samchain/econo-pairs-v1 huggingface dataset:
By determining the conditions for the banks’ deposits in and borrowing from the RIX system, the Riksbank can affect the overnight rate, that is the interest on overnight loans between the banks. BIS Review 51/2008  3  Deposit and lending rates set the limits for the overnight rate When the payment system closes for the day and trade between the banks in the overnight market has been concluded, the banks’ accounts in RIX must be in balance. This means that the banks must finance their deficits or invest their surpluses. The banks have two alternatives for achieving this. They can either balance their respective deficits and surpluses against one another on the overnight market, or they can use the Riksbank’s deposit and lending facility. The latter means that they can deposit in or borrow from the Riksbank overnight at interest rates published in advance. These are known as the deposit and lending rates, which are 0.75 percentage points below and above the repo rate respectively. This difference creates an incentive for the banks to firstly borrow from and deposit funds with each other at a rate of interest in this so-called interest rate corridor. One could thus say that the deposit and lending rates set the limits for the overnight rate. How does the Riksbank ensure that the overnight rate is stable? But we do not leave it at that. The facilities ensure that the overnight rate remains within the corridor.

Stefan Ingves: Policy rate setting and the monetary policy steering system Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at Handelsbanken, Stockholm, 28 April 2008. *  *  *  During the autumn and spring the international financial markets have been marked by considerable uncertainty and turmoil. The situation has caused several central banks to take extraordinary measures, while for instance the Riksbank has not seen any reason to do so. One reason why central banks have acted differently is that the financial crisis has affected different countries to differing degrees. In Sweden we have not observed any major problems as a result of the financial crisis. This is linked to the fact that Swedish banks have not been exposed to the US subprime market to any great extent. Nor has there been any distrust of Swedish banks, which have a good capacity to deal with unexpected negative events. Ultimately, it is a question of a broad view that Swedish banks do not have problems. Another reason why central banks have acted differently is the differences in monetary policy steering systems between countries. It is therefore important to create an understanding of how the Swedish monetary policy steering system works. In my speech today I will talk about monetary policy from the production of the background material for making a decision until the decision has been implemented. I will focus on how an interest rate decision is put into practice.
Taking into account the overall subdued outlook for inflation, the weakening in the euro area’s growth momentum over the recent past and the continued subdued monetary and credit dynamics, our asset purchases should ease the monetary policy stance more broadly. They should also strengthen our forward guidance on the key ECB interest rates and reinforce the fact that there are significant and increasing differences in the monetary policy cycle between major advanced economies. Together with the monetary accommodation already in place, the determined implementation of the new measures will underpin the firm anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to, 2%. As all our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to our aim. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate. A separate press release will provide further information on the modalities of our new purchase programmes for ABSs and covered bonds. It will be released at 3.30 p.m. Let me now explain our assessment in greater detail, starting with the economic analysis. Following four quarters of moderate expansion, euro area real GDP remained unchanged between the first and second quarter of this year.

Against the background of weak credit growth, the ECB is now close to finalising the comprehensive assessment of banks’ balance sheets, which is of key importance to overcome credit supply constraints. To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the recent decisions taken by the Governing Council to provide further monetary policy accommodation and to support lending to the real economy. Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to strengthen investment activity, job creation and potential growth, other policy areas need to contribute decisively. In particular, the legislation and implementation of structural reforms clearly need to gain momentum in several countries. This applies to product and labour markets as well as to actions to improve the business environment for firms. As regards fiscal policies, euro area countries should not unravel the progress already made and should proceed in line with the rules of the Stability and Growth Pact. This should be reflected in the draft budgetary plans for 2015 that governments will now deliver, in which they will address the relevant country-specific recommendations. The Pact should remain the anchor for confidence in sustainable public finances, and the existing flexibility within the rules should allow governments to address the budgetary costs of major structural reforms, to support demand and to achieve a more growth-friendly composition of fiscal policies.
This divergence may tempt the Nordic owners to be more aggressive in the high-growth market. It is therefore and with these risks in mind - though with a very low probability at the time - that Bank of Estonia as a regulator has set higher capital charges for banks operating in Estonia. From the point of view of a central bank or a financial regulator it is positive that Nordic banks seem to treat the Baltic market as a part of their home market. Parent banks extend their advanced risk evaluation models to their Baltic subsidiaries and branches. However, risk measurement and management systems used in the Nordic countries need to be appropriately calibrated when applied in the Baltic countries. The principles of risk evaluation that work well at the level of the whole group may not be optimal in countries where borrowers have a limited credit history, in most cases less than one full cycle. For example, there is no experience of loan servicing in the environment of increasing interest rates. The integration and the presence of foreign banks have brought new challenges for surveillance and policy, especially regarding appropriate risk assessment. The host country's options for mitigating macroeconomic instability are often limited. Therefore, cooperation between supervisors and exchange of information is becoming increasingly important and a part of a business as usual practice. Bilateral cooperation can ensure the effectiveness of regulation, but it has its limits. Thus, it is vital to keep the EU legislation up with market developments.

