samchain/econo-pairs-v1 huggingface dataset:
Looking forward, it seems to me that the most likely next move in monetary policy will be a gradual and limited increase in interest rates. The current weakness in headline inflation largely reflects transitory – albeit sizeable – factors such a close to 50% decline in the price of oil, and the appreciation of sterling over the past two years. The underlying picture is one in which domestic demand is expected to continue growing robustly, facilitating a pick-up in wage growth, which we are starting to see, and a return of inflation to target. But we don’t have a crystal ball, and should circumstances turn out differently, the MPC has the means, the will and the responsibility to return inflation to 2%. On the upside, should the remaining slack in the economy be absorbed more quickly than expected, the MPC can increase rates more quickly than currently implied by market yields. On the downside, should we perceive that low inflation is beginning to have a self-reinforcing effect through inflation expectations, we will have several tools at our disposal. One would be to increase rates more slowly than currently implied by market yields. Another would be to expand the Asset Purchase Facility and with it the Bank’s balance sheet. Another would be to cut Bank Rate further: the banking system is now operating with substantially more capital than it did in the immediate aftermath of the crisis.

Let me reaffirm that this is still one of our primary goals. To be sure, broadening access to financial services does not mean ready availability of loans for unscrupulous spending. It does not mean consumers can more easily borrow to finance extravagant consumption and lifestyle that they cannot really afford and are unlikely to be able to repay their debt. Broadening access to financial services must come hand in hand with responsible lending on the part of service providers and responsible borrowing on the part of consumers. Failure to observe these fundamental principles can lead to very painful  BIS Review 64/2008  1  consequences and adjustments for lenders, consumers, and the economy as a whole. It is essentially this kind of failure that lies at the heart of current global market turmoil which, as we all know, originated from loose or non-existent credit underwriting standards in the US subprime mortgage market. And this is exactly the kind of problems that we sought to prevent a few years ago when we introduced a package of prudential measures related to unsecured personal and credit card loans. These measures – such as pre-requisite minimum income, cap on credit lines in multiples of income, and minimum monthly installments – were aimed at pre-empting excessive household debt, especially by people in the lower income group, who could otherwise have faced severe financial distress and led eventually to social problems at large.
For the past couple of years the banks, along with international bodies and fast-food chains, have become the main target for antiglobalisation and anti-capitalist protests. I leave others to muse on the motivation and justification for such actions, but I do note that bank finance for developing countries, and more particularly the question of debt forgiveness, are prominent items on the protest agenda. I also note that this is a subject which has for several years been keenly debated, more soberly, by governments, international organisations such as the IMF and World Bank, and banks themselves. It is a complex issue. One must never lose sight of the fact that bank lending involves a contract between the bank and the borrower, and the parties should be expected to honour that contract. If it is treated otherwise, then the basis for all future relationships crumbles. But in practice the situation is hugely complicated if there is a syndicate of lenders, giving rise to problems of co-ordination and potential free riding, or if the World Bank or IMF are involved, which typically expect to be at the front of the queue for repayments. At the end of the day, commercial banks may decide that a degree of debt forgiveness (possibly disguised as a generous rescheduling) is advisable as the best means of minimising overall losses and, perhaps, preserving longer-term business opportunities with the country or customer in question. But this should be a commercial decision.

