samchain/econo-pairs-v1 huggingface dataset:
2) In recent months, as a prior step to the SSM taking over supervisory competences, an assessment has been made of significant institutions, the aim of which is to enhance transparency in respect of their position and to reinforce their solvency. The outcome of this exercise will help the SSM to assume its functions with accurate knowledge of the actual situation of the banks it will directly supervise. The exercise is now close to completion and its results will be made known before the end of this month. It comprises two phases: an asset quality review and a stress test, on which the Banco de España has been working intensely for several months in cooperation with the ECB. The first phase, namely the assessment of the quality of the assets associated with credit and market risk, consisted of verifying the accuracy of the figures and of reviewing asset and collateral values, along with the related provisions (with the collaboration of audit firms). On the basis of the results obtained, exposures have been classified as standard or nonperforming, based on the level of risk, with the ECB imposing painstaking quality control of the results of the review. A stress test is an analysis of credit institutions‘ capacity to absorb losses, evaluating their resilience in different scenarios. The exercise indicates how much capital might be needed were risks to materialise, and it helps highlight areas where supervisory action might be necessary.

Luis M Linde: Overview of the Spanish economy and progress on banking union in Europe Testimony by Mr Luis M Linde, Governor of the Bank of Spain, before the Parliamentary Budget Committee in connection with the draft State Budget for 2015, Madrid, 1 October 2014. *  *  *  Ladies and gentlemen, As is habitually the case, my appearance before this Committee at the start of the parliamentary process to discuss and approve the Budget will focus on the developments in and the outlook and challenges for the Spanish economy, which are the framework for economic policy measures. On this occasion I shall also refer, at the end of my address, to the progress on banking union in Europe. As you know, the Single Supervisory Mechanism will begin to operate in early November, marking a milestone on the road taken to overcome the fragilities in the architecture of the European Monetary Union. The external setting of the Spanish economy I shall begin with a reference to the external setting of the Spanish economy and to the monetary policy we share with the euro area countries. The world economy remains on a course of progressive recovery which, on available forecasts, could place GDP growth at a rate of around 3.5% this year, and closer to 4% in 2015. The performance of the different global regions remains, however, very uneven. While recovery is firming in the United States and in the United Kingdom, the Japanese economy appears to be losing momentum.
That is a truly terrible choice and so the key thing is to find a new set of measures that can be deployed to give us a tolerable course. That set of measures is what constitutes a resolution regime. It is not about making things perfect. It is about coping. We can all learn from the US’s special resolution regimes in this respect, including the extensions in scope to bankholding companies and non-bank financial firms affected by the Dodd-Frank Act. But there are things being debated in Europe and in the international community that may even supplement the toolbox that exists already in the United States. One of them is the potential ability for the resolution authority to haircut creditors and partially convert debt into equity in what is otherwise a firm with a viable underlying franchise and so potentially a going concern. This would be an adaptation of Chapter 11 regime in the US rather than the standard special resolution toolkit for banks. This set of issues is, at its very core, a cross-border endeavour. We will not get far on this front without much more intimate and trusting co-operation between home country supervisors and resolution authorities and host country authorities. We should not exaggerate the extent to which this has worked well in the past. Supervisors even admit that behind closed doors.

The 15 per cent risk weight floor is a welcome initial step in partly compensating for the higher loan-to-value ratios of households in relation to disposable income and lower amortisation levels, which could lead to high credit losses ahead. In my opinion, however, risk weights for mortgages need to be raised even further. Not least to better internalise the external effects associated with such lending – for example, the risks to financial stability which may ensue from the drop in consumption of highly indebted households in the event of a decline in house prices. We also need measures which strengthen the buffers of households and contribute to curbing credit growth in the household sector more permanently. It would be preferable if the banks themselves took the responsibility for sounder lending practices. But, if this does not happen soon enough, and forcefully enough, then the authorities must intervene.There are many so-called quantitative regulations which can be used for this. The mortgage cap introduced by Finansinspektionen can be adjusted, and limitations can be introduced on the size of a loan in relation to the household’s income. Another tool is introducing an amortisation requirement, which directly reduces household indebtedness. I believe that, in the current situation, separate amortisation requirements should be considered to supplement the existing measures. Stricter credit terms can also be achieved with so-called qualitative measures which affect borrowing capacity. It would then be a matter of tightening banks’ credit assessment procedures, which can be done in several ways.
Changing market structure Let me highlight a few of the changes in the financial structure that are germane to the mandate of the Federal Reserve. They are: •  The greater systemic importance of a smaller number of large bank-centered financial institutions;  •  The greater role played by non-bank financial institutions;  •  The growth of the GSEs;  •  Greater operational demands on the core of the clearing and settlement structure;  •  An increase in the complexity of risk management and compliance challenges; and  •  The extent of global financial integration. These are not all that new, and not all are unique to the United States, but taken together they are significant. Most conspicuously, we have seen the emergence of a small number of very large, complex, bankcentered financial institutions that now account for a substantial share of the assets and liabilities of the U.S. banking system. The top five domestic bank holding companies now hold about 45 percent of banking assets, almost twice the share as they did 20 years ago. BIS Review 55/2004  1  The earnings capacity of these very large banking institutions, the absolute size of their capital cushions, and the diversity of their activities, geographic and functional, should make them less vulnerable to specific shocks and better able to absorb larger shocks than has been true in the past.