It includes intensified efforts by financial regulators particularly – at the national level but also working collectively through the new Financial Stability Forum, the Basle Committee and IOSCO for example – to improve prudential standards of financial behaviour. And it includes the provision of official financial support to countries that are pursuing sound policies – in parallel with continuing private finance, on which the risks would have been reduced both through the parallel official finance itself and through official international endorsement of the borrowing country’ s policies. In this context I think we in  5  BIS Review 54/1999  the official sector may have placed too much emphasis in international discussions on “bailing in” the private sector – which can sound ominous, even threatening – where what we really need is recognition of our mutual interest in public-private sector partnership. It is a heavy and complex agenda which is being very actively pursued in many different international groupings, involving both the industrial and emerging countries, across a broad front. We are I believe steadily moving towards consensus or many of the issues and this is “leading the way towards sustainable economic growth” into the next millennium. In the meantime we are collectively having to manage the consequences of the recent global financial disturbances and their economic after-effects. Happily we have recently been making progress on that too, particularly in many of the emerging countries here in Asia. BIS Review 54/1999  6
On this specific matter, the Committee will continue its dialogue with supervisors and the industry to ensure that banks use appropriately conservative methodologies for this driver of credit risk. Another topic that the Committee has agreed to study prior to implementation is whether there is a reliable way to estimate the lower likelihood that a borrower and a guarantor will default on the same obligation. Recognising “double default” effects may help the new framework to avoid an overly conservative treatment of exposures that are guaranteed. Moreover, the Committee has already begun discussions with securities supervisors on trading book issues and ways to determine the potential future exposure of derivative positions purchased “over-the-counter.” Together, these results mark the end of a phase of Basel II. Now we must all work hard to implement it so that we can realise the benefits of the new capital framework. III. Transparency as part of the “blend” of approaches in Basel II  In talking about the benefits of Basel II, I would like to turn to the second half of my remarks to share my thoughts on how transparency contributes to stability. Supervisors seek to achieve much more than simply a revision of the existing rules to calculate regulatory capital. By aligning capital requirements more closely to economic risk, we expect that, on a microeconomic scale, Basel II will encourage individual banks to improve the quality of their risk management. But the rewards of Basel II are more notable on a macro scale.

When banks have the right incentives to improve their management of risk and they are well capitalize, we believe that the banking sector becomes more resilient, less sensitive to the business cycle, and better able to serve as a source for credit and sustainable growth of the economy. 2  BIS Review 29/2004  This workshop explores the role of transparency in promoting the resilience and stability that Basel II has as its overarching goal. The Basel Committee certainly agrees that markets can serve as powerful allies of official supervision. We recognise that, in some cases, market discipline can exercise a more binding constraint on banks’ activities than regulations do. But I would emphasise that transparency does only part of the job. For transparency to promote stability, it must be combined with other policy approaches to achieve a goal that is as far-reaching and as significant as greater financial stability. Certainly, the Committee would agree that, when banks disclose sufficient information about their activities and controls, marketplace participants can create strong incentives for prudent behaviour. Markets can reward banks that manage their risks properly and penalise those that hold unrealistically low amounts of capital for their risk. So there is a great deal of merit in a markets-based approach. But we must remember that markets can behave inefficiently. They may overreact to minor events yet ignore significant indicators of risk, or they may be too short-sighted.
BIS central bankers’ speeches  13  Figure 13 Retail sales and new car sales (1) (2) (index, 2003=100)  250  Employment and unemployment (1) (index, centered on mean of period 19902011)  225  300  200  250  175  200  150  150  125  100  100  50  20.00  20  0.00  0  -20.00  -20  -40.00  -40  06 07 08 09 10 11 Durables Non-durables  40  350 40.00  New cars  90 93 96 99 02 05 08 11 Employment  Unemployment  (1) Seasonally-adjusted series. (2) Sold during moving quarter. Sources: National Automobile Association of Chile, Central Bank of Chile, National Chamber of Commerce, and Ricaurte, M. 2011, “Indicadores de Mercado Laboral para la Comparación de las Crisis Asiática y Financiera Internacional”. Preliminary document, Central Bank of Chile, June. Table 3 Economic growth and current account (annual change, percent) 2009  2010  GDP National income  -1.7 -1.9  5.2 6.25-6.75 4.25-5.25 15.7 6.6 4.2  Domestic demand Domestic demand (w/o inventory change) Gross fixed capital formation Total consumption Goods and services exports Goods and services imports  -5.9 -2.9 -15.9 1.9 -6.4 -14.6  16.4 11.5 18.8 9.3 1.9 29.5  9.1 9.7 14.4 8.2 6.5 12.0  4.5 5.4 7.1 4.9 5.0 4.6  1.6  1.9  -1.0  -2.1  Current account (% of GDP)  2011 (f)  2012 (f)  (f) Forecast. Source: Central Bank of Chile.

