samchain/econo-pairs-v1 huggingface dataset:
I believe that the requirements were the outgrowth of at least four major considerations: 1. What type of losses could banks expect to occur in a crisis? In other words, how thick a buffer was needed to absorb shocks? This is represented by the 2.5 percent capital conservation buffer. Although this is not thick enough to protect every bank in every crisis, it does create a loss-absorbing cushion so that banks will retain their ability to access the capital markets even after incurring significant losses. 2. How much common equity must a bank hold to be viewed as viable by financial market participants? This is important because beyond a certain point banks lose their access to the capital markets, and this makes failure much more likely. The 4.5 percent minimum common equity requirement is set at a high enough level so that a bank operating above this level would very likely still be able to access the capital markets to replenish its capital base after large losses. 3. What was achievable internationally? It is important to have international convergence in terms of standards. This is necessary to minimize competitive inequity and to avoid creating incentives for a race to the bottom. If standards differed markedly around the world, then the conversation would inevitably shift to “what will help my banks competitively” from “what levels of capital do we need to have a sound financial system”. 4. What is the appropriate tradeoff between benefits and costs?

Third, higher bank lending spreads almost certainly will push some activity into the capital markets, constraining the magnitude of the rise in total lending costs. Finally, banks may be forced via competitive pressures to lower their compensation levels. By cutting compensation costs, banks could have smaller lending margins and still earn sufficient profits to generate a level of returns necessary to attract capital. Given all the potential margins for adjustment, there are good reasons to expect that the increase in lending margins will actually turn out to be quite modest. Although any increase will be a real cost, this appears to be a necessary and appropriate price to pay for a much more resilient financial system. The cost represented by higher lending spreads has to be weighed against the benefits of a more robust and resilient banking system. Recent years have surely taught us that easy access to credit that is underpriced because it is not backed by sufficient capital is not a sustainable route to prosperity. Indeed, to the extent that tougher standards reduce the misallocation of resources in the real economy that often accompanies periods of financial excess, ensure more consistent access to finance over time and encourage investment by holding out the prospect of greater economic stability, the new standards could be consistent with a more rapid sustainable growth rate over the long run.
Via the effects on inflation, asset prices are thus taken into account in the formulation of monetary policy, although they do not feature explicitly in the target variable. However, the simple use of financial asset prices as indicators is not a panacea for the central banks’ forecasting problems. Asset prices can move for a variety of reasons. Understanding those reasons is important in determining the appropriate monetary policy response. For example, if a rise in share prices stems from increased productivity and thus from expectations of higher future profits, the implications for monetary policy would be very different from a case with no such fundamental reason for the higher share prices. This raises a number of questions. The first pertains to the relative informativeness of different kinds of asset prices. The second is how to integrate the information obtained from asset prices with other macroeconomic information. Notwithstanding the empirical evidence of the indicator properties of asset prices, the causal relationships between asset prices and real macroeconomic variables have 1  BIS Review 51/2000  proved to be more difficult to understand and model. But, as I have just illustrated, the answers to these questions can be very important for monetary policy. It seems quite clear that central banks cannot afford to adopt a view of asset markets as merely “side-shows”. There can be other, sometimes less straightforward, situations where monetary policy has reason to react to movements in asset prices even though the effect on inflation is negligible.

Will an inflation targeting regime lead to a larger or smaller risk of imbalances building up compared to a monetary targeting regime? These highly relevant questions are being asked by a number of central banks in emerging markets that have recently been forced to abandon a fixed exchange rate policy that was no longer sustainable. The papers to be presented at this conference will hopefully throw some light on a number of the questions I have raised here this morning. I look forward to learning what our distinguished guests have to say on these matters. 3  BIS Review 51/2000
Overall, despite the moderation in loan growth, the figures on lending do not so far suggest that the heightened financial market tensions led to a sizeable curtailment of credit in the euro area as a whole in the period to November. At the same time, given that credit supply effects can manifest themselves with lags, close scrutiny of credit developments is warranted in the period ahead. The soundness of bank balance sheets, supported by the increase in capital positions, will be a key factor in facilitating an appropriate provision of credit to the economy over time. It is essential that the implementation of banks’ recapitalisation plans does not result in developments that are detrimental to the financing of economic activity in the euro area. To sum up, incoming information broadly confirms our previous assessment. Inflation is likely to stay above 2% for several months to come, before declining to below 2%. As expected, ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of a stabilisation in activity at low levels. The economic outlook remains subject to high uncertainty and substantial downside risks. In such an environment, cost, wage and price pressures in the euro area should remain modest and inflation rates should develop in line with price stability over the policy-relevant horizon. A cross-check with the signals from the monetary analysis confirms this picture, with the underlying pace of monetary expansion continuing to be moderate.

