samchain/econo-pairs-v1 huggingface dataset:
The EU has already taken important steps to foster regulatory and supervisory convergence and cooperation in recent years. The introduction of an enhanced institutional setting for financial regulation and supervision with the Lamfalussy framework has been a milestone in this respect, coupled with improvements to the EU legislative framework for financial services, including in particular the adoption of the Financial Services Action Plan and the respective follow-up policy for the period 2005-2010. However, the first full review of the Lamfalussy framework by ECOFIN in December 2007 demonstrated that the new institutional setting has not yet reached its full potential. While the review confirmed the widely shared assessment that the Lamfalussy framework has greatly enhanced the EU regulatory and supervisory process in recent years, it also underlined that the optimal level of cross-border convergence and cooperation has not yet been attained. In order to move forward, the December 2007 ECOFIN pointed to the need to: (i) strengthen the roles, tools and decision-making procedures of the EU committees of supervisors; (ii) enhance the supervisory arrangements for cross-border financial groups by improving the functioning of the supervisory colleges formed by the competent home and host supervisors; and (iii) consider introducing a reference to the EU in the mandates of national supervisors. The ECOFIN Council set out a specific roadmap for achieving progress on these issues by the end of 2008. The Eurosystem strongly supports these initiatives.

In the UK, I don’t think we saw a major prudential failure of capital and liquidity which did not have a governance and management story at is root, and we had a system which was very poor at creating the right incentives for good outcomes. Here I want to put the emphasis on creating the right incentives. In my experience supervision is in part about creating and overseeing those incentives. The critical distinction here is that supervision is not just about doing things to firms, it is also about creating the conditions for firms to do this right thing in the first place. Let me give three examples of what we are doing. 2  BIS central bankers’ speeches  First, we have been much more active in remuneration policy and practice. I have no interest in regulating the level of pay, but we are interested to ensure that remuneration is compatible with meeting capital requirements (so it can be varied to do so) and that variable remuneration is deferred and can be withdrawn, and is thus compatible with creating the right incentives by putting that remuneration at risk if the firm fails to conform with the objectives of safety, soundness and good conduct of business. I am not in favour of limiting variable pay in the way European legislation has done through the so-called bonus cap because it reduces the opportunity to create the right incentives. We then supervise firms to ensure those incentives remain in place.
We observe a downward trend of productivity growth – which is considered by some as “secular”, jumping perhaps too hastily to a very long-term conclusion. Furthermore, the ageing of the population means the labour supply is shrinking and potential growth is falling. Thanks to Japan’s G20 Presidency, the challenges posed by demographics are now on the agenda. The ECB’s monetary policy has played an important role in supporting the recovery of the euro area: estimates put the cumulated impact on growth at around 2.5 pp and on inflation at between 1 and 1.5 pp for the period 2014–181. In addition, 11 million jobs have been created since 2013. In September, the ECB introduced a further package of measures. Although it has received less attention, the most innovative part of this package is the strengthening of the state-dependent forward guidance on interest rates. Conditional on inflation developments, this will act as an automatic stabilizer through adjustments in the yield curve and financial conditions. In other words: what does matter is not only the level of our key short term interest rates, which are currently anticipated by markets, reasonably in my view, as close to bottoming out ; it is also and foremost the time horizon of our policy measures Clearly, monetary policy will be all the more effective if it will no longer be the only game in town. You may not realise it, but the euro area has more policy room than others in non-monetary domains, but under-uses it.

