samchain/econo-pairs-v1 huggingface dataset:
In Sweden, for example, in the past two and a half years the OMX index has dropped around 70 per cent. Coming as it did after the strong upward trend in the late 1990s, the fall is also unusually marked, with no parallels apart from the crashes in the early 1920s and after 1929. But as I shall be noting shortly, the current situation also differs in many respects from earlier periods of stock market turbulence. When an upward cyclical phase comes to an end, share prices normally fall back after rising for some years. The main difference today compared with earlier periods is the much higher valuations initially. There is a case for talking about the international bourses in the late 1990s in terms of a bubble. If we look at Standard and Poor’s index for the 500 largest companies in the United States, it is a fact that the level was the highest for more than a century. For an average share portfolio the historical price trend is approximately 16 times the company’s earnings. Early in 2000, however, the 500 largest companies were valued at almost 45 times the annual earnings. Valuations were far more inflated than just before the major crash in 1929. Although we do not have historical earnings data for the Swedish stock market to compare with the US figures, there are many indications that valuations here were also very high historically. The correction of share prices has admittedly occurred to the accompaniment of corporate scandals and security policy risks.

But even excluding those price increases, inflation had moved up on account of, for example, a growing tendency for wage costs to rise too rapidly. With a quick global economic recovery, there was a risk of the Swedish economy becoming excessively strained too soon in the upward phase, so that inflation would start rising again. During the summer, however, the perspective has changed and it looks as though the recovery in the world economy has recently slowed. Probable explanations for this are the widespread financial turbulence and the concern about the mounting security policy risks. Most of the evidence therefore points at present to the international economic upturn being slower and more protracted. The Swedish economy, which, as I said, has coped fairly well to date, cannot of course ultimately remain immune to developments in the rest of the world. Pronounced stock market fall Thus, the developments in financial markets have heightened the uncertainty about the future paths of consumption and investment, both in the rest of the world and in Sweden. If the international stock  BIS Review 59/2002  1  exchanges were to go on falling or the effects of the decline to date turn out to be more extensive, the scenario for the Swedish economy could become considerably less favourable. A closer look at stock markets shows that since the high in spring 2000 there has been a major fall around the world.
We have started new work to understand what the frictions are and how we can work with our central banking colleagues globally to push forward this agenda, to deliver prompt settlement in different currencies and empower private innovations in cross-border finance. Second, we will continue to champion the Legal Entity Identifier (LEI) as a globally recognised and unique identifier for all businesses. The global LEI system contributes to many financial stability objectives such as improved risk management in firms, better assessment of micro and macro prudential risks, facilitation of orderly resolution, and enables higher quality and accuracy of financial data overall. In addition to financial stability benefits, LEIs provide valuable data and support anti-money laundering and combating the financing of terrorism efforts. They could, if linked to portable credit files, improve access to the domestic and global financial system, support greater choice and competition for business finance. The LEI could also act as the unique identifier for a digital ID, which could help the two-step verification process required for a more secure system.

Payments: A platform for innovation Speech given by Victoria Cleland, Executive Director; Banking, Payments & Innovation  SIBOS, London Tuesday 24 September 2019  With thanks to Sara Ward and Emma Playford. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  It is a great pleasure to be speaking today at the ‘UK payments infrastructure – renewing for growth’ event at Sibos. This year’s event is exciting for two reasons. First, it’s National Inclusion week here in the U.K.1 And, it’s a great coincidence that SIBOS has fallen during this week: at the heart of its agenda are discussions around how change and diversification in payments could lead to a more inclusive financial system. Second, this is the first Sibos conference to be held in London – and it is certainly an exciting time for so many global payments experts and innovators to be here. London has a long history at the heart of the global financial system. It continues to build on this expertise and is one of the leading fintech hubs in the world. It is home to an incredible pool of the world’s best and brightest talent, with 44,000 people already working in fintech, more than in Silicon Valley or New York.2 Investment into the UK’s fintech sector continues to grow and reached a record level of $ in the first half of 2019, which was nearly 85% of the 2018 total.3 And we can see that the UK fintech sector is maturing, evidenced by the size of increased investments.
For instance, the Economist magazine estimated that about USD 500 billion to USD 1.5 trillion is laundered through banks each year. Further, the Financial Action Task Force (FATF) - an intergovernmental organization under the auspices of the Organisation for Economic Co-operation and Development (OECD) also estimates money laundering to be in the ranges of USD 590 billion to US1.5 trillion. As a percentage of world economic output, money laundering accounts for about 2% to 5%. Obviously, given the secrecy and the illegal nature of this business, it is difficult to tell exactly the extent of money laundering. Nevertheless, these figures give us an indication of the magnitude of the problem. In this regard, financial institutions, in particular, banks provide a conduit through which money (including laundered money) flows. Because of this, the financial system is the focal point of antimoney laundering initiatives because dirty money is most visible when it is first introduced into the financial system. Ladies and Gentlemen, before I proceed in discussing the various aspects of money laundering including stages in money laundering, its effects on the economy, the global and local initiatives to fight money laundering and the role that banks can play in combating money laundering, allow me to define what money laundering is. For the purposes of my presentation today, I shall define money laundering as the method of hiding, mixing and disguising the proceeds of criminal activities through legally operating institutions for the purpose of destroying the origins of the proceeds.

