samchain/econo-pairs-v1 huggingface dataset:
This type of crude stress test is quite helpful for a sense of how solid the system’s capital buffer might be, but it doesn’t allow you to take into account second and third round effects. If NPLs have risen to 20 percent of total assets, then there are likely to be a lot of other things happening in the economy at the same time, all of which could have additional implications for banks’ financial soundness. As a result, stress testing is moving increasingly in the direction of scenario analysis. This involves economists constructing scenarios for the outlook on GDP, interest rates etc. and tracing through these changes in terms of their impact on the key measures of banking system soundness including profitability and capital adequacy. This approach involves some quite advanced economic modelling techniques and is still in its early days. However, the recent revamp of the Bank of England’s financial stability report that I mentioned earlier was designed to give a larger role to this type of analysis. A final issue that I’d like to discuss is that macro prudential analysis cannot stop with the banking system or at the borders of a particular jurisdiction. In the past it might have been reasonable to think that systemic risk was something that began and ended with the banking system.

The Riksbank is of course always able to lend Swedish kronor, but in my view it is not reasonable that the banks can take liquidity risks on the assumption that the Riksbank will always be at hand if things do not go according to plan. The Riksbank should, potentially, be the lender of last resort, not the lender of first resort. Liquidity regulations in Swedish kronor would also give the banks incentives to extend the maturity of their funding. This is because, all else being equal, a bank that extends the maturity of its funding will reduce its short-term cash outflows and will thus have a higher LCR. We can also view risk-weight floors for mortgages as a complement to the existing regulatory frameworks. The leverage ratio deals to some extent with the problem that the risk weights perhaps do not always reflect the actual risk in the banks’ portfolios, but it does not do so precisely enough. International measures may eventually be proposed, but until then and as  2  6  Financial Stability Report, November 2013. Sveriges Riksbank. BIS central bankers’ speeches  long as household indebtedness constitutes a significant risk we need a sufficiently high riskweight floor for Swedish mortgages. At present, we have a risk-weight floor of 15 per cent in Sweden. As long as household indebtedness increases, there are good reasons for raising this floor to at least 25 per cent.
Many of you are very knowledgeable about these topics and we hope you will take the opportunity to share your insights on these questions. The GFXC is not only seeking views at the tails, but also those more in the middle of the spectrum as well. Importantly, all perspectives are welcome. Conclusion The request for feedback is an opportunity to engage at an industry level in supporting the resilience of this critical and fundamental market—one that represents far more than the sum of its parts and players. As I said in 2015, 3 “the transactions that take place [in the FX market] are the lifeblood of a global economy that comprises many different national currencies.” At that time, I called upon the industry to take action and I am impressed by what I have seen through the work in developing the Code and in the spirit in which it has been received so far. But that work isn’t over—it never is. Best practices do not work without the ongoing commitment of those in the industry, those making the choices each day. No Code, and in fact no law or regulation, can force all 5/6  BIS central bankers' speeches  participants in a market as broad and diverse as FX to maintain a marketplace that values openness, resilience, high ethical standards, and competition. But, that fact is no reason to forego striving for such a marketplace. Developing the Code has been one way of working toward that goal.

Norman T L Chan: Excessive leverage – root cause of financial crisis Speech by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, at the Economic Summit 2012 “Roadmap to Hong Kong Success”, Hong Kong, 9 December 2011. *  *  *  1. Following the outbreak of the Global Financial Crisis in 2008, it is now generally recognised that serious imbalances in the global economy have been built up over the past 10–20 years. There are many different theories on how these imbalances came about and on their contributions to the Global Financial Crisis. A commonly held theory in western countries attributes the global imbalances and the financial crisis in the US and Europe to the so-called “savings glut” in the Emerging Market Economies (EMEs), especially China. In other words, the problems and miseries being experienced in the US and Europe arose because the EMEs not only over-exported, over-saved and under-spent, but also have been lending moneys at very low rates to the industrial economies and have financed the consumer booms and fuelled the credit and asset bubbles there. I do not subscribe to this view. However, given the complexity of the global financial system, it is very hard to try to come up with a grand theory that can fully explain what has gone so badly wrong that it has resulted in the worst Global Financial Crisis since the World War II.
D ia g ra m 3 b  R ea l w a g e s a n d em p lo ye d p erso n s, N eth erla n d s a n d S w ed e n , 1 9 7 0 -9 6 In d ex 1 9 7 0 = 1 0 0 N eth erlan d s  S w ed en  170  170  170  160  160  160  160  150  150  150  140  140  140  130  130  130  130  120  120  120  120  110  110  110  100  100  100  90  90  90  80  80  80  R e a l wa ge s  150  E m p lo y m e n t 70  72  74  76  78  80  82  84  86  88  90  92  94  96  98  170  R e a l wa ge s  140  110  E m p lo y m e n t  100 90 80  70  72  74  76  78  80  82  84  86  88  90  92  94  96  98  S o u rce : O E C D  BIS Review 38/1997  -8-  Europe, however, does have some positive examples.

