samchain/econo-pairs-v1 huggingface dataset:
Speech  Embargo 28 April 2017, 10.00 am  Comments on the SNB’s monetary and investment policy 109th Ordinary General Meeting of Shareholders of the Swiss National Bank  Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Berne, 28 April 2017  © Swiss National Bank (speech given in German)  Page 1/10  Mr President of the Bank Council Dear Shareholders Dear Guests I am delighted to be able to spend some time here with you today looking back over an eventful year and also casting a glance into the future. In the last 12 months, the international environment has been marked by two contrary developments – increasingly robust growth in the global economy on the one hand, and heightened political uncertainty on the other. In Switzerland, the moderate economic recovery continued over the course of the year, but inflation remains low and the Swiss franc is still under pressure. Overall, considerable challenges remain, both for our economy and for the Swiss National Bank. In the first part of my speech, I will outline our assessment of the current economic situation at international level and in Switzerland. I will also talk about our monetary policy and show you why our expansionary course with the negative interest rate and our willingness to intervene in the foreign exchange market remains essential in the current environment.

Moreover, irrespective of such extreme situations, we have to manage our currency reserves in the best interests of the country and thus make investments that retain their real value over the long term. Implementation  So, we pursue two objectives with our investment policy – ensuring the availability of the balance sheet for monetary policy purposes and preserving the value of our currency reserves. Page 4/10  In order to achieve these two objectives, the SNB’s investment policy is guided by a number of criteria. In addition, it has to meet two important requirements. Let’s start with these requirements. First, we cannot hedge currency risks against the Swiss franc. Such hedging transactions would trigger additional demand for Swiss francs, thereby increasing upward pressure on the currency. This would run counter to our current monetary policy, which is geared at reducing pressure on the Swiss franc. Second, in implementing our investment policy, we aim for minimal market impact. This is the fundamental distinction between investment policy and monetary policy. Monetary policy measures are deliberately targeted to change market prices. They are intended to nudge monetary conditions in Switzerland – interest rates or Swiss franc exchange rates – in the desired direction. By contrast, the SNB’s investment activity should not trigger any price changes. For this reason, when investing, we always take into account the absorption capacity of the markets. When restructuring our investments, whether between different investment instruments or between different currencies, we exercise prudence and caution.
This outcome reflects the extremely low level (0.25%) of the ECB’s deposit rate and the Bank’s management of liquidity in the interbank money market. The very low level of interest rates in the euro money market and the generous provision of funding by the ECB to the banking system have gradually resulted in a marked decline in bank lending rates, especially on short-term credit to the private sector. 8 More generally, the real average cost of financing for euro area non-financial corporations has declined by 43 basis points over the past five months to 4.47%, from its peak level reached last October. However, the cost of financing for speculative-grade-rated firms (i.e. the high-yield segment of the corporate bond market), although it has also declined somewhat, remains at unusually high levels (at about 19% in nominal terms), reflecting the continuing high degree of risk aversion of investors that has prevailed since the intensification of the crisis last fall. Despite the improved conditions in the euro money market and in the average cost of bank lending to the private sector, bank credit standards have remained tight and the annual rate of credit growth to the private sector has decelerated steadily. Indeed, in recent months the flow of credit to both firms and households became negative. These developments partly reflect the reduced demand for banks loans by both households and firms. But they are also partly a consequence of the deleveraging of banks’ balance sheets and persisting stresses in the bank wholesale bank funding markets.