In the baseline scenario, the increase in y-o-y CPI inflation towards the end of the year will be less than forecast in June, mainly responding to the lower price of fuels. Accordingly, by year’s end, CPI inflation will be 3.3 percent instead of the 4 percent estimated in June. Going forward, inflation will remain close to the target through the third quarter of 2013, which this time marks the end of the projection horizon (figure 14). Private inflation expectations have been revised in the same direction and point at CPI inflation being somewhat above 3 percent at the end of the year, and in line with the target thereafter (figure 15). Such a trend for inflation is based on several assumptions. As I said, that the economy will grow around its trend in the coming quarters; that the real exchange rate will remain fairly stable, in the range believed to be consistent with its long-term fundamentals; and that labor costs will grow in line with the inflation target. Regarding monetary policy, the MPR has reached a range considered normal. Unlike predictions of some months ago, when most thought that the MPR would be raised further, the changes in the macroeconomic scenario have led to a greater dispersion of private expectations. Even so, the baseline scenario uses as a working assumption that, in the short run, the MPR will stay where it is today (figure 16).
The fact that inflation remains subdued rather reflects constraints operating at the third stage of transmission – from activity to prices – that are often outside the control of monetary policy. Before I conclude I would like to illustrate one last point. Bank lending rates are without doubt a key variable in explaining output movements in the euro area. The evidence I provided today further emphasises this point. At the same time, the financial conditions that are ultimately relevant for firms and households may be broader than that. One of them – the exchange rate – I discussed in more detail earlier in my remarks.16 Other factors may include equity prices or long-term interest rates that are often relevant for household mortgages.17 One way to summarise these factors is to use financial conditions indexes (FCIs). My colleague 10 / 14  BIS central bankers' speeches  Peter Praet gave a detailed speech on such indices earlier this year, which I strongly recommend reading.18 Here I would like to focus on the relevance of these broad measures for economic activity. As you can see in column 9 of slide 7, FCIs are highly statistically significant when used in a New Keynesian IS curve. This is unlikely to be a statistical artefact.

In other words, if we want to see if policy works or not, or if the economy has become less sensitive to changes in interest rates, then we should examine the slope of the IS curve, and not only of the Phillips curve.11 Empirical research on the IS curve is scarce, however. And the few studies available are generally not encouraging from a monetary policy perspective. They typically find that output does not respond, in a statistically significant way, to the real interest rate. 12 Often they even find a positive relationship between real interest rates and output. These findings are at best disturbing given that much of mainstream monetary thinking is built on the idea that firms and households take the level of the interest rate into account when making economic decisions. 8 / 14  BIS central bankers' speeches  To illustrate the empirical failure of the IS curve, slide 7, column 1, shows the estimated coefficients of a regression of the euro area output gap on its own lag and a measure of the real “interest rate gap”, i.e. the difference between the real ex ante interest rate and the time-varying natural rate.
The devastating consequences of an unstable banking system have been demonstrated, for instance, by Federal Reserve Chairman Ben Bernanke in a series of seminal papers about the Great Depression. 6 A third and perhaps more subtle reason why we as central bankers care about financial stability relates to the role of central banks as lenders of last resort. Due to their monopoly as issuers of money, only central banks can provide a virtually unlimited amount of liquidity in times of distress. This fact inevitably confronts central banks with potentially large liabilities. In order to limit the risks to ourselves and ultimately to the economy as a whole, we have strong incentives to limit the size of these potential liabilities. Moreover, we want to limit the probability that these potential liabilities materialize in the first place. Simply put, through our lending of last resort function, we provide disaster insurance to banks. In return, we want to  2  The SFBC was founded in 1934. This was at least in part a response to the banking problems experienced during the Great Depression, which affected Switzerland particularly hard. 3  See Milton Friedman, 1969, The Optimum Quantity of Money and Other Essays. 4  Comparative GDP figures are difficult to obtain. Nevertheless, comparing the banking sector’s total assets with total GDP provides some clue about the banks’ importance. In Switzerland, the ratio of total banking assets to GDP is 10%, in the US 1%, in the UK 3%, in Germany 3%, and in Japan 2%.

