samchain/econo-pairs-v1 huggingface dataset:
As a result, financial stability is more of a collaborative task undertaken by various administrative bodies. The division of tasks in the area of financial stability varies from one country to another, but in the wake of the recent financial crisis, there has been a shift in attitude towards that division. Before the crisis, there was the tendency to believe that financial and monetary stability were well enough served if monetary policy focused solely on the inflation target, with interest rates as its primary tool, and if financial supervision and the regulatory framework aimed primarily at ensuring that individual financial institutions were sound. The market would then take care of the rest. Experience has shown that this view was too narrow, and in many places it is being abandoned. To a degree, this entailed a compartmentalisation of central banks’ previous tasks. Some countries – the UK, for instance – are addressing this problem by reverting to central banks with a wide-ranging role covering monetary and financial stability. But this is not the only viable response. Here in Iceland, the Financial Supervisory Authority and the Central Bank have stepped up their collaboration on systemic risk analysis and exchange of information. These efforts have borne fruit, and the collaboration between the two institutions is good, but it would be imprudent to let success rest mainly in willingness to cooperate, which could change with a change of actors. As a result, it is important to strengthen the statutory framework so that it can provide better support for these efforts.

Early on, the Monetary Policy Committee had to focus on stabilising the exchange rate in order to stop the collapse of asset prices and the automatic increase in private sector debt, most of which was either exchange rate-linked or indexed to the CPI. The scope to cut interest rates in order to stimulate demand was therefore limited, although it began to develop over the course of 2009. The capital controls that were introduced in late 2008 provided some room for manoeuvre and enabled the Central Bank to allow real interest rates to fall faster than would otherwise have been possible. Inflation, which had skyrocketed after the currency collapsed, began to subside gradually, but the inflation spike caused by contractual wage increases and excessively high inflation expectations cut into that room for manoeuvre from mid-2011 onwards. In order to understand the economic recovery in the face of these headwinds, two points are important. The first point centres on the nature of the recession. To some extent, the recession represented the inevitable adjustment of domestic demand to the fact that it was no longer possible to fund the country’s massive current account deficit and to the abrupt contraction of two sectors – financial services and construction – that had grown exponentially during the upswing. When the dust settled, the domestic economy still rested on other sturdy foundations, and the low real exchange rate stimulated some of Iceland’s tradable sectors.
The question is that quite a number of Swedish households risk building up financial imbalances, which, when corrected, may have painful consequences for individual households and the Swedish economy, which in turn may make it difficult to attain the monetary policy targets. Swedish housing prices have increased by an average of eight per cent per year over the last 15 years, see Figure 3. This can be largely explained by fundamental factors 7 , but there is a risk that it relates to over-valuation. This is difficult stuff, and I feel humble in the face of the difficulties in making this type of assessment. Parallel to this rise in prices, household indebtedness has increased and is now at an all-time high. There may therefore be a risk that many households have taken loans on the basis of a far too optimistic assessment of the repo rate in the future. 7  6  See the article “Housing prices in Sweden” in the Monetary Policy Report published in October 2009. BIS central bankers’ speeches  Figure 3 House prices and households’ financial liabilities Annual percentage change  Source: Statistics Sweden. I have said on several occasions that monetary policy must manage risks and that we must also raise our sights beyond the forecast horizon to assess the consequences that today’s monetary policy decision may have.