Secondly, we need to revisit the second (monetary) pillar in light of financial stability concerns – which are increasing. Monetary and macroprudential policies have traditionally been guided by a separation principle2. But in practice, macroprudential tools have limitations, while over the past years we have considerably extended the monetary toolkit. As a result, it may now sometimes make sense to approach monetary policy decisions in order to deliver the monetary stance called for by our price stability objective while choosing the appropriate combination of instruments that minimize risks to financial stability. Such a soft coordination is more promising than a strict separation. Lastly, how should we incorporate climate change in our monetary policy analysis? It affects price stability in the long run, and the value of our collateral, notwithstanding the fact that “a high level of protection and improvement of the quality of the environment”3 belongs to our secondary objectives in the EU Treaty. Speaking about financial stability, let me add a few words on Basel III. The agreement reached in December 2017 is the finalisation of an unprecedented and fruitful regulatory effort that began in 2009. I strongly reiterate that: it is a fair and reasonable compromise. The US had to accept the permanent recognition of internal models elsewhere, although their banks don’t use them; and both Europe and Japan had to accept an increased comparability of these internal models, leading to some increase in their capital requirements. Some people, starting with banks themselves, are now contesting the agreement.
Basel I was flawed in that it failed adequately to cover investment banking activities that grew after the late 1980s, arguably because of the regulatory arbitrage. Basel II failed to fill these gaps adequately. But Basel I, through its simple risk weights, also encouraged the property-lending boom. One part of the story goes something like this: demutalised building societies came under pressure to generate higher returns for shareholders and thus devised business models that pushed them towards greater leverage and larger risks for a given amount of lending – in other words, higher LTV lending. And they also exploited another flaw in Basel I, the ability to securitise loans without properly assessing the impact on the viability of the business models. Thus, Northern Rock grew its high LTV, low-margin lending and developed a securitisation operation that was ultimately too big for the bank to sustain. Now to be clear, this is not a defence of Basel II. Far from it. Basel II introduced a modelbased approach alongside the so-called standardised approach. It created complexity, and it encouraged the use of models generally, including for assets that are not, in my view, susceptible to robust modelling. Basel II was also implemented in what looks like too much haste – it may not have seemed that way at the time I accept. But bad models were allowed through the gate. Commercial property was a bad case in point. One has to ask whether commercial property loans are too lumpy to be modelled. But, modelled they were.

Ladies and gentlemen, We find ourselves, today, at a juncture where governments and central banks alike have promptly stepped in globally to counter the negative impact of the coronavirus pandemic through social, economic, fiscal and monetary policies. The unprecedented mobilisation of the authorities 1/2  BIS central bankers' speeches  in a complex and determined manner has largely ensured the proper functioning of markets, and of the economic and social mechanisms. In this regard, enhancing the response capacity to adverse situations is essential, and this goal can also be achieved by strengthening corporate governance, supervision, and risk management in the financial sector. These are the key coordinates of the new twinning programme as well. The twinning project we are launching today has a wide scope, not only for the banking sector, but also for the entire financial market in the Republic of Moldova. It aims to be beneficial for both the National Bank of Moldova and the National Commission for Financial Markets of the Republic of Moldova, by strengthening institutional capacity and governance, as well as developing the regulatory, supervisory and operational frameworks for enhanced functionality. From my perspective, the National Bank of Romania has gained over time, after 1990, with the support of its partners in the European Union – including the support of De Nederlandsche Bank, which I would like to mention explicitly – a solid experience and expertise.
As we move forward, we may need to strengthen that flexibility even further. We do not have perfect foresight as regards what risks we will have to tackle further down the road. Nor do I think that we will ever develop the perfect tool for every conceivable financial stability risk out there. One thing to bear in mind in all this, is that whether the perspective is global, regional or national, it all boils down to the same thing - safeguarding the stability of the financial system. And in today’s highly interconnected world, it is quite obvious that we to some extent are all in this together. This brings me to a related issue where the ESRB has played a leading role. Reciprocation of macroprudential measures – key for their effective implementation An important prerequisite for effective implementation of macroprudential policy in a financially highly integrated world is that the measures in question can affect all financial actors which influence the specific risk that authorities are trying to mitigate. This is not always the case. For example, foreign branches are regulated by authorities in the home country of the parent company, and may not be affected by measures taken in the country where they are active. Reciprocation may in such a situation help mitigate the risks, minimize potential regulatory arbitrage and also provide a level playing field.