It’s not clear at this point how the SEC’s regime will work in practice, but it seems to offer the prospect of some evolution in the regulatory framework for investment banks in the direction of convergence with those that apply to bank holding companies. That is, the proposed new CSE regime will add a consolidated approach to risk based capital and an intensified focus on the risk management regime to the traditional SEC focus on enforcement of laws directed at investor protection and market integrity. A second point is that it is important that those who run financial institutions calibrate the strength of the internal risk management architecture to the more complicated nature of the risks they confront. Even with the major improvements in capital, earnings capacity, and in the sophistication of the risk management framework, there remain many aspects of the changing financial environment which pose ongoing challenges for management. The degree of concentration at the core of the financial system means that financial institutions have to think more carefully about the implications of the failure of a major counterparty or clearing organization. The increase in the combined weight of the highly leveraged financial institutions as a group highlights the importance of both strong counterparty risk management disciplines in managing  4  BIS Review 55/2004  direct credit exposure, and understanding the impact a disorderly exit would have on other positions held by the firm.
The world economy, including the euro area, is still undergoing a severe downturn, with the prospect of both external and domestic demand remaining very weak over 2009 before gradually recovering in the course of 2010. This assessment incorporates a number of adverse developments which are likely to materialise over the coming months, such as a further deterioration in labour markets. At the same time, available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council’s aim of keeping inflation rates at levels below, but close to, 2% over the medium term. The outcome of the monetary analysis confirms that inflationary pressure has been diminishing, as money and credit growth have further decelerated in recent months. Against the background of these developments, after  BIS Review 56/2009  1  today’s decisions we expect price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Let me now explain our assessment in some more detail, starting with the economic analysis. Reflecting the impact of the financial market turmoil, economic activity continued to weaken in the euro area in the course of the first quarter of 2009, in parallel with the ongoing downturn in the world economy. This weakening in the first quarter appears to have been significantly more pronounced than projected in March. More recently, there have been some tentative signs in survey data of a stabilisation, albeit at very low levels.

This may partly reflect market participants’ investment responses to the past reduction in the key ECB interest rates, which has reduced the remuneration of short-term deposits and marketable instruments and fostered corresponding shifts in the allocation of funds not only within M3 but also to instruments outside M3. The outstanding amount of MFI loans to the private sector contracted further in March, reflecting mainly a negative flow of lending to non-financial corporations. The reduced amount of financing is again related mainly to loans with shorter maturities, while the net flow  2  BIS Review 56/2009  of loans with longer maturities remained positive. The decline in short-term lending is likely to reflect to a large extent lower demand in the wake of a sharp deterioration in economic activity and business prospects at the start of the year. Interest rates on short-term and floating rate bank loans to households and non-financial corporations have declined significantly over recent months, indicating that the transmission of monetary policy impulses to the economy continues. Overall, the latest money and credit data support the assessment that both banks and money-holding sectors are reducing their highly leveraged positions built up in past years. To sum up, the Governing Council’s decisions today take into account the expectation that price developments will continue to be dampened by the substantial past fall in commodity prices and the marked weakening of economic activity in the euro area and globally.
Distinguished Guests, Let me first talk about the growth momentum and economic stability. In spite of the political transition over the past year, the Thai economy is expected to turn in a satisfactory growth rate in the range of 4-5 percent in 2007. This year, the main growth driver has continued to be exports. Domestic demand has however been affected by dampened consumer and investor confidence, linked primarily to political uncertainty. In July, private consumption remained close to the level recorded in the first half of the year. I am hopeful that once the general election date is scheduled and the cloud of political uncertainty has lifted, consumer confidence would rebound. Investment has shown signs of improvement during the second quarter of this year. There also appears to be a pent-up appetite for investment in view of the continued high capacity utilization of 75 percent as of July. Moreover, investment promotion applications to the Board of Investment have also pointed to a pick-up in investment once the investment climate becomes more favourable. I also expect investment to play a stronger role as growth driver, in line with the consumption recovery. This will be a welcomed development to promote a more balanced economy. The slower domestic demand has also been mirrored by moderate growth of private credits. Nevertheless, the banking system is strong, with the BIS ratio of 15 percent at end-July 2007, while net NPL amounted to 4.4 percent of total loans.

