samchain/econo-pairs-v1 huggingface dataset:
The basic instrument used is the introduction of a minimum level of top quality capital (core capital or common equity tier 1) which amounts to 4.5% of riskweighted assets. On top of this minimum, an additional capital conservation buffer of 2.5% is introduced, which must be built up once the transition periods envisaged have ended, although it may be used in times of need. Thus, banks, as a rule, will have to maintain a minimum level of top quality capital of 7% in terms of their risk-weighted assets. This CET1 capital ratio is calculated, furthermore, using more stringent criteria than those currently used. Thus, the admissibility requirements for eligible instruments have been made significantly more restrictive and deductions have been increased; for example, those relating to goodwill, qualifying holdings and deferred tax assets. For an idea of the overall impact of these measures, it suffices to say that the minimum CET1 requirement of 2% under the previous legislation could be, on average, around 1% if the new requirements are applied. Therefore, effectively, the minimum CET1 requirement, increases by around six percentage points in relation to risk-weighted assets. And this aside from the supplementary requirements which may be made of each institution based on its specific risk profile under the so-called Pillar 2 of the Capital Accord. In this way, credit institutions will have more and better quality capital to withstand the losses which might be caused by their activity.

Such a mechanism would enable resources to be swiftly deployed when such shocks occur, contributing to ensure that the joint fiscal impulse of the euro area is appropriate for the cyclical situation (for example, by implementing a permanent macroeconomic stabilisation fund in the common budget, a cyclical stabilisation function or a pan-European unemployment insurance scheme). In parallel, the European fiscal framework is also in need of a thorough overhaul. We must not forget that in a monetary union, fiscal policy is the main instrument available to countries for tackling asymmetric shocks. It is therefore crucial that each economy maintains a countercyclical fiscal policy that generates sufficient room for manoeuvre in the expansionary phases to respond to adverse situations. The Stability and Growth Pact (SGP) was designed for this purpose. It provides a framework of rules that is essential to the macroeconomic stability of the euro area. However, we have to acknowledge that the Pact has not been able to contribute to the design of countercyclical fiscal policies. Its excessive complexity results in its being somewhat opaque and difficult to communicate to the general public, which does not facilitate its implementation. This complexity also makes uneven application across countries and over time more likely, undermining its legitimacy and credibility. Hence the pressing need to overhaul the current fiscal framework.
And such an understanding of what drives the formation of our expectations in this area, might also help us to decide whether, as well as using policy counter-cyclically to build resilience in the system as risks grow and release it as risks crystallise, we should use policy more actively to ‘lean against the wind’ – to discourage and dis-incentivise any build-up of expectations that appear to have formed irrationally. 23  See Carney (2019) for an illustration of some key indicators for a range of major economies over the past four decades. See, for example, Bridges et. al. (2017) which looks at a sample of 130 downturns since the 1970s, across advanced economies While it finds some evidence of a role for the level of indebtedness, credit growth is found to be a more significant predictor, with rapid credit growth predicting worse recessions: longer with lower GDP per capital, higher unemployment, and more lost productivity. 24  9  All speeches are available online at www.bankofengland.co.uk/speeches  9  All of this, perhaps, seems very theoretical compared to your essay question of “What will be the next great financial crisis?” So I will try now to relate some of these issues to our current assessment of financial stability risks facing the UK. UK Conjuncture The most prominent short-term risk facing the UK today of some financial sector correction is the possibility of an extremely disorderly Brexit.

