samchain/econo-pairs-v1 huggingface dataset:
•  Thirdly there are a number of different potential policy instruments that can affect the financial environment in various, sometimes conflicting, ways. And by no means are all in the hands of central banks  •  Fourthly national financial stability responsibilities are often shared. In the UK we work with Her Majesty’s Treasury (HMT) and the Financial Services Authority (FSA). For cross-border activities we operate alongside overseas central banks and supervisors. •  Fifthly although the roles of the UK authorities are outlined and published in a Memorandum of Understanding (MoU), this gives little guidance as to what financial stability is or a clearly identifiable target. •  And lastly it is harder to get motivational feedback – unless in unwelcome form should a crisis occur. 3. Defining Our Role in Financial Stability Oversight  These factors pose a number of challenges in defining our role in financial stability oversight – what activities should we as a central bank undertake? To make these decisions, firstly we should identify the main functions that need to be performed in each jurisdiction to promote financial stability. Then we can look at the Bank’s own institutional mandate. And finally we can determine the most appropriate way to fulfil it. i)  The Three Essential Functions for Public Authorities  There seem to me to be three essential functions to be carried out in securing financial stability: I think this is the case in most jurisdictions.

As both a user and a partner, we can affirm that the quality of the Office’s statistical output has increased immensely over the transformation period. Examples include the publication of national accounts according to international standards and the compilation of data on the government debt and deficit. The Czech National Bank focuses mainly on monetary and banking statistics and balance of payments statistics. The harmonisation of the monetary statistics with European standards was recently completed in both main components balance sheet statistics and interest rate statistics. Monetary and credit aggregates and interest rates are now methodologically comparable with the data of other EU Member States. Speaking of harmonisation, I must mention the calculation of another convergence criterion - long-term interest rates. This calculation is based on long-term government bond yields on the secondary market. The Czech National Bank thus provides the statistical foundation for assessing this criterion. International standards such as the IMF’s 5th Balance of Payments Manual are also observed when compiling the balance of payments. The balance of payments is now published every month and the required items are also broken down geographically. In recent years, much attention has been devoted to the category of foreign direct investment, where the data are published in very detailed geographical and sectoral breakdowns. The balance of payments is perhaps the best example of co-operation between the Czech Statistical Office and the Czech National Bank.
Medium term: reshuffling the deck by reforming the existing system Chart 11: IMF resources, the core of global financial safety net, has shrunk relative to the size of the global financial system Components of the global financial safety net as a per cent of global external liabilities 12 10  Per cent of global external liabilities  IMF Permanent (rhs)  IMF Temporary (rhs)  Per cent of global external liabilities  3  FX Reserves (lhs) 8  2  6 4  1  2 0  0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016  Sources: IMF, central bank websites, Lane Milessi-Ferretti (2007) External Wealth of Nations dataset and Bank calculations. Notes: FX reserves exclude gold.

In addition, there has been an important shift from the traditional high net worth clients investing in individual hedge funds to funds being invested in hedge funds via diversified pools and formal fund of funds structures. These pooled assets, coupled with liberalizing regulatory developments have opened up hedge funds to a more diverse universe of investors, including a wide range of institutional and retail investors. Currently, the total size of funds invested in hedge funds via pooled structures is estimated to be approximately USD 300 billion or nearly a third of the underlying hedge fund industry. Remarkably, annual growth rate estimates of the pooled funds suggest that their expansion has proceeded at a more rapid pace than the underlying hedge fund industry. This implies that a significant portion of new assets flowing into hedge funds does so via collective asset management pools. In a competitive environment, the Swiss financial sector has succeeded in leveraging its position as one of the world’s leading asset manager to secure an dominant position amongst collective asset management pool operators in the hedge fund industry. Though many of the early formal funds of funds were registered under Luxembourg, Cayman Island or Bermuda law, Swiss financial firms today manage a significant part of the world’s alternative asset management pools.
Developments in both of these areas are of course very important for both the central banks and the economy as a whole. There are clear points of contact between these areas, but I nevertheless intend to discuss them separately. The central banks’ independence Let me begin with the central banks’ independence. The idea behind delegating monetary policy to an independent central bank is, as I have already mentioned, that it makes it easier to hold inflation in check. Experience has shown that it is easier for a central bank that is able to act independently with regard to price stability, than for a government, to provide monetary policy with the long-term perspective required to keep inflation low and stable and to maintain the general public’s confidence that it will remain so. The decision-making processes for monetary policy are also shorter and quicker than those for fiscal policy, which makes it better suited to deal with shocks to the economy. A government, which needs to worry about re-election, may be tempted to conduct an overly expansionary policy to attain short-term gains. The knowledge that this temptation exists means that the economic agents will adjust their inflation expectations accordingly. The end result will be higher inflation without any gain in return. Thus, the fundamental idea is to build a system that will better guarantee price stability. The independence has no inherent value, it is not an end in itself.