For regulation to respond dynamically to changing circumstances in order to preserve systemic stability, macroprudential policy is needed. In the United Kingdom, the primary objective of the new Bank of England Financial Policy Committee (FPC) is to protect and enhance the resilience of the UK financial system, with a subordinate objective of supporting growth and employment. As well as being able to make Recommendations to the UK prudential supervisors and securities regulators on anything relevant to stability, Parliament has given the FPC power to direct changes in capital requirements for banks. Macroprudential tools and system resilience In some ways, the effects of a temporary change in macroprudential capital requirements will be similar to a permanent change in the capital regime. An action to increase banks’ equity base by, say, 10% will increase their loss-absorbing capacity by 10%. That leaves the system better placed to cope with losses should they crystallise. As such, irrespective of whether the action dampens the boom phase of the credit cycle, it will reduce the severity of the bust. Fewer, if any, banks will fail; a tightening in credit supply is therefore less likely to become a full-blown credit crunch; the resulting slowdown in output growth should be less severe; the default rate on bank loan portfolios lower; and so on. I rehearse that because the primary objective of a macroprudential intervention – improving the financial system’s resilience – can be progressed even if the credit boom itself is not tempered much.
Once the state of alert had been declared, the number of sales through public deeds plummeted to a record low in April, falling by approximately 70% year-onyear. In subsequent months the situation improved, although falls of 20% (compared with the previous year) were still being posted in June. In this setting, house prices are estimated to have remained on the gradually slowing path that dates back to the end of 2018, although according to the latest available data, corresponding to June, they are still posting positive growth. Like the economy as a whole, housing investment recorded an unprecedented downturn in 2020 Q2. According to the preliminary Quarterly National Accounts estimate, this component fell by more than 30% compared with the same period in 2019, returning to the lows recorded in the previous crisis. Indicator trends appear to anticipate an upturn in housing investment in Q3, although it is expected to remain below the pre-pandemic level, owing to the worsening outlook for households. Over a longer horizon, the extent to which the housing market will eventually recover once the health crisis is behind us will depend on the degree of persistence of its adverse economic and financial effects. 9  The impact on the financial sector The banking sector The crisis triggered by the pandemic has clearly accentuated the credit, market and operational risks facing the banking sector.

Mario Draghi: The future of the euro – stability through change Contribution from Mr Mario Draghi, President of the European Central Bank, published in “Die Zeit”, 29 August 2012. *  *  *  Across Europe, a fundamental debate is taking place about the future of the euro. Many citizens are concerned about where Europe is heading. Yet the solutions presented appear to them unsatisfactory. This is because these solutions offer binary choices: either we must go back to the past, or we must move to a United States of Europe. My answer to the question is: to have a stable euro we do not need to choose between extremes. The reason this debate is taking place is not the euro as a currency. The objectives of the single currency remain as relevant today as they were when the single currency was agreed. To spread price stability and sustainable growth to all European citizens. To reap the gains of the world’s largest single market and make the historic process of European unification irreversible. To raise Europe’s standing – not only economically but also politically – in a globalised world. The debate is taking place because the euro area has not yet fully succeeded as a polity. Currencies ultimately depend on the institutions that stand behind them. When the euro was first proposed, there were those who said it would have to be preceded by a long process of political integration. This was because sharing a currency would imply a high degree of joint decision-making.
I dare to promise, however, that in one way or another it is going to become more expensive to be a bank. On the one hand, the repo rate is very low just now. We also count on keeping the repo rate low until the autumn of 2010 to meet the inflation target and support the recovery of the Swedish economy. We are also complementing the low repo rate with fixed-rate loans to the banks at longer maturities to ensure that monetary policy has the desired effect. The aim is to contribute to continued low interest rates on loans to companies and households. In this situation, generally introducing regulations that would make it more expensive for the banks to lend would directly contradict this aim. I would therefore like to emphasise that most of the regulatory changes that I will discuss today should not be implemented before the crisis is well and truly over and the situation in the financial system has returned to normal. On the other hand, between 1993 and 2003 the assets of the major Swedish banks increased from 120 per cent of GDP to 140 per cent of GDP, and subsequently – in 2008 – to 370 per cent of GDP. Although the financial crisis is helping to temporarily slow down the rate of increase of the banks’ assets as a percentage of GDP, the historical pattern indicates that the Swedish financial sector will remain sizeable or continue to grow.