At the same time, banks are required to build additional capital buffers, which further constrain their pay-out ratio. So dividend prospects are doubly affected and that explains why share prices are reacting to negative news on growth. This movement has been more pronounced for French banks which are suffering from two specific vulnerabilities, one real, one exaggerated. The real vulnerability is their dependence on dollar funding, due to the scale of their international activities, which they may have been initially too slow to address effectively. It is currently being dealt with through a combination of deleveraging and consolidation. In the meantime, in order to ease this transition, the Eurosystem, together with other central banks across the world, has decided to conduct US dollar liquidity-providing operations with a maturity of three months. A more exaggerated concern about French banks is their exposure to sovereign risk. Let me just point out some facts: total exposure of major French banks to the sovereign risk of socalled “peripheral countries” amounts to € To take an extreme – and from my view point – totally unrealistic scenario – a 50% haircut on Greece and 25% haircut on Italy and Spain would result in a 12% loss of core Tier One capital. In terms of liquidity, the Eurosystem refinancing policy provides for an unlimited provision on an extended period and the collateral held by French banks in eligible assets is much above their present needs.
Thus far, the underlying strength of the upturn has if anything surprised on the upside, largely thanks to developments in a number of emerging economies in Asia, Latin America and eastern Europe. There is therefore reason to be slightly more optimistic than we were in the May Inflation Report with regard to short-term prospects for growth in the world economy, despite the signs of weaker developments in the United States. Coupled with the unexpectedly large price increases for oil and other commodities, this means that international price pressures are expected to be slightly higher than previously forecast, particularly this year and next year. BIS Review 59/2004  5  Economic growth in Sweden is also forecast to be robust throughout the forecast period and has been revised up in relation to the May forecast. The unexpectedly high international demand has contributed to surprisingly rapid growth in exports over the summer. The increasingly evident recovery in the IT and telecoms sector has also contributed to the favourable growth in exports. The Budget Bill contained signals of more expansionary fiscal policy in the period ahead, which can be expected to further boost demand in the economy through effects on both private and public consumption. New National Accounts data also indicate that the pickup in investment long expected by the Riksbank and other forecasters now appears to have begun. As in the May Report, gradually higher resource utilisation and rising international prices are expected to lead to a gradual increase in inflationary pressures.

Øystein Olsen: Management of the Government Pension Fund Global (GPFG) Introductory statement by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), before the Storting’s Standing Committee on Finance and Economic Affairs, Oslo, 30 April 2013. *  *  *  Please note that the text below may differ from the actual presentation. Charts in pdf I would like to thank the Chairman and thank you for giving Norges Bank the opportunity again this year to report on the management of the Government Pension Fund Global (GPFG). Chart: Changing the regional allocation The investment strategy of the GPFG builds on its specific features, purpose and our perception of the functioning of financial markets. The GPFG is a large fund and features a long investment horizon. The objective of investment management is to preserve the longterm international purchasing power of the GPFG. In 2012, the investment strategy was changed. As a result, investments in emerging markets have increased. Just over 10 percent of the overall portfolio is now invested in these markets. Chart: Increasing investments in real assets The allocation to equities was increased to 60 percent between 2007 and 2009. When the allocation to real estate reaches 5 percent further ahead, the GPFG's allocation to real assets will make up two-thirds of the overall portfolio. The long-term expected return on real assets is higher than on nominal bonds. The risk is also higher, but the long-term investment horizon puts us in a solid position to carry that risk.
Household debt has increased at a faster pace than income over the past ten years. Norges Bank’s calculations indicate that debt growth may largely be due to the sharp rise in house prices in recent years. Higher house prices have a fairly prolonged effect on household debt growth. As a result, credit growth will remain high for a fairly long period even though the rise in house prices is expected to slow. Given the assumptions underlying our projections, it is likely that debt will continue to grow at a faster pace than disposable income through the entire projection period. High credit growth has led to a rise in the household debt burden, measured as loan debt as a percentage of liquid disposable income. The debt burden, measured in this way, is now record high. Due to unusually low interest rates, the interest burden is, nevertheless, relatively low. A normalisation of interest rates will increase households’ net interest expenses, but according to the projections the interest burden will not be higher than it was at the end of the 1990s. If there are expectations of persistently low interest rates, there is a risk that debt may increase more than assumed. Net interest expenses and the debt burden will then also be higher than assumed. In addition, households will be vulnerable if unexpected disturbances result in higher-than-expected interest rates. 5/7  Capacity utilisation in the Norwegian economy is expected to increase this year and next and exceed its normal level.

