samchain/econo-pairs-v1 huggingface dataset:
Second, experience has shown that it is difficult to assess risks of infrequent but high-impact events, and so it is dangerous to allow activities characterised by such risks to contaminate the essential – or utility – services that the banking sector provides to the wider economy. Both of these drawbacks mean that it is almost impossible to calculate how much contingent capital would be appropriate. And a third drawback is that the approach probably requires the extension of detailed regulation, and especially a special resolution regime, to all institutions deemed “too important to fail” – or could become “too important to fail” in the middle of a crisis – in order to prevent a bank failure leading to conventional insolvency procedures. It remains to be seen whether that scope would be easy to define beforehand. Failure to deal with the underlying problem draws regulators deeper into murky waters. The second approach rejects the idea that some institutions should be allowed to become “too important to fail”. Instead of asking who should perform what regulation, it asks why we regulate banks. It draws a clear distinction between different activities that banks undertake. The banking system provides two crucial services to the rest of the economy: providing companies and households a ready means by which they can make payments for goods and services and intermediating flows of savings to finance investment. Those are the utility aspects of banking where we all have a common interest in ensuring continuity of service.

In order to bridge the data gaps, we must rely on enhanced disclosures that need to be built on sound taxonomies. But we need some data to set out a proper taxonomy! It is time to follow the path set by the TCFD on one side and the European Commission on the other to address all issues at the same time. It means working jointly on disclosures and taxonomies. It will notably help to enhance the quality of disclosure and, ultimately, its relevance in internalising the current climate change externality for all firms. We will then be in a position to move gradually towards compulsory transparency based on a “comply or explain” principle, such as that of Article 173 of the French Energy Transition Law that could usefully serve as a reference. b. Integrating climate-related risks into financial stability monitoring Substantial work remains to be done to achieve “the video of risks”. Our feeling is that risk premia do not currently appropriately reflect climate risks. And therefore I believe that we, as central banks and supervisors, must push for a forward looking vision of the impacts of climate risks. In order to properly size the financial effects of climate change, our goal is clear: we should be able to design some comprehensive climate stress tests. What does it mean in practice? The snapshot of risks provides information on exposures.
Due to this pivotal function, the banking sector plays a crucial part in the transmission of monetary policy. On the other hand, however, it may also be the source of financial shocks that impact on the real economy. Second, the industry is itself a large part of the Swiss economy. The significance of the financial industry and our position as a global financial centre are important contributors to the wealth of our nation. This is especially apparent here in Zurich, where the financial sector generates much employment, wealth and tax revenue. In my remarks, I will first discuss the macroeconomic challenges associated with the banking sector’s key role in the transmission of monetary policy, as well as the risk that it may  BIS central bankers’ speeches  1  propagate financial shocks to the economy. Then, I will discuss the challenges for the industry itself. Lastly, I will address the main implications from the SNB’s point of view. Macroeconomic challenges Let me start by focusing on the macroeconomic challenges associated with the importance of the Swiss financial industry, and, in particular, the banking sector, for the rest of the economy. The main reason why the banking sector is so important for the Swiss economy and the SNB lies in its traditional function as financial intermediary. As banks collect funds and provide financing to firms and households, they are the “life blood” of the economy. Related to this traditional function, there are two distinct aspects I would like to point out.

Otherwise the financial industry will be unable to fulfil its role as a financial intermediary. A lot has been achieved in recent years to strengthen the resilience of the banking system. In particular, the two big banks have made progress in this area. They have increased their highest-quality capital and reduced their risk-weighted assets. This is an on-going process that will further increase the stability of the system. Challenges for the financial industry Ladies and Gentlemen, so far I have focused on the macroeconomic challenges arising from the importance of the financial industry for the economy. Let me now turn to the challenges the Swiss financial industry itself faces. Obviously, like its peers abroad, the Swiss financial industry has to cope with several challenges. Let me focus on three which I consider to be most relevant for Switzerland – wealth management, residential mortgages and regulatory measures addressing “too big to fail” issues. Wealth management is challenged on several fronts. Revenues in wealth management will continue to be depressed. In jittery financial markets, client trading volumes are low. The flat yield curve reduces the margin between deposits and credits. In addition, competition in private banking with foreign clients will continue to intensify.
But this better outcome is not achievable when the central bank cannot tie its hands in regards to its future behaviour. In the third scenario (the blue line), the government gives the central bank the mandate of stabilising the level of nominal income around a continuation of its pre-shock trend. The  BIS central bankers’ speeches  5  central bank then pursues this different objective, but again on a quarter by quarter basis. In this case, the output and inflation outcomes lie between the previous two scenarios.10 Giving the central bank a mandate to target the level of nominal income is, in effect, a way of getting closer to the first, but unattainable, scenario. So much for the theory behind a target for the level of nominal income. It is essentially one way of trying to hardwire in a commitment to maintaining a policy that remains loose long after conditions have normalised in order to generate the expectation of temporarily higher inflation in the future. But what may work in an economist’s model may not be such a good idea in the real world. How sensible would it be in practice? And what pitfalls might there be? First, the simulations show the impact of a pure demand shock resulting in strong deflation and, given the zero lower bound on the policy rate, also a high real interest rate.