The performance of Swedish two-year forward rates since the early summer illustrates this, see Figure 1. We can see that two-year forward rates, adjusted for a risk premium 3 , at the beginning of the summer were at approximately the same level as the money market agents’ two-year reporate expectations according to Prospera. Subsequently, however, there was a clear downward trend and from early June to mid-September the two-year forward rate fell by approximately 80 basis points. In my opinion, a substantial downward shift in monetary policy  3  The forward rates in Figure 1 are adjusted using a constant risk premium of approximately 25 basis points, which is a rough estimate of the average size of the risk premium for this time to maturity. BIS central bankers’ speeches  3  expectations in this period was hardly realistic given the fact that the Swedish economy was, at the same time, surprisingly strong. Later, during the autumn, two-year forward rates increased and were roughly half a percentage point below the expectations in the surveys. An interpretation that I find more likely is that the development of forward rates in Figure 1 mainly reflects an international fall in risk premiums and, as so often in the past, it seems to be the development of interest rates in the United States that sets the tone. On this occasion it was probably the Federal Reserve’s plans to purchase additional long-term assets that had a downward effect on risk premiums.
We estimate the full, net present value, economic costs of typical past financial crises to have been catastrophic – around 75% of GDP and in some cases much more. So nobody should deny the economic case for well capitalised banks. And it was obvious in the aftermath of the crisis where bank capital needed to go. Up. A lot. 2  Available at http://www.bankofengland.co.uk/publications/Documents/fsr/2015/fsrsupp.pdf. 3  Major UK banks are required to hold, on average, additional tier 1 capital of 2.5% of risk weighted assets under “pillar 2a” requirements. These compensate for existing shortcomings in risk measures and lift average capital requirements from 11% to 13.5%. Should the shortcomings in risk measures be corrected, measures of risk weighted assets would increase.But at the same time, our expectation for capital as a share of risk weighted assets would fall back. The two effects can be expected to offset so that no extra capital would be required. Ongoing work in the Basel Committee addressing excessive variability in risk weights should not materially affect overall capital requirements. 2  BIS central bankers’ speeches  In fact, with market confidence so low at the time, more capital not only boosted resilience, it was also needed for lending to resume. Capital was good for resilience and good for growth. That’s why countries that recapitalised their banking systems quickly secured earlier and stronger recoveries, with the US leading the way. However, after a point, another unit of capital buys a much smaller fall in the probability of bank failure.

But that has not been the only shock markets have had to cope with. Chart 2  Chart 1 (a)  Ten year government bond yields Per cent  GDP in selected countries and regions(a)  9  Percentage change on 20 a year ago  8  15  7 6  10  5 5 4 0  3 2  -5  1 0 Jun 11  Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Germany Spain Italy US UK  Source: Bloomberg (a) Yields to maturity on ten-year benchmark government bonds. Data updated to 19 September. -10 2005  2006  2007  2008  China  US  2009  2010  2011  Euro area  2012 UK  Sources: Eurostat, National Bureau of Statistics of China, ONS, Thomson Reuters Datastream and US Bureau of Economic Analysis (a) Real GDP measures. Figures for China are nonseasonally adjusted. 1  Paul Fisher (2011), “The State of the Financial publications/Documents/speeches/2011/speech507.pdf  BIS central bankers’ speeches  Markets”,  http://www.bankofengland.co.uk/  1  Growth in Europe has been anaemic at best (Chart 2). Growth in the US has been a bit stronger but not enough to reduce an elevated unemployment rate. And we have seen indications of a slowdown in China and other large EMEs. Perhaps the most striking thing about this is the degree of co-movement in GDP growth rates across economies.
Of course we need to keep an eye on the financial stability of insurance activity, but this omission is deliberate. Our chief day-to-day concern with insurers at the PRA is safety and soundness and policyholder protection. Competition and competitiveness In this context, let me turn to the one element of the current debate about Solvency II – whether we’ve been over-zealous in implementation and not taken enough heed of competition and/or competitiveness. So what does our secondary competition objective require of us? And what have we actually done? In 2014, the PRA was given a secondary objective to facilitate effective competition. This helps inform decisions about new regulation and supervision policies. It influences how we choose between alternative ways of achieving our primary objectives, provides a useful check on whether prudential interventions are being applied proportionately, and guards against the risks of unintended consequences. This is a useful, and very British, innovation. In support of our competition objective on the insurance side, we have taken a number of steps to achieve a better fit between regulation and firms' particular business models, fostering a UK market which comprises a very wide range of businesses, by size and line of business. For example:   We have approved many more internal models than any other EEA jurisdiction. Small as well as large firms are able to use internal models: of the 23 internal models approved to date, 8 were for smaller firms.