This means that there are fewer safeguards for non-banks, and risks can grow largely unchecked. With this in mind, let me highlight four areas where I see a need for further regulatory efforts in the nonbank financial sector. First, we need to reduce the risks of mismatch between funds’ asset liquidity and their redemption policies. Funds need to ensure that their redemption policies are closely aligned with the liquidity of their portfolio assets. For instance, funds that invest in illiquid assets, such as real estate or private debt, should have commensurate redemption notice periods to mitigate liquidity risk. At the same time, funds that offer daily redemptions should be required to invest in sufficiently liquid assets and maintain high liquidity management standards to enable them to meet redemption requests under both normal and stressed market conditions. This should be complemented by enhancing the availability and use of anti-dilution liquidity management tools to pass on the costs of redemptions to redeeming investors. Moreover, higher liquidity buffers would be useful to manage increased liquidity needs during periods of market stress, including from margin calls. Second, we must renew our efforts to reform the MMF sector in the EU. After the market turmoil in March 2020, proposals to enhance the resilience of the MMF sector were developed at the international and European level. These focused on removing regulatory threshold effects, strengthening MMF liquidity requirements, and improving the availability and usability of liquidity management tools. [10] In the EU, however, reforms of the MMF Regulation have not progressed to date.
Additionally, a second wage growth tracker based on wages offered in new jobs also showed strong increases during 2022 suggesting strong wage momentum, though last readings show tentative signs of stabilitation. See P. Lane (2023): Underlying inflation, lecture at Trinity College Dublin, 6 March 2023. 17  Defined as those items in the core inflation basket for which wages account for more than 40% of input costs. 6  It is important to remember that a large part of the high inflation in the euro area has stemmed from the surge in commodity prices that has led to a significant deterioration in the terms of trade. This entails a loss of wealth and welfare for the euro area economy as a whole that is unavoidable in the short and medium term. If this loss is distributed fairly between workers and employers the inflationary spiral that will arise if they both attempt unilaterally to avoid this loss by maintaining their real wages and profit margins could be averted. Against this backdrop, to avoid the emergence of second round effects, it is essential to ensure that inflation expectations remain anchored at levels consistent with the price stability objective. The February vintage of the Consumer Expectations Survey shows three-year ahead inflation expectations coming down again, to 2.4%, suggesting that consumers interpret current inflation as having a high temporary component. Moreover, professional forecasters expect inflation to return to close to target over the medium term.

