samchain/econo-pairs-v1 huggingface dataset:
Liquidity insurance We have made a number of significant changes to the way the Bank offers liquidity provision through the SMF. As the Governor has remarked, these changes have been aimed at providing more liquidity, at longer terms, at cheaper rates, and to a wider range of counterparties with the objective of ensuring that the Bank of England is “open for business”. As discussed in the SMF annual report, the main highlights over the past couple of years have included the extension of SMF membership to broker-dealers and central counterparties (CCPs), and the expansion of the monthly indexed long term repo (ILTR) operations. The extension of the SMF to broker-dealers and CCPs gives non-banks access to the Bank of England’s balance sheet for the first time. Non-banks are becoming increasingly important to the financial system. The Bank considered three key themes before widening SMF membership: whether the non-bank institutions were systemically important, whether they were exposed to sterling liquidity risk, and whether they were appropriately prudentially regulated so that usage of the facilities remained appropriate. In light of this, the Bank announced in November 2014 that broker-dealers and CCPs would be eligible to apply for access to the SMF. And some of these institutions have indeed formally signed up in recent months. Another recent, major change to the SMF was the reform to the Bank’s ILTR operations in February 2014. These auctions offer reserves at lower prices and for a longer maturity against a wider range of collateral than had been the case previously.

It is encouraging to hear that the Institute has had a successful year and that you are working on new initiatives to promote even higher professional standards. This is most welcome, as education and professional development are fundamental to the sustainability of our financial sector and its continued success. Your strategic partnerships with the University of Malta and overseas professional bodies such as the European Banking & Financial Services Training Association (EBTN), the London Institute of Banking and Finance, and the Global Association of Risk Professionals  Page 1 of 8  (GARP) - whose representatives are with us tonight - reflects the Institute’s excellent reputation. That a Committee member of IFS-Malta has been elected to the highest decision making body of a European association for a third consecutive term confirms the Institute’s integrity and professionalism. The Central Bank has always worked closely with IFS and will continue to support its activities. This year, we also cooperated with the IFS during the European Money Week to promote financial literacy to underprivileged youths and participated in the successful IFS Malta Annual Seminar on pension reform. I look forward to even more cooperation in the future. Mr President, well done and thank you for taking a proactive stance towards raising the standards of financial services education. I wish you and your Committee every success in your future endeavours. Malta’s recent economic performance: Against a backdrop of weak growth in Europe as a whole, economic activity in Malta remains robust.
And why, for countries where there have been larger and faster increases in household debt levels, recessions have tended to be deeper still. The Financial Policy Committee has already acted in response to the growing momentum in the housing market. As well as the general strengthening of bank capital, the FPC, in conjunction with other regulators and the Treasury, withdrew both the cheap funding and favourable capital treatment of mortgage lending introduced after the crisis to help support the housing market. And, we have asked the FCA that when lenders test whether prospective borrowers can afford, through time, the mortgages they seek they should bear in mind future Financial Policy Committee recommendation on the appropriate interest rate stress test to use in assessments of affordability. Whether and how to act further if, following the pause of the last couple of months, momentum continues to build will be the most challenging judgment the FPC will have to take in the coming months. The FPC’s response will depend on the nature of the risks to stability identified. The FPC’s powers of direction in relation to the capital banks and building societies bear most directly on mortgage lenders’ ability to weather a downturn and housing bust once it has emerged. Others, like the FPC’s powers to make comply or explain recommendations to the PRA and FCA could bear more directly on the crucial underwriting standards and affordability constraints like debt service to income, loan to income and loan to value.