It could accelerate if and when Brexit uncertainty is resolved in which case aggregate credit could begin to grow quickly and the FPC would need to consider how to respond. One can explain the increase in mortgage lender appetite by fierce competition in the mortgage market, generated in part by changes in the structure of UK banks following the implementation of ring fencing. But should we also infer any signal about sentiment and expectations? One could ask a similar question about the very aggressive growth in leveraged lending to corporates in the US, which in 2017 spread to the UK.29 The stock of UK leveraged loans is estimated to have grown by about a third in the year to 2018 thanks to gross loan issuance in that period which was nearly 70% larger than the preceding 12 months. This has been accompanied by a very marked reduction in underwriting standards for these loans, a large proportion of which have been securitised and sold to international investors. Overall, credit to UK corporates is growing pretty slowly and leveraged loans are a relatively small proportion of total lending to corporates; so what does the explosion of activity in the UK leveraged loan market tell us? A better understanding of what drives the formation of expectations in this area might also help us to decide how to react to these ‘pockets’ of increasing risk appetites. Should we treat them as idiosyncratic and unrelated and respond to them as such?
Krzysztof Rybiński: Easier, faster and more economical! Things we have never done before Address by Mr Krzysztof Rybiński, Vice-President of the National Bank of Poland, at the Congress of e-Economy, Warsaw, 21 March 2006. *  *  *  Ladies and Gentlemen, The first Congress of e-Economy in Poland is held in the period where the enormous progress in the Information and Communication Technology (ICT), accompanied by a decline in transport costs and reduced commercial barriers, has resulted in a radical acceleration of the globalization process. Some of us go even further and define the process straightforwardly as the third industrial revolution 1 , creating the vision of remote medical services such as, for instance, x-ray pictures taken in the United States and interpreted by a physician in India or Australia. New technologies go beyond borders and reach further than the human imagination. Nearly half a million of Americans have their tax returns completed by tax consultants in India 2 the voice coming from the microphone in some McDonald’s drivethroughs belongs to a person sitting a few thousand miles away, table bookings in certain restaurants are also made in this way. This phenomenon, called outsourcing and offshoring, has radically increased labour efficiency, improved the quality of products and services, and reduced prices. Even consumer satisfaction surveys in the United States are often conducted by call centres located in India.

19  The service evaluation methodology used in the research conducted by the European Commission consists in the creation of a five-grade scale used to define the level of services provided: LEVEL 0 — no website available to the public or inability to assign an existing website to any of the levels 1–4 (0%-24% on the chart); LEVEL 1 — INFORMATION — the information necessary to launch the use of a given public service is available online (25%-49% on the chart); LEVEL 2 — ONE-WAY INTERACTION — a website available to the public offers the ability to download a form that, after it has been completed on paper, can be used to launch the use of a given public service (50%-74% on the chart); LEVEL 3 — TWO-WAY INTERACTION — a website available to the public offers the ability to launch the use of a given public service by completing and sending an electronic form. Therefore, authorization of the person intending to use the service is necessary (75%-99% on the chart); LEVEL 4 — FULL ELECTRONIC CASE SETTLEMENT — a website available to the public offers an entire public service online, including the stage of decision-making and the delivery thereof. No other paper procedures are necessary (100% on the chart). More information is available in Online Availability of Public Services: How is Europe Progressing?. Web Based Survey on Electronic Public Services. Report of the Fifth Measurement,” Capgemini for European Commission, October 2004.
Moreover, because it takes time for  2  For example, see Alan Blinder, “The Mystery of Declining Productivity Growth,” Wall Street Journal, May 14, 2015. BIS central bankers’ speeches  3  technological advances to be adopted broadly throughout the economy, it seems unlikely that the productivity gains from recent innovations have yet been fully realized. Because I am uncertain about the near-term trends of GDP growth and productivity growth, I am also uncertain about whether we will see further progress in the labor market over the remainder of the year. There are many possible outcomes to consider. For example, if real GDP growth were to pick up more than productivity growth, then employment growth would likely remain sufficiently firm to lead to further tightening of the U.S. labor market. But, if the reverse occurs, then payroll gains could slow even as GDP growth strengthens. In contrast to my uncertainties about growth and the labor market, I am becoming more confident that inflation will return to our 2 percent objective over the medium term, as long as the labor market continues to improve – an important caveat. The reasons here are straightforward. First, a number of factors that threaten to keep inflation below our 2 percent objective appear to be transitory. In this camp, I put the sharp decline in oil and gasoline prices that began in mid-2014, and the weakness we have seen in nonpetroleum import prices due to the strength in the dollar.