This pattern reflects the expectation that, in an environment of weaker growth in the euro area and globally, underlying cost, wage and price pressures in the euro area should remain modest. The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced. On the upside, the main risks relate to further increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years, and possible increases in commodity prices. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally. Turning to the monetary analysis, taking the appropriate medium-term perspective, the underlying pace of monetary expansion continues to be moderate. The annual growth rate of M3 decreased to 2.0% in November 2011, after 2.6% in October. As in the previous three months, monetary developments in November were affected by the heightened uncertainty in financial markets. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, decreased to 1.9% in November, from 3.0% in October. The annual growth rates of loans to non-financial corporations and loans to households, adjusted for loan sales and securitisation, both moderated in November, and stood at 1.8% and 2.3% respectively, with slightly negative monthly flows observed for MFI loans to non-financial corporations.
BIS Review 154/2010  7  Today’s economic policy frameworks are partly a reflection of the experiences of the 1970s and 1980s, both in other countries and in Norway. The Bretton Woods system collapsed when the US deficit-financed the Vietnam War and extensive welfare reforms, while interest rates were kept low. The gold standard had to be abandoned, inflation rose and an oil price shock was triggered. A shortfall in production and unemployment followed in its wake. Norway imported high inflation, and domestic inflation was also amplified by galloping wages and a series of krone devaluations. High inflation undermined the regulation of the credit market. We had had a low nominal interest rate for a long period – several decades – but inflation had also been moderate. From the end of the 1960s, this changed. The real interest rate became highly negative. In addition, galloping wages drove incomes into higher tax brackets, resulting in higher marginal taxation, and the after-tax real interest rate became even more negative. The regulation of credit was not able to stem the tide of credit demand that ensued. The Norwegian money market became more closely integrated with a growing Eurodollar market at that time. This was partly because oil companies had to exchange their US dollar revenues into NOK for tax payment purposes. The regulatory regime was imploding.

It is important to keep this in mind in any judgement of Rygg – that he took over an estate that had fallen into grave disrepair. The monetary and fiscal policy pursued during World War I had been lax to a degree that was completely unnecessary”. 12 Norges Bank now aimed to raise the value of the Norwegian krone and lower the price of gold by means of so-called “parity policy”. This line of approach was followed by most advanced economies to restore pre-war exchange rates. A system of stable and convertible currencies was regarded as essential to growth in global trade. Rygg moreover regarded restoring the value of the krone to its former gold parity as a moral obligation. 13 The Norwegian government held substantial debt in sterling and US dollars and he felt it was important to settle Norway’s debts in money of the same value as previously. The same applied to small depositors – they were to feel secure that their money would keep its value over time. 14 But the central bank also had a banking crisis to deal with. Funding was supplied, partly by Norges Bank and partly by the Treasury, to keep the banks afloat. It took time to restore confidence in the krone and for parity policy to be effective. It was not until May 1928 that the krone was pegged to gold at par.
The chart shows the planned use of the real return on the Petroleum Fund, measured by the government budget’s structural, non-oil deficit as a percentage of mainland GDP. We see that the plans call for a gradual increase in the use of petroleum revenues over the government budget. This can contribute to avoiding abrupt shifts in demand. BIS Review 7/2002  9  The chart shows that the expansionary impetus varies substantially and is greatest in the first few years. The value of the Petroleum Fund will vary over time as a result of variations in the transfer of capital due to fluctuations in the oil price, petroleum production and the return achieved by the Fund. How the guidelines are to be applied has been discussed thoroughly in various political documents. The expected real return shall be used as a basis for the phasing in of petroleum revenues. Hence, the use of these revenues does not fluctuate in step with the actual real return. Moreover, the calculations shall normally be based on an estimate of the Fund’s size at the time the budget documents are completed. This means that fluctuations in revenues affect the budget with a considerable lag. The budget for 2002, for example, is based on the size of the Fund at the beginning of 2001. Estimates for petroleum revenues and the return through 2001are then added. These estimates are provided in the National Budget presented in autumn 2001.

