samchain/econo-pairs-v1 huggingface dataset:
Heavy lending by commercial banks swells their balance sheets and weakens their equity positions by the same token. The combined equity ratio of the three commercial banks was 10.21% at the end of 1999, but was down to 9.35% at the end of 2000. The mandatory minimum equity ratio is 8%. In part the equity position is maintained with subordinated loans, as authorised by law; excluding these, the equity ratio was 7.93% at the end of 1999 and went down to 6.28% at the end of last year. This is a cause for concern, as the Central Bank has repeatedly pointed out. It leaves the commercial banks worse equipped to tackle tougher economic times than would otherwise be the case. Inflation Overheating of the economy generated inflationary pressures after spring 1999. Inflation gradually climbed in 1999 and until spring last year, when the twelve-month rate of increase measured 6%. It slowed down again as the year wore on and measured 3.5% from the beginning to the end of the year. Over the twelve months until the beginning of March this year, inflation was 3.9%. Both domestic overheating and external conditions contributed to the high inflation figure shown last year. Three main factors were at work. Housing prices led to a 1.25% increase in the Consumer Price Index. Petrol prices pushed the CPI up by just under 0.25%, compared with almost 1% the previous year. Finally, market services, i.e.

One response to labour shortages was to bring in workers from abroad, which together with longer working hours has prevented wage drift from being felt on any great scale. Labour market surveys, however, show contrasting pictures in the Greater Reykjavík Area and regional Iceland. There is an obvious shortage of labour in various fields in the urban southwest, while availability of employment declined in the regions. Great pressure built up in the real estate market, largely reflected in a rise in real estate prices in the Greater Reykjavík Area. Prices peaked at the beginning of 2000 after increasing by almost 24% over a twelve-month period. This rate of increase has now begun to slow down, and by the end of December real estate prices had risen by 13.3% over the preceding twelve months. Credit expansion In the course of the growth period, generous wage agreements were made which boosted real disposable income. The greatest increase in real disposable income was in 1998, or 7.2%. Otherwise it rose by 4-5% annually until last year, when the figure was close to 2%. Over this period, Iceland Stock Exchange has gone from strength to strength. An important equities market has evolved in Iceland, and share prices followed an upward trend until last year. Greater real disposable income and rising share prices, which at least for a while increased shareholders' confidence in their own prosperity, fuelled growing optimism among consumers and investors.
The introduction of the SNB policy rate in June 2019 marked the end of the SNB’s use of Libor in its monetary policy strategy. With this change, the SNB also eliminated Libor as its communication instrument. The change sent a clear signal to the financial markets that the end of the Libor era is inevitable. In addition, the switch ensured that our conditional inflation forecast for the next three years, a core element of our monetary policy strategy, will continue to be based on an existing and economically meaningful interest rate over the entire forecast horizon. To be sure, the significance of the money market extends far beyond its use in the transmission of monetary policy. The money market also plays a vital role in the economy’s credit transmission process. If money markets do not function properly, the credit extension process across the entire financial system will deteriorate, with serious consequences for the real economy. In times of financial system stress, ensuring that the money markets continue to function well becomes even more consequential, because efficient liquidity redistribution between banks and unencumbered lending are especially important for the economy in such circumstances. During the Global Financial Crisis from 2007 to 2009, the money markets were regularly compared with the bloodstream of a living organism, delivering oxygen to the body’s vital organs. The coronavirus crisis has certainly confirmed the fundamental importance of having well-functioning money markets. Finally, money market interest rates serve as reference rates for the whole economy.

