samchain/econo-pairs-v1 huggingface dataset:
But, very occasionally, a constitutional reform occurs which leads to a new piece of machinery. That was the case with the MPC. The Committee itself has an interesting and unusual structure: five executive members of the Bank and four external non-executive members, all chosen for their expertise on monetary policy and not as representatives of different interest groups. You may wonder whether the nine members of the MPC have any historical antecedents. If you look carefully you can see them in one of our few remaining great Jacobean houses - Aston Hall in Birmingham. In the Great Dining Room there is a frieze, a marvellous example of early seventeenth century plasterwork, showing a set of nine warriors. These are known as the “nine worthies”, described as “high-relief figures in their own niches separated by scrolling”, a pretty good description of the MPC. The Nine Worthies of Chivalry as they are known, comprise three groups: three honest heathens, three Old Testament heroes and three champions of Christendom. It is interesting to speculate into which of these groups various members of the MPC fall, but I will leave that to you. But, wait a moment, there are two additional figures in the frieze. One is Perseus - presumably the minute taker. The other is described as a “so-far unidentified figure, certainly a later pastiche”. This must be the Treasury representative. Sadly, the debates among the nine worthies, presumably recorded in the minutes and reported to Sir Thomas Holte who commissioned the frieze, are lost to posterity.

On the Committee itself various suggestions have been made: to extend the terms of appointment of members of the MPC, to make those longer terms non-renewable, and to appoint people with more diverse backgrounds. By far the most fundamental of these suggestions is the proposal to appoint representatives of different industries or regions to the Committee, as opposed to monetary policy experts. That would change the nature of the debate and undermine the mutual confidence of members of the Committee in each other if it were felt that some were representing a specific interest group. With experience of the MPC, I think that this argument has come to be accepted. The proposal that the minutes of MPC meetings should include more description of individual views I discussed earlier. The Committee has been opposed to such a change for the reasons I gave. In its early days the Committee was sensitive to the view that the minutes, then published six weeks after the meeting, should be published earlier, and it shortened that lag to 13 days in October 1998. The forecast process has attracted much attention, and was discussed at length in the Kohn Report. Presenting the forecast in terms of a fan chart, in order to highlight the balance of risks to the outlook, has proved successful. But it has proved more difficult to explain the role of a projection conditioned on the assumption of constant official interest rates.
But it would be unwise to simply assume the market will bottom out at these levels for three reasons. First, expectations of house price declines can easily be self-fulfilling. The feared loss in value can overwhelm the benefit of low mortgage rates, leading would-be buyers to sit out the market. Second, with home construction at minimal levels, housing supply cannot decline in response to weak demand. Home prices thus are very sensitive to shifts in demand and credit supply. If access to mortgage credit for home purchases is unduly restricted, the market-clearing price for housing will be lower than it would be if access to mortgage credit was less constrained. Third, in contrast to the efficient mechanisms in place in the commercial property market to work-out troubled debt, the infrastructure of the residential mortgage market is wholly 6  BIS central bankers’ speeches  inadequate to deal with a systemic shock to the housing market. Left alone, this flawed structure will destroy much more value in housing than is necessary. In a recent speech I called for a comprehensive approach to housing policy.