In London, an additional source of demand has come from foreign investors looking for alternative sources of return amid a global environment of low interest rates. The government’s help to buy scheme may have also played a role though it is early days. Transactions are still quite low. How much pent up demand exists and how quickly it will come through, is of course unknowable. But it is not at all implausible that it could add significantly to pressure on the market for the next few years. Use of the government’s help-to-buy scheme continues to expand. All of this paints a picture of further pressure on transactions that could take us quickly to pre-crisis rates. Despite the dip in March, housing transactions are still up 30% on their level a year earlier. Were transactions to grow at that pace from here on, we would go past the 97–2007 average level of around 120,000 per month before the end of this year; and be back at 2007 levels by the first half of next year. Nor can we look to increased supply to help to quickly relieve some of this pressure. Housing starts, insufficient to meet demand before the crisis, dropped from around 230,000 to an average of a little over 120,000 between 2008–12. They have begun to recover – indeed, dwellings investment has been a major part of the recovery in economic growth over the past 12 months. But the increase in housing starts seen over the past few years has lagged behind growth in transactions.
For instance, Norwegians could only purchase foreign equities through a fixed pool established in the 1960s (by using the so-called “security dollar” market), and foreigners’ investments in Norwegian equities were strictly regulated and actually limited to NOK 50 000 per person until 1979. That ceiling was raised to NOK 1 million in 1979. Experiences over the past year may cast doubt on the effectiveness and benefits of international capital markets. Nevertheless, history has seen a number of deep financial crises, and it is my belief that market conditions will also return to normal this time. I am confident that private entrepreneurship and public limited companies will continue to exist as the primary organisational bodies for commercial activities. Owners and investors will also be needed in the years to come. But capitalism will have to adapt. After all, the willingness to trust the free play of market forces in finance has been seriously impaired. International stock exchanges lost more of their value in 2008 than in any other single year in recent history. Absolute results, especially with regard to equities, were highly unusual. Many investors have suffered losses. As a result of this experience, required returns will be higher in the future. An investor such as the Government Pension Fund – Global will earn more in the long term because of wide fluctuations in equity values. 1  2  National Transport Plan 2010–2019 (St.meld.nr.16 (2008-2009). BIS Review 68/2009  The Fund has a longer investment horizon than the vast majority of other market participants.

Svein Gjedrem: Investing for the long run Dinner speech by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at The Norwegian Government Pension Fund’s Investment Strategy Summit, Oslo, 3 June 2009. *  *  *  Minister, Ladies and gentlemen, We are gathered here for a conference – and a dinner – centred on investing for the long run. And indeed, it is my expectation that the Government Pension Fund – Global will endure through good times and bad times in the markets to provide a permanent revenue stream for our children and grandchildren. I would like to thank all the participants for the good advice and interesting analyses you have presented here today. It has really been inspiring to attend, and to listen to your presentations and discussions. The oil age in Norway has spanned some 40 years, and it appears that it will continue for years ahead. The idea of a fund arose in the early 1980s. Up to 1995, all government revenues were used for investment in the petroleum sector and to cover budget deficits during the recession around 1990. The formal structure of the Fund was actually decided on in 1990 in the midst of a banking and currency crisis, with meagre growth and high unemployment. I have every reason to believe that the people that prepared the proposal did not think at the time that the savings in the Fund would prove to be of any significance.
As many of you will be aware, the FCA’s agreement with panel banks to provide LIBOR quotes will end in December 2021, now just over 30 months away. Across financial markets, SONIA is the Working Group on Sterling Risk Free Reference Rates’ preferred benchmark for the transition to sterling risk-free rates from LIBOR. Liquidity is now building in SONIA markets – both derivatives and cash. Our Dear CEO letter in September 2018 has had the desired impact of raising the profile of LIBOR discontinuance, with a requirement on the largest firms to provide transition plans, and giving greater visibility of the issue to other firms. We, and the FCA, have been clear that this is a significant change and achieving an orderly transition is a high priority for us. We will shortly publish the main points arising from responses to that Dear CEO letter. For insurers, the Solvency II discount curves for major currencies are currently LIBOR-based. We are aware that insurers need clarity about when and how these discount curves will transition to replacement risk-free 8  Governance and the role of boards, Andrew Bailey, 2015, https://www.bankofengland.co.uk/speech/2015/governance-and-the-role-ofboards. 8  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  8  rates. We understand the challenges this poses to insurers, and we are working constructively with EIOPA and others to address these issues. We encourage insurers to continue to focus on the actions within your control such as identifying where LIBOR exposure is on your balance sheets, engaging with counterparties, and preparing for operational changes.