So the central bank’s mandate needs to permit a temporary undershooting of its inflation target if it thereby reduces the risk of a subsequent painful bust. The past few months have, however, seen questions asked of our inflation-targeting framework for other reasons. According to some, the framework has constrained the ability of monetary policy to support the recovery; an objective giving higher priority to growth or employment might have produced a better outcome. A particular, and increasingly popular, variant of this involves combining growth and inflation into a single target for nominal income. The first thing to be said is that the MPC’s mandate already incorporates a growth and employment objective. While our primary objective is to maintain price stability, subject to that we are also expected to support the Government’s policies for growth and employment. The Chancellor’s annual remit letter puts flesh on those bones, by specifying not only the 2% target for CPI inflation but also the Government’s desire for high and stable growth and employment. And the letter goes on to note “that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances (and that) attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.” If we had tried to offset the impact on consumer prices of, say, sharp movements in import prices, then we would need to engineer countervailing movements in domestically generated costs, in particular pay.
Allow me to conclude this part of my address with a final reflection on the need to persevere with a European response to this crisis in the financial sphere as well. In the current context of uneven and uncertain recovery, we cannot rule out the possibility that the economic impact of the pandemic and the persistence of these effects may be greater than expected. In the banking sphere, the response to the possible materialisation of these risks can only be at the European level, given the commitment to the banking union. In this response, the completion of the banking union with the approval of a fully mutualised European Deposit Insurance Scheme would make a decisive contribution to ensuring financial stability in the euro area, both over the coming months and in the medium term. Further deepening of the capital markets union project is also essential. Moreover, priority must be given to analysing how adequate the European resolution and winding-up regulations are for a hypothetical systemic crisis, and the possible role of asset management companies in the event of severe impairment of European financial institutions’ balance sheets. 7  EU Member States should also move swiftly to reach an agreement on creating a common European procedure for the administrative winding-up of credit institutions. This procedure would benefit from the instruments developed for the resolution of credit institutions, aiming to maximise the realisable value of the financial assets that make up the bulk of banks’ balance sheets.

Faced with this unprecedented shock, the banking sector has so far shown notable resilience. Its favourable performance is underpinned by the improvements since the global financial crisis, in terms of balance sheet quality and solvency. The far-reaching international financial reform and, in Spain’s case in particular, the restructuring of the sector have increased banks’ capacity to absorb the unexpected materialisation of risks. Firstly, the restructuring of the Spanish banking sector entailed a significant decline in the number of banks and in their capacity, measured in terms both of branches and of employment and bank balance sheet size.1 As a result, Spanish banks were more efficient and profitable than the European average, although the level of profitability was low in historical terms, as was also the case with European banks. As regards balance sheet quality, the NPL ratio had fallen by 9 pp since peaking in 2013, to 4.8% in 2020 Q1, though this was still higher than in 2007. Further, in that same period, the weight of forborne exposures relative to assets had fallen by 9 pp. Also, the weight of lending to construction and real estate development, which came to account for 27% of total lending to the non-financial private sector, stood pre-pandemic at around 10%. Finally, mortgage lending standards have been much stricter and, in the case of loans to firms, these have been tied far more to firms’ efficiency.
However, there is a risk that the complexity of these instruments will increase the difficulty of seeing to which credit risks companies and banks are actually exposed. 2  BIS Review 18/2002  The complexity of the financial instruments and the fact that they are often found, in various forms, on both the asset side and the liability side of companies' balance sheets as well as "off balance sheet", makes it difficult to detect the financial risks within banks and companies. This is particularly serious as an increasing number of households have their savings in these companies' shares, but nor is it easy for professional analysts and portfolio managers to see. The collapse of the American company Enron can serve as an example of the problems connected with the development of complicated financial instruments. A lack of understanding of the instruments used and a lack of transparency in the company's accounting meant that directly after the collapse there was considerable concern over possible contagion effects. Here I do not mean the evident breach of the regulations in force, where auditors burn documents and senior managers sell shares in the company prior to publishing negative information. Enron raises a number of other, in the long term more fundamental, issues. Today, I shall limit myself to discussing three of these. Firstly, Enron was basically an energy company, which in time came to pursue financial operations on a large scale, but without coming under the supervision to which financial companies are normally subjected.

