samchain/econo-pairs-v1 huggingface dataset:
With new cohorts continuing to leave college with high debt levels and entering the housing market at older ages, we can anticipate an overall persistently lower home ownership rate than in the pre-recession period. So what is causing the withdrawal from home and car purchase markets? It is likely that rising student debt and an uncertain economic outlook have depressed demand. But most likely, declines in credit supply play an important role as well. Our analysis shows that average credit scores have fallen for student debt holders relative to those with no student debt. Clearly for the substantial and growing group of student loan borrows who are delinquent or have defaulted on their debt, access to credit is reduced through potentially long-lasting negative effects on credit scores. Better data is required to evaluate the extent to which the decline in car and home loan originations is concentrated among those delinquent on their student loans and those who dropped out of college, or whether it is more widespread among all those with student loans. The fast growth of student debt and delinquencies, and the associated withdrawal of student loan borrowers from mortgage and other credit markets have led to a renewed policy debate about the viability and optimality of our higher education funding model. Some call for increased federal and state support for higher education to reverse the recent trend towards shifting the cost of higher education to students and parents.

Gent Sejko: Financial inclusion, governance, tackling nonperforming loans, and Albania’s milestones for 2020 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the meeting organised by the Albanian Association of Banks, Tirana, 12 February 2020. * * * Dear ladies and gentlemen, It is always a pleasure for me to attend meetings and round tables with representatives of banks operating in Albania. They are also an excellent opportunity to discuss and harmonise our efforts for a stable deepening and expansion of the financial market, as one of the core pillars of the economy and the main driver for sustaining development and enhancing the public’s welfare. I would like, in my brief address, to bring to your attention some highlights of 2019, regarding the contribution of the banking and financial systems, as well as some milestones for 2020. Let me first focus on the overall state of affairs in the Albanian economy. The devastating earthquake that hit Albania on 26 November 2019 was a major event with a strong impact for 2019, on all the sectors of economy and the whole society. It was an unexpected shock giving rise to economic and psychological consequences in the affected areas and beyond. On the other hand, it was a difficult test, and I may say that all banks passed it successfully, in terms of continuity of financial market’s critical functions.
Effective rates on some types of lending are not much changed since last summer, but we have cut Bank Rate by 75bp and the risk-free curve has shifted down (Chart 2). All this is true in the US too, probably more so. That has led John Taylor himself to suggest 8 that, to maintain an unchanged policy stance, the policy rate should be reduced by the extent of the widening in spreads. In fact, as I am sure Taylor recognises, it is nowhere near so straightforward – if for no other reason than that, for the real economy, the most severe feature of the credit shock is the rising incidence of quantity rationing. 9 There appears to be some discrimination between lower-risk and higher-risk borrowers in the household sector. Rates on fixed-rate mortgages have recently been cut for lower loan-tovalue borrowers. We have added a question to our current Credit Condition Survey, due out later this month, to gauge conditions in that part of the market. Plainly, conditions have tightened a lot for riskier borrowers – households and firms. That means we need to look at quantity data as well as at the price of credit. For companies, money growth has fallen very sharply. Lending held up for a while, but possibly in part because firms were drawing on committed lines of credit while they were still available on pre-turmoil terms. The Credit Conditions Survey has signalled a clear tightening (Chart 3).

