samchain/econo-pairs-v1 huggingface dataset:
On its own, the Icelandic Government was in no position to provide Icelandic banks with the FX liquidity facilities that their foreign counterparts were receiving at the time, and it would have placed itself in real peril had it tried to provide them with enough assistance to prevent them from defaulting on their FX liabilities. In addition, there were a number of other weaknesses in their balance sheets – weaknesses that would probably have posed serious problems for them in any case, albeit later on. But even though the situation developed as it did in Iceland, it is important for us to remember that it was this coordinated international response that prevented the financial crisis on both sides of the Atlantic from mushrooming into a tidal wave of national and international bank failures. And it was this response that kept the economic recession from developing into a full-blown depression like that in the 1930s. Central banks played a key role initially, providing massive liquidity facilities and coordinated monetary easing on the home front and, not least, negotiating FX swaps that actually entailed a global extension of the US Federal Reserve’s role as lender of last resort. In addition to mitigating the imminent contraction, these measures were an attempt to interrupt the vicious cycle of fire sales of illiquid assets, falling asset prices, and evaporating liquidity, thus reducing the risk that banks’ equity would plunge below regulatory minimums and banks around the world would start falling like dominoes.

The overall risk, including climate risk, has been reduced. The Norwegian economy is also exposed to abrupt changes in operating parameters for oil and gas production through spillovers from offshore activities to the wider economy. We have long known that Norway’s offshore petroleum activities would be gradually reduced. If global climate policy proves to be stricter than currently expected, the decline in offshore activity may occur sooner and more rapidly than previously assumed. This will have consequences for Norway’s industry structure. Even though it is likely that the biggest changes in oil-related industries lie some years ahead, climate risk may also have an effect on the oil sector in the short term. There are perhaps signs of this effect in recent years’ oil stock prices. Chart: Valuation of oil stocks The price-to-book (P/B) ratio is lower for international oil companies than the average P/B ratio in the stock market, and this gap has widened in recent years. There may be several reasons for this, but we know that investors’ climate risk awareness has increased in the same period. Measures to influence industry structure are not within Norges Bank’s remit. However, if the decline in the oil-related sector were to occur abruptly, the spillovers to the wider economy could be considerable. Monetary policy is adjusted to changes in output, employment and inflation and can therefore support overall activity and employment in a period of restructuring. The responsibility for the restructuring itself lies elsewhere, not least with the business sector.
Today, almost seven years after the so called De Larosière Report, we have reached a stage where the European Commission is assessing the current macroprudential framework in the Union, including the role of the ESRB. There are a number of areas where the Commission wants to shed some light before drawing final conclusions about possible improvements. One such area is what would be the best composition of the ESRB’s decision making body, the General Board, and also most of its substructures. In this context suggestions to reduce the size of the General Board have been mentioned. This would in my view not only reduce the number of people around the meeting table, but also take away one of the ESRB’s main strengths. As somebody who has seen the ESRB at work from the inside pretty much since it saw the light of day, I wanted to take this opportunity to talk about the experiences so far and how we can use them as we move ahead. The ESRB brings together “all sorts” within its remit, and voting modalities pave the way for efficient decision making The ESRB is unique in that it brings together representatives from central banks and financial supervisory authorities from all 28 Member States, representatives from the three European Supervisory Authorities, the ECB, the European Commission and the Economic and Financial Committee as well as the “independent voice” of the ESRB Advisory Scientific Committee, the ASC.

Thomas Jordan: Does the Swiss National Bank need equity? Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, to the Statistisch-Volkswirtschaftliche Gesellschaft, Basel, 28 September 2011. *  *  *  The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). The Swiss National Bank (SNB) had to report heavy losses for 2010 and the first half of 2011 due to the strength of the Swiss franc – or, more precisely, due to valuation changes on its foreign currency reserves. Consequently, it suffered a substantial reduction in its equity. Understandably in such a situation, concerns began to be voiced in public. Questions often posed in this context include: Might the SNB lose its capacity to act as a result of a negative equity level? And, if its equity were negative, would the SNB have to be recapitalised, or might it even have to go into administration? The short answer to these questions is “No”, because the SNB cannot be compared with commercial banks or other private enterprises. For one thing, a central bank cannot become illiquid. This means that a central bank’s capacity to act is not constrained if its equity turns negative. Moreover, unlike other enterprises, it is not forced to implement recovery measures or go into administration. For another, central banks enjoy a funding advantage over private companies, owing to their banknote-issuing privilege. Moreover, they generate surplus income over the long term.
From a practical perspective, for the BNB this means reorganising the management, administrative, IT, and budget processes in these two areas, as well as an increase in the number of employees involved in these activities. So far the banking supervision and bank resolution activities have been funded by the BNB’s monetary income. From 2021 the BNB will move on to the principle of the ECB and SRB to fund the relevant activities by collecting fees from credit institutions. 4/4  BIS central bankers' speeches