BIS central bankers’ speeches  3  To understand our prospects a bit better, we need to look at the likely behaviors of business and household sectors separately. Circumstances for the business sector are mixed with larger corporations generally in much better shape than smaller businesses. Many large corporations entered the recession with healthy balance sheets. While leverage1 did increase sharply in the recession, it has subsequently come back down to levels similar to the 1990s. Record profit margins have enabled large corporations to build substantial buffers of highly liquid assets. Large businesses are cautious because of concerns about the sustainability of growth and demand, political dysfunction, the health of the financial system and their ability to retain their access to credit throughout the business cycle. For smaller firms, the situation is generally more difficult. Because this sector has a higher exposure to real estate, falling real estate values pushed up leverage for this group and it remains well above previous historical highs. Although small businesses identify weak demand as their major problem, the availability of credit is also an issue. An improvement in their ability to obtain credit would seem to require some stabilization of real estate prices and a substantial increase in demand for their products and services. Turning now to the household sector, Chart 4 shows that a combination of the fall in interest rates, paying down of debt and debt write-offs has substantially lowered the share of income required for households to service their debt.
While regional capital markets have generally experienced strong growth since the financial crisis, our potential is limited because by international standards the regional equity and bond markets are small and fragmented. We made some headway four years ago with the Chiang Mai Initiative (CMI), which saw the expansion of existing multilateral currency swap arrangements to include all 10 ASEAN members, as well as the conclusion of 16 bilateral swap arrangements, totalling $ in combined facility. When the CMI was launched in May 2001, it was agreed that Finance Ministers should review the Initiative 3 years  2  BIS Review 20/2004  after implementation. So it would be timely this year, for ASEAN Finance Ministers together with our “Plus-3” counterparts to consider what and how the review of the CMI could be done. We should also explore further avenues of cooperation. For example, we may develop greater linkages between stock exchanges in the region, or harmonise standards and conventions so as to make it easier for investors to operate across the capital markets in the region. In such initiatives, we do not have to wait for all ASEAN members to be ready. Once two or more ASEAN members are ready to make the move, they can work together as pathfinders for the whole region. Conclusion Globalisation has presented many challenges to ASEAN, but it has also created many opportunities. Integrating our economies requires hard work, political will and often, tough decisions.

The real point is whether, given the bank’s particular circumstances, the risk management practices they adopt are adequate. And that, primarily, is a matter for the bank’s management to determine, although we will of course, given our statutory responsibilities, also have an interest in this. I stress these points for three particular reasons. First, because I don’t want anyone to think that we are against banks taking risk. We’re not. That’s the business they’re in. We simply want to make sure they recognise and manage the risk effectively. Second, because I want to make clear that we are not hell bent on driving banks to invest in unnecessarily sophisticated risk management systems. What’s appropriate will clearly vary from bank to bank, depending on the nature and scale of their business and the risks they run. Third, because I want to be perfectly clear that Basel II is not some underhand means of making life difficult for smaller banks by raising the hurdle too high in terms of what they need to spend on risk management and on regulatory compliance. Indeed, on the contrary, the whole thing is carefully designed so as to accommodate banks of all shapes and sizes. So, how will Basel II change banking in Hong Kong? The answer, I would suggest, is that we won’t see any dramatic changes overnight, but we will over time see some re-focusing of how the risks within banks are addressed, both by banks themselves and by the supervisors.
The main themes from that exercise were outlined in the BSB’s first Annual Review published earlier this year. 35 Following several episodes of misconduct in wholesale capital markets, the Fair and Effective Markets Review (FEMR) was launched in 2014 to assess their functioning, overseen by the Bank, HM Treasury and the FCA. It reported last year, making a number of recommendations including the establishment of a FICC Markets Standards Board (FMSB). 36 The FMSB came together last year with a remit to provide guidance on appropriate standards of conduct in wholesale markets. Encouragingly, most of the major players in wholesale markets have joined the FMSB. Regulators will use these standards to inform their judgements under the expanded Senior Managers Regime. At an international level, the Financial Stability Board (FSB) agreed in early 2015 a work-plan to reduce misconduct risk, including in the area of key market benchmarks. 37 Following a recommendation in FEMR, work is underway to develop a global code of conduct in the foreign exchange market. Also in 2015, the G30 issued a report on Banking Culture and  34  For further details see http://www.fca.org.uk/consumers/financial-services-products/insurance/paymentprotection-insurance/refunds. 35  See BSB (2016). 36  See FEMR (2015). FICC here refers to Fixed Income, Currency and Commodity markets. 37  FSB (2015). 8  BIS central bankers’ speeches  Conduct. 38 And in the same year, the New City Agenda published its assessment of progress towards improving culture among UK banks. 39 This is good progress.