As a general rule, the forward price of a currency comprises the spot price plus the interest rate differential between the two currencies. However, for some time now, this rule has only applied to a limited extent for most major currencies. There are several possible explanations for this distortion: on the one hand, a greater need on the part of investors to hedge currency risk; on the other, a decline in bank arbitrage options resulting from more stringent regulations. 3 As chart 6 shows, this has created a situation in which it has become more expensive for foreign issuers to raise Swiss franc capital on a hedged basis. 4  1 2  3 4  Excluding mortgage loans to corporations. If mortgages were included, bank loans would account for an even larger share of corporations’ external financing. Following the introduction of negative interest, capital market rates once again fell much more strongly than bank lending rates. Despite the fall in capital market rates, the banks did not lower – or only partially lowered – their deposit rates to prevent customers from withdrawing their deposits; customer deposits are a stable source of financing. Equally, banks could not simply cut their lending rates in an effort to head off a decline in their interest margin. Cf. Zurbrügg, Fritz (2016), ‘Negative interest rates: necessary from a monetary policy perspective – but with what risks for the banks?’, speech held at Volkswirtschaftliche Gesellschaft des Kantons Bern on 24 November 2016. Cf. Borio, Claudio et al.
Paper presented at the Federal Reserve Bank of Kansas City Economic Policy Symposium, Jackson Hole, WY. August. 12  BIS central bankers’ speeches

Ravi Menon: Introducing Mark Carney Introductory remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the 2014 Monetary Authority of Singapore Lecture, Singapore, 17 November 2014. *  *  *  Mr Mark Carney, Governor, Bank of England, Deputy Prime Minister and Chairman, MAS, Tharman Shanmugaratnam, Ambassadors, distinguished guests, friends and colleagues, good morning, Welcome to the eighth MAS Lecture. First held in 2000, the MAS Lecture has over the years featured several eminent members of the international financial community who have offered their perspectives on important economic and financial issues. Today, Mark Carney joins that distinguished band of leaders in finance, and it is my pleasure to introduce him. Carney has the rare distinction of serving as governor for not just one central bank but two: •  From 2008 to 2013, Carney was Governor of the Bank of Canada, playing a major role in helping Canada avoid the worst effects of the Global Financial Crisis. •  And since the middle of last year, he has been Governor of the Bank of England, the first time that a non-Briton has taken the helm of that hallowed institution in its 320-year history. •  Perhaps the transition was made easier by the fact that the appointments of both the Governor of the Bank of England and that of the Bank of Canada are made in the name of the Queen.
At the same time Congress constrained one potential source of liquidity in the event of a crisis— Section 13(3) —it also created a new source of liquidity in Title II of the Dodd-Frank Wall Street 8 3/6  BIS central bankers' speeches  Reform and Consumer Protection Act 8, which established the Orderly Liquidation Authority (OLA) and the Orderly Liquidation Fund (OLF). In the Dodd-Frank Act, Congress expressed its preference for the use of “ordinary insolvency” under the Bankruptcy Code.9 However, Congress also recognized the importance of establishing an alternative resolution mechanism with features tailored for resolving a systemically important firm, and in a way that minimizes moral hazard.10 OLA includes a public sector resolution authority—the FDIC, an agency well-versed in resolving depository institutions under the Federal Deposit Insurance Act (FDI Act) and working with other domestic and international authorities. OLA empowers the FDIC to step into the shoes of the failing institution to resolve a “financial company” at the corporate group level. The FDIC must ensure that responsible managers and directors are removed, and the FDIC or Federal Reserve Board may seek certain industry bans for culpable directors and senior executives. OLA also includes the OLF. Congress recognized that the ability of the FDIC to borrow funds from the Treasury Department to provide emergency liquidity to a failing systemically important institution is crucial to the success of its resolution.

The largest firms must be prepared for a rapid and orderly resolution under the US Bankruptcy Code.6 Among other things, these firms must now also ensure that critical activities or services provided to the market will not be disrupted in the event they find themselves in recovery or resolution. Moreover, if an institution fails, there must be sufficient tools to manage its failure in a way that reduces the chance that its failure will cascade systemically through the financial system. In other words, if one institution gets a cold—or worse—it should not become an epidemic. The Fed’s use of Section 13(3) during the crisis was not uncontroversial. Concerns were expressed about moral hazard—that the Fed was somehow “bailing out” troubled institutions and that this would only lead to excessive risk taking in the future.7 As a result of this concern and others, Congress amended Section 13(3) to prevent the Fed from engaging in the kind of institution-specific lending that was directed at Bear Stearns and AIG. Going forward, the Fed may only lend under Section 13(3) as a part of a broad-based program directed at providing liquidity to the financial system and not to aid an individual failing firm.
So we have seen financial firms outsourcing functions like IT support, systems development and HR both within the UK and Europe and to India. That too seems likely to continue so further growth of trading and management in London may well not lead to proportionate growth in jobs. On current trends we might expect a greater concentration of high value, high skill jobs in London. Conclusion So back to my question: wave or persistent stream? The answer is, as you will have spotted, both. Readers of the Bank’s Financial Stability Report (next edition due next month) – or those that have read the financial news – will know that the financial markets have been buoyant recently; in particular the premia for risks in the credit market are very low and profit growth and bonuses have been spectacular. Some of this may well be the crest of a wave. However, for the reasons I have set out this afternoon, London is also benefiting from a longer lasting and a strong current. We may expect that cycle to turn at some stage – and London will be affected because of its international position. But there are good reasons to expect London to further enhance its position as a global financial centre in the long term. And that will have implications for the rest of the economy and the risks it faces. It will continue to affect the labour market, the housing market, and the distribution of wealth and income.

