samchain/econo-pairs-v1 huggingface dataset:
Our work on validation will accelerate over the coming months, although our focus will be more on sharing and cataloguing information and approaches, and not on trying to develop a prescriptive method. As we have stated in our principles, the primary responsibility for validation lies with the banks themselves. Close dialogue with the industry in our work will, of course, be of great importance. In turning to my conclusions, I would like to use this opportunity to make a brief comment from my perspective as Governor of the Banco de España. Although I have talked about the work underway in the AIG on implementation, you are probably also aware of similar work being conducted in Europe, by the Committee of European Banking Supervisors, which is seeking to promote consistency and convergence in the application of Basel II in the EU. As I have said on other occasions, I believe that Basel II represents a great opportunity for the EU – as a single market - to lead the way on international convergence, and I hope that we can seize this opportunity. Certainly, the progress made by CEBS so far is encouraging in this respect. Conclusion Coming back to the points I made earlier, even considering the ongoing work on trading activities under Basel II, I believe that the vast majority of efforts being undertaken by banks and supervisors alike today related to Basel II are focused on implementing the very good rules that have already been developed.

Jaime Caruana: Basel II - a review of ongoing work Keynote address by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the 20th Annual General Meeting of the ISDA (International Swaps and Derivatives Association), Barcelona, 16 March 2005. *  *  *  Mr Moulds, Mr Pickel, Ms. Sebton, distinguished guests, It is an honour for me to be invited to join your meetings today and it is furthermore my pleasure to welcome you and the International Swaps and Derivatives Association to Spain. It appears to me that you have all of the ingredients for a stimulating and memorable conference. The agenda is ambitious and addresses the latest topics in the ever-evolving derivatives markets. The speakers are distinguished, deeply experienced, and represent a wide range of perspectives and institutions at the forefront of financial services. And, of course, I must commend you on your selection of a marvellous location for your annual meeting. Barcelona has undergone a fantastic transformation, is a gateway for the world and a city that celebrates the ancient and the innovative. I hope that you take some time outside of your sessions to explore its blending of the old and the new. A walk through the “Gothic” quarter serves as a window into our past. A visit to any of the creations of Antoni Gaudì – after whom this conference hall was named – offers a vision of Catalan modernism through architecture.
Much reflection has also been carried out on the matter within the Swiss National Bank in order to better understand this difficult period in our own history. The postwar period was characterised by a fierce determination to start afresh, to avoid the reappearance of the misleading thinking that had led to pre-war protectionism, and to reconstruct the economies that lay in ruins. A phase of intensive work began, with the aim of reorganising the international monetary order. Still isolated, both economically and politically, Switzerland participated in the efforts without becoming a member of the Bretton Woods Institutions. The gradual liberalisation  BIS Review 40/2007  3  of payments and trade rapidly led to a period of prosperity but also to a situation of disequilibrium in the operation of the international monetary system. Inflation and speculative movements of funds became common features during the 1960s and the monetary arena was disturbed by multiple devaluations, particularly in Europe. Suspension of gold convertibility for the dollar, in 1971, hailed the collapse of the system of fixed exchange rates that had been put into place after the war. Faced with a massive flow of speculative funds, the SNB was forced to abandon stabilisation of the Swiss franc in 1973. The transition to sustained floating for the Swiss franc was definitely the most important change of direction in the monetary policy strategy pursued by our bank in its hundred years of existence.