Caleb M Fundanga: The role of the banking sector in combating money laundering A paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at a seminar organised by the C and N Centre for Advanced International Studies, Lusaka, Zambia, 23 January 2003. *  *  *  Mr Chairman Distinguished Guests Ladies and Gentlemen Allow me first of all to thank you for inviting me to address you on this topic of great importance to the development of our financial system in Zambia – “the role of the banking sector in combating money laundering”. I have every reason to believe that your training in the last couple of days has provided an opportunity for you to share with the resource persons valuable insights on the subjects you have covered. Mr Chairman, the scourge of money laundering is not new to mankind. Despite money laundering being topical in policy discussions nowadays and on the minds of supervisors and regulators like the Bank of Zambia, the scourge itself has a long history and could be as old as the history of organised trade. Nonetheless, in spite of the fundamentals of the crime remaining, largely, the same as in the olden days, recent advances in technology and globalisation have offered and will continue to offer more sophisticated means to convert ill-gotten proceeds into legally acceptable financial assets. In recent times, money laundering has grown into real big business.
Moreover, proposals are presented both for the repo rate decision at the next monetary policy meeting and for the forecasted repo rate path. These proposals normally reflect the stance the Executive Board usually takes with regard to inflation and resource utilisation. They are thus based on historical relationships between the Executive Board’s decisions and the development of the economy. 7  6  However, one should bear in mind that forecasting work is actually a continuous process. Even between the forecasting rounds, we often analyse the international economy and the Swedish economy for reasons other than to make forecasts. For instance, background reports are written prior to Executive Board members taking part in international meetings, in which both economic activity and economic policy are discussed. 7  The reason for the proposal being based on the Executive Board’s historical behaviour rather than on the staff’s perception of what constitutes a well-balanced monetary policy is discussed by Hallsten and Tägtström in the article “The decision-making process – how the Executive Board of the Riksbank decides on the repo rate” in Sveriges Riksbank Economic Review no. 1 2009 (p. 78). 4  BIS Review 65/2010  If we members of the Executive Board consider that there are any special risks that should be examined, then simulations and sensitivity calculations are made for alternative scenarios. Simulations are also regularly made with regard to illustrating the effects of conducting an alternative monetary policy.

Let us imagine that our households – which we assumed did not amortise at all to begin with – are forced to amortise their loans over a period of 50 years. If the households began to amortise in this way, it would on the one hand initially mean increased expenditure for the households corresponding to between almost 5 and a good 12 per cent of their disposable income. To achieve the same effect with an interest rate increase, the mortgage rate would need to increase by almost 3 percentage points. On the other hand, the amortisations would mean that interest expenditure fell as the loan was paid off. As amortisation is a form of saving, this measure means in the long run that the loan cost falls and that the household improves its balance sheet or financial position. In this example we have assumed that the  19  With a tax deduction of 30 per cent, an interest rate increase of 1.7 percentage points means that the interest after tax increases by 1.2 percentage points. This is as much as abolishing the tax relief would increase costs if the interest rate was 4 per cent to start with. 20  http://www.fi.se/upload/43_Utredningar/20_Rapporter/2011/effekt_bolanetak_delstudie.pdf. BIS central bankers’ speeches  9  households do not have any savings, in practice of course they would also be able to manage changes in amortisation requirements by reducing other saving. Comparisons with the interest rate A relevant comparison is what a direct increase in the interest rate would entail for our households.
On the other hand, investment continues to be the most lagging component of expenditure, and a less favorable than expected evolution cannot be ruled out. The data show that in the first quarter investment in construction and works failed to recover, that no major investment projects have entered the surveys and that domestic political/legislative events have affected the stock market, which is typically correlated with the future evolution of investment. If this situation were to worsen to stagnant or declining investment, monetary policy would have to remain highly expansionary for a longer period, which is reflected in the lower limit of the MPR Corridor. Although the economy has shown significant recovery, the pandemic phenomenon is still present and unexpected events may occur. The central scenario considers that during the second half of this year, there will be growing de-confinement of the population and the social distancing measures will be relaxed, as the goals of the vaccination campaign are achieved. However, scenarios of a slower opening are possible. As a matter of fact, infections have increased again, and quarantines have been re-imposed in several districts. If this intensifies, the closing of the activity gap could be delayed, requiring the current monetary expansionary stance to be maintained for a while longer. Page 7 of 27  On the external front, it cannot be ruled out that the cost pressures faced by companies around the world will have more persistent effects on inflation.