Ardian Fullani: Overview of Albania’s recent economic and financial market developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Press Conference on the Monetary Policy Decision of Bank of Albania’s Supervisory Council, Tirana, 31 July 2013. *  *  *  Today, on 31 July 2013, the Supervisory Council of the Bank of Albania reviewed and approved the Monetary Policy Statement of the Bank of Albania on the first half of 2013. Based on the latest monetary and economic developments in Albania, and following the discussions about their outlook, the Bank of Albania’s Supervisory Council decided to lower the key interest rate by 0.25% percentage points to 3.50%. Lowering the key interest rate would improve the conditions for a higher aggregate demand, hence helping inflation fall back toward the Bank’s 3.0% target. Further easing of monetary policy takes into account expectations for a contractionary fiscal policy over the second half of the year and makes room for a fast and low-cost adjustment of public finances. Let me now proceed with an overview of the economic developments and key issues discussed at today’s meeting. The first months of 2013 confirmed our assessments of Albania’s slow economic growth and weak inflationary pressures. Albania’s economic activity continues to suffer from sluggish aggregate demand reflecting economic agents’ uncertainties about the future, relatively tight lending standards, and economic weaknesses of our main trading partners. However, amid a challenging macroeconomic environment, Albania’s economic and financial stability remains stable.
1  This idea is consistent with the principle known as the Tinbergen rule (Tinbergen (1952)). 2  The framework discussed in this presentation takes the perspective of a small open economy like Chile. In many emerging markets the concern for financial stability was explicit, especially regarding international financial transactions. This was not the case in many advanced economies that, as price stability became the main objective, financial stability played a secondary role, or often no role at all. For further discussion, see De Gregorio (2011), and Bernanke (2011). BIS central bankers’ speeches  1  The recent crisis calls into question the view that macro and financial stability can be really seen as separate objectives. In fact, it seems to have brought a reminder that in the end, macroeconomic and financial stability are related, both directly and through the instruments used to achieve each of them. The direct linkages are natural: it is difficult to imagine a stable financial system operating in a volatile macro environment. Financial systems are good at dealing with idiosyncratic risks, but their ability to deal with aggregate risk is more limited, especially in emerging markets. Vice-versa, financial instability typically ends up creating macroeconomic fluctuations. The uncertainty that accompanies periods of financial instability leads investors and consumers to postpone investment plans and the purchase of durable goods, with foreseeable consequences for output and inflation. Moreover, extreme episodes of financial instability that lead to financial crises almost always end up in a sharp and costly recession.

They thus implemented economic policies aimed at returning economic activity to levels consistent with growth potential prior to the crisis. 11 This resulted in the Great Inflation of the second half of the 1970s, the correction of which required drastic policies which led to the global recession of 1981-82. The experience of the past decade should lead to reflection with regard to the motives which led certain societies, such as the United States, to overestimate their income growth potential. One must ask in particular what are the factors which in the past 20 years resulted in the progressive misalignment between potential economic growth and the target considered to be sustainable, but which clearly was not. It was not a drastic shock as experienced in the 1970s, but a more complex phenomenon, which operated gradually. One theory, which was suggested a few years ago, is that the growth sustained by emerging economies tends to suppress the potential of advanced economies. This theory was rejected, perhaps too hastily, because it is not in line with the neoclassical theory of international trade, based on comparative advantages, which holds that when a country grows at an elevated rate, it benefits not only the country in question but also others. Higher disposable income makes it possible to increase imports from other countries, thus fostering production and growth in those countries too. The theory of mutual benefit is based on certain specific assumptions, which are not always reflected in reality.
Despite its substantial international integration, the Swiss economy, at this point, is scarcely affected by the turmoil in the international financial markets. Growth remained strong in the third quarter. Real gross domestic product rose at an annual rate of 3.3%. Employment continued improving across the board, in line with our expectations. In both the industrial and service sectors, the process of new job creation carried on. In construction, employment stabilised at a high level. Unemployment continued falling. As a result of the favourable developments in the labour market, consumer sentiment remains buoyant. Consequently, household expenditure is still increasing at a robust pace. Furthermore, strong demand for labour is now leading to a faster increase in real wages. Given this situation, private consumption should continue to support growth in 2008. Due to impetus from Europe, Asia and the oil-producing countries, goods exports are advancing further. Looking at production, expectations remain optimistic both for the manufacturing sector and for non-financial services – businesses expect the growth phase to persist. Investment activity remains lively. The banking sector is faced with the uncertainties that have arisen out of the developments in the US real estate market together with the structured products that relate to this market. It is possible that the contribution of the Swiss financial sector to GDP growth will fall as early as the fourth quarter of this year, due to a drop in the volume of activity on financial markets.