That means they are unlikely to be accessible to the vast majority of the general public. It is communication among the financial elite in the language of the financial elite. Perhaps that is no more than confirmation of what we already knew. Nonetheless, it means these communications are, by themselves, unlikely to have helped build, or rebuild, generalised trust in banking. It also begs the question of what more could be done to make banking more accessible to the wider public to help build trust. One option might be for the banking industry to conduct events similar in spirit to the Open Forum – events which seek to engage with, and take messages from, the general public. These might be one means of accreting personalised trust with customers – “Trust Town Halls”. To be successful, these would need to be repeated rather than one-off events, as personalised trust arises from repeat interactions. Another idea is to consider whether there was scope for something akin to an annual report for customers, rather than investors. This might be (considerably) shorter in length, (considerably) simpler in language and (considerably) easier to digest in a 5 minute sitting. It would be part of banks’ contract, social rather than legal, with their customers. A third idea  60  Shannon (1948). 61  DuBay (2004). 62  These include the Coleman−Liau, ARI, SMOG, Gunning fog, Flesch−Kincaid and Coleman correct completion measures.
12  Indeed, even when purchases of additional longer-term securities cease, the enlarged balance sheet will provide substantial ongoing stimulus. It is important to recognize that the Fed could remain in this posture with policy “on hold” for a significant period. BIS central bankers’ speeches  9

More particularly, we anticipate an increase of up to 90% of the total volume expected by the time all participating central securities depositories (CSDs) connect to the platform. The next migration wave will also lead to an increase in the use of links between T2S markets that facilitate cross-border transactions. T2S has significantly contributed to the integration of post-trade processes across all participating markets. This has been achieved by the gradual implementation of the single rulebook, i.e. standards, rules and procedures, in the T2S market. Harmonisation measures necessary for ensuring efficient and safe cross-CSD settlement in T2S are fairly advanced. Monitoring has shown that, by the time they migrate to T2S, market communities are close to achieving full compliance with the T2S standards. Nevertheless, some gaps in compliance remain, for example in the area of corporate actions. These are complex business processes for asset servicing, which involve rules and procedures developed by a range of different actors. The newly established Advisory Group on Market Infrastructure for Securities and Collateral (AMI SeCo) will address these gaps in compliance, among others. This advisory group will also look at ways in which the existing methodology could be used as a blueprint for building a methodology to harmonise collateral management.1 In addition, the T2S harmonisation agenda has identified a number of regulatory and legal barriers to post-trade harmonisation that fall under the regulatory agenda. These relate, among others, to issues such as conflict of law and withholding tax procedures, which are expected to be tackled this year.
The objective therefore is not solely to bring down inflation that is currently above target due to external pressures that are waning, but to ensure that inflation is neither above nor below target when those pressures have passed through of the economy. 6  UK GDP surpassed its 2018 Q1 peak in 2013 Q2. In the US, productivity growth initially appeared to be bouncing back after the crisis but from 2011 fell and failed to pick back up to precrisis growth rates. 8 Cunliffe (2016) 7  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The key question, therefore, is how much inflation is domestic economic pressures likely to generate over the next couple of years. Let me turn to that now. We do not yet have all the evidence. But the significant drop in activity in the UK in the first quarter of this year looks to have been largely an aberration, driven by poor weather. Retail sales – which declined in the first quarter of the year – have bounced back. GDP in the three months to May – the ONS’s first of its new monthly GDP releases – grew at 0.2%, with services growing at 0.4%, indicating a recovery over April. The soft data currently available also suggest that the economy recovered its end 2017 growth path in the second quarter of the year with the composite PMI for output back to its highest level since December albeit with somewhat different composition.

If this is confirmed, as I think probable, the overall picture is of an economy expanding around or a little above its potential rate of growth. The combination of lower rates of productivity and labour force growth mean that potential is growing at around 1.5% about a percentage point below its pre-crisis rate. 9  Trying to make very precise forecasts of the output gap is a fool’s errand but the balance of evidence is there appears to be little slack left in the labour market and little spare capacity in firms. Unemployment is at 4.2% – pretty much the MPC’s revised estimate of the natural rate. Underemployment is low. 10  Non-price measures – for example, surveys of recruitment difficulties and measures of churn in the  labour market – have been signalling increasing labour market tightness for a number of years. 11  Whole economy regular pay growth reached 2.5% in December and has stayed above that level through the first few months of 2018 though there has been a slight slowing in the latest – April – data (from 2.9% in March to 2.8% in April). The higher frequency measure of pay growth, 3 month on 3 month growth, has been above 2.5% for 11 months between last May and March this year – the longest run of such consistent wage growth since the crisis (Chart 7).
So how will the FLS help? Let’s be clear on one thing. It is up to the banks whom they lend to. If a firm goes under, or simply can’t repay its loan, that bank loses money: under the FLS the credit risk stays with the banks. And it is not our intention that banks put themselves at risk by making imprudent loans. Although there are many good quality businesses seeking extra credit, not every one is as good a credit risk as they might make out to their local journalist or MP, so we need to be wary of judgement by anecdote. But the FLS will put the pressure on banks to lend where they profitably can. That may “turn the conversation around” as banks do more to seek out lending opportunities rather than businesses or home buyers struggling to find accommodating banks. If demand for credit turns out to be weak then that will add to the competitive pressures on the supply of credit. In summary, I am confident that the FLS will help the supply of credit. Before its introduction, it was more likely than not that the stock of credit would contract further over the next 18 months. Perhaps it still may. But any return to positive credit growth would be a better outcome than we could have previously hoped for. But I want to underline one thing about the expected outcome: I expect banks’ usage of the scheme to exceed their lending growth.