Coinciding with uncertain growth prospects is the indecisiveness about the exit from policy accommodation especially in the U.S. Global market sentiments since May have turned with the expectation about the Fed scaling back its asset purchases. While all of us know that the exit from the extraordinary stance in the U.S. is inevitable, and is actually looming on the horizon, the timing and the pace remain uncertain and data-dependent. This could actually continue to disrupt the process of global rebalancing for a while. Time and again, taking away the punch bowl has always been a tricky task for central bankers. But the impact has never been more global, given today’s interconnected global financial market. Inconclusive clues about the future world, after all, lead to increased sensitivity to new pieces of information. Beliefs about the future world are shifting fast, and with that come bouts of volatility due to successive rounds of reassessing and repricing risks. To some extent, the recent episode also served as a stress test for emerging market economies, who  BIS central bankers’ speeches  1  had to deal with sudden capital movements and volatile asset prices. It also served as a reminder for these countries to ensure that their economic stability is safeguarded as they try to benefit from the increased integration with the global financial market. And importantly, it also served as a reminder for these countries to re-examine the robustness of their growth strategy in the face of global headwinds and fickleness.
Table 2: Labour mobility estimates, 2010  Regions  Annual gross migration flows/population, %  US: between 50 states  2.4  Australia: between 8 states/territories  1.5  Canada: between 10 provinces/territories  1.0  Scotland/rUK  0.6  EU27: between 27 countries  0.3  Sources: OECD; Bank calculations using General Register Office Scotland Migration Statistics and ONS mid-year population estimates. All data are for 2010. Notes: Population mobility estimates are shown for the UK, Australia, Canada and the Unites States and labour force mobility for the EU. BIS central bankers’ speeches  13  Table 3: Nominal export and import shares in 2013 Export Shares rUK (to Scotland) Scotland (to rUK)  2013 Q1 & Q2 14% 70%  Import Shares rUK (from Scotland) Scotland (from rUK)  8% 74%  Sources: Bank calculations; ONS Quarterly National Accounts (2013Q3); Quarterly National Accounts Scotland (2013Q2)  Chart 4: Cumulative change in MFI deposits from other euro-area countries (all sectors) Italy Portugal  Spain Ireland  Greece Cyprus  Cumulative change since January 2010  60 40 20 0 -20 -40 -60 -80  2010  2011  2012  2013  -100  Sources: ECB and Bank calculations.

In April, the upturn in the consumer price index was 1.5 per cent on an annual rate and underlying inflation was as high. This was half a percentage point higher than expected in both cases, and the difference between our forecasts and the outcomes can largely be explained by unexpected price rises on a limited number of goods, primarily petrol, heating oil and electricity. As I mentioned earlier, there is reason to expect high oil prices for some time to come. It is therefore also probable that inflation will be above our earlier forecasts. A reasonable assessment is that this will mainly have consequences for developments over the coming year, but as I said before, there is considerable uncertainty regarding, for instance, the direct effects of oil prices on inflation and the indirect effects on other macro variables. Our assessment in the Inflation Report was that inflationary pressures would increase over time as international and domestic cost pressures were pushed up by the continuing economic upswing. Monetary policy will therefore need to become less expansionary so that inflation does not exceed the target. Of course, one can discuss the pace at which the interest rate should be increased. Market expectations in recent weeks have assumed a continued gradual increase in the interest rate from early summer, which I consider to be reasonable, given the developments we have seen since February. However, it is almost one month until I and my colleagues will meet for a new discussion of the monetary policy stance.
At this point, I would like to briefly comment on the interpretation of our forecast. It is based on the above-mentioned assumptions regarding the development of the world economy, and on the three-month Libor remaining stable throughout the forecasting horizon. In other words, the forecast  BIS Review 101/2001  1  shows the development of inflation on the condition that monetary policy is left unchanged. However, monetary policy will certainly need to be adjusted during the forecasting period. The economic environment changes continuously as new disruptions occur, and the National Bank responds to these changes in order to meet its objective of maintaining price stability. Therefore, it is important to bear in mind that the forecast is made for a three-year period but is valid for only six months at most, i.e. until the publication of the next forecast. The relatively long forecasting period reflects the time lag with which monetary policy measures impact on the price level. We publish our forecast in order to inform the public of our assessment of the inflation outlook, at the time of the forecast, on the basis of an unchanged monetary policy. The publication is a means of making our monetary policy decisions more transparent and easier to understand. I will now make a few remarks about the development of the Swiss economy in the year now ending and the coming year. The recessionary trends witnessed across the globe will not leave Switzerland unscathed.