“Irreducible uncertainty” and “multiple equilibria” are occupational hazards; so if you must predict the future, you are tempted to hedge heavily and must modify constantly. But in two areas I’m confident: the Three Lies of John Harvard will continue to be revealed for years to come, and with time, the Three Lies of Finance will come to enjoy widespread credulity again. To resist their siren calls, policymakers and market participants must bind ourselves to the mast. That means building institutional structures that make it harder to act on the lies. Over the past seven years great strides have been made. Take “this time is different”. To guard against future complacency, policy frameworks have been substantially overhauled. The Bank of England has been given formal responsibility to maintain financial stability and has considerable powers to promote it. In anticipation of problems, we have increased bank capital and tightened mortgage standards. We are using our monetary policy and macroprudential policy tools in concert, so that a low for long interest rate environment can promote both price and financial stability. Moreover, when next time proves no different, the financial intermediaries at the core of the system will be on a substantially stronger footing. Their capital requirements have already increased ten-fold and their liquid assets are up fourfold. Their trading assets are down by a third and intra-bank exposures by two-thirds. Though we cannot hope to eliminate systemic risk altogether, reform is ending Too Big To Fail for individual institutions.
Particularly noteworthy are their investments in green bonds issued by the public sector, such as sub-sovereign, supranational and agency holdings, followed by corporate green bonds and covered bonds.9  At the Banco de España we began incorporating sustainable and responsible investment principles into our own portfolio management in 2019, bringing it into line with NGFS Recommendation no 2.10 Since then, the application of these principles has been fine-tuned, and they are now one more pillar underpinning the core portfolio management principles, alongside the principles of neutrality, prudence, professionalism and efficiency. These principles are applied by constructing a thematic portfolio in the form of direct investment  8  Based on the results of a survey conducted with 40 NGFS-member central banks, as detailed in NGFS (2020). 9  See NGFS (2020). Progress report on the implementation of SRI practices in central banks’ portfolio management. 10  See NGFS (2019). A call for action. Climate change as a source of financial risk. First comprehensive report, April. in green bonds and participation in the green bond investment fund created and managed by the Bank for International Settlements in Basel.11 Moreover, in March the Banco de España will begin disclosing climate-related aspects of its own portfolios. Thus, we will follow through on the commitment undertaken in February 2021 by the Eurosystem central banks and the ECB to apply sustainable and responsible investment principles to their euro-denominated non-monetary policy portfolios.

That solution could take many forms, and these would affect the subsequent approach to lifting the controls. A revised liberalisation strategy would therefore look quite different depending on what route is chosen for the settlement of the failed banks’ estates. A solution to this problem must therefore come first. I won’t discuss these possibilities at greater length here, as a great deal of work lies ahead, and it would be unwise to show our hand at this point. Furthermore, it is necessary to have more than one option at hand, in case the one that seems best at the outset proves infeasible later on. It is possible, however, to make a few comments that will enhance the general understanding of what needs to happen. If a portion of the estates are settled through composition agreements, it is of key importance that the ISK asset recoveries add as little as possible (or nothing at all) to the stock of volatile ISK assets owned by non-residents. It is important to bear in mind that selling the banks at a relatively low price to foreign investors interested more in the short term and in handsome dividend payments does not solve the problem and could even exacerbate it. BIS central bankers’ speeches  5  It is the role of the estates to divest the assets and make payments to creditors. The question is, however, what is a realistic price for the assets, and at what exchange rate will they be converted into foreign currency.
In order to prevent deflation and recession, the central banks of major advanced countries have implemented extraordinary measures to keep both short- and long-term interest rates low. The medicine has worked. The US economy in particular is on the road to recovery, and there are signs of some revival in manufacturing. Financial market participants see opportunities, not just problems. However, there are also signs of renewed turbulence in a number of emerging economies. Volatile capital flows are creating problems. High debt growth and rising house prices may constitute a risk. The recovery abroad is fragile. The key policy rate is also low in Norway. Our inflation target is slightly higher than that of other European countries. As a result, inflation and nominal interest rates in Norway will also be slightly higher. But prospects for a persistently low interest rate level internationally will inevitably also have consequences for Norway. The real interest rate in a small open economy such as ours cannot in the long run differ substantially from that of our closest trading partners. Given the prevailing long-term interest rates abroad, it will likely take a number of years for interest rates in Norway to move up towards a level that was previously considered to be normal. Banking regulation When the drafters of the Constitution gathered at Eidsvoll, there were no private banks in Norway. Norwegian businessmen who needed credit had to borrow from friends or acquaintances or travel to Copenhagen or Hamburg to raise loans. This was expensive and cumbersome.