Jan F Qvigstad: Lessons from the crisis for monetary policy and financial stability Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at the Annual Money, Macro and Finance Conference, Limassol, 3 September 2010. *  *  *  First I would like to thank you for inviting me and giving me this opportunity to comment on lessons from the crisis. I will concentrate my talk around three lessons and two questions. What I am going to highlight is by no means revolutionary, rather it reflects a growing consensus on experiences from the crisis. 20 minutes only allows me to briefly touch on the different subjects. For a more in depth analysis and discussion of similar issues that I raise here today, I can recommend the Jackson Hole paper by Charles Bean et.al. Transmission mechanism was affected by the financial crisis  The first lesson is that monetary policy is more than setting the key policy rate. We also need to monitor the transmission mechanism closely. The transmission mechanism was affected by the financial crisis. Constraints on banks’ access to funding and a heightened level of perceived risk led to higher lending margins and higher bond spreads. The chart shows developments in our key policy rate and banks mortgage lending rates from August 2007 to November 2008. The widening spread between these two interest rates was not unique to Norway, but occurred in several countries. Banks also tightened their credit standards in response to the crisis.
It sets minimum not maximum capital requirements, and it envisages the use of countercyclical capital buffers set by national regulators. Until we find a solution to the “too important to fail” problem, the size of our banking system will remain too large for the UK taxpayer credibly to support in future. London is a natural home for an international banking system, with its language, time zone and, most important of all, a large and successful critical mass of banking and supporting activity. But it cannot be allowed to benefit from an unsustainable dependence on the UK taxpayer. To allow that would be unfair to millions of people, not here tonight, who are now bearing the costs of the financial crisis. It is precisely because we do want to be an international banking centre with assets a multiple of annual UK GDP that we have to find a solution to the “too important to fail” problem. A resilient banking system is in the collective interest of the financial services industry. A robust solution will surely involve a combination of limits on the leverage of individual financial institutions (as envisaged in the Basel III agreement), a resolution framework for allowing individual institutions, no matter how large, to fail, and a change in the structure of banking. I await with interest the final Report from the Independent Commission on Banking. The style of regulation will also change with the PRA. Process – more reporting, more regulators, more committees – does not lead to a safer banking system.

I shall structure my address around four simple questions. What were the problems of the Spanish banking system? What was done to try to resolve them? What results were achieved? And, finally, what is left to be done and what challenges lie ahead? 2. The problems  Looking back, the crisis can be seen to have had an enormous impact – one not yet fully absorbed – on levels of employment and well-being. Likewise apparent are the significance of the banking sector in the development of the crisis and the efforts taxpayers have had to make to restore financial stability. And in this light, it is difficult to avoid having a very negative perception of the functioning of the banking system in the run-up to the crisis. That said, the Spanish banking industry has, traditionally, been a rather profitable one, capable of successfully pursuing a very effective commercial banking model, of developing valuable franchises built on a highly stable customer base and, in the case of the biggest banks, of significantly expanding their business beyond our borders. Moreover, thanks to the business model then prevailing and to the supervisory action, the industry remained immune to destabilising practices common to other banking systems, such as investment in complex products that were short on liquidity and inadequately valued, which triggered the global financial crisis in 2007. Undoubtedly, however, Spanish banks had particular shortcomings which, along with the turbulence on European debt markets, account for a relevant part of the crisis in the sector from 2010.