A risk-management approach to policy changes Of course, I realize that I could be wrong in my assessment. So let us consider how we should conduct policy when we don’t know for sure which scenario is really the one we face today. How can we avoid risking a repeat of either the stagflation of the 1970s or the slow growth of the 1930s? The problem, of course, is that policies that are optimal for the liquidity trap scenario would tend to generate higher inflation without significant reductions in unemployment if the structural impediments scenario were true. Conversely, policies that are optimal for the structural impediments scenario would leave the economy unnecessarily mired in depression and deflation if we were actually in the liquidity trap scenario. A middle ground proposal Fortunately, between these two extreme scenarios, there is a robust middle ground policy approach. The Fed could sharpen its forward guidance in two directions by implementing a state-contingent policy. The first part of such a policy would be to communicate that we will keep the funds rate at exceptionally low levels as long as unemployment is somewhat above its natural rate. The second part of the policy is to have an essential safeguard – that is, a commitment to pull back on accommodation if inflation rises above a particular threshold. This inflation safeguard would insure us against the risks that the supply constraints central to the structural impediments scenario are stronger than I think. Rates would remain low as long as the conditions were unmet.
This is complemented by the establishment of the Association of Shariah Advisors in Islamic Finance to enhance the qualification and professionalism of the Shariah fraternity. Two specialised certifications will be launched by the Association early next month which aim to strengthen technical and ethical rigour of Shariah advisors and practitioners. With an increasing range of options for professional qualifications for Islamic finance, the Finance Accreditation Agency’s Islamic Finance Professional Qualification Structure – to be launched today – is a timely and much welcome milestone. As a learning reference structure, it streamlines and classifies the levels for Islamic finance professional learning programmes. For Islamic finance professionals and the organisations they represent, this will help them make better informed decisions when evaluating the suitability of the wide array of professional learning programmes on offer globally. I hope that today’s event would help bring you a step closer to realising your respective organisation’s goals in Islamic finance. With that, I wish you a productive afternoon. 2/2  BIS central bankers' speeches

Thus, measured according to the costs of living index, the annual rate of inflation in 2001 on December basis (December 2001 / December 2000) is projected to equal 1.2%. In that sense, the National Bank of the Republic of Macedonia will continue with its intention to preserve that inflation rate to low, stable and predictable level, which is in compliance with the empirically confirmed knowledge that the price stability creates the most favorable macroeconomic environment for accelerated, long-term sustainable economic growth. The second aspect of the domestic currency stability is preserving the stability of the Denar exchange rate. The National Bank of the Republic of Macedonia managed to preserve the nominal exchange rate of the Denar against the Deutsche Mark at the targeted level of Denar 31 per 1 Deutsche Mark. The exchange rate stability was preserved, despite the developments on the foreign exchange market, where the supply significantly exceeded the demand for foreign currency. As a result, the National Bank of the Republic of Macedonia intervened on the foreign exchange market in order to prevent the appreciation of the domestic currency – Denar. From the beginning of the year to December 31, 2000,  BIS Review 9/2001  1  net-amount of USD 190.1 million was purchased on the foreign exchange market. Relating other currencies, the Denar fluctuated according to the changes of the exchange rate of the Deutsche Mark against these currencies on the world markets.
The banks have always passed the stress tests, most recently the one carried out on their balance sheets at year-end 2007. At that time, the equity ratio of Iceland’s largest banks ranged from 11.2% to 11.8%. The result of the stress test was that, even if various severe shocks inherent in the premises of the test were to occur simultaneously, the banks would still have an equity ratio ranging from 10.4% to 11.2%. Their liquidity position was ample at year-end, so there was no driving need to seek funding in the international credit market. But at some point in time, they will need to return to the capital markets. All of Iceland’s large commercial banks have an international credit rating. Though these credit ratings are comparable to those awarded to similar banks in other countries, there is an abiding suspicion in the market toward Icelandic banks. This is difficult to explain fully, and it results, for example, in CDS spreads that are higher than in foreign banks, although CDS spreads also differ among Icelandic banks. It is worth remembering that Kaupthing Bank’s CDS spreads rose when the bank announced its intent to acquire a Dutch bank last August. As the autumn progressed, the other banks’ CDS spreads increased also. That trend continued intermittently until now. When Kaupthing abandoned its plans to acquire the Dutch bank, the reason for the increase last August vanished. Spreads declined slightly thereafter, as a large uncertainty factor had been eliminated.

That situation changed – virtually overnight – to one characterised by a lack of liquidity and a re-evaluation of the pricing of risk, and this resulted in substantially increased interest rate premia. Banks became especially careful in their transactions with one another, and a considerable tightening of interbank markets ensued the world over. Central banks on both sides of the Atlantic reacted by granting special liquidity facilities with virtually unprecedented amounts and maturities. As the end of the year approached, conditions in the interbank markets improved markedly, though they were still far from their prior state. On the other hand, the fundamentals of important financial undertakings became an ever greater source of concern. The general economic outlook deteriorated significantly, spurring greater pessimism in the global equity markets. Iceland certainly did not escape the effects of these global developments. Here in Iceland, those developments emerged in the form of higher interest rate premia, shrinking credit supply, and risk aversion. Risk aversion means, among other things, that companies and regions at the periphery – if it can be expressed that way – feel the effects of the changes more than others do. This periphery includes Iceland and its banks. Among Icelandic banks, these changed conditions emerge most clearly in wide CDS spreads.
William C Dudley: The national and regional economic outlook Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, before the Bronx Chamber of Commerce at the New York Botanical Garden, Bronx, New York, 24 October 2011. *  *  *  Good morning. I am very pleased to be at the New York Botanical Garden to speak to members of the Bronx Chamber of Commerce this morning. The Garden is one of the jewels of the Bronx and it is always a pleasure to speak with the business leaders of a community as vibrant as the Bronx. Over the past 20 months, I have been engaged in a series of outreach meetings all across my Federal Reserve District. I consider these visits just as important as my trips to Washington, D.C., to help formulate monetary policy or to Switzerland to shape international bank regulation. The understanding that I gain today will help ensure that my policy decisions reflect the public interest in the broadest sense. Each visit within the region helps me deepen relationships with the people I represent. As you may know, the New York Fed’s District includes all of New York State; 12 counties in northern New Jersey; Fairfield County, Connecticut; Puerto Rico; and the U.S. Virgin Islands. This year I have met with community leaders, businesses and elected officials around the region.