Spreads between Bank Rate and the interest rates charged to many borrowers remain at unprecedentedly high levels, if indeed borrowers are able to access credit at all. When conditions in the banking sector return to something closer to normal, those spreads will contract and the rate at which that takes place will have an important influence on the speed at which Bank Rate will rise. Uncertainty inevitably surrounds both the speed of the rebalancing and the impact of today’s consumer price inflation on tomorrow’s domestically generated inflation. So it is simply impossible to know now at what point monetary tightening will begin. Let me turn now to the Bank’s new Financial Policy Committee (FPC). Its creation is a response to the lesson that monetary policy cannot target stability of both prices and the financial system. Before 2007, the massive build-up of leverage in the banking system, accompanied by a rapid growth of broad money, led to an expansion of bank balance sheets and a rise in financial fragility, but not inflation. In most industrialised countries, central banks successfully set short-term interest rates to combine steady growth of output with low and stable inflation. But this did not prevent the emergence of unsustainable patterns of demand and unstable financial systems. The FPC aims to deal with that problem by expanding the range of instruments available to the authorities. The FPC has been hard at work preparing for our first policy meeting tomorrow and our first report will be published on 24 June.
Growth is concentrated in the largest cities like New York and San Francisco, and those who benefit the most are those who already have high incomes.2 A large part of this is because current economic conditions favor highly skilled workers who tend to flock to cities. These big metropolitan areas are successful, but they also suffer from some of the starkest wage inequality in the country. By contrast, upstate New York is less unequal, but the disappearance of manufacturing jobs has held back growth. More equal wage growth is only good news if people have jobs. But many have found themselves in the position of leaving the area in which they grew up to look for work. The Albany area has bucked this trend. The mix of colleges and universities specializing in innovative subjects like nanotechnology, and high-tech businesses, alongside its position as a state capital, has created a real economic success story. I know there are a lot of students in the room, and choosing SUNY was a wise move. Investing in an education that equips you for the future will pay off over the long term. The Tale of Many Economies So what can the Fed do about this complex picture—the tale of many economies I’ve talked about today? 2/3  BIS central bankers' speeches  Monetary policy is an important tool, but it alone cannot address all the economic issues that we face.

And bearing in mind that monetary policy resources are not inexhaustible, I think it is good to be able to make use of this scope if it can thereby help to avoid major costs to the economy. If it were to take longer to reach the target, it does not mean we would give it up I made the point earlier that it is very important how monetary policy is communicated. Before I go on, allow me to discuss a hypothetical case that makes it particularly clear how central this point is. It is no secret that very low real interest rates have reduced the scope for managing cyclical fluctuations with the help of monetary policy. In a speech three years ago, I said it could not be ruled out that we might at some stage reach a point at which we consider it no longer desirable to make monetary policy more expansionary. 8 If we were to find ourselves in such a situation – and I say if – we may as a consequence have to accept that it takes longer than it normally does to attain the inflation target. The advantages I just described of an inflation target of 2 per cent would of course still apply and we would continue to do our best to attain the target. The difference would be that we open up for the possibility that it could take longer than we normally expect, and we accept this without making monetary policy more expansionary.
Testifying to this is the work programme in place in the main international agencies and fora, such as the G20, the Financial Stability Board and the Basel Committee on Banking Supervision. Intense work is under way to introduce major changes into the international regulatory and supervisory framework so as to prevent similar crises from recurring and to improve the financial system’s resilience moving forward. Such changes include most notably the new rules known as Basel III, which alter the regulation of the banking sector at the international level in several fundamental respects: banks will be required to have more and better-quality capital; explicit requirements will be made in respect of liquidity risk; and measures will be taken to mitigate the procyclical behaviour of financial activity. Further, the FSB is working on the treatment of systemic banks, i.e. those considered too important to fail due to their size, the level of complexity of their operations or their interconnectedness with other financial system participants. In future, these banks will have to meet greater regulatory and supervisory demands, which will need to be adapted to the type of activity, complexity and structure of each bank. Headway has been made and is being made in many other areas, such as remuneration in the financial sector, the regulation of rating agencies, etc. Generally speaking, Spain has much to learn from other countries about economic policies.

This is a rapidly-developing area even by fintech standards and an important area of work for us, and one worthy of a speech in its own right. I don’t have time to do it full justice today, so I’ll just note three key recent developments. 1. First, we are continuing with our work to renew our RTGS service, which is twenty five years old this week. Building on the functionality provided today, the new RTGS service will deliver a range of new features and capabilities for payments and settlements between financial institutions, ensuring our payments architecture is fit for the future.5  2. Second, as the Chancellor of the Exchequer highlighted in his speech at the start of Fintech Week on Monday, we have also enabled ‘omnibus accounts’ to be opened in RTGS: these allow us to offer the benefits of settling in the ultimate risk-free asset, central bank money, to a wider range of payment systems, and by so doing can help the industry to develop faster and cheaper high-value payment services.6  3. And third, as the Chancellor also highlighted, we are, together with HM Treasury, establishing a new joint Taskforce, along with two stakeholder engagement forums, to explore a possible central bank digital currency or CBDC. A CBDC would, if introduced – and that is an important if – be a new form of digital money issued by the Bank of England and for use by households and businesses, existing alongside cash and bank deposits rather than replacing them.
If productivity picks up strongly as the recovery gathers pace - as the more optimistic reading of the evidence would imply – this means that we are likely to have a relatively prolonged  policy is not being set with particular reference to the unemployment rate; rather the threshold simply provides a convenient point at which to reassess the stance of policy. Monetary policy continues to be set on the basis of a wide range of variables affecting the outlook for growth and inflation. 3  See, for example, Miles (2012 and 2013) and McCafferty (2103). 4  See, for example, Broadbent (2011, 2012, 2013). 5  My fellow MPC member Paul Tucker recently referred to this as a “probing strategy” (Tucker 2013). BIS central bankers’ speeches  5  period of strong growth, and a relatively prolonged period of low interest rates, before unemployment reaches the 7% threshold. But if, even as the recovery gathers pace, productivity growth remains relatively muted, unemployment will likely fall more quickly and the Committee will need to raise rates sooner. A threshold defined in terms of the unemployment rate is particularly well suited to dealing with this uncertainty. As demand picks up, those companies that can use their existing workforces more intensely or can shift employees to more productive activities are likely to do so before hiring additional staff. This suggests that to the extent that productivity picks up in response to increasing demand it should largely do so before unemployment falls materially.