BIS central bankers’ speeches  7  The FLS has been implemented in large part because of the developments in financial markets I have described: an example of the important and powerful linkages between the real economy and the financial sector. The continued uncertainties about the future of the Eurozone and about the European banking system meant that during the past two years bank funding markets have had periodic bouts of closure. And when open, spreads of bank debt over risk-free rates have remained elevated. A number of large UK banks still rely on wholesale markets for funding at the margin and higher wholesale funding costs have spilled over into other funding markets – driving up retail deposit rates for example. Prior to the announcement of the FLS, banks were passing on their elevated funding costs to their lending rates. Over the 12 months to mid-2012, we saw lending rates to businesses and for mortgages rising (Chart 5). Furthermore, the Bank of England’s 2012 Q2 Credit Conditions Survey of UK banks suggested that household secured and corporate lending rates were expected to rise further. Chart 5  Chart 6  Change in bank funding and mortgage rates between 31 July 2011 and 31 May 2012  Annual lending growth to households and companies(a)  Per cent  16 14 12 10 8 6 4 2 0 -2  2004  2006  2008  2010  2012  (a) Based on scheme definition.
the overnight interest rate (of which a euro area average, the EONIA, is computed and published every day by the ECB), is influenced by expectations of the cost of Eurosystem credit – the so-called MRO rate – at the next weekly monetary policy operation. A short-term inter-temporal arbitrage calculus anchors the overnight interest rate applied on the credit transaction between banks that need liquidity and banks that have a liquidity surplus. 3 The second dimension of the inter-temporal calculus has a longer horizon and a wider scope of application across asset classes. Banks can borrow short in the money market or from the Eurosystem and decide to engage in term lending to other banks or to their customers. Bank customers, in turn, can use bank liquidity to finance consumption or the acquisition of capital. It is important to note that all of these money transactions in the broader economy involve traders weighing the costs of their borrowing against the return opportunities on their asset acquisition at different points in time, where the horizon is typically longer than a week. But, again, as banks borrowing from the Eurosystem are the source of this liquidity propagation pattern, and banks’ financial calculus is based on their anticipations of the interest rate settings by the Eurosystem in the future, such anticipations anchor the pricing of credit in the broader economy. We call this “the interest rate channel” of monetary policy decisions.

In a financial crisis of these proportions, “outside money” – an asset that is not a liability for anybody else than a central bank – becomes the sole trustworthy store of value. 4 Only a central bank, the monopoly provider of outside money, can respond to the scrambles for liquidity. The ECB injected its funding capacity into a market vacuum left wide open by bank retrenchment, dealer defaults and investor panic. In these conditions, inter-temporal financial arbitrage – of the type I described above – becomes impaired. The power of banks and dealers to engage in or finance inter-temporal trades of liquidity balances is degraded. So the main conduit of monetary policy – which depends on those trades – is lost. The ECB had to open a new channel, the “liquidity channel”, to get round the roadblocks facing the interest rate channel (see slide 4). More precisely, the ECB acted in two dimensions. It sought to alleviate the difficulties experienced by banks in getting liquidity from the interbank market, which was putting pressure on the assets side of banks’ balance sheets and increasing the risks of hindering credit supply. At the same time, it sought to restore the normal pass-through from short-term money market (lending) rates to other market and bank interest rates.