samchain/econo-pairs-v1 huggingface dataset:
Third, financial stability may be in danger when strong action by central banks during a crisis leads market participants to rely excessively on central banks as a backstop in case of negative shocks. This is the moral hazard problem.9 Taken together, these channels underline the risks the current “low-for-long”-situation presents for financial stability. These risks have to be acknowledged and acted upon. The fact that it is possible for these risks to exist while monetary policy is responding appropriately to the macroeconomic situation perfectly illustrates the Tinbergen principle – the number of instruments must equal the number of policy goals.10 In the current environment, the interest rate cannot be the instrument of choice for addressing financial stability risks. The answer is to give more weight to what are known as macroprudential instruments implemented as a complement to, and along-side a monetary policy that remains firmly focused on price stability. These instruments directly target the risk-taking behaviour underlying financial stability risks. This is exactly the approach chosen in Switzerland with the activation of the countercyclical capital buffer. By forcing banks to build up additional capital in the current phase of strong credit growth, the regulators aim at improving the capacity of the banking system to bear losses in the event that the identified risks materialise, while also limiting the further build-up of these risks. Outlook We are now in a position to derive the implications of our analysis for the interest rate outlook.

This has led to the built-up of imbalances which increase the risk of a substantial price corrections and of loan losses (charts 13 and 14).6 A second, related, danger is that low rates may induce excessive risk-taking in financial markets – as opposed to reviving productive risk-taking, which is one of the objectives of low policy rates. Here, the economic literature stresses two channels: investors who are unable or unwilling to accept low returns are liable to take higher risks and increase leverage to reach their return objective, a phenomenon known as “search for yield” (chart 15).7 In addition, by pushing up asset prices and dampening price volatility, low interest rates reduce  5  This view is also reflected in market expectations. For instance, 10 year inflation expectations for the US, derived from the yield differential of inflation-linked government bonds and nominal government bonds, stood slightly below 2.25% in August 2013. 6  Empirical evidence suggest that a simultaneous built-up of imbalances in real estate and credit markets is a key leading indicator of subsequent financial instability. Cf., for instance, Schularick and Taylor (2012) and Borio (2012). 7  Cf. Borio and Zhu (2008) and Gambacorta (2009). 4  BIS central bankers’ speeches  measured risk and may lead investors to misjudge the true risk of a given investment.8 A long period of low rates, for example, may lead borrowers and lenders to overestimate debt affordability and underestimate the risk of higher debt servicing costs in the future.
For another, the sharp increase in loan volumes – especially for mortgages – against a backdrop of persistent economic uncertainty and the substantial rise in real estate prices points to higher credit risk. In addition, for first mortgages on residential properties, banks are required to have less capital backing under Basel II than they did under Basel I – before 2007 (i.e. under Basel I), a mortgage had to be backed with 4.0% capital; since then (i.e. under Basel II), that figure is only 2.8%. This not only gives banks an incentive to grant more mortgages, but also enables them to reduce the capital buffer used to absorb loan losses. In view of the increased interest rate and credit risk, we urge the domestically focused banks to be prudent. They must be prepared for interest rates to rise. Besides the direct effect on the interest rate margin, particular attention also needs to be given to the indirect effect of an interest rate increase, namely that if loans are granted without sufficient attention being paid to borrowers’ financial situations, a rise in the interest rate will inevitably result in higher loan losses. As I have mentioned, the domestically focused banks are well capitalised by historical standards. But in view of the risks and uncertainty, they will also need to maintain a large capital buffer.