The successful management of the so-called IT bubble at the beginning of the 2000s was regarded as an example of financial crises not needing to be particularly troublesome. What is clear today, but was not clear as recently as six years ago, is that this picture was far too optimistic. But then the crisis came along and turned most things upside down. Reassessment of the financial markets One obvious lesson from the crisis was that the financial markets were not functioning as well and as efficiently as we had believed. Instead of contributing to growth and stability in the economy through efficient risk spreading and credit allocation, they became a cause of  1  2  See for example Taylor (1998) and Bernanke (2004). BIS central bankers’ speeches  macroeconomic fluctuations. It became clear that the models on which policy decisions were based needed to be adjusted so that the financial markets no longer played the obscure role they had played prior to this. In recent years, there has been a dramatic increase in research on what are usually referred to as “financial frictions”, that is, mechanisms through which the financial system affects fluctuations in the economy (see Figure 1).2 One might wonder why this interest in the role of the financial markets did not arise earlier. The crisis that we in Sweden and some other countries suffered in the early 1990s also revolved to a great extent around credit booms and property market crashes.
The Riksbank monitors the financial sector with a systemic perspective. If we hadn’t realised it before, one clear lesson from the crisis of 2008–2009 was that monitoring individual institutions is not enough. We and other authorities around the world learnt that we have to keep our eyes on the connections between the banks and how they are affected, as a whole, by developments on the markets. Among other means, the Riksbank influences financial market participants through the analyses we make and the recommendations we issue in the Financial Stability Reports. Another important role for the Riksbank is being the country’s representative in several forums that set the standards for the financial sector, primarily the Basel Committee on Banking Supervision, the European Systemic Risk Board (ESRB) and the Committee on Payment and Settlement Systems (CPSS). At the same time, it is worth pointing out that, at present, the Riksbank does not have any sharper tools than words in the preventive work or macro-prudential supervision. We can warn and recommend, but when it comes to real measures, other authorities currently hold responsibility. It is a difficult task. Always raising a warning when everything seems to be going well seldom makes you popular. Financial stability policy is of great importance for Swedish households Preventing future crises is an important task – as is being able to manage them if they break out anyway. I hope that this speech has clarified why Swedish households are dependent on financial stability.

Stefan Ingves: Financial stability is important for us all Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to the Riksdag Committee on Finance, Stockholm, 15 March 2012. *  *  *  Today, I would like to give you a few examples from Sweden and abroad to illustrate why financial stability affects us all, not least in our role as consumers. It can easily happen that discussions of bank regulations, not least at the EU level, can be considered difficult to understand. This is partly because the discussions are often technical, and partly because they can seem abstract. I would like to demonstrate how the political framework for financial stability very strongly affects Swedish banking customers – in other words, almost all households. Crises cost society enormous amounts As financial crises are very costly for the citizens of a society, we should try to avoid them at almost any price. The financial system forms the cornerstone of a modern economy. Its basic functions are converting savings to investments, managing risks and mediating payments, functions that we all constantly come into contact with every day, in one way or another. A functioning financial system is also necessary for the repo rate, which is to say monetary policy, to have an impact. A modern society cannot do without the functions of the financial system. Without the financial sector, Sweden would grind to a halt. But the system also entails risks. Banks are dependent on confidence, are highly leveraged and are thus vulnerable.
This can be attributed to the fact that the economy still has substantial momentum to support growth. Exports and private investment, in particular, are expected to grow on the back of continued global recovery, a high level of capacity utilization, and conducive financial conditions supported by a turnaround in credit extension of the banking sector. Moreover, the economy is now in a much better position to weather external shocks, thanks to an improved external position and the strength of domestic demand. In addition, the Government’s much improved fiscal position should allow the economy to adjust to higher oil prices without interrupting the growth momentum. It is, therefore, our view that the risks to growth from the higher oil prices should be manageable. BIS Review 58/2004  1  On the other hand, the impact of the higher oil prices on economic stability is expected to be more pronounced. Latest data on headline inflation continue to show signs of price acceleration. In August, Thailand’s headline inflation therefore rose by 3.1 percent year-on-year, while core inflation rose by 0.7 percent year-on-year. With a narrowing of the output gap and reported tightening in some segments of the labour market, we believe that there is considerable pent-up price pressure building up in the system that could eventually translate into higher consumer prices. Our inflation forecast points to a higher probability of rising domestic inflation going forward.