But the Committee updates its inflation forecast on a regular basis and so the forecast can be adjusted and revised as the Committee learns about the responsiveness of productivity to a pickup in demand. 7  Indeed, Ben drew attention to this relationship, and why it is not likely to hold in the current environment, in a speech last month (Broadbent 2013). 6  BIS central bankers’ speeches  policy to the level of unemployment makes that clear. Its levels not growth rates that matter. Likewise, those expecting to see the close synchronisation between UK and US policy rates that held during much of the Great Moderation to reassert itself as rates begin to normalise need to remind themselves about the differences in the extent of the recoveries in the two countries to date. The US economy has been growing for almost 4 years; the UK for barely 6 months. The level of US GDP is 5% above its pre-crisis level; UK GDP is 3% below. Its levels not growth rates that matter. I don’t know how quickly Bank Rate will begin to rise. That will depend critically on the extent to which productivity recovers as demand increases. But the MPC’s forward guidance makes clear that, after the worst recession in post-war history and the weakest recovery on record, this time is likely to be different. Its levels not growth rates that matter. Conclusion The financial crisis and its aftermath provided a tough examination of the UK’s inflation targeting regime.
But, the auditor’s role is simply to function as a pointer and not a financial crusader. If he chooses to function as a financial crusader, he may not only embarrass his masters, but also endanger his own position as well. Without any penal power vested in the auditor, it is also practically impossible for him to act as a penal authority. The auditor is a watchdog and not a blood hound Businesses today, specifically those involving banking institutions, are very much complex in nature. Hence, one may rightly question whether the old adage relating to auditing could still serve a purpose. Though the complexity of the businesses has grown tremendously, I feel that the old adage relating to auditing is still valid and relevant. It has demarcated the boundary within which an auditor has to operate. If he steps outside this boundary, the most likely consequence would be the creation of a hostile atmosphere for the auditor to perform his duties. No organization, whether big or small, could function effectively and efficiently in that scenario. This caution is equally valid for both external auditors and internal auditors. The role of the internal auditor Internal audit, as against the external audit, is the first safeguard available to the management and owners to run their business free from financial irregularities and misbehaviour. Internal auditor is available on site throughout the period and, therefore, can play his role as an effective watchdog continuously.

The significance of systems and governance principles Given the gigantic nature of the risks faced by banks and the inability to foresee the delivery of external shocks, the life of the internal auditor is made miserable today. He has to function as an effective watchdog. But, he does not possess a set of well tested paraphernalia to do this job. He may be an honest, genuine and committed worker. But, the rest in the organization may not be so to the same degree. Hence, any mishap can occur without warning or the knowledge of the internal auditor. If it so occurs, the internal auditor himself is driven to a serious quandary. The way to overcome this risk is to develop and place in place suitable and effective systems, processes and methods across the organization at all levels. The internal auditor could just monitor and ensure that the systems are genuinely and effectively followed by all. An important element which also helps him to perform his job effectively is to introduce and follow to the letter the good governance principles in the organization. These governance principles would bind all in the organization by a common code of ethics. The absence of proper governance will lead to misuse of the resources to the detriment of outside stakeholders. The internal auditor cannot keep a watchful eye on everything that happens in a bank. A good deal of discipline that should be inculcated throughout the bank comes from self-discipline and there again, through the strict adherence to governance principles.
In other countries, for example the United States and Norway, costs for owner-occupied housing are approximated to the cost for renting a comparable property – and this is far less affected by interest rate changes. In the euro area and the United Kingdom, the target is formulated in terms of the HICP index (harmonised index for consumer prices) which does not include costs for owner-occupied housing, only operating costs.11 As Swedish CPI inflation has this characteristic, the Riksbank has, since the introduction of the inflation target, calculated several different measures of inflation and has also regularly let inflation indices other than the CPI guide interest rate decisions. The price index which has played the biggest role in recent years is the CPIF, or the CPI with a fixed interest rate. Unlike the CPI, the CPIF is not directly affected by changes in mortgage rates. CPIF inflation, with energy prices also discounted at times, has functioned as a “steering” variable in such a way that the Riksbank has normally aimed for it to be close to 2 per cent within the forecasting horizon. Major interest rate changes lead to substantial and long-term effects on the CPI Despite this, the target has been formulated in terms of the CPI. As interest rates sometimes go up and sometimes down, the idea has been that the differences in inflation according to the CPI and the CPIF will level out over time.