On the other hand, this liquidity can flow out again rapidly since customers are able to access their sight deposits at any time. Yet, it is not usually the case that all of a bank’s customers simultaneously want to withdraw all of their savings or use them for payments. As a result, the bank does not need to hold ready an equivalent value of central bank money for every franc of sight deposits; it can use some of this liquidity for granting and paying out loans. One point I would like to stress here is that money creation is not a privilege through which commercial banks can feather their own nests. A bank can grant loans when there is customer demand and it has central bank money at its disposal. To this end it is important that other customers are prepared to hold sight deposits at the bank. Here the bank is in competition with other banks. If the bank is not competitive, customers will be unwilling to apply for loans or hold sight deposits there. In granting loans, the bank also takes a business risk. Thus, banks do not ‘create money out of thin air’. Rather, their money creation is the product of intermediation between savers and borrowers, and is made possible by the fact that customer sight deposits do not have to be fully covered by central bank money. 1 Sovereign money would radically change our current system.
Another example of problems with CPI is as follows: If the Government tightens fiscal policy with a VAT increase, CPI rises, as VAT has a direct effect on inflation measured in this way. The effects of  BIS Review 59/1999  4  such measures, interest rate changes and tax changes are temporary. These normally result in one-off effects on the price level. However, it cannot always be right to tighten monetary policy and increase the interest rate because inflation has been increased by a VAT increase which in time will dampen demand and lower the level of activity and capacity utilisation. In time, inflation will be dampened by the VAT increase, although this takes place by means of an increase in prices – bear in mind though that this depends on inflationary expectations not being affected. A different situation arises then. This shows that CPI movements must be interpreted and analysed when deciding on monetary policy. Temporary effects on the price level should not initiate changes in monetary policy. The Riksbank is therefore studying a number of other indexes that do not have the weaknesses of CPI in the aspects taken up here. A harmonised index, HICP, is being designed for the entire EU area. This is used by the European Central Bank, ECB, and this measure does not include interest rate changes, although it does include indirect taxes and subsidies. Another index, UNDIX, measures the “underlying” inflation by excluding the direct effects of indirect taxes, as well as interest effects.

Despite their cost magnitude, we persist  BIS central bankers’ speeches  1  with these investments because we believe that once properly leveraged they will enable the organisation to do more with less by: (i) increasing staff efficiency and productivity; (ii) strengthening relationships with the organisation’s customers; and (iii) fostering more effective collaboration with various business partners to quicken the speed at which data that is required for decision-making can be provided. In striving to achieve these goals, we are exposed to the likelihood of being affected by the major risks that are attendant with information technology use. Consequently, the institution continues to allocate resources to: (a) make its information systems and the supporting technical infrastructure more reliable and resilient; and (b) protect the integrity of the institution’s data assets. Achievement of the foregoing objectives is heavily dependent on all information technologyrelated activities and investments being channelled in a manner that is consistent with the organisation’s goals and needs – the so called IT/business alignment challenge that appears to be so elusive in many cases. Here, from a management oversight perspective, one cannot overemphasise the necessity of embracing governance mechanisms that are fit for purpose. To remain relevant, the information technology function must continually evaluate and if necessary enhance its existing capability to ensure that it can meet the requirements of core business processes while being in tune with the current and envisaged directions of the organisation.
Moving beyond risk measures to risk narratives Innovative risk management will also require new ways of looking at measures of risk. While financial measures of risk are not likely to go away anytime soon, a good place to start is by acknowledging that financial models do not, nor are they likely to, fully and perfectly account for how firms will be affected by risk events. In his book, “The End of Theory”, Richard Bookstaber who was also a former regulator at the US Securities and Exchange Commission, wrote that we cannot know where we will end up until we take the journey. And we cannot retake that journey once completed. This raises some important issues for how firms set and maintain limits that define their risk tolerance. It does not mean that we should necessarily throw out conventional risk measures. But it does mean that we need to supplement them with the ability to develop and maintain a richer risk narrative that is perhaps less precise, but much more informative. Moving away from more mechanistic approaches to controlling risk calls for strong discipline and higher levels of competence among business and risk managers. Where there are no bright lines, effective risk responses will depend on firms setting up a process that can bring together diverse perspectives and data sets; encourage rigorous debate and dialogue on risk developments; and build an informed consensus on how much risk an organisation should be willing and able to take to achieve its business goals.