This assessment will eventually be extended to also cover other parts of the Basel III framework. However, it is already clear that this is an effective way to ensure that the frameworks agreed on are actually put into place and to ensure that the regulations are used as intended. The Basel Committee is also reviewing how the banks calculate their risk weights. Put simply, the risk weights determine how much capital the banks need to hold for a certain asset, for example a loan or a security. So far, the Committee’s work has resulted in three studies that have compared how international banks calculate their risk weights for different portfolios. The latest study examined, among other things, the banks’ risk weights for lending to companies, while the earlier studies focused on risk weights for the banks’ trading operations. However, all three studies have revealed that the risk weights the banks calculate themselves using their own models vary to a relatively great extent without this always being justified by differences in the risk associated with the assets. This means that it is not possible to effectively compare the banks’ risk weights. There is a risk that this could have a negative impact on confidence in the risk-based capital regulations. The banks’ risk weights must be credible I would like to focus on risk weights for a moment as we are currently discussing these here in Sweden too, although the discussion here differs somewhat from the discussion abroad, for example in that it primarily concerns mortgages.
We represent the public interest with objectives given to us by Parliament, for which we are accountable to Parliament. We must be, and no doubt will be, held to high standards as we seek to balance our pursuit of the public interest with a properly functioning market economy. 2  BIS central bankers’ speeches  We have set out how we supervise insurance companies in our approach document. We are a judgement-based supervisor, based on evidence and against a framework of rules. Judgement must be forward-looking as we have to assess risks to our objectives. I know that this emphasis on judgement can ruffle feathers – it can make us seem intrusive. I want our use of judgement to be always focussed on the key risks to our objectives. We are though conscious of the need to be proportionate in our approach and to take account of the regulatory burden we are placing on firms. In order to do so, insurers are divided into five categories of impact. Category one insurers pose the greatest risk to the PRA objectives through their size, interconnectedness, complexity or business type and category five insurers pose the least risk. Every firm has been told which category they are in and this should provide an indication of the level of supervisory interaction they can expect from the PRA. Moreover, we are not aiming to be a “no firm failure” regulator; rather, we aim to minimise adverse consequences if a firm fails.

The reason for locating insurance and banking in the PRA is that we have learned during the crisis that our job as prudential supervisors is to ensure that the public and users of financial services, including the corporate sector, can be assured of continuous access to the critical services on which they depend. Let me also make clear at the outset that insurance supervision matters as much to us as bank supervision. The crisis has given us more challenges with banks, but our statutory objectives make clear that our attention must be on both industries. Many financial services may be regarded as critical by their users, but some are distinctive because it is hard for consumers to replace their provider with a substitute without unacceptable cost and loss. Insurers provide critical services to the public in terms of risk transfer and very long-lived savings contracts. This last point draws out that insurance is not a single homogenous industry – general and life insurance are very different activities – and we recognise that in our supervision. It would not be acceptable to the public for their access to risk transfer through, say home or car insurance, or professional indemnity insurance, to name but a few, to be withdrawn in a disruptive and unannounced way. In the same way, savings contracts that are long-lived and provided by life insurers, and are often an individual’s primary pension provision, are critical financial services that are difficult to replace without unacceptable cost.
Eventually Swiss consumers themselves would follow suit, so that Switzerland would be de facto integrated into the eurozone. More than national pride would be hurt by such an “euroization” of the Swiss economy. For one thing, such a development would entail the loss of seigniorage income. With a monetary base of about 40 billion francs (25 billion euros), that is about 5,700 francs (3,500 euros) per person, seigniorage in our case is far from trivial. But much more seriously, the loss of monetary autonomy caused by a displacement of the Swiss franc by the euro would prevent the central bank from creating liquidity in case of need. To a large extent, the fears that we had reflect the more fundamental debate about fixed versus flexible exchange rates. Which foreign exchange regime is appropriate for a given country at a particular time? Although this view is not universally shared, many economists argue for a polar solution: either purely flexible exchange rates, or rigidly fixed ones. Intellectually, I tend to share this view, except that I would like to take it one step further: either purely flexible exchange rates, or monetary union. Rigidly fixed exchange rates do not constitute a polar case. In fact, they accumulate many shortcomings. Thus, fixed exchange rates have never been known to be fixed for very long. Fixed exchange rates are fixed until the day they change, and when they do change, they often do so brutally in an atmosphere of crisis, of pain, and of tears.