At each of our quarterly assessments of the economic and monetary situation, we have concluded that preservation of medium-term price stability demanded that the three month Libor be adjusted once again, and it has thus been raised by 1.25 percentage points since January 2006. 2  BIS Review 40/2007  With average inflation of 1.1%, 2006 was another year of price stability; indeed it was the thirteenth year such year in succession. The current situation remains comfortable due to the fact that the inflation outlook is moderate and last year's drop in oil prices is having a favourable impact on the indices. Nevertheless, we remain cautious since the productive resources in our economy are currently more or less fully employed and the Swiss franc has depreciated on the foreign exchange market – thereby tending to make our imports more expensive. We will continue increasing interest rates to the full extent that is necessary in order to preserve price stability in the medium term. Risks Based on the current momentum in the global economy, the outlook for 2007 looks good. Admittedly, there are signs of weakness in the US, but this phenomenon is likely to be temporary. In Europe, the recovery in 2006 was surprisingly strong. A slowdown is now expected, but not a marked downturn in the economy. Consequently, with respect to the economy, the assessment of risks appears relatively favourable for 2007. Clearly, the price of oil remains a source of concern.
This is why last week I spoke with the CEOs or Chairs of all of the major banks to reiterate our expectations as regulator. I’m glad I did because they were all concerned about precisely such unintended consequences. The best in the industry are committed to making the SMR work – not because they have to – but because a regime with clear responsibilities, proportionate consequences and a culture of openness helps to build the culture that will over time help regain trust for the industry. Conclusion  Changes to incentives, new codes and a clearer mapping of responsibilities will all help improve conduct and lay the groundwork for better culture. Of course, integrity can neither be bought nor regulated. Even with the best possible framework of codes and principles, the soundest compensation schemes, and the most committed efforts to improve transparency, financiers – in both the public and private sectors - must consistently challenge themselves and the standards they uphold. We are seeking to raise expectations and norms by using a combination of hard and soft law, with much of the latter developed by the private sector. The best view finance as a profession with a purpose to serve their clients. They see themselves as custodians of their institutions, with a sense of responsibility for the system. Cultural change takes time. We know this from our own efforts. We have made great strides under our ‘One Bank’ strategic plan.

Figure 5  Output by sector (*) (average index, 2006-2009=100)  130  130  120  120  110  110  100  100  90  90  80  80  70  06  07  08  09  10  70  135  IMACEC (*) (index, 2003=100)  135  130  130  125  125  120  120  115  115  07  08  09  10  Retail sales Manufacturing output (*) Seasonally-adjusted series. Sources: Central Bank of Chile and National Statistics Bureau (INE).
They matter because banks, dealers and funds rely on them in order to provide services to the rest of the economy, and also because they can increase fragilities in the system. They are perhaps represented best by what have become known as the “financing markets”: repo, securities lending, certificates of deposit etc – the markets that financial firms use to access short-term wholesale funding. The authorities’ engagement with them is, frankly, patchy. At one end of the spectrum, central bankers in particular have a good track record of ensuring the professionalism of core government-bond repo markets. That was not without good cause. When the US Treasury repo markets started in the mid-to-late 1970s, there was a string of scandals4. When the UK authorities opened up the way to a gilt repo market in the early-90s, therefore, we worked with the industry on the supporting hard and soft infrastructure, including a Code drawn up by the Stock Lending and Repo Committee, to avoid a repetition in London of Wall Street’s experience. It would be hard for the authorities to claim the same foresight concerning the wider securities lending or repo markets in recent years. The employment by securities lenders of cash collateral became a core but hugely opaque financing market in the run up to the latest crisis5. The run on repo, documented by Gary Gorton6, was how the US securities dealers unravelled. The authorities need to develop policies for monitoring and, where necessary, controlling these markets for providing leverage and maturity transformation.

Global growth is still expected to pick up gradually towards a more normal level, but the upturn may come at a later stage than previously assumed. However, we cannot rule out that the world economy is headed for a fairly long period of stagnation. Low interest rates in the US and Europe are a reflection of this risk. Weak external developments have had negative spillover effects on the Norwegian economy through the appreciation of the krone, the fall in equity prices and lower demand for Norwegian exports. Unemployment has increased, primarily in service industries. The prospects for manufacturing industry are deteriorating. High wage growth is forcing many businesses and municipalities to cut costs and reduce their workforces. In 2002, inflation was close to target at 2.3 per cent, but has been somewhat lower in recent months. The strong krone is the primary factor behind low price inflation. The rise in prices for domestically produced goods and services is marked by the considerably higher wage growth in Norway relative to trading partners. Wage growth moved up further last year, even in industries where profitability had been sharply eroded. A situation where wage growth does not react to the labour market outlook, can give rise to substantial real economic costs. Developments over the past year show that monetary policy is effective and that inflation can be kept at a low and stable level