Throughout the world we can now see examples of how banks and other financial institutions have facilitated the funding of the development of the rest of the economy, and how at the same time they have enabled savers to obtain returns on their savings and to allocate desired expenditure efficiently between the present and the future. Of course, there have been shortcomings, mistakes and disasters along the way, where market failures have impaired efficiency or where banks have collapsed as a result of poor judgement or of circumstances beyond their reasonable anticipation or control; but such experiences are found in all areas of economic activity. Despite, however, the evident benefit from having an active and efficient financial sector, there have remained people at different times in history who have been sceptical of the intrinsic worth of banking as an economic activity contributing to aggregate welfare. This attitude has often reflected a presumption that activity only has merit if it delivers tangible output – food, clothing, cars, clearly consumable services such as television programmes, and so on. But this belief contradicts the evidence of the contribution which efficient finance makes to the economy, and the necessary role which it plays. Even the strictest communist regimes of the twentieth century found it impossible to dispense entirely with banks, even if, as a result of fantastic accounting and rotten economic policies in general, the banks mostly ended up bankrupt and depositors penniless.
This means that action needs to be taken in those policy domains where we do enjoy some freedom of manoeuvre, that is, fiscal policy, macro-prudential policy and structural reforms. Policy recommendations: On the fiscal front, the recent developments I have just highlighted are encouraging. I would stress the importance of meeting our fiscal targets in terms of structural adjustment and reduction in the debt ratio. Apart from compliance with domestic and European fiscal rules, it is important for Malta to build up sufficient fiscal buffers to allow us to counter eventual adverse economic shocks with fiscal policy if needed. In this regard, judicious control of government expenditure is  Page 6 of 8  essential, bearing in mind that some important government revenue streams may be past their peak and need to be replaced through new initiatives. Enhancing labour productivity is critical - forgive me for possibly boring you by repeating myself but I am sure you will agree with me that better bored than sorry. This requires ongoing investment in our labour force, in our people. In terms of the general business environment, it is important to ensure that Malta remains an attractive location for investment, especially foreign direct investment. We need to keep costs competitive, not only labour costs but also the costs of ancillary services including energy, transport and finance, as well as transaction costs generally. Permit me, at this point, to stress the importance of containing the asymmetries of knowledge facing investors, especially foreign direct investors.

The new comprehensive package of measures that we adopted on 10 March 2016 reflects two main objectives: first, to return to inflation rates below, but close to, 2% over the medium term. This is not the case at present since inflation stood at –0.2% in the euro area in February, taking account of the sharp decline in oil prices, but it should return to positive territory in the second half of 2016. The other objective is to bolster the financing of the real economy and to protect it from the pressures related to market volatility. The new series of targeted refinancing operations extension of the asset purchase programme, for its part, will be of particular benefit to large French corporations. We are convinced that these additional measures will deliver concrete results, as did the successive measures we have implemented since June 2014. The latter have indeed boosted lending to businesses, while lowering the cost of credit, and made a 0.3% contribution to French growth in 2015, or even 0.4% according to INSEE. This represents about 80,000 additional jobs for the economy. We are therefore consistent in our objective, and ready to act using the right instruments. But we also remain vigilant as to the possible risks that our monetary policy could generate.
If you invest in either of these, you are not promised all of your investment back, though of course you expect to make a positive return. Such an investor ordinarily expects the full return of their investment, but this is not assured. Investment in debt and equity can of course be managed on a collective basis, as asset management. You may remember the Woody Allen quote that a stockbroker is someone “who invests your money until it’s all gone”. Cruel I know, but it illustrates the difference between deposits, other forms of debt and equity. A distinguishing feature of banks is that by providing deposit contracts, far more of their liabilities take the form of value certain contracts. This alone makes capital and solvency critical for banks. In contrast, for asset managers, the contract does not promise such value certainty. Two particular conditions need to be met in my view to make asset management effective and robust to wider economic conditions. First, that there is no lack of clarity of the nature of the assets held under management. Second, that there is no illusion give to investors about  1  Anat Admati and Martin Hellwig: “The Bankers New Clothes: What’s wrong with Banking and what to do about it”. P38–40  BIS central bankers’ speeches  1  liquidity of their assets. It follows therefore that capital and solvency matter much more for bank supervision, and market liquidity conditions matter more for asset management supervision. So bank capital matters a lot.