Jean-Pierre Roth: The creation of the euro and the new international monetary order - a view from Switzerland Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the 2nd Conference of the “Geld und Währung” Foundation on Financial Stability and Globalisation, Frankfurt, 3-4 June, 2004. *  1. *  *  Introduction  It is widely acknowledged that the birth of the euro on January 1, 1999 was a milestone in the process of European integration. Giving up national sovereignty in monetary matters was a very bold move of truly historical proportions. It will have long-lasting economic and political consequences. It should promote efficiency, transparency, and growth. The creation of a single currency should also act as catalyst towards further European integration. Moreover, and this is really what I would like to focus on today, the creation of the euro has changed the world’s monetary landscape. I believe that one can say without fear of exaggeration that it has led to a new international monetary order. And for most of it, this is very good news indeed. 2. Our pre-euro fears  To be honest, I must admit that prior to the introduction of the euro we were somewhat worried at the Swiss National Bank. Although we fully appreciated the benefits that Switzerland would draw from the creation of the euro in terms of increased transparency and lower transaction costs, we were also quite concerned about possible risks. We had three main fears.
While the world has been analyzing and discoursing for years on the causes, manifestations, and lessons learned from the global crisis, our academic community rarely expresses any views on these issues and seems to be still encapsulated in its own circle, engaged in its internal management or even day-to-day problems. Therefore I am glad now to admit that in this also VUZF University is an exception. I have been following with interest the public appearances of your rector, vice rector, and other professors and academics of your university. VUZF University representatives have often  BIS central bankers’ speeches  1  come up with authoritative public comments on topical economic subjects of great public significance. Today I congratulate VUZF University for outpacing “the older” universities of economics by organizing this timely discussion. The announced topic – “Global and Regional Challenges to the Economy and the Financial System: Do We Have Working Solutions?” – speaks for itself and is an eloquent testimony to the importance of today’s forum. Because external environment is of special significance for the dynamics of such an open economy as that of Bulgaria. It is a known fact that the original causes of the global financial and subsequently economic crisis did not stem from our region or from Europe’s emerging markets. Still, we should in no way take comfort in the external origin of the crisis because no matter what the origins of the crisis might be, we, here in Bulgaria, must deal with its consequences.

Another big myth about Bulgaria was the imminent “collapse” of our banking system (because of the “avalanche” of bad loans and the “dependence” on foreign banks which would have run away in panic and withdrawn their capital from Bulgaria). None of all these apocalyptic prophecies has happened. Our banking system kept sizable buffers and demonstrated impressive for the whole EU ratios of capital adequacy and liquidity. Given the high level of domestic depositors’ trust (only in one year, until March, total deposits increased by over BGN 5 billion), the dependence on foreign sources of funding diminished considerably – at end-March less than 13% of total attracted resources comes from parent banks abroad, as opposed to nearly 1/4 at end-2008. Ultimately, unlike some of the more advanced economies, no bank in Bulgaria needed to be rescued. And the very frequent headlines about “bad” loans do not reveal the true picture in Bulgaria as compared with the other economies in the EU. The reason is that the legal framework, financial reporting standards and regulatory practices in the various countries are rarely the same, and this seriously hampers any comparisons across countries (as an example, some countries directly write off and keep off-balance sheet a large part of their non-performing loans).