Over 26 million people are unemployed in the EU today, almost 10 million more than in 2007. Low growth, high unemployment and high debt levels are not a good combination. Even though there are signs of a moderate revival of activity abroad, growth may remain low for a protracted period. Real wage growth in Norway has diverged substantially from that observed in Germany and the US. This is attributable to the sharp price rise for Norwegian goods in recent years. Norway’s terms of trade have improved and the gains shared between owners and workers. The wage share has remained fairly stable. Chart 5: Real wages and productivity for mainland Norway Strong growth in activity in the petroleum sector has for many years been an engine of growth also for the mainland economy, generating high growth in output and employment. Since a share of the terms of trade gains has benefitted wage-earners in the form of wage increases, real wage growth in Norway has been considerably higher than productivity growth. But the economic picture for Norway may be changing. We cannot assume that Norway’s terms of trade will continue to improve. Investment in the petroleum sector is levelling off. Output growth in the mainland economy has slackened. When activity in the petroleum sector eventually declines, there will also be a need for economic restructuring in Norway. The business sector will have to seek new markets where competition may be intense. Restructuring may prove particularly demanding given Norway’s high cost level.
At the very least, during the crisis, we have seen deleveraging proceeding at an accelerated pace, although interest rates have been brought down – and this is the reason why there has been a zero lower bound problem. I suspect that, symmetrically, interest rate hikes would have been powerless to stop the incredible build up in leverage prior to the crisis. This is the very reason why we need additional – macro prudential – tools to deal with financial instability. But this analysis also shows that macro prudential and monetary tools are not independent. So we have to give up the ideal vision of a world where two objectives – price and financial stability – would be pursued with two independent set of instruments. The  BIS central bankers’ speeches  1  reality is somehow messier and this has important consequences. Operating two different policies with two sets of interacting instruments is definitely a challenge. Once we move away from the pure “Tinbergen” world, preserving the operational independence of monetary policy may require particular attention. Add to this that mandates and accountability regimes are very different for price and financial stability. Central Banks are independent, but macro prudential authorities are not. In all major jurisdictions, Governments, and Parliaments, are deeply involved in the organization and management of macro prudential supervision. Likewise, while price stability mandates are precisely defined and often quantified, financial stability mandates are specified in very broad terms. There are good reasons for this situation.

Those dynamics obviously have a direct impact on financial stability. Financial fragility comes out of excessive leverage and maturity transformation, fueling asset price increases. And, conversely, liquidity shocks and deleveraging are the symptoms and channels behind financial crises. As importantly, and less recognized until recently, those dynamics also have a major impact on the transmission mechanism of monetary policy. The functioning of the credit channel, but also the interest rate channel depend on financial intermediaries being able to fund themselves and arbitrage across different market segments, instruments and maturities. Dysfunctional credit markets were a major reason why Central Banks embarked into exceptional liquidity provision, credit easing and asset purchases. One important point, here, is that the same dynamics affect both financial stability, on the one hand, and monetary transmission channels, on the other. Now, presumably, any macro prudential policy would try and influence the evolution of maturity transformation and leverage. By doing so, however, it would also have a monetary impact. And, conversely, changing the monetary stance, by moving policy rates, also may have an influence on financial stability. The relative strength of those influences is not empirically known. Those of us who would use monetary policy with a financial stability objective implicitly assume that leverage and maturity transformation are very sensitive to interest rates. I am not sure this is true.
Table 1 breaks down the growth rates of finance and whole economy output into three sub-samples – pre-First World War, from the First World War to the early 1970s, and thence to date. The historical trends in GVA for the financial sector are striking. Over the past 160 years, growth in financial intermediation has outstripped whole economy growth by over 2 percentage points per year. Or put differently, growth in financial sector value added has been more than double that of the economy as a whole since 1850. This is unsurprising in some respects. It reflects a trend towards financial deepening which is evident across most developed and developing economies over the past century. This structural trend in finance has been shown to have contributed positively to growth in the whole-economy (Wadhwani (2010)). The sub-sample evidence suggests, however, that this has not been a straight line trend. The pre-First World War period marked a period of very rapid financial deepening, with the emergence of joint stock banks to service the needs of a rapidly growing non-financial economy. Finance grew at almost four times the pace of the real economy during this rapidgrowth period (Table 1). The period which followed, from the First World War right through until the start of the 1970s, reversed this trend. The growth in finance fell somewhat short of that in the rest of the economy. This in part reflected the effects of tight quantitative constraints on, and government regulation of, the financial sector.