The next question, rather obviously, is how much of it banks should have as a liability on their balance sheet? This has been the subject of lively recent comment. Most of that comment has focussed on the core issue of how much capital and overall loss absorbency banks should have as part of their balance sheet liabilities to protect the value certainty of deposits. This is a very reasonable debate because there is no monopoly of wisdom on such a subject. I do however discount heavily those commentators who have seamlessly switched from attacking on the grounds that as supervisors we were choking off lending by requiring too much capital (the so-called at the time “Capital Taliban” argument) to arguing now that we are falling down by setting the standard too low. The main argument of late has been whether our recent proposals on capital buffers for the largest banks operating in UK markets have diverged from previous post-crisis commitments on the level of capital banks should maintain both in going concern, and the overall level of loss absorbency available amongst the liabilities of a bank to enable a resolution to occur if needed. To put it into context, the capital standard we have developed is based on the last quarter century of bank performance – including the financial crisis – such that the probability of bank failure during that period would have been extremely low.
Yet there are many commentators who still refer only to the central path. It would be extremely dangerous to start publishing fan charts for future interest rates unless we were confident that all commentators would understand the probabilistic nature of such statements. When the Riksbank first published a fan chart for its future policy rate in February this year, an article written by one of the most sophisticated investment banks totally ignored the probabilistic nature of the exercise. Against that background, would we be able to convince the media’s huge audiences for personal finance advice that they should not base their decisions on our central projections for interest rates because they will almost certainly not come to pass? Overall, then, I do not think that a compelling case has yet been made for the MPC to publish a forecast of the path for Bank Rate. But we must certainly provide the information necessary for financial market participants to form their own view as to the likely path of interest rates, and we must always be trying to improve the quality of that information. We shall also keep in close touch with our colleagues in central banks that do publish forecasts of policy rates to see what we can learn from their experience. If we feel that there are net benefits from following their example, then we will do so. 16  See Goldman Sachs (2006). 17  There are many ways of aggregating individual votes on paths of interest rates, but none is particularly attractive.

One of the issues that I pursued in my role as Managing Director of the Swedish Bankers’ Association was that Swedish banks should be competitive in a European context. So, how has my background shaped my view of my new job as a member of the Executive Board of the Riksbank? A marked change since I last worked at the Riksbank is Sweden’s increased dependence on developments abroad. One could also say that what I primarily “bring with me” from the different perspectives of my earlier working life – the supervisory  1  I was, for example, a member of the Basel Committee from 2003 to 2009 and chaired the Committee of European Banking Supervisors (CEBS) – which was the forerunner of the European Banking Authority (EBA) – in 2008–2009. BIS central bankers’ speeches  1  perspective, the international perspective and the banking-sector perspective – is this realisation of the increase in Sweden’s international dependence. Monetary policy – my view Sweden is what we usually call a small, open economy. This means that our economy cannot be seen in isolation as we are highly dependent on the world around us – a factor that it is important to take into account, not least in monetary policy.
Our domestic Islamic financial system is one of the most developed, with its diversity of players and financial products and services in Islamic banking, takaful and the Islamic capital market. Today, we are witnessing the establishment of another dedicated Islamic banking subsidiary that will contribute towards further strengthening the Islamic financial institutional infrastructure in Malaysia the launch of Affin Islamic Bank Berhad as an Islamic banking subsidiary of Affin Bank Berhad. With the domestic Islamic financial infrastructure in place, the emphasis is now to become more internationally integrated with the international Islamic financial system, thus increasing our economic and financial linkages with other parts of the world. Our efforts are to position Malaysia as an international Islamic financial centre and thus facilitate this international integration process. In this regard, the establishment of an Islamic subsidiary also increases the opportunity for entering into strategic partnerships with foreign interests, thereby increasing the potential for greater interface with more extensive markets beyond our domestic borders. On the domestic front, while tremendous progress has been achieved, much more needs to be done. The Islamic financial industry needs to allocate more resources toward investment in research and development to create more innovative products. Consumer awareness and consumer education also needs to be enhanced to support the growth of the Islamic financial industry.