In this sense, there is no great practical difference between a target range and a point target with a tolerance band. Interval good for illustrating uncertainty I believe there are still grounds for discussing whether the Swedish monetary policy framework should be complemented once again by some kind of interval. As I see it, the main reason would be to remind people that monetary policy is pursued under considerable uncertainty, and that the Riksbank is not able to fine-tune the economy and inflation. It could be seen as paradoxical that it is needed, as the justification for the interval being removed before was that there was widespread understanding for this being the case. My impression, however, is that there is a lingering perception that monetary policy is a tool with a relatively high level of precision and that most things can be managed using well-calibrated policy rate changes. In the discussion about monetary policy, many seem to assume that there are relatively precise relations between the interest rate, inflation and unemployment, a perspective that does not receive much empirical support. This is something to which the Riksbank itself probably has contributed somewhat, as some analyses in our reports could have given this impression. For example, we used to regularly present different interest rate scenarios in the monetary policy reports which were based on the effects of policy rate changes on the economy and inflation being calculated relatively mechanically and with seemingly good precision.
The group has produced recommendations and guides to support defined contribution (DC) pension schemes safely investing in less liquid assets. This is in itself a great investment – DC scheme assets  more than doubled over the last ten years, and are projected  to be around £ trillion by 2035. So the benefits to pension scheme members of long-term investment gains, and to businesses of accessing this pool of capital, will only grow over time. We also need the right structures to facilitate long-term investment, which links back to our focus  Page 11  on financial stability. Like the CFOs looking to fund long-term projects with long-term investment, we worry when non-bank financial institutions pair illiquid assets – things you can’t sell or exit in a hurry – with short-term liabilities. If investors pull out, the financier needs either to sell assets at a discount, or stop withdrawals – as we saw with commercial property funds in Brexit and Covid. And because once you suspect others of withdrawing it is rational to do so yourself, ‘run dynamics’ can escalate quickly. That’s why the FPC has been supportive of work by the Productive Finance Working Group, the FCA and others on the long-term asset fund (LTAF) – a new type of UK fund structure specifically designed for investment in long-term, less liquid assets. From an FPC perspective it ticks the boxes for both our primary and secondary objectives. And just last month the FCA authorised the first LTAFs – hopefully the first of many.

Page 1  Investing in financial stability − speech by Sarah Breeden Given at the Insolvency Practitioners Association annual conference  Page 2  Published on 27 April 2023  Sarah Breeden discusses why we monitor corporate debt given its impact on financial stability. She goes on to explain how the financial system can assist longterm productive investment and where it can do more to support business investment. Speech Introduction I suspect I won’t need to convince this audience of the importance of corporate debt and financing conditions. What I’d like to do instead is explain why the Financial Policy Committee (FPC) cares about them. The FPC has two objectives: a primary one to maintain financial stability, and a secondary one to support economic growth. The supply of finance to the corporate sector touches on both. For our primary objective we look to ensure that risks to financial stability aren’t generated by excessive levels of corporate debt – where indebtedness might build in an upswing and lead to a damaging credit crunch in a downturn. And for our secondary objective we want to make sure the financial system is supplying enough long-term, stable funding to allow businesses to make productive investments, and finance major economic transitions such as the journey to net zero. So, in both cases, stability is our watchword. We are aiming at a supply of business finance which is stable through the economic cycle – avoiding damaging swings from credit boom to bust.