Several regulators have introduced variants of the regulatory sandbox over the past year. In fact, I would say the sandbox is itself an experiment for regulators. There is much we can learn by sharing experiences and lessons from our different approaches. And ASIC is one regulator that we admire and watch closely on this front. Ta k e registration requirements. Most sandboxes require applicants to register prior to experimentation. The UK FCA has two fixed cohorts of applicants a year, while the MAS sandbox is always open for application. ASIC has an interesting approach. It has a class-exemption for firms testing a specific set of services for 12 months and up to 100 clients. Interested firms are required to notify ASIC before commencing business, provided they also meet certain consumer protection conditions. MAS opted for an application-based approach because we wanted to closely engage each applicant, understand the innovation, business model, and risks so as to customise the sandbox conditions. But each application is turning out to be quite time-consuming and we are mindful that our process does not get in the way of speed-to-market. So, we are keen to study ASIC’s experience with the class-exemption approach and see how our own approach can be improved. There are also interesting differences in the qualifying entities. HKMA’s sandbox is restricted to authorised institutions, while ASIC’s sandbox is restricted to FinTech start-ups. The MAS and UK FCA are open to both regulated entities and FinTech start-ups.
But regardless of the exchange rate arrangement chosen, appropriate macroeconomic policies are essential to ensure its success;  •  two, maintaining a proper policy mix -- among other reasons -- so that high domestic interest rates do not damage the domestic economy, attract excessive amounts of short-term capital, or preclude further monetary tightening if market conditions require; indeed, it is important to keep the option of using the interest rate instrument open, so that the authorities have some room for manoeuvre in times of international instability;  •  three, strengthening structural policies -- especially the policies and institutions such as better prudential supervision, needed to underpin a sound financial system;  •  and four, carrying out other supporting reforms -- what we call “second generation” reforms -- to promote domestic competition, increase transparency and accountability, improve governance, help ensure that the benefits of future growth are widely shared, and otherwise strengthen the foundations for future growth. BIS Review 111/1997  III. Restoring confidence As developments have shown, confidence, once lost, is hard to regain. Restoring confidence takes a strong commitment to economic adjustment and reform demonstrated by the implementation of often painful measures. It also requires a free flow of timely, accurate, and comprehensive information so that markets can assess the extent of underlying problems and the seriousness of efforts to correct them and uncertainty can be reduced. And, of course, restoring confidence takes time. This process is now under way in Southeast Asia.

Jean-Pierre Danthine: Presentation of the Swiss National Bank’s Financial Stability Report Introductory remarks by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the Media News Conference of the Swiss National Bank, Berne, 18 June 2015. *  *  *  As my colleague Thomas Jordan has explained, global economic growth in the first quarter of 2015 was below expectations. However, over the last 12 months, we have seen an improvement in international economic and financial conditions, although substantial risks remain. The domestic environment has become more challenging due to the strong appreciation of the Swiss franc that followed the discontinuation of the minimum exchange rate in January 2015. Against this background, I would like to examine the situation at Swiss banks from a financial stability perspective, looking first at the big banks and then moving on to a discussion of domestically focused banks. A more detailed assessment of the situation can be found in the latest Financial Stability Report published today. Big banks Further improving resilience Over the past year, the Swiss big banks have continued to improve their capital situation, albeit at a slower pace than the year before. They already meet most of the requirements which will apply from 2019. While acknowledging the progress made, the SNB recommends that the big banks do not lose momentum in their efforts to improve their resilience. This is particularly warranted with regard to the leverage ratio.
Good long-term anchoring is thus a prerequisite for fiscal policy to be used for economic stabilisation or to address structural problems in the economy. The fact that anchoring creates such room actually seems to have been a bit overshadowed in recent decades. As I have just noted, the fiscal framework launched after the crisis of the 1990s was motivated not only by lower public debt creating confidence that public finances are under control, but also by creating greater opportunities to use fiscal policy for other purposes. I will come back to that. ...and the inflation target is the anchor for monetary policy The mechanisms for monetary policy are similar. What anchors monetary policy in the long term is confidence that the central bank can keep inflation low and stable. For most central banks, this means inflation of 2 per cent. These now also include the European Central Bank (ECB), which, in July this year, moved to a symmetrical target of 2 per cent, instead of the previous wording, where inflation should be below, but close to, 2 per cent. In the same way that confidence in public finances provides flexibility for fiscal policy, monetary policy will have room for manoeuvre to counteract economic 3  Examples of automatic stabilisers are income taxes and unemployment benefits that level out households' disposable incomes over the economic cycle. 3 [17]  downturns if there is confidence in the central bank’s ability to keep inflation low and stable.