Jean-Pierre Roth: Recent economic and financial developments in Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the end-of-year media news conference, Zurich, 13 December 2007. *  *  *  Economic outlook The last few months have seen a number of remarkable events in the global economy. The US dollar has plunged, dropping below the level attained in 1995 against the Swiss franc. Oil prices have continued to soar, threatening to breach the hundred dollar mark. Sub-prime credit markets continue to disrupt financial markets. How have these factors affected the international economy? The US economy is affected simultaneously by the unfavourable developments in real estate markets, which are impacting on credit markets, and by increasing oil prices. At the same time, the fall in the dollar is bolstering external demand, so that most observers are not forecasting more than a temporary decline in US economic growth next year. As for the European economy – which is less open than the national economies of which it is composed – it is only slightly affected at present by the upturn in the euro, mirroring the downturn in the US dollar. The outlook for European growth in 2008 remains favourable, despite a light downward correction. All in all, the international economic situation remains generally positive, although it is true to say that this assessment is even more uncertain than three months ago.
•  Effective challenge – including transparency and open dialogue across and between the board and senior management and senior management and staff. •  And, finally, incentives – both compensation and talent development/promotion processes. Supervision in this area involves an assessment of the effectiveness of a financial institution’s governance, including the extent to which the board and senior management demonstrate effective behaviors that contribute to good governance. This includes consideration of the behavioral dynamics of the board and senior management, such as how the “tone at the top” and the cultural values of a bank are communicated and put into practice, how information flows to and from the board and senior management, and how potentially serious problems are identified and addressed throughout the organization. I think the FSB’s document sets out a good set of reference points for supervisors – and for firms – to explore in evaluating risk culture. As has been noted by others – and is emphasized in the FSB’s guidance – assessing culture is not a single point in time event. It should be a regular and ongoing exercise that management teams, boards of directors and supervisors conduct, taking the range of feedback from interactions and work conducted inside the firm, interactions and reactions from the firm’s senior management team, and interactions and dialogue with the board of directors. Alongside risk culture, much work has been done on the roles and responsibilities of boards of directors. The G30 has issued two reports in the last two years.

Such recovery plans should: •  Identify actionable options that the firm can take in response to financial weakness that will restore the confidence of the firm’s counterparties in the firm without the need for extraordinary official sector support;  •  Incorporate processes that analyze the root causes of their problems and identify longer-term strategies that will need to be employed as other recovery options to restore capital and liquidity are being executed; and,  •  Be regularly tested and updated to ensure they remain reasonable. For some types of firms – like financial market utilities, recovery planning is actually an even more important issue. Because FMUs provide critical services to the industry, experiencing a major disruption that could lead to resolution – or dissolution – is unacceptable. It is important, then, that a CCP be structured in a way, and develop and have tools available, to enable it to recover from losses and continue operations under extreme scenarios. Simply put, the debate on ‘less complex’ for financial market utilities is much more about recovery than it is about resolution. Steadfast resiliency may include casting a more critical eye on the resources needed for a single CCP to withstand a plausible, severe shock. Conclusion While there is still work that needs to be done to make financial institutions more resilient, better managed and less complex, we have also made a great deal of progress.
Forecasts are usually wrong I learned how difficult it is to make forecasts during my time at the Ministry of Finance and at the National Institute of Economic Research. During different periods I was responsible for both medium-term forecasts and cyclical forecasts at the Ministry of Finance. The mediumterm forecasts within the framework of the long-term surveys were to a great extent a more or less sophisticated projection of trends. They missed recessions and were only accurate when reality followed the previous trend (see Figure 1).2 The Ministry of Finance’s cyclical forecasts are based on more information, including changes in taxes and expenditure in the government budget. Like the forecasts made at the Riksbank, they are used as a basis for policy decisions. But they are also usually wrong, which is a problem with regard to using fiscal policy to stabilise economic activity. Sometimes political aspects also have significance, such as when we deliberately had cautious forecasts as a basis for the budget consolidation in the 1990s (see Figure 2).

CPI inflation was -0.9 per cent in July, which was three tenths of a percentage point lower than our forecast, but underlying inflation measured as the CPIF amounted to 1.8 per cent, which was entirely in line with our forecast. 9 Inflation measured in terms of the EU harmonised index, the HICP, was also 1.8 per cent in July and when measured as the HICP excluding energy it was 2.8 per cent. Inflation was thus much higher in Sweden than in the EU. One reason for this is probably that the krona has weakened since last autumn. We are assuming that the weakening is mainly due to the financial crisis and that the krona will strengthen again. Since the July monetary policy meeting, however, the krona has strengthened more than we had anticipated (see Figure 18). Another reason is probably that unit labour costs have risen rapidly for three years in a row, mainly as a result of falling productivity, but also because of higher wage increases than before (see Figure 19). According to Prospera’s most recent survey in June, inflation expectations five years ahead were 2.2 per cent and were well-anchored around the inflation target. However, inflation expectations two years ahead are slightly below the inflation target (see Figure 20). The current account and public finances are strengths Sweden’s current account and public finances can be said to be its strengths. These look relatively good in comparison with other countries.