Thus, with growth momentum remaining firm but with prospects for higher inflation, the Monetary Policy Committee saw less need to keep interest rates at low levels. The committee was of the view that monetary policy should be more focused on economic stability, with the adjustment being gradually paced. This was the rationale behind the increase in the policy rate in August. Ladies and Gentlemen, Adjustments in the financial markets following the policy rate increase have been orderly. There has been an across the board increase in short-term money market rates as well as a rise in bond yields. But given present excess liquidity in the system, there will be some time lag before the corresponding adjustments in deposit and lending rates take place. Going forward, especially as the economy’s expansion gains further momentum, monetary policy will need to maintain economic stability and to ensure that inflation is kept within the target. lt is our intention to do whatever necessary to keep inflation in check and to ensure a continuation of economic stability. Ladies and gentlemen, Besides monetary policy, we have also taken measures to safeguard the economy against possible buildups of financial imbalances at the sectoral level. We have learned from the 1997 financial crisis that overshooting asset prices could pose a major risk to the economy. Therefore, to maintain economic arid financial stability, we need to be vigilant in spotting potential financial imbalances, particularly in the real estate and household sectors.
This is a very acute topic for businesses, and we have already discussed it many times. The second issue is how the Faster Payments System evolves and what benefits it can provide to SMEs. The third topic I may not ignore and which is currently widely discussed is a digital ruble and what it can give to businesses. As regards AML/CTF problems, we hold, and I hope that you also comprehend it, that these antimoney laundering procedures are absolutely crucial since they protect the banking system and the economy in general against ‘dirty’ business and crime. However, these procedures have their drawbacks. Banks may behave suspiciously even towards lawful companies, and we have observed this. Banks are not ready to investigate the situation when these are small clients that do not bring high profits, such as small and medium-sized enterprises. It is easier for banks just to block transactions than to consider them carefully. As a result, this affects bona fide businesses. We have been employing the mechanism for rehabilitating such affected companies for a while already, but we are aware that the entire system requires redesigning and costs need to be lower. Of course, it is now possible for a firm to be rehabilitated, but it would be better to avoid such a situation where companies have to undergo all these procedures, including an examination by the commission, since this is stressful for any market participants.

The result was that the krona was devalued several times from the mid-1970s onwards. The economy underwent "boom-bust-cycles” with alternate sudden braking and strong stimulus for acceleration. This policy had devastating effects on many aspects of economic developments. Sweden lost ground in terms of prosperity, while growth in real wages was largely non-existent. This situation finally become untenable and after the fixed exchange rate system was abandoned in November 1992 there was a clear shift in stabilisation policy regime. When one looks back over the period since then, I believe that most people will agree with me that the new regime has been successful. Sweden is no longer afflicted with excessively high inflationary trends, recurring cost crises and high interest rates. The more stable environment has contributed to better growth in prosperity. The new regulations have also created other, better frameworks for wage formation, a point often emphasised by LO representatives. Trade union organisation no longer need to play along in a destructive game where high nominal wage increases are eaten up by inflation and real wage increases prove to be a disappointment year after year. The fact that inflation has been lower and more stable during the period with inflation-targeting policy is a good result, although perhaps not surprising. What may have received less attention and been less evident, given the theories in this field, is that there has been less fluctuation in the real economy.
There are various measures available in current trade agreements, such as antidumping measures and countervailing duties for dealing with “unfair” trade, as well as escape clauses that provide safeguards for industries that face a sudden surge of imports. Again, the challenge is to ensure that such measures are effective, that they help facilitate rather than retard adjustment, and that they are not abused so as to avoid foreign competition. But, both sanctions and temporary relief have been provided for in global trade rules. We should be willing to use them when their use would lead to more equitable outcomes and would help sustain political support for a more open trade regime. Financial Globalization Is Also Important Financial globalization—the flow of capital across national borders—is also an important issue that must be considered. These flows help to support global economic integration in the trade of goods and services. This is a large, complex subject—and one the Central Bank of Brazil is well acquainted with, having successfully managed the pressures of heavy capital inflows as well as outflows during periods of stress. The tremendous damage of the global financial crisis underscores the importance of this issue. As with issues related to trade, achieving effective financial globalization requires robust and mutually supportive measures at both the domestic and international levels.