Sterling’s recent depreciation will give a further impulse to import prices; and so, other things being equal, may stretch out the period of uncomfortably high inflation, endangering inflation expectations. Moreover, there remains a risk of continuing inflation impulses from the persistence of imbalances in the global economy. Global inflation, global imbalances and the international monetary regime The rate of nominal expansion in much of the emerging market world has remained brisk. From our point of view, up until recently that seemed to add to the upward impetus to commodity prices, exacerbating the upward pressure on our firms’ costs. Of course, part of the rise in commodity prices over the past few years is explained by a profound structural shift as the world economy is joined by large, rapidly developing economies which are increasingly energy intensive. In addition, nominal demand has probably played a role recently. Some EMEs have exchange rates that are fixed, more or less, to the US dollar, and so have been importing a monetary easing, which they hardly needed, as the FOMC cut the Fed funds rate to address domestic US circumstances. In other countries, there has also been less than complete sterilisation of the monetary effects of exchange rate intervention. Absent offsetting policy action, eventually the nominal expansion permitted will be dissipated in rising inflation and so an appreciation in real exchange rates.
We conduct two monthly surveys – the Empire State Manufacturing Survey and the Business Leaders Survey of service firms – which help us monitor regional business conditions in close to real-time. We’ve also developed a “Regional Mortgage Conditions” analysis at the county and zip code level. In addition, we conduct a biannual poll of small businesses to understand their credit needs and availability. It is noteworthy that our most recent poll found that cash flow issues replaced credit availability as the number one concern of small companies. We also have worked to support better financial decision-making by young consumers. Every year the Bank conducts two competitions in which college students are challenged to produce a 30-second video promoting wise credit use. The two contests, one held in Puerto Rico and the other in the tri-state region, provide students the opportunity to learn about the importance of personal finance while showcasing their filmmaking creativity. The winning video is then shown at numerous local movie theaters, helping promote the value of the smart use of credit. This year the judges, including Maria Bartiromo from Fox Business, Tamir Muhammad from the Tribeca Film Institute and Jim Rosenberg from UNICEF, selected a Brooklyn College entry, entitled “Elevate Your Credit” as the winner. I am pleased to again congratulate Rasa Partin, Ben Remetz and Andrew Roder, and their coach, Jay Kim, for creating the winning video.

BIS central bankers’ speeches  1  Now I would like to review recent developments in the local and national economies, and at the end of my talk will be happy to answer any questions you have. As always, what I have to say reflects my own views and not necessarily those of the Federal Reserve System or the Federal Open Market Committee. Regional employment and economic trends First, let’s talk about economic trends in New York City. The City’s economy showed resilience both during and after this last severe recession. Payroll employment fell sharply in 2008 and 2009; it bounced back, slowly at first, but by July of 2011, the City’s economy had recovered to its pre-recession employment peak and, in November, it eclipsed its previous all-time peak of 1969. Since then, employment has continued to grow strongly, rising at a roughly 2 percent annual pace and outpacing the national growth rate. The demand for labor has been driven by start-ups, tech, health care and business services. While Superstorm Sandy caused substantial damage to homes and the region’s infrastructure and severe economic disruptions in late 2012, the local economy as a whole bounced back quickly. Despite the robust job growth, the unemployment rate among City residents has been persistently high – though it did fall to 8.0 percent in December, nearly a 5-year low.
The underlying payment chain is largely the same as earlier. So far mobile payments have primarily been used for transfers between private individuals or to charities, clubs and associations. In some cases, the payee receives the funds immediately, while in other cases it may take several days. For purchases in shops, cash and cards are fast and user-friendly payment instruments. This has probably held back the rise of mobile payments in shops, although they are rising there as well. A third area is mobile payments linked to online purchases. Services are being developed in all three areas. A look at the conference programme indicates that we will be hearing more about that today. There are still some challenges facing mobile payments. Most mobile payments are made using an international payment card. As their use becomes more widespread, this solution will not be viable in the long term. It will be too expensive. Another challenge is that users have to download a large number of apps to make sure that they can send and receive mobile payments. This is not very practical for users. Communication between apps, so-called interoperability, is key. Moreover, a solution with many different terminals at the cashier counter is not practical for customers or shops. Also for mobile payments, it is clear that standardisation and common solutions is the only viable path. Our aim is for mobile payments to be cheap and fast, and that apps can communicate and use the same shop payment terminal. The question is how to achieve that.

It is important for mobile payments to use the same underlying solutions, such as the industry’s own instant payment solution or an enhanced BankAxept system. This will provide cheap and accessible solutions for customers, regardless where they hold an account, and entails economies of scale. In some cases, this will also result in faster payments. Norges Bank will seek to initiate a dialogue with the industry on this matter. I have also noted that there are many operators that are now working to develop common terminal solutions for mobile payments. Time will show what the concrete solution will be. For the system to work efficiently, users must have good information about the services. Optimally, the prices charged to users should reflect costs. 2  BIS central bankers’ speeches  A more decentralised financial infrastructure? Today’s financial infrastructure is largely centralised. Transactions pass through one or several intermediaries before final approval and settlement in a central bank or a central securities depository. At the core of a centralised payment system is the account system in the central bank. Each bank holds an account with the central bank and settlement between banks is effected by moving funds between these accounts. At the level below the central bank, the payment system consists of several layers of accounts. Banks that hold an account with the central bank have their own account system for customers. A payment between customers in different banks therefore passes through many stages, and they are verified at each stage.
Among the safeguards to be introduced include requiring a certain percentage of premiums paid by policyholders in respect of investment-linked policies to be placed in the policyholders’ unit fund in order to preserve policy values. Consumers will also be given a wider choice of delivery channels to obtain insurance and takaful products. This includes the availability of additional channels so that consumers have more choices and options. In addition, the enhanced disclosure standards will increase transparency, enabling consumers to make more informed decision and become more empowered to make investment decisions over the longer term. We shall raise the level of professionalism in the industry with new requirements and expectations placed on intermediaries in their conduct of business. Needless to say, that the reputation of the industry will be positive when industry players discharge their respective roles in an appropriate manner that enhance the image, integrity and professionalism of all of us here today. A good reputation is beneficial to the industry. An industry that has a good reputation will be good for its players, and that good reputation would be translated into good value propositions for all those who are involved. There had been representations made to the Bank as well as at the highest level, that the current commission rates are too low for agents to sustain a decent living and to attract new talents into the profession.