But obstacles to refinancing and access to credit for home purchases are limiting the support provided by low rates to house prices and consumption. Meanwhile, the large supply of foreclosed homes for sale – and the prospect that unemployment and negative equity will continue to feed the foreclosure pipeline – continues to put downward pressure on home values. The risk of further house price declines in turn discourages would-be buyers from entering the market. Continued house price declines could lead to even more defaults, foreclosures and distressed sales, undermining wealth, confidence and spending. Breaking this vicious cycle is one of the most pressing issues facing policymakers.   Next, cutbacks in employment and spending by state and local governments intensified in 2011 and are likely to continue. Looking forward, states are likely to cut spending further as the federal government stimulus aid to states peters out.   In addition, by current law, in 2012 the federal government will end much of the support it has been providing to the economy through stimulus programs. As these measures expire, households will be able to consume less and businesses will have less incentive to invest for a while. Plus, the new Budget Control Act calls for additional sharp cuts in federal spending. Our nation needs to get its public finances in order. Done correctly, with a focus on the long term, this could support confidence and growth. But it is very important to avoid excessive short-term cutbacks or tax increases that could harm the recovery.
Arnór Sighvatsson: The logic behind the capital account liberalisation strategy Speech by Mr Arnór Sighvatsson, Deputy Governor of the Central Bank of Iceland, at a meeting of the Iceland Chamber of Commerce, Reykjavík, 15 December 2011. *  *  *  Ladies and gentlemen On 25 March 2011, the Central Bank published a capital account liberalisation strategy allowing for removal of the capital controls in two phases. Phase I would focus on channelling unstable króna assets, particularly those held by non-residents, into the hands of investors willing to take a long-term exposure on the króna. In Phase II, other controls would be lifted. The strategy is relatively terse as regards Phase II, as a number of things could change before it can be launched. As a consequence, Phase II will be drafted in greater detail at a later stage. Therefore, in my presentation today, I will focus on Phase I and attempt to explain why the individual steps within it are being taken in the order specified in the strategy. The main problem the strategy is attempting to solve is lack of confidence: in the domestic economy, the currency, and the Government’s capacity to service its debt. Confidence between individuals and between firms, domestic and foreign alike, is a precious commodity whose true value is only realised when lost. The reason confidence plays such a vital role in the mechanics of the economy is that each party’s confidence depends on the confidence of all the others.

Coming now to my second point: even though regulatory arbitrage is a risk, consistency between sectors should not be mistaken with uniformity and a “one size fits all” approach could lead to unintended adverse consequences. From a financial stability perspective, one can easily draw the conclusion that risks of bank’s runs and shadow banking entity’s runs are very similar and therefore should have a similar regulatory treatment. Yet, the timing and consequences of higher lapses in insurance are hardly comparable to the banks’ one. Moreover, the shadow banking sector is much more complex, not harmonized and hard to fully capture, even after the massive reduction of activities related to this sector which followed the financial crisis. Indeed, entities such as insurance companies, CCPs, asset managers and any other non-bank actors have their own business models and specificities. Therefore mirroring by duplicating the GSIBs approach to these non-bank actors may either lead to inadequate policy options (TLAC for CCPs, ill calibrated Higher Loss Absorbency (HLA) for GSIIS) or to fostering pro-cyclicality. In this latter case, all market players would take the same positions, on the same financial instruments at the same time fostering a “one way” market. This herd behavior can lead to detrimental consequences in terms of financial stability by amplifying an irrational market decision based upon no fundamentals, which could rapidly spread to the whole financial sphere.