Our central projection was for inflation to continue to rise during the second half of this year to a peak close to 4% and then – assuming that oil prices stabilised – to fall back towards the 2% target as the growing margin of spare capacity in the economy held back pay and price increases. Since May, inflation has turned out higher than expected and oil prices have risen further, notwithstanding some moderation in the past week or so. But the news on activity has not been very good either, with some distinctly downbeat business surveys, including yesterday’s Industrial Trends survey, further weakening in the housing market and continued fragility in the financial sector. All this points to a worse near-term prospect for both growth and inflation. The net impact of this on the outlook for inflation in the medium term is less clear, though for our considered view on that, you will have to wait until our August Inflation Report is published in a couple of weeks time. 6  BIS Review 95/2008  Moreover, there are considerable risks surrounding the central outlook. A particular risk on the upside is that the extended period of elevated inflation leads to an acceleration in pay and causes inflation expectations to rise. That could lead the higher inflation to become embedded. But on the downside, there is a risk that the credit crunch leads to a deeper and more prolonged slowdown, leading to greater slack in the economy and causing inflation to undershoot our target.
Unlike organised exchanges, OTC markets are subject to little, if any, transparency or regulatory requirements, raising the risk of price ramping, collusion and other misconduct. International Financial Architecture: International Co-operation for Reform So what can be done about all this? Following the outbreak of the financial crisis, various international forums and multilateral financial institutions have devoted a great deal of effort to improving the stability and functioning of financial markets. Working group after working group has been formed to look into specific issues. There were the three G-22 working groups, the working BIS Review 47/1999  4  group under the Basle Committee on Banking Supervision, the two transparency and disclosure working groups under the Committee on Global Financial Systems, and now the three working groups of the G-7 Financial Stability Forum to be formed. And I should not forget the very useful work done by the IIF, and by other forums in this region. Many helpful reports have been prepared, including the two reports by the IIF released in March this year on risk management and on transparency in emerging markets finance, all of them produced in a highly co-operative atmosphere. I welcome in particular the Institute’s readiness to work with relevant public sector bodies on appropriate disclosure for private financial institutions active in the international capital markets. I am sure this international co-operative spirit, not only among international financial institutions, national finance ministries and central banks, but also with the private sector, will in the end produce helpful blueprints for action.

But this process can take too long. There is always the risk that when the dust has settled the initiative and enthusiasm, dare I say, on the part of those less affected by the crisis, may be stifled. There is also the risk that the plight of those who have been seriously affected by the crisis is not given the attention it deserves, simply because they do not have an adequately representative voice on the issues at hand at these international forums. There is no lack of ideas, but they need to be translated into actions sooner rather than later. Let me take this opportunity to outline three broad approaches mooted at different forums and supported by us. The first approach involves enhancing the transparency of markets. Timely and reliable information relevant to decision making by market participants as well as by the regulatory authorities is crucial to the effective functioning of a market. It is thus important that there should be an adequate public disclosure framework to provide information that is necessary for counter-parties, creditors and investors to assess risks properly. Not only should increased transparency be promoted in markets trading products in an established exchange. It is also perhaps time to consider whether some suitable form of transparency requirements should be imposed in OTC markets. This is not an easy task, but I believe that with earnest international co-operation, we can achieve meaningful results.
14  See Monetary Policy Report-August 2021, Monetary Policy Report- August 2022 and House of Commons Treasury Committee, Reappointment of Sir Dave Ramsden as Deputy Governor for Markets and Banking, Bank of England  Bank of England  Page 14  The MPC’s accompanying language has also developed significantly, communicating a shortening time-frame for the outlook for interest rates and progressively strengthening our language, while consistently emphasising data dependency. Up until May 2022, when Bank rate rose to 1% the MPC’s collective or majority communication still took what I would describe as a form of conditional forward guidance; emphasising that some degree of modest or further tightening in monetary policy was going to be appropriate in the coming months, depending on the balance of risks to inflation and growth. Whereas since June 2022 we have consistently emphasised the risks to more persistence in inflation and also made clear our willingness to act more forcefully if required by key developments; which I think of as signalling more of a reaction function based approach. On my interpretation, our conduct of monetary policy has been in line with the literature on Robust Control, in a world of increased uncertainty15. Such an approach is consistent with policy aiming to achieve the best outcomes in the worst-case scenario, in this context, inflation expectations becoming de-anchored and leading to persistently above target inflation. Before concluding let me provide a brief update on how my thinking on the immediate outlook for the economy and policy is developing.