We had recently issued a concept paper on Life Insurance and Family Takaful Framework. This Framework is set to transition the life insurance and family takaful industry into a new operating environment, characterised by changing market dynamics including demand for greater transparency, and driven by advancement in technology and changing consumer behaviour. The Framework’s main aim is to increase insurance and takaful penetration, and ensuring a fair deal to consumers. The framework is supported by three main pillars; the liberalisation of operating limits, diversification of delivery channels and strengthening of market conduct practices. The Framework will be implemented in two phases to allow the industry and the public sufficient time to adjust to the new operating environment before further liberalisation is  BIS central bankers’ speeches  1  considered. Under the first phase, greater operational flexibility is given to life insurers and family takaful operators to operate in a more competitive environment and allow greater product innovation to be delivered through a wider range of delivery channels. The Framework proposes for the current commission and other operating cost limits for investment-linked products to be removed. In addition, the commission limit for pure protection products, namely pure term, critical illness and medical and health is also proposed to be removed subject to certain preconditions. While allowing greater operational flexibility, the Bank will ensure consumers’ interest remains protected.
Differences on this scale provide strong tax-based incentives to increase leverage. They also generate strong incentives to simultaneously avoid tax and arbitrage regulation. One recent example was hybrid bank capital instruments. These counted as capital for regulatory purposes, but benefitted from interest deductibility for tax purposes. In short, they were winwin. The UK hybrids market grew to around $ billion between 2000 and 2007. By then, they accounted for around 25% of UK banks’ tier 1 capital. Up until the 1990s, empirical evidence had tended to find little effect of tax on firm leverage (Graham (2008)). But a raft of recent studies has found tax effects on corporate financing behaviour which are both statistically and economically significant. Pooling the results from existing studies, de Mooij (2011) finds a marginal tax elasticity of 0.28. In other words, a fall in the tax shield by 10 percentage points would lower the debt-to-asset ratio of a typical firm by 2.8 percentage points. This elasticity is based on a range of firms with an average debt-to-asset ratio of 0.5. Banks rely much more heavily on debt, which provides closer to 95% of their financing. That would imply a marginal tax elasticity closer to 0.5 – double that for non-financial firms. At these levels, tax biases are likely to have had a material amplifying effect on bank incentives to increase leverage. Debt and discipline In principle, these balance sheets risks (higher asset volatility and leverage) ought to have had a natural counterweight – the disciplining effect of debt.