London’s pre-eminence in certain key financial market segments For decades, Europe’s leading financial centre has been the City of London and, in some notable areas, the EU’s financial ecosystem has relied heavily on services provided by UK-based banks and market infrastructures. Derivatives clearing – a critical segment of financial markets – is a striking example. As of December 2019, almost 90% of all over-the-counter (OTC) derivatives positions taken by euro area institutions were cleared at UK global clearing houses. Derivatives clearing is not the only example, however. Large investment banks operating from London play a significant role in euro area bilateral OTC derivatives markets. In August last year, over a quarter of uncleared OTC derivatives held by euro area institutions were sourced from the United Kingdom. While the activities of these investment banks were considered unlikely to create financial stability risks in a hard Brexit scenario (also thanks to the temporary measures taken by EU and national authorities), they are still relevant to the provision of liquidity to euro area markets over the longer term.1 UK-based investment banks are also key providers of advisory and financing services related to securities issuance, M&A activity and syndicated lending to euro area clients. They play an active role in debt and equity issuance for euro area non-financial corporations, including book running and underwriting services. Between 2012 and 2018, almost half of all debt and equity issuance for euro area non-financial corporations was carried out by global banks serving our market from London.
Why we did it and how well it worked The global financial shock associated with the collapse of Lehman Brothers and AIG in September 2008 triggered a sharp and synchronised downturn in the world economy. In the UK, GDP fell nearly 4% in 2009 H1 alone, and by the end of that year was some 10% below where it would have been, if growth had continued at its previous trend. This was one of the largest falls in output ever recorded in the UK. At its March 2009 meeting the MPC cut Bank Rate to just 0.5%, the lowest level in the Bank of England’s 300 year history. While that represented a significant loosening of monetary policy, the MPC agreed that more stimulus was required to mitigate the risk of depression and deflation. Given that Bank Rate was close to its lower-bound, the MPC decided to increase the supply of money in the economy directly, by embarking on a programme of asset purchases, financed by the creation of central bank reserves (QE). This largely took the form of purchases of UK government bonds – “gilts” – but included small purchases of corporate bonds and commercial paper undertaken in order to improve conditions in those markets. I won’t say any more about the latter today.

The bulk of the medium-term impact from the asset purchases should come from the stock of purchases not the flow. There will be approximately £ extra money stimulus in the system, until the MPC decides to withdraw it (or to increase it). When the time does come to unwind the purchases, the MPC will face a number of difficult decisions. First, it will have to decide at what point monetary policy should be tightened. That decision will, as with any decision to expand the purchases further, be judged on a month-bymonth basis, taking into consideration developments in the economy, and the outlook for our mandated target, CPI inflation. As the Governor said in June 13 , when the MPC does want to tighten policy, it is most likely to raise interest rates first. Gilt sales would be started later and conducted in an orderly programme over a period of time. That would leave Bank Rate as the active or “marginal” instrument of monetary policy. Second, the MPC will have to decide how fast to sell the gilts. Again, that would depend on the outlook for inflation at the time, so we cannot commit now to any particular scale or pace. But it is not in the interests of the UK economy to generate unnecessary volatility in the gilt market.
All this confirms my main contention that the current environment, per se, creates no reason for delay. Conclusion Let me conclude. The economic outlook for the euro area is brighter today than it has been for seven long years. Monetary policy is working its way through the economy. Growth is picking up. And inflation expectations have recovered from their trough. This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe’s problems. It does not eliminate the debt overhang that affects parts of the Union. It does not eliminate the high level of structural unemployment that haunts too many countries. And it does not eliminate the need for perfecting the institutional set-up of our monetary union. But what the cyclical recovery does achieve is to provide near perfect conditions for governments to engage more systematically in the structural reforms that will anchor the return to growth. Monetary policy can steer the economy back to its potential. Structural reform can raise that potential. And it is the combination of these demand and supply policies that will deliver lasting stability and prosperity. BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches

Second, public dissatisfaction with the economic status quo is forcing governments to reconsider fiscal policy, especially public spending and tax reforms that can potentially boost the economy’s productive capacity. It is in the US that the nascent rise of fiscal policy has attracted most interest. Historically, a clean sweep of Congress and the White House has led to expansionary fiscal policy. But the size of the fiscal stimulus will depend on the balance that will be struck between the ambitious spending plans of the White House and concerns about debt sustainability among House Republicans. There is considerable uncertainty over not just the size of the fiscal package but its composition. There appears to be broad consensus on reducing corporate and personal income taxes, broadening the tax base, and offering a one-time tax holiday on repatriated overseas corporate profits. But there is no clarity on the details and hence the size of the fiscal impact. On plans to increase defence and infrastructure spending, there is currently less consensus. It is also not clear how these spending increases will be financed. Besides uncertainty over the size of the fiscal stimulus, there is also uncertainty over the impact of a given stimulus on growth. This impact will depend on how much slack there is in the economy. Signs are that the US economy is close to full employment. Unemployment is at or near the natural rate and wages are increasingly healthy.