-financiers. Who is a poor person? The poor are normally defined by reference to income level or calorie intake or the level of opportunities available. All these definitions represent some aspects of the poor which are important. Yet, they do not accurately depict the real nature of the poor. A poor person is a person who is unable to assess the risks faced by him and take the required mitigating measures to avoid them. The risk factor is more suitable to identify the poor, because the poor have to operate in a market which is full of risks. If he can successfully wade through the risks, he could succeed in the market as well.

Therefore, it comes as no surprise that the main policy response has focused on regulation. Indeed, there is a widespread consensus that the cause of the current financial meltdown stems from the failure or even the absence of regulation in important segments of the financial system. But it may also have implications for monetary policy, to which I turn now. BIS Review 74/2009  1  Some implications for monetary policy Central banks have been on the frontline since the crisis unfolded in the summer of 2007. A dramatic change occurred however after the collapse of Lehman Brothers where we had the sentiment that we were moving into uncharted territories: spreads reached unprecedented levels both on the money and credit markets, leading to a worsening of financing conditions across industrialised countries. Without action some important parts of the transmission mechanisms would have been significantly impaired. In such a context, major central banks embarked on unconventional policies by: •  Increasing central bank liquidity;  •  Influencing risk premia on private financial and credit instruments. Such policies are referred to as credit easing policies;  •  Pre-committing to conducting very low interest rate policies for as long as necessary in countries where the interest rate has already reached its lower bound. All these policies are set out as temporary policies and deemed to be used in times of stress only. It is obviously too early to gauge their overall impact.
So that comes back to whether or not we can resolve the largest firms in an effective way and so can reintroduce market discipline through that route. 7. Concluding remarks  Let me conclude with something on shadow banking. Martin [Wolf] talked about the grave problems that are present in the global financial system through global imbalances. I completely agree. To the extent that we do not solve the global  BIS Review 148/2010  3  imbalances problem, our financial system will need to be more resilient than otherwise. That must be understood. Global capital flows are one of the givens of the world that we will continue to live in. The other given, in my view, is regulatory arbitrage. The biggest misjudgment that our predecessors made in the 1980’s and 1990’s was to underestimate the ferocious ability of capitalism to arbitrage regulatory rules. That will not change. Therefore, whatever rules we put in place now, capitalism will find ways around them. An important element of the reforms therefore has to be a much greater consciousness of regulatory arbitrage and a willingness to do something about it. This must not mean charging after windmills. It means identifying where something is happening that could threaten stability from outside the regulated sector, and being prepared to move the perimeter of regulation in those circumstances. The authorities must be more interested in shadow banking. That is something that the FSB, I believe, should focus on next year.

Paul Tucker: Financial crisis and G20 financial regulatory reform – an overview Remarks by Mr Paul Tucker, Deputy Governor of the Bank of England, at the Financial Stability Board (FSB) and Korean G20 Presidential Committee Conference, Seoul, 3 September 2010. *  *  *  Being a Western financial official, one comes to Asia with some humility in truth. This has been a financial crisis born and bred in the Western world, but inflicted throughout the world. That makes it all the more important that Korea and the other countries in Asia and elsewhere in the emerging market world are involved in the reform efforts. The reforms are not simply going to be cooked up in the West where the problems were bred. In Korea, you have to play a really important leadership role, especially in steering us through the next couple of months. Much of the work towards the Leaders summit is being handled in the Financial Stability Board. And here is a very brief overview of what is going on in the FSB contribution to the G20 effort, under the following headings: 1) surveillance; 2) bank capital and liquidity; 3) too big to fail; 4) capital markets; 5) incentives; and finally the regulatory perimeter. 1. Surveillance of the system  Very obviously this was a crisis that was not spotted – in the most important sense of being prevented – ahead of time. People did issue warnings about developing leverage in the system and accumulating macroeconomic imbalances.
BIS central bankers’ speeches  5  •  We have remained close to the stakeholders in RTGS throughout the first phase of the project, holding meetings with over 100 users (old and new), infrastructure providers, policymakers, academics and technologists, consulting on a vision for the next generation of the service, and confirming that the new system will be paid for by the users of the system through the future RTGS tariff (through which we also gather current running costs). •  And we have stayed true to the principles of “simple, focused and open”, conducting the review using a small, dedicated, multi-disciplinary team of policy and technology experts. The consultation paper sets out our proposals in detail, which affect everyone with a stake in sterling payments and settlement. With that in mind, I hope that as many of your firms as possible will respond to the questions in that document by the deadline of 7 November. What next for securities infrastructure? Impressive though the achievement of building CREST was, it is a sad fact that the persistent delays that pre-dated the project meant the UK came late to the party. Today, as the industry again faces enormous pressures for change, it is important that it responds more proactively than it did in those pre-CREST days, avoiding the twin perils of complacency or over-ambition, embracing innovation to deliver a service to users that is both more efficient and more resilient than ever before. The case for reform is easy to state.