Andréa Maechler will examine the implementation of our monetary policy in more detail later. Inflation forecast  I would now like to address the development of inflation. Inflation has declined somewhat in recent months, and stood at 3.0% in November. This decrease was above all attributable to  Page 1/4  Berne, 15 December 2022 Thomas Jordan  News conference  smaller price increases for oil products. However, inflation is still clearly above the range we equate with price stability, and is likely to remain elevated for the time being. Our new conditional inflation forecast is based on the assumption that the SNB policy rate is 1.0% over the entire forecast horizon (cf. chart 1). Up to the beginning of 2023, the forecast is below that of September owing to the somewhat lower oil price. From mid-2023 onwards, the new forecast is higher and stands at 2.1% at the end of the forecast horizon. That our new forecast is higher over the medium term despite the raising of the SNB policy rate is attributable to stronger inflationary pressure from abroad and the fact that price increases are spreading across the various categories of goods and services in the consumer price index. The new forecast puts average annual inflation at 2.9% for 2022, 2.4% for 2023 and 1.8% for 2024 (cf. table 1). Without today’s SNB policy rate increase, the inflation forecast would be even higher over the medium term. Global economic outlook  I will now move on to the economic outlook.
I turn now to a very important response in Europe to the crisis, which is of particular interest for the ECB: the establishment of the European Systemic Risk Board or ESRB. This new body will be responsible for macro-prudential supervision in the whole EU. In contrast to micro-prudential supervision, which focuses on the financial soundness of individual institutions, macro-prudential supervision looks at the financial system as a whole. Up to the late 1990s, the predominant view of policy makers was that if individual institutions were financially sound, the financial system as a whole would also be fine. Unfortunately, this is not always the case. Through various channels, institutions can be inter-linked so that problems emerging from one or some of them may spill over to the rest of the financial sector, setting in motion an adverse dynamic that affects all of them. A macro-prudential perspective, looking beyond the conditions of each institution in isolation, should help to detect and prevent such system-wide potential problems. Of course, there were already in place mechanisms for the monitoring and assessment of financial stability well before the financial crisis erupted, as evidenced by the financial stability reports published by the various central banks. But the financial crisis also demonstrated fundamental weaknesses in practices:  BIS Review 87/2010  3    First, while various central banks engaged in their own financial stability analysis there was not really a comprehensive analysis covering the whole EU and all elements of the financial system.

Amidst such challenges, there have been substantial reforms to pension systems in recent years to avoid systemic risks implications to financial stability and fiscal sustainability. Allow me to briefly outline the reforms undertaken by various jurisdictions. One of the most common features of reforms involves raising the age at which eligibility of benefits can occur. For some, especially in European countries, large tax increases were introduced as an alternative to address serious problems of financing pension benefits. In countries with severe demographic challenges, pension benefits were reduced by way of indexing benefits to wages and consumer price indices. Essentially, much of the pension reforms were focussed on reducing fiscal deficits. However, the impact of such reforms has achieved varying degrees of success and in some cases has been noted to have regressive effects. While it is not expected that all countries may make similar choices, striking a balance between maximising returns on pension fund investments and ensuring stable retirement incomes may result in trade-offs that could compromise other developmental needs. For example, poor investment returns on asset classes arising from funded pension schemes may require the Government to secure alternative funds to provide sufficient returns for the workers making such contributions. This could potentially stifle the development of other sectors in the economy. Moving forward, the challenge is to provide sufficient, affordable, sustainable and robust pension schemes.
Furthermore, the response of yields to a given quantum of asset purchases seems to vary. There are times – particularly in periods of stress in financial markets – when government debt is viewed in markets as a relatively poor substitute for central bank money, and QE is therefore more powerful. At other times it’s less so. If you also believe that markets (and therefore market prices) embody any impact of QE or QT expected to occur over the future, a forecast conditioned on those prices will also capture its effects. This is why it would not make sense, I think, to include in the MPC’s forecasts some separate and additional drag from the ongoing (and pre-announced) QT. That would be to doublecount its impact. All this said, there will certainly be times when movements in broad money are identifiably more supply than demand-led. The jump in household deposits during the pandemic may not have been the inevitable result of QE but, from the perspective of households, it certainly looks like a windfall addition to their money holdings (i.e. something closer to Friedman’s “helicopter drop”). One might have expected an extra boost to spending whatever the form of these additional assets. But the MPC certainly allowed for a somewhat larger effect because of their liquid nature. In the event, that forecast was too strong. Even before the squeeze on real incomes from the subsequent jumps in import prices, consumer (and aggregate) demand was weaker through 2021  Page 30  than the MPC projected.