Second, one would also like to ascertain whether the presence of an implicit subsidy does lead to higher risk taking, and the quantitative importance of this effect. The third question has to do with regulation, i.e. : “what can be done to address this issue?” It seems that there are three main approaches: •  Some regulatory measures try to eliminate possible symptoms of the implicit subsidy. For instance, proposals on restrictions on bank market activities have been justified by the objective of limiting the implicit subsidy to non-traditional banking activities. •  Another approach is to directly target the underlying cause of the problem, for instance by making easier the resolution of problems at large banks without resorting to taxpayer money. Some progress has been achieved in the US (through the Orderly Liquidation Authority), and in Europe (through the Recovery and Resolution Directive). •  A third approach, illustrated by the G-SIBs framework, is to offset the implicit subsidy with additional capital and bailinable debt requirements the so called TLAC or other regulatory measures. Concluding remarks To conclude, I would offer two remarks which you may want to keep in mind. The first remark has to do with the comparative advantage of too-systemic-to-fail institutions, and in particular of global systemically important banks. In reaction to the crisis, many regulatory reforms have been put in place on capital and liquidity, credit exposure to counterparties, supervision, and trading activities.
The fact that firms deemed by the market to be TBTF enjoy an artificial subsidy in the form of lower funding costs distorts competition to the detriment of smaller, less complex firms. This advantage, in turn, creates an unfortunate incentive for firms to get even larger and more complex. The funding benefit of being seen to be TBTF causes the financial system to become artificially skewed toward larger and more complex firms – in ways that are unrelated to true economies of scale and scope. Now to be clear, I don’t believe that firms necessarily deliberately set out to become TBTF. Nor do I think that TBTF was the main cause of the breakdown in market discipline that preceded the financial crisis. Many factors were at work, including the failure to grasp the riskiness of new types of credit products and business models, and principal-agent problems such as the “trader’s put”. But I do think TBTF contributed to the underpricing of risk in the system and did create a bad set of incentives, and if not addressed comprehensively, would likely be an even larger problem in the future. So how did the problem become so serious? The TBTF problem is not new. For example, the FDIC (Federal Deposit Insurance Corporation) and other federal regulatory agencies intervened to prevent the abrupt failure of Continental Illinois, then the seventh largest bank in the United States, in the 1980s.