If anything, the labour and capital shares of the financial sector have been on a gently declining path over this period. Growth in both labour and capital employed in the financial sector has been modest and has been lower than in the economy as a whole. Since this fall in factor input shares coincides with a period when measured value-added of the financial sector was rising sharply, this suggests something dramatic must have been happening to productivity in finance – the Solow residual. The measured residual, in a growth accounting sense, reflects improvements in the total factor productivity (TFP) of the inputs. A growth accounting decomposition suggests that measured TFP growth in the financial sector averaged about 2.2% per year between 1995 and 2007 (Chart 10). This comfortably exceeds TFP growth at the whole-economy level, estimated at an average of about 0.5–1.0% over the same period. In other words, on the face of it at least, there is evidence of the financial sector having undergone something of a “productivity miracle” during this century. This pattern has not been specific to the UK. Measured TFP growth in the financial sector exceeded that of the whole economy across many developed countries between 1995–2007, a trend that accelerated in the “bubble” years of 2003–2007 (Chart 11). (b)  Returns to factors of production  TFP in a growth framework is no more than an accounting residual. It provides no explanation of the measured productivity “miracle” in finance.
This strategy aims to make the European Union the world’s most dynamic knowledge economy by 2010. It has since been amended so as to include social issues (at the Council of Nice in late 2000) and environmental issues (at the Council of Gothenburg in mid 2001). What has been achieved to date in the field of structural reforms is quite encouraging. Noticeable successes have already been registered with regard to policies, such as new rules in telecommunications, electricity and gas markets. The current 2002 Broad Economic Policy Guidelines evaluation exercise is an opportunity to check on the progress accomplished in reforms that were agreed in Lisbon and recently reasserted in Barcelona. Before reviewing the priority areas where fresh impetus is required, I wish to briefly make two remarks: First, the responsibility for structural reforms in the European Union rests with the individual Member States. Consequently, there is a wide variety of institutional solutions and regulatory arrangements across countries and sectors. I nevertheless consider that such a decentralised approach should be considered as an opportunity, rather than a disadvantage. It encourages “cross fertilisation” of best practices through increased co-ordination of Member States’ structural policies. My second remark relates to the changeover to the euro. This event has been a major structural reform in itself, i.e. a powerful drive towards restructuring the European economy.

We consider that independance as defined above contributes to the clarity and the credibility of the single monetary policy. Transparency and accountability: elected authorities, key economic players, as well as all European citizens must be fully informed on the conduct of the single monetary policy. At the European level, the ECB maintains a permanent dialogue with the European Council and the European Parliament, as do national central banks with national institutions. The ECB is the only central bank in the world to enforce the concept of regular, frequent, real-time communication in the domain of monetary policy. Indeed, once a month, immediately after the meeting of the Governing Council, the President of the ECB holds a press conference. The independence of a central bank and its democratic accountability are two sides of the same coin. In this respect, both public speeches and testimonies by the President of the European Central Bank and by the Governors of national central banks, to the attention of institutions as well as public opinion, are crucial. An important part of our collective duty consists of tirelessly explaining the rationale that underpins the Governing Council’s decisions. Lastly, decentralisation: as the subsidiarity principle underlies the whole European construction, decentralisation is a major principle of the architecture of the Eurosystem. The Eurosystem is a team whose members work in close co-operation, and the team spirit is really strong and fruitful. Monetary policy decisions are taken, at the centre, by the Governing Council, and are implemented by the national central banks in a closely co-ordinated way.