In fact, private consumption is the fastest growing component of spending, with some of its categories, such as durable consumption, increasing at rates of 50 percent annually in the first quarter. The measures recently approved by Congress will intensify the boost to consumption, while fiscal expansion will be significantly higher than we expected in the March Report. In the projections I will be sharing with you in a few moments, we see a significant upward correction in growth for this year, to between 8.5 and 9.5 percent. This responds to the better performance recently combined with increased boost to expenditure, in the context of more favorable external conditions. In addition, this brings forward the expected closing of the wide activity gap caused by the Covid-19 crisis. Despite these advances and more positive prospects for recovery, the overall perception remains marked by the evolution of infections and quarantines, the significant lags in some sectors, labor market fragilities and persistently high uncertainty. In the financial market, long rates have risen more than their external counterparts, the stock market has fallen, and sovereign risk has shown moderate increases. Looking ahead, greater fiscal expansion and highly dynamic consumption will take pressure off the monetary impulse to support the recovery of the economy, so it should begin to moderate earlier than expected in the last Report. This will prevent an increase in inflation—currently at around 3.5 percent—from raising the cost of living and eroding the purchasing power of the households most affected by the crisis.
14 One can see macroprudential policy measures as a “shadow interest rate” for a particular sector of the economy, which can be related to the policy rate set in monetary policy. The tendency to leak will of course become higher the greater the tension between the policy rate and the “shadow interest rate” that ensues from the regulations. I think that a proper discussion of this is often missing in the Swedish debate. 15 Personally, I think it is obvious that financial stability and price stability are closely interlinked. There are two main reasons for this. Firstly, financial crises unavoidably lead to weak economic development and major difficulties in controlling inflation. Secondly, it becomes much more difficult to influence the economy via monetary policy, what we usually call the transmission mechanism, if a financial crisis occurs. A characteristic element of the most recent financial crisis was that the difference between the interest rates paid by households and companies and the central banks’ policy rates increased substantially. I also think that a central bank can never “renounce” the responsibility for financial stability, as we have many of the tools required to manage banks in distress, for instance, supplying credit to banks with liquidity problems. This is indicated not least by developments during the acute financial crisis 2008–2009. Moreover, the policy rate influences housing prices, credit granting and general financial risk-taking in the economy – and thereby also financial stability.