Banks’ capital reserves, transparency, funding, risk management, corporate governance and both micro and, especially, macro supervision and regulation need to be adjusted. Let me start with the fragile liabilities. We have experienced since August 2007 a funding liquidity dry-up. As I said before, in the run-up to the crisis, Spanish banks were highly dependent on foreign wholesale funding. As a result, the sector as a whole ended up suffering and some of the more dependent banks have been hit very badly. But bank liquidity also depends crucially on bank capital and, hence, banks with stronger balance sheets suffer much less from a lack of liquidity.8 The liquidity provided by the Eurosystem has been vital to minimise the liquidity shortages, but bank capital needs to be stronger so that all banks have access to private funding liquidity. Fragile assets were an important factor too, as very high volumes of credit (and risk) were granted during the good years. Some banks took more risk than others in the real estate bubble, and some banks recorded substantially lower profits and higher (realized and potential) loan losses during the current crisis. Hence, bank capital significantly decreased, especially for some groups of cajas; they, moreover, cannot easily raise capital because of their specific structure. The availability of bank capital is essential for two additional reasons: First, a bank capital crunch may lead to a credit crunch. Thus, in order to help the real economy recover, some weak banks need to be recapitalised.
The Federal Reserve purchased mortgage-backed securities owned by banks, for example, which improved banks’ funding conditions and facilitated their credit provision to the broad economy. In Norway, the swap arrangement had a similar effect. In the years following the financial crisis, a number of central banks have adopted new measures. The margin for further reductions in the key policy rate has gradually diminished. Any further attempts to stimulate the economy have had to involve lower long-term interest rates. Central banks have sought to achieve this in two ways: first via communication. Central banks have clearly stated that policy rates will be kept low for a long time. In some cases, signals have been linked to specific targets that must be reached before a rise in the policy rate will be considered. The purpose is to provide forward guidance to the market concerning future interest rate developments. For Norges Bank, publishing an interest rate path is a form of forward guidance. Second, central banks have implemented purchases of government bonds and other securities on a massive scale. This has further driven down long-term interest rates. This measure is known as quantitative easing, or balance sheet policy, which the Bank of Japan attempted to use as long as 15 years ago. Following the financial crisis, it was quickly adopted by the central banks in the UK and the US. The ECB and Sveriges Riksbank have subsequently followed suit. Chart: Central bank reserves The use of unconventional instruments has vastly inflated central bank balance sheets.

4 Negative interest rates As I mentioned earlier, it has long been assumed that interest rates had to be positive. That barrier has now been broken by a number of central banks. They now operate a policy of negative rates with a view to bringing short-term market rates below zero. Two approaches are being used to achieve this. Chart: Sveriges Riksbank interest rates Sweden has chosen the first approach. The policy rate itself is a negative 0.35 percent. This is combined with normal liquidity management without excess reserves in the banking system. As a result, the shortest money market rates are also negative. 5 The central banks in the euro area, Switzerland and Denmark have chosen a different approach. Policy rates are zero or marginally positive, while the reserve rate is negative. At the same time, there are substantial excess reserves in the banking system. The reserve rate is a negative 0.75 percent in Switzerland and Denmark and a negative 0.2 percent in the euro area. 6 Maintaining large excess reserves is a deliberate policy. These central banks have supplied liquidity to the market and intentionally used the excess reserves to push down the overnight interbank rate towards the reserve rate. The central banks of Denmark and Switzerland have achieved this by purchasing foreign currency to counteract an appreciation of the exchange rate. By also permitting short-term money market rates to become negative, they have made the domestic currency less attractive.