The Executive Board’s assessment in the June 2005 Inflation Report was that the interest rate may gradually – in small, not too frequent steps – be brought up towards a more normal level if economic developments are approximately as projected in the Report. This was considered to provide a reasonable balance between the objective of stabilising inflation at target and the objective of stabilising growth in output and employment. It was the Executive Board’s assessment that the sight deposit rate should lie in the interval 1¾ 2¾ per cent in the period to the publication of the next Inflation Report on 2 November. Following the monetary policy meeting on 21 September, the Executive Board stated that developments in output, demand and underlying inflation had been consistent with the projections in the June Inflation Report. The Executive Board also stated that its monetary policy strategy and assessments indicate that the interest rate should be gradually increased ahead. One option was to increase the interest rate at this meeting, but the Executive Board found it appropriate to leave the interest rate unchanged. Conclusion In my speech today, I have focused on how much and in what way households save and on the prospects for wealth creation. I have also pointed to the challenge facing our current pension system as an ever increasing share of the population gradually reaches retirement age. Increased saving today may be a way to address this challenge, but this is not enough in itself.
I have to say that one of the difficulties we are experiencing in markets right now reflects the fact that at a political level, in the European Union, we have disappointed market expectations by failing to make sufficient progress towards strengthening euro area governance and towards putting in place a robust crisis management framework. It is a price that we unfortunately have to pay for the delay. This delay is causing uncertainty in markets and this uncertainty is damaging the euro area. Q. If the euro area has not come up with a comprehensive plan to handle the crisis, how can it be expected to support Greece? As you know, European Union governments are currently offering support to Greece in the form of loans subject to strict conditionality and I fully expect this support will continue as long as Greece continues to implement the structural reforms that are necessary in order to restore healthy fiscal finances. At the same time those reforms will promote growth in Greece, which at the end of the day is necessary in order to alleviate the debt burden. Q. There seems to be in the general population less and less appetite for continuation of reforms. Do you see that as a real problem or will they definitely do what is necessary to get onto a sustainable path? I expect the Greek government to live up to its responsibility and continue with the implementation of the reform programme.

By contrast, in some other member states in the euro area there have been explicit calculations about how much additional capital would need to be infused into banking systems in order to meet those requirements. This is testament to the very strong capital position of our banking system. Regarding steps to limit exposure by any of our banks to any sovereign holdings in the euro area, as part of the supervisory process of the Central Bank of Cyprus we demand that all of our banks have good risk management systems in place. Of course, we do not control the specific decisions on portfolio holdings of banks. Whenever we determine that there is undue concentration of risks then we demand that additional capital be held in order to account for these risks. This way we manage risks to the system. Q. Do you agree with an assessment recently made by Cypriot officials and the finance minister to be precise, that his hands are actually tied in terms of future ratings of the Republic if rating agencies continue to make a linkage between the economic fortunes of Greece and the economic fortunes of Cyprus, and do you think that this linkage is appropriate? In my view, all authorities must live up to their responsibilities. What we are experiencing in Cyprus over the past many months is a very unfortunate cycle of downgrades of the sovereign.
Such belief has stemmed from the attention paid to these entities by different mass media. However, the true state of affairs emphasizes that small and medium enterprises (SMEs) play an important role in the economic activity in both advanced and developing countries through their massive absorption capacity to employ labour force, including those with modest and average training and scientific qualifications, apart from their role in the daily movement of goods, services and commercial activity. For instance, small and medium enterprises in the Euro area account for 99.8 percent of total business enterprises, 60 percent of value added, and 70 percent of total employment. Such percentages are not confined to the Euro area only, but many other countries in the world may have similar percentages as well. Small and medium enterprises are considered the most efficient and capable instrument to accelerate the pace of economic and social development, especially in remote areas with less opportunity to benefit from development. Apart from being the nucleus of large-scale enterprises, small and medium enterprises provide a fertile environment for training workers and developing their skills; and help in speeding up the turnover of small amounts of invested funds. Based on this perspective, governments have long since paid great attention to such enterprises and enacted laws to provide the infrastructure that would contribute to their growth and development, particularly after having proved their capacity to reduce pressure on the public sector as regards the provision of job opportunities.

Their other features are: low administrative and marketing cost, and labor wages, simple routine procedures, highly efficient communications and readily available information needed for work therein, the usage of uncomplicated production and operation methods, the ability to cope with new changes with regard to meeting consumers’ preferences and tastes, the ability to change the composition of labor force, production, marketing or finance polices to face quick changes without any hesitation, helping them to overcome economic cycles and changes. In addition, SMEs are also characterized by the freedom to enter and exit the market because of the modest ratio of their liabilities to fixed or full assets, and the easiness to convert small enterprises into liquidity in a short time without incurring a significant loss. Furthermore, the exit of a SME will have no significant impact on the market. Finally, SMEs are flexible to move and spread geographically. In spite of these features, the growth of SMEs is facing a variety of challenges which may be similar to a great extent not only at the level of one country only, but also at the global level.