In the UK, we have seen some signs, from the Bank’s Market Participants survey10 and the Decision Maker Panel survey of businesses, of expectations becoming more skewed to the right over 2022 relative to previous years, with a larger share of respondents expecting higher inflation in the medium term. There is a range of views among members of the MPC as to whether developments in inflation expectations and the potential for them to become de-anchored add to the other risks around the inflation outlook11. My concerns about the emergence and embedding of an inflationary mentality has been one of the factors contributing to my minority votes for a faster pace of tightening, first in February and again in September this year. 9  See The Burst of High Inflation 2021-22: How and Why Did we Get Here, Reis June 2022 and Losing the Inflation Anchor, Reis Oct 2021 10 See Market Participants Survey results – November 2022 | Bank of England 11 Inflation expectations, inflation persistence, and monetary policy strategy – speech by Catherine L. Mann | Bank of England  Bank of England  Page 10  Market reactions to UK monetary and fiscal policy  Global financial markets have been increasingly volatile over the last year, in particular as markets have responded to increased evidence of persistence in inflation and central banks’ policy actions and communications in reacting to it.
***  2/3  BIS - Central bankers' speeches  1 Insurance Business Asia Report, 23 Dec 2021. https://www.insurancebusinessmag. com/asia/news/property/apac-property-market-pegged-at-us137-5-billion-for-2025320798.aspx 2 Swiss Re Group, 23 Apr 2021. https://www.swissre.com/risk-knowledge/risk-  perspectives-blog/climate-change-cost-asia-pacific.html  3/3  BIS - Central bankers' speeches

The prices of commercial properties and private housing are also analysed not least because they reflect the value of the major part of the collateral that is pledged for loans from banks and mortgage institutions. Insofar as your banks conduct activities in foreign countries, stability surveillance also needs to encompass developments in these countries to ensure that negative developments will not destabilise your banks. Second, the major banking groups are analysed in various respects. Profitability trends illustrate the ability of the banks to build up reserves for future unexpected losses. Moreover, there is always the strategic risk that a bank with weak profitability will be tempted to try out new, bold but risky lines of business in order to generate a higher return on equity. Our analysis of the banks’ credit portfolios provides an indication of how loan losses are likely to develop in the coming year or two. Another aspect of the analysis relates to banks’ liabilities. Traditional banking involves accepting deposits and using the funds for making loans. People’s growing propensity to save in other instruments than bank accounts has forced the banks to finance a major part of the growth in credit by borrowing, mostly short-term funds, in the capital market. The structure of bank funding provides an indication of the risks in bank liquidity. Monitoring this is perhaps the most difficult part since the liquidity situation is liable to change very rapidly. 3.
Secondly, how should monetary policy be formulated in connection with a rising rate of productivity growth? Such a development can be taken to indicate that the economy is being exposed to positive supply shocks. While the rate of productivity growth in Sweden has not yet moved up to the same extent as in the United States, it is conceivable that, as so often in the past, we will follow the pattern there. However, the probability of this happening is not something I intend to consider today. 1. The rule of action in monetary policy  First let me recall the Riksbank’s rule of action by which monetary policy is usually guided. It states that if the forecast rate of inflation, measured with the consumer price index, 1–2 years ahead is above 2 per cent, then normally the repo rate should be raised and vice versa. The reason why we chose this target horizon is that an adjustment of the monetary stance takes time to exert its full impact on inflation and the macro economy in general. Although we are also able to influence inflation in the shorter run, doing so is normally inappropriate because it is liable to result in large fluctuations in production and employment. 1  Minutes of the Executive Board meeting on 4 February 1999. The clarification is also presented in Heikensten, L. (1999), The Riksbank’s inflation target — clarifications and evaluation, Quarterly Review 1, Sveriges Riksbank. BIS Review 30/2001  1  Of course the rule is not applied mechanically.

Inflation then falls back to the targeted rate. For clarity’s sake I should perhaps add that this reasoning presupposes that inflation expectations are not affected. The exchange rate’s reactions to monetary policy measures are not entirely given. Text books say that the exchange rate weakens in a scenario with monetary stimuli and appreciates when the instrumental rate is increased. That should normally be the case as long as nothing else happens. But the fact  2  BIS Review 30/2001  remains that there have been many instances all over the world of exchange rates appreciating even though instrumental rates have been cut and vice versa. In such situations market players have often attached greater weight to the prospects of faster or slower economic growth — provided the rate of inflation is expected to remain low. So it is not entirely clear how the exchange rate will ultimately be affected when the intrumental rate is raised or lowered. Were it the case that regulatory changes always refer to a particular group of goods or services, one might consider excluding this group from the price index that monetary policy aims to stabilise. A disadvantage of this might be that monetary policy would be guided by an indicator of inflation that is not the most relevant one for consumers. On the other hand, it could confer the advantage of making monetary policy simpler and more predictable. In practice, however, adjusting the consumer price index for shocks of this type is virtually impossible.