However, the discussion that has arisen at least indicates that there may be reason not automatically to regard public deficits as a negative thing, as we have perhaps become too accustomed to doing.15  Trend towards lower policy rate and public debt For Sweden, the changed conditions for monetary policy and fiscal policy are clearly illustrated by the development of the repo rate and public finances over the last twenty-five years or so (Figure 2). As the real global interest rate has fallen, the repo rate has had to be lowered to ever-lower levels for each business cycle. Despite this, it has been difficult to keep inflation around 2 per cent on a more lasting basis. During the same period, the consolidated gross government debt, the so-called Maastricht debt, has fallen from just under 70 per cent of GDP to about 40 per cent. The downward trend has certainly slowed down from time to time, most recently in connection with the coronavirus pandemic, but is still very clear. At a more general level and seen over the period as a whole, one may argue that this development also reflects the fact that macroeconomic policy has not been conducted in such a way as to keep public debt as a share of GDP stable. This has, of course, been a deliberate strategy as Sweden has wanted to reduce its debt. At  14 It is worth noting, however, that, from time to time, this problem also arises when monetary policy is dis-  cussed.
Quite a good progress has been made in fulfilling all these commitments, and yet there is more to be done. The Ministry of Finance regularly publishes information on the progress in the performance and the outstanding tasks. The third group of tasks deals with the legislative programme that must ensure the legal framework for the operation of institutions and businesses within the euro area. Some progress has been made on these tasks too. Several legal acts have already been adopted. Some of the issues that are most complicated from a legal point of view, regarding the BNB for example, such as the judicial protection of the Governing Council members other than the Governor, have been resolved with the amendments to the Law on the BNB passed by the Parliament at the end of last year. However, what still remains to be done is a lot more. And by saying this, I do not mean so much the readiness in terms of drafted legal acts, but rather the procedure for discussing and adopting these acts by the National Assembly. This also applies to the most important laws – the Law on the Euro adoption, and the Law on the BNB. The draft Law on the Euro adoption is about to be finished. The draft Law on the BNB has been finalised, according to the set timeline. It will be approved by the BNB Governing Council at its next meeting that will take place on 13 April, i.e. in about a week from now.

1/5  BIS - Central bankers' speeches  Therefore, we are not at the beginning of this road, we are in the home stretch, and we had come through an important and difficult part of this road when our country joined the European Banking Union and the Bulgarian lev joined the European Exchange Rate Mechanism. What is next? If we want to complete the accession process successfully, we need to accomplish a few groups of tasks. The first and the most important task is to meet the convergence criteria or the socalled Maastricht criteria. At present, Bulgaria complies with the criteria of the public finances, the long-term interest rates, and the exchange rate stability. Some of these indicators exceed the requirement by a substantial positive margin. Let me remind you, for instance, the wellknown fact that our ratio of debt to gross domestic product is the second lowest one in the European Union. The exchange rate is unshakable and is backed by the foreign exchange reserves of the Bulgarian National Bank, which have reached their historically highest level. The only criterion that we are not complying with is the one of inflation. Behind this are both external and internal factors, but this is the subject of another indepth debate. The second group of tasks includes the commitments taken during the preaccession period. These are the measure in four spheres – the non-bank financial sector, anti-money laundering measures, the insolvency framework, and the management of state-owned enterprises.
If you may recall, the key takeaway from my talk last year is that the Thai economy is like a car which has good suspension, but whose engine is in need of an overhaul in order to move faster. Our sound external position and strong financial institutions are analogous to that good suspension, which has so far afforded us a smooth ride on the bumpy road of global financial volatility. It has been almost a year since our last check-up, and as it has indeed been an eventful year, I would like to start my talk today by revisiting how the conditions of our car have developed since then. In the second part of my talk, I will discuss how the Bank of Thailand will contribute to the engine overhauling process – along with the private sector and the government which have already launched several initiatives. In the span of just 8 months since my last Thailand Focus address, the global economy has gone through several turbulent periods. If you all may recall, on the first working day of the year, the Shanghai Stock Index fell by 7%, with two circuit breakers triggered in one day. Crude oil prices saw a steady rise from below 30 USD per barrel to over 50 USD, before being struck in a back-and-forth market within the 40 to 50 USD range. Besides, we have again witnessed multiple rounds of volatility in the global financial markets as a result of shifting expectations of the Fed’s rate hikes.

The total financial packages provided around the world to various economic sectors (health and non-health) amounted to around USD 10.8 trillion, equivalent to 10.2% of the global GDP, while the amounts allocated to support liquidity injected into the economies reached USD 6.1 trillion, or 6.2% of the global GDP. Like the other countries in the world, the Kuwaiti economy encountered many challenges, as economic activities have been shut down for several months, and global shipping of merchandise goods has been severely disrupted. Proceeding from the importance of discussions and sharing of experiences to pave the way towards making the right decisions and bringing about thorough strategies that strengthen the monetary and financial stability, I would like to briefly present the efforts made by the Central Bank of Kuwait to achieve this goal during the previous period, and the measures it have taken to alleviate those challenges and develop a mechanism for follow-up thereon and a plan for safe exit.   Speech delivered by His Excellency the Governor of the Central Bank of Kuwait, Basel A. Al-Haroon, in the 46th Ordinary Session of the Council of the Governors of the Arab Central Banks and Monetary Authorities, held in Jeddah, Kingdom of Saudi Arabia on September 18, 2022. Page 1 of 4  In line with its proactive approach adopted since March 2020, the Central Bank of Kuwait has taken several measures and actions through its various monetary, supervisory and hedging instruments.