It is also clear in a long time series like the one in Figure 1 that a sharp slowdown in the rate of inflation took place when the inflation target was introduced. The average rate of inflation  is provided by Jonung, L., “Thirty years on the road to a more stable Sweden”, Knut Wicksell Centre for Financial Studies Policy Paper 2015:1. 6  See “Monetary policy under a floating exchange rate”, Sveriges Riksbank, 1992. 7  The target would formally apply with effect from 1995. 8  See Kydland, F. and E. Prescott, “Rules Rather Than Discretion: The Inconsistency of Optimal Plans”, Journal of Political Economy 85, 1977, Barro, R.J. and Gordon, D., “A Positive Theory of Monetary Policy in a Natural Rate Model”, Journal of Political Economy, 91, 1983 and Rogoff, K., “The Optimal Degree of Commitment to an Intermediate Monetary Target”, Quarterly Journal of Economics, 1985. 9  This was also emphasised in the Commission of Enquiry on the Riksbank 1993, see “The Riksbank and price stability”, SOU 1993:20. 4  BIS central bankers’ speeches  has been fairly close to the target of 2 per cent. 10 Although several factors in addition to monetary policy have contributed to the low inflation, such as productivity development, stable public finances and improved wage formation, I would certainly claim firmly that the inflation target has functioned largely as intended.
Monetary policy assessments Since last summer, interest-rate setting has been oriented towards a gradual increase in the interest rate – in small, not too frequent steps – towards a more normal level. According to the assessment in the March Inflation Report, higher growth in the economy could, in isolation, warrant a faster rise in the key rate ahead. This would reduce the risk of bottlenecks in the economy, with rising cost inflation and continued debt build-up. On the other hand, the objective of bringing inflation up to the target of 2.5 per cent and anchoring inflation expectations suggested in isolation that further interest rate increases should be delayed until there are clearer signs of a further rise in inflation. The trend in prices for consumer goods over the past two or three years is a result of favourable developments in the Norwegian and global economy. The shift in trade towards low-cost countries has led to lower prices and higher real income. In addition, the changes in the world economy have provided Norway with higher income because our terms of trade have improved. Increased competition has curbed the rise in prices for a number of domestically produced goods and services. When inflation deviates substantially from the target for a period, the interest rate will be set with a view to gradually returning it to the target, so that we avoid substantial variations in output and employment. Through the 1990s, inflation generally remained in the interval 1½ – 3½ per cent.

It is also necessary to develop further the analysis of asset prices and how the financial markets can be better integrated into our models and forecasts. This applies both with regard to the work on financial stability and the work on monetary policy. The supervision map is being redrawn A further area for reform concerns the supervision of the financial system as a whole, and the possibility to take measures when risks to the stability of the system are detected. The central banks often have both the responsibility and the best resources to analyse such systemic risks, as they are called. But they usually do not have particularly sharp tools for dealing with them. In most cases the central banks must rely on being able to affect unsatisfactory states of things by providing information and warning of risks. But when times are “good” on the financial markets, it may be difficult to get anyone to listen to this type of warning. Before the crisis broke out, for instance, the Riksbank warned in several speeches and reports that there were risks regarding developments in the Baltic and risks connected with low compensation for risk in the financial markets. And we were not the only ones to point out these risks. But the market participants did not pay sufficient heed to the warnings. The crisis has shown that there must be an opportunity to put greater force behind the words if warnings are to have any effect.
Investor demand for green bond 6/9  issues is a clear sign of the growing concern about the effects of climate change, but it may also reflect a lower underlying risk. In any event, this change in attitude by investors should also serve as a catalyst for change towards more sustainable activities. Taxonomy I should, however, also mention a general problem that may be holding these markets back. Although the establishment of various green principles, such as the GBP, facilitated the launch of the green bond market, the lack of a commonly accepted taxonomy4 could be hampering its subsequent development. A shared taxonomy is essential to be able to make a coherent analysis of the green/brown bond yield spread. It is also important for the supervisor, as it permits aggregate risk and default analysis, consistent stress testing and the development of macroeconomic models, all of which are required to assess medium and long-term effects on the economy. Lastly, a common taxonomy is needed to provide clear and consistent information to investors and the general public, as will be required of all listed companies in the future Spanish legislation on environmental transition. In this setting, the European Commission’s action plan, presented in March 2018, is crucial. The plan includes three sustainable finance regulations, including one on the creation of a “common taxonomy”.

Other standards established by the Climate Bond Initiative and the credit rating agencies have also defined criteria for assessing the degree of “greenness” of issues earmarked for certain projects. Some jurisdictions, such as China, have set their own standards. 7/9  All the banks are working with ESG sustainability factors,5 with the lack of a common taxonomy being one of the main challenges for defining these factors. But very few banks have processes and tools allowing them to identify, measure and manage environmental risk. The supervisory expectation in the short and medium term would be for all banks to include the environmental dimension in their strategic approach and in their risk analysis and monitoring. They should keep the Board informed and should compile all relevant information, at least for new operations. From a methodological standpoint, banks are at least expected to understand the implications of environmental risk and how it may affect their business models, including it in their risk appetite frameworks. In all cases, in a way that is proportionate to their size and complexity. As this is a new development, we have also started work on a document that will reflect all these supervisory expectations. We hope to publish it for consultation shortly. In addition to directly interacting with banks, we have entered into a dialogue with other agents, such as the big auditing firms, and we are also organising sessions and workshops to discuss methodological developments, for example relating to risk measurement in investment portfolios.