Also, the OTC derivatives business in foreign exchange, interest rate swaps and credit default swaps had exploded from its start in the early 1980s. The total notional value of the OTC derivatives outstanding for the five largest banks and securities firms currently totals about $ trillion. During this period, there was inadequate attention to the risks that were building up in the system. The regulatory and supervisory framework did not keep up with the changes in size, complexity, interconnectedness and globalization that created growing systemic risk externalities and widened the wedge between private and social costs in the event of failure. Let me mention just a few of the issues: •  Capital regulation was lax both in terms of the amount of capital required and the quality of that capital. As a result, many banks did not have the capacity to absorb large shocks and retain access to wholesale funding. •  The oversight of the largest securities firms was particularly deficient in terms of ensuring that these firms had sufficient private resources to deal with shocks. The industry was also particularly exposed because in the United States, there was (and remains) no lender of last resort backstop for the securities industry except in extremis.3  •  Although global integration brought with it a number of benefits, regulatory coordination did not keep pace with the globalization of financial firms and markets. This allowed the potential magnitude of the negative externalities associated with the failure of globally active firms to expand considerably.
The second principal-agent problem, between firms and the authorities, is different in kind but similar in consequence. It arises because of a familiar public policy problem – timeconsistency. If the ex-post failure of an institution risks destabilising the system, any ex-ante pre-commitment by the authorities to let it fail will lack credibility. This is simply a variant of the old adage that if you owe the bank a small amount it is your problem, a large amount it is theirs. These days, if a bank owes a small amount it is their problem, a large amount it is the authorities. This time-consistency problem weakens incentives for banks to consider for themselves large-scale risks to their balance sheet which might induce failure. The safety net becomes a comfort blanket, the backstop a balm. And the greater the risk these institutions themselves pose in the event of failure, the weaker the incentives to manage risk. These are topsy-turvy incentives from a public policy perspective, with risk management discipline weakest among those whom society would wish it to be strongest. And the evidence? A few years ago, ahead of the present crisis, the Bank of England and the FSA commenced a series of seminars with financial firms, exploring their stress-testing practices. The first meeting of that group sticks in my mind. We had asked firms to tell us the sorts of stress which they routinely used for their stress-tests.

Jean-Pierre Roth: The economic situation – la vie en rose? Summary of a speech 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 a meeting with representatives of Ticino industry, Centro di studi bancari, Vezia, 28 November 2006. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  It is true that our exports continue to benefit from a buoyant global economy, that areas of concern such as the volatility of oil prices or the possibility of a significant and lasting downturn in the US economy have partially receded, and that the current economic recovery has led to an improvement in the labour market without endangering price stability. Is this la vie en rose (living life through rosetinted spectacles)? A brief outline of the situation in the national and international economies is given, indicating that the overall perspective remains favourable. It concludes with a concise evaluation of the risks, showing that the current euphoria may conceal significant risks that we must not lose sight of. BIS Review 116/2006  1
…and gives vulnerable groups of unemployed a better chance of getting jobs It is also often said that more of those in vulnerable groups with a high rate of unemployment, such as young people and people born abroad, have entered the labour market and that this, rather than the business cycle, explains why unemployment has increased.18 However, it is the vulnerable groups that are most sensitive to economic fluctuations. They are the first to be given notice of redundancy if they have a job, and they are the last to be offered a job if they are unemployed. They are thus more vulnerable to fluctuations in the demand for labour and if they are to get jobs and work experience if they are unemployed, we need to have a very large demand for labour and thus very expansionary monetary policy. As a large share of the labour force now has job chances that are sensitive to demand, one could claim that employment as a whole has now become more sensitive to demand fluctuations. Increased demand could then have greater effect on employment and unemployment than it did before. The fact that more people in vulnerable groups have now entered the labour market is thus an argument in favour of a more, not a less, expansionary monetary policy. High unemployment over a long time requires more expansionary monetary policy to bring down unemployment The fact that unemployment has been high over a long period of time has meant that longterm unemployment has increased.

The standard response to the question of whether missing a target leads to real-economic costs is no. This is because average unemployment, according to established theoretical and empirical research, is independent of monetary policy and the inflation rate. However, this presupposes that inflation expectations adjust to  8  The fact that the monetary policy conducted in the period 1997 to 2011 led to an unemployment rate that on average was 0.8 percentage points higher than would have been the case if the average inflation rate had been on target means that average disposable income has been lower – that is, that disposable income has grown at the same average rate but at a somewhat lower level. However, this does not affect the ratio between average housing prices and disposable income – which depends on the low mortgage rate after tax – and thus, at a given loan-to-value ratio, not the debt ratio either. 9  See Assenmacher-Wesche and Gerlach (2010), Claussen, Jonsson and Lagerwall (2011) and Kuttner (2012) for similar results regarding the impact of monetary policy on housing prices. 4  BIS central bankers’ speeches  actual inflation and thus fall if the rate of inflation falls. The long-run Phillips curve, which illustrates the relationship between average inflation measured along the vertical axis and average unemployment measured along the horizontal axis, then becomes vertical and average unemployment thus becomes independent of the average rate of inflation.