In fact, the reason why in normal times the martingale property delivers interest rates close to the policy rate is to a large extent because market participants have learned to form, over a long period of time, correct expectations about the central bank’s liquidity policy. And, at the same time, market reactions to its open market operations are somewhat predictable for the central bank. However, once the usual pattern of liquidity provision is broken, it is difficult for the market to converge quickly to a new behavioural equilibrium since an adequate level of confidence and knowledge needs to be first restored on both sides. Through communication and renewed predictability in its liquidity policy, a central bank can though succeed in restoring such equilibrium. Let me now move to two – less operational – challenges that we have faced in the communication of our interventions during the present turmoil: (1) the “moral hazard” critique; and (2) the need to underscore the distinction between liquidity management and monetary policy. The moral hazard critique Some observers have recently criticised recent measures by central banks, including those taken by the ECB, on the grounds of moral hazard considerations. According to these critics, by reacting to the financial market tensions, central banks may contribute to “bailing-out” those who have triggered the tensions through excessive risk taking. It is true in my view that moral hazard issues need to be taken into account very seriously when central banks decide on measures to support the financial system in a situation of market turmoil.
The degree of business cycle synchronisation has remained at the same levels reached in the second half of the 1990s. 1 On the other hand, some underlying variables have diverged, in particular cost and price competitiveness, leading to an accumulation of payments imbalances within the euro area. Some countries have accumulated large current account deficits, while others have growing surpluses. You could argue that imbalances do not matter in a monetary union, because they are automatically financed. But such imbalances might make countries more vulnerable to external shocks and their financing might become more difficult in the midst of a financial crisis, even within a monetary union. One of the disappointing aspects of the last ten years has been the Lisbon process and the slow pace of structural reform. What does this have to do with the euro? The Lisbon process is an EU initiative. It is voluntary, it imposes no constraints, and rightly so, since it involves policies which follow the principle of subsidiarity and remain in the hands of the Member States. Would the Lisbon process have been more effective without the euro? I seriously doubt it. Overall, I believe that the euro has largely fulfilled the expectations. Maybe with one exception: the cash changeover from national currencies to the euro in 2002, and the way it was perceived by the public. I will not dwell too much on this.

As yet, there are few signs of a turnaround in the labour market and business tendency surveys indicate that the upturn in the private sector will be relatively weak this year. However, some improvement may be on the way, although it is difficult to determine exactly when the trend will turn. Recently, the number of new job vacancies registered has increased somewhat and the number of redundancy notices has declined. At the same time, the strained local government finances indicate a weak upturn in employment in this sector in the near future. The situation in the labour market has caused us to revise down our assessments of future wage cost increases. This was also included in the picture in February. The central wage agreements signed in the manufacturing and retail trade sectors have confirmed this development. Our new forecasts indicate wage cost increases of 3.5 per cent over the coming two years, which is slightly lower than in December. Last year there were increasing signs of more rapid productivity growth. While employment, measured as the number of hours worked in the business sector, developed weaker than anticipated, growth was largely as expected. This is reflected in more rapid productivity growth. We drew attention to this picture already in December. Since then, these developments have become clearer and been reinforced.
To meet the challenge of ensuring that this global network of individual payments systems is reliable, resilient and efficient requires a more integrated and comprehensive approach. This is true for the participants that are most exposed to the diversity of risks in this network of systems. And it is true for the official entities as well, because the growing number of cross-border payments systems require an effective framework of cooperation if we are to provide effective oversight. One important challenge faced by banks that operate across many different financial centers is how to meet their global liquidity needs. To meet the rising expectations of their customers, and simultaneously fulfill their own internal needs, the largest and most active banks in the payments business would prefer to mobilize their liquidity globally. But the reality is that the total liquidity available to a global bank is fragmented. Surplus liquidity in one currency at one location cannot always be readily converted into liquidity in another currency or in another market. An institution’s liquidity at a specific location is dependent, to a  4  BIS Review 59/2004  large extent, on the size of its payment flows, its capital, and the volume of marketable securities and other eligible collateral that is housed in that location. These factors often determine what is available either to gain access to daylight liquidity from a central bank, or to meet a clearinghouse’s margin or collateral requirements, or to borrow overnight in an emergency.

Three, the focus on debt sustainability also makes it possible to include previously missing elements (specifically the macroeconomic environment, in addition to potential growth and the natural interest rate) that can encourage structural reforms. Finally, it allows for greater cross-country heterogeneity in the targets and for the design of fiscal consolidation. Allow me to elaborate a little more on these elements. In my view, which is consistent with that expressed by a number of academics and by the Eurosystem 6, the new framework should reflect a number of principles.7 First, it should take into account the economic transformations that have taken place over recent decades, including the sharp increase in public debt. The persistence of some of these, such as the fall in the natural rate of interest and in potential output, has, however, been challenged by a series of major shocks in recent years. At the same time, the new rules need to accommodate a greater degree of cross-country heterogeneity. In this regard, as I have said before, the Commission’s orientations include country-specific expenditure targets, which could incorporate the differences in potential growth and interest rates into the debt sustainability analysis framework. In any event, the devil is in the details. While this is in principle desirable, the key aspect is how the deadlines for the necessary fiscal adjustment are calibrated. The credibility of the fiscal framework could be endangered if the deadlines are too lengthy or if the adjustment is backloaded.