This approach was consciously at odds with that adopted for TAURUS, which had tried to be all things to all people 7. But it also focused minds in the industry, forcing them to make difficult tradeoffs, and creating a clear incentive to market providers to produce “add ons” for extra user functions. The project team itself projected a similarly minimalist, open approach in its work – building on their own past experience of having developed the Bank’s system for dematerialised settlement of gilts (the “Central Gilts Office”), involving a full range of disciplines (including policy, IT and legal) in all outreach and design meetings, and embracing a robust attitude to analysis and self-criticism, perhaps best summed up in their T-shirt logo “Purist and Bloody-Minded”. Not everything went to plan. Some early project management structures were found wanting. PWC’s audit of the project in Spring 1994 identified what might be euphemistically termed “a range of unfinished business”, but allowed the project to go forward. And the early months of operation after that launch day in July 1996 faced technological challenges and setbacks. But it is remarkable to think that this basic approach delivered a system that, at its core, remains with us twenty years later. How has the Bank applied the lessons from the building of CREST to the strategic renewal of RTGS?
Today, it contributes around a tenth. China has been the mirror image. Having contributed less than 5% in 1980, today China is the single largest source of global saving, contributing around one fifth. It has been argued by some that these trends could simply reflect different cultural attitudes towards saving among US and Chinese citizens. In the US, it is often said that there is a culture of spending rather than saving – neurologically, the impatience gene may be dominant (Haldane (2010)). In China, by contrast, the culture may be biased towards saving rather than spending, with the patience gene dominant. In other words, differences in agents’ rate of time preference, or degree of patience, might account for savings imbalances (Buiter (1981)). 4  BIS Review 174/2010  But a recent survey of time preferences in 45 countries suggests cultural differences are not the full story (Wang, Rieger and Hens (2010)). Asked to choose between a payoff this month and a larger payoff next month, 68% of US students choose to wait; they exhibit patience. Facing the same trade-off, 62% of Chinese students made the same choice. These differences are small. 3 They are also the “wrong way around” to explain imbalances. So if cultural factors are not the explanation, what is? Charts 8 and 9 plot national saving rates in China and the US, broken down on a sectoral basis. There are striking differences in saving behaviour across the government, household and corporate sectors in the two countries.

Around two-thirds of the rise in Chinese savings since the early 1990s derives from the corporate sector. 4 This reflects two things. First, rapidly rising corporate profitability, against a backdrop of strong growth and rising productivity (Ma and Yi (2010)). Since 2000, profits among Chinese industrial companies have risen around 30% per year. Second, more significantly still, most of these profits have been retained within Chinese companies rather than distributed to shareholders (Qiao and Song (2009)). These differences in US/Chinese corporate savings behaviour show up dramatically in dividend payouts. The average dividend payout ratio among US corporations in 2009 was 40%, with less than a quarter of companies failing to pay a dividend. The average dividend payout ratio among listed Chinese corporations in 2009 was around 18%. Among these, more than half paid no dividend whatsoever. 3  Among the 45 countries, Germany ranked as the most patient (almost 90% of students waited), Nigeria the least patient (less than 10%). 4  Using firm-level data, Bayoumi, Tong and Wei (2010) argue that Chinese listed firms’ corporate savings rates are neither especially high compared to listed firms in other countries and the gross savings rate for a typical listed Chinese firm has declined, albeit insignificantly, between 2002–2007. BIS Review 174/2010  5  Charts 10 and 11 consider the distribution of changes in dividend payout ratios among global and Chinese companies. Among global companies, payout ratios rarely fall. More than half of the time they increase.
And in a stress, that can lead both to sudden spikes in demand for liquidity – either to support the financing of leveraged positions or as deleveraging leads to forced sales – and a corresponding contraction in liquidity supply, with potentially systemic consequences. Leverage is of course not the only cause of systemic vulnerability in the non-bank system – as we have seen with liquidity mismatch driving run dynamics in money market funds (MMFs) and open-ended funds (OEFs) during the dash for cash. [4] But it is important where any form of leverage is core to a non-bank’s business and trading strategy. Indeed what happened to LDI funds is just the latest example of poorly managed non-bank leverage throwing a large  rock into the pool of financial stability. From Long Term Capital Management in 1998; to the 2007 run on the repo market; to hedge fund behaviour in the 2020 dash for cash; and the failure of Archegos in 2021. These episodes highlight the need to take into account the potential amplifying effect of poorly managed leverage, and to pay attention to non-banks’ behaviours which, particularly when aggregated, could lead to the emergence of systemic risk. I see systemic risk from leverage in the non-bank system arising through two different channels of contagion: to markets – both those non-banks invest in and those they borrow from; to counterparties – who either provide cash, or take the other side of instruments that are used to provide synthetic leverage.

As an illustration, the Pension Protection Fund’s PPF 7800  index suggests that, between end-2021 and end-  September 2022 – a period in which interest rates rose substantially – the liabilities of UK DB schemes fell by 36% (from £ to £ whereas their assets fell by only 20% (from £ to £ leaving their net assets nearly three times higher. 2. See Thirteen days in October: how central bank balance sheets can support monetary and financial stability – speech by Andrew Hauser 3. See The impact of leveraged investors on market liquidity and financial stability – speech by Jon Cunliffe 4. See Taking our second chance to make MMFs more resilient - speech by Andrew Bailey 5. See ‘The role of non-bank financial intermediaries in the ‘dash for cash’ in sterling markets’, Bank of England Financial Stability Paper, number 47. 6. See ‘Seven Moments in Spring: Covid-19, financial markets and the Bank of England’s balance sheet operations’ – speech by Andrew Hauser 7. See ‘Sizing hedge funds' Treasury market activities and holdings’  ,  8. See ‘Hedge Funds and the Treasury Cash-Futures Disconnect’ 9. See ‘Leverage and margin spirals in fixed income markets during the Covid-19 crisis’  10.