This approach will allow us time to assess how the economy is performing under less accommodative financial conditions and reduce the odds of overaggressive rate hikes choking off progress toward our policy goals. History shows that premature exit is a risk Past experience with the ZLB also counsels patience. History has not looked kindly on attempts to prematurely remove monetary accommodation from economies that are in or near a liquidity trap. Three occasions come readily to mind: the Great Depression (which was resolved only with the massive fiscal expansion of World War II), Japan over the past 20 years, and the recent European experience. Indeed, both of the more recent episodes are ongoing today, though Japan finally appears to be making important headway toward raising inflation and eventually exiting the ZLB. The U.S., Japanese and European lessons from monetary history strongly suggest that there are great risks to premature liftoff from the ZLB or near-ZLB conditions. Unless the economy is fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that some unforeseen shock could cause the monetary authority to retreat right back into the ZLB. And the costs of being mired in the ZLB are simply very large. The ZLB prevents using our very best policy tools to address negative shocks. The ZLB means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment, which, of course, significantly impedes capital formation, future economic growth, and the health of labor markets.
In practice, as the MPC has emphasised, the actual path of interest rates in the event of either Brexit outcome would never be automatic; it will depend on the response of demand, supply and the exchange rate to these outcomes. This is impossible to predict in advance. If a “no deal” were to lead to a sharp fall in sterling and a sharp rise in inflation expectations, it is not clear the MPC could cut interest rates, as the market expects, if it was to meet its inflation mandate. The risks to rates in a “no deal” scenario are in that sense two-sided, if not necessarily symmetric. This bi-polarity in possible economic outcomes poses a dilemma for UK monetary policy. Monetary policymakers are often cast as one-club golfers. In the current conjuncture, the problem is more that the MPC does not know which of two quite different fairways it should be aiming at. Brexit uncertainty is not, by itself, a reason for leaving interest rates on hold, as the two tightenings in monetary policy by the MPC since the Brexit referendum demonstrate. Nonetheless, with the economic road ahead potentially forking, the case for holding rates until the road becomes clearer is strong. With Brexit uncertainty high, the global economy softening and other major central banks expected to loosen monetary policy, it is not difficult to see why short-term interest rates have fallen and are now pricing a nearterm loosening of UK monetary policy. UK growth is expected to stall in the second quarter.

More surprising is that there has been no recovery in these rates of productivity gain during the subsequent jobs recovery (Chart 23). The rungs in the jobs ladder have had a smaller productivity spacing than in the past. 20  All speeches are available online at www.bankofengland.co.uk/speeches  20  Chart 23: Firm productivity difference when moving jobs Per cent 16%  Firm productivity change  14% 12% 10% 8% 6% 4% 2% 2004  2006  2008  2010  2012  2014  2016  0% 2018  Sources: ONS and Bank of England calculations. Notes: Chart shows percentage difference in productivity between new firm and old firm with the median workers moves between firms. Summing up, then, a strong jobs recovery has not resulted in workers vigorously re-climbing the jobs ladder. Both their willingness to climb, and the pace of this climb, has been subdued relative to the strength and tightness of the jobs market. Post-crisis risk aversion, and changes in the nature of work, may have increased insecurities and dimmed workers’ appetite for a vertiginous career climb – or indeed any climb. The result has been subdued rates of pay and, in particular, productivity growth. Just recently, some of these patterns in pay, if not productivity, have begun to reverse themselves. Nominal pay growth has been going slowly through the gears over the past few years, from being in the “low 2s” three years ago, to the “high 2s” 18 months ago to having a “3” in front of it now.