If developments move in line with our projections, the key interest rate may be reduced to 1 per cent in the latter half of this year. However, the projections are uncertain. An economic turnaround may occur faster than expected. The low interest rate level may lead to a situation where saving in Norway does not pick up as expected or that the krone depreciates markedly. In that case, the key rate may be set higher than projected at this time. On the other hand, there is a risk that the downturn in Norway will be more pronounced and longer, or that krone appreciates markedly. In that case, a stronger use of instruments may be appropriate. The downturn abroad and the unusual conditions in the credit market will mark the Norwegian economy for a period ahead. Mainland GDP is projected to decline by 1 per cent between 2008 ad 2009. Unemployment has increased since autumn 2008, but is still low. Unemployment is projected to continue to rise to the end of the year and into next year. Pay increases are moderate as a result of weaker corporate profitability, rising unemployment and lower inflation. Wage growth will show a considerable decline between 2008 and 2009. BIS Review 60/2009  3  Households have a dimmer view of the future than earlier, but the pessimism is no longer intensifying. This influences private consumption. Housing investment has also declined over a period, but house prices now seem to have stabilised, and perhaps started to rise again.
Bank of England Future Forum 2017 Opening remarks given by Mark Carney Governor, Bank of England  St. George’s Hall, Liverpool 16 November 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  Good afternoon. Welcome to the Bank of England’s Future Forum to everyone here in beautiful St George’s Hall, and to those viewing on our webcast. My colleagues and I are delighted to be here in Merseyside. It’s been three decades since I first visited. Back then, I discovered my favourite band the Lightning Seeds, who would later pen England’s football anthem. We’ll learn next year whether the Three Lions can end what’s become fifty years of hurt. 1987 was the Life of Riley for local football. Everton and Liverpool were top of the tables, with the Toffees beating the Reds to win the Championship – sadly their most recent of their 9 titles. How things change. It’s not pure and simple all the time. Just like footballing fortunes, economic conditions in Liverpool have waxed and waned. The de-industrialisation of the 1970s and 80s affected the region particularly badly, with unemployment ultimately rising to above 20%. With the 1990s came revival and regeneration, with particular emphasis on the city’s rich cultural and economic history – a heritage rightly celebrated when city centre riverfront was designated a World Heritage Site in 2004 and when Liverpool became European Capital for Culture in 2008.

3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Building public understanding of what the Bank does – by engaging with people directly– is essential to our work. That’s because our policies work better if our objectives are clear and the British people have confidence that we will do the right thing whatever happens. Improving understanding of the Bank’s role is also part of being accountable to the people we serve. The Bank is at the heart of the UK economy. The responsibilities Parliament has given us are wide-ranging and the decisions we take affect everyone in the country. People deserve the information and tools to judge how well we are doing our job and to know that we are listening to your views. Today’s event is also part of a wider effort by the Bank to move beyond traditional modes of communication to speak more directly to the people we serve. While three hundred thousand people read the Financial Times, there are 30 million Facebook users in the UK. And while everyone knows it is good to talk, the Bank is learning how it can also be good to Tweet – our Twitter account has 227,000 followers, though that still leaves us a little behind Wayne Rooney’s 16.7 million. We are revamping our publications to make them more accessible, using icons and graphics to convey our messages on webpages designed for mobiles and tablets, rather than relying only on pages of words on paper.