In order to give the bank an incentive to quickly phase-out this support in the event that the State did acquire shares, the agreement stipulated that the preference shares would be converted to common stock with extra voting rights if they were not redeemed within three years. The internationalisation of the financial system – a challenge Cross-border banks generate a particularly negative external effect. If a cross-border bank experiences problems in one country, the costs incurred are distributed between the countries in which the bank operates. From the authorities’ point of view, the problem is that it is difficult today to prevent a systemic risk that arises and develops in another country. The principle that is applied in the EU today, the so-called home country principle, states that it is the authority in the country where the company concerned has its registered office that is responsible for supervision. This means that if a bank has a branch in another country the authority in the bank’s home country is responsible for supervision, but if a bank has a subsidiary bank in another country then the authority in the country concerned is responsible. The crisis has demonstrated that the home country principle in its current form is inadequate for preventing cross-border risks. An example inspired by the situation in the Baltic countries may clarify the problem that cross-border banks pose to national authorities. Assume that we have a Swedish bank that borrows in foreign currency on the international market.
At the same time, these periods of change are crucially important for economic development. In the centuries before the 1800s economic growth measured as GDP per capita averaged only 0.1 to 0.2 per cent a year. At that rate, doubling the standard of living took roughly 500 years. The change was obviously hardly noticeable to a single generation. In the first half of the 19th century, when agriculture was transformed in Sweden, GDP growth per capita averaged 0.4 per cent a year. Even at that rate, standards of living did not improve dramatically. From 1850 up to the present, however, per capital GDP has grown at an average annual rate of about 2 per cent, leading to a notable change in our living conditions. With that rate, the standard of living doubles every 35 years, which means that a marked improvement has been experienced by each generation. Concluding remarks The points I have tried to make in the light of the historical perspective can be summarised as follows: •  Despite falling prices for IT shares and the economic slowdown in the United States, the IT revolution has come to stay. In fact it has only just started. •  The development of the new information technology will continue in the coming decades and bring about considerable changes in many walks of life. This refers, of course, to new production processes, new products, new forms of consumption and new consumable goods and services. This may affect the location of production and thereby employment.

This can be seen in chart 5, which shows the example of interest rate differentials between Germany and Switzerland for three-month, two-year, five-year and ten-year maturities. While interest rates on the money and capital markets declined as a result of negative interest, mortgage rates did not decrease to the same extent. Indeed, for mortgages with longer terms, rates are slightly higher than they were at the beginning of the year. The main reason for this divergence is that a major part of bank refinancing costs consists of interest paid on savings deposits, which has not fallen below zero as did interest rates on the money market. Because interest on savings deposits is significantly higher than the money market interest rate, bank interest margins came under pressure after they had hedged the interest rate risk associated with their mortgage business, and some mortgage rates were increased. Fears that negative interest might contribute to a significant decline in mortgage rates and, in turn, to stronger growth in mortgage lending have so far proved unfounded. For investors, by contrast, the current low interest rate environment means that the challenges have increased. It is even more difficult for them to find yield-bearing investments. I should emphasise, however, that this investment predicament is an international phenomenon and not limited to the Swiss franc alone. Conclusion I will now come to my concluding remarks. Initial experience has shown that the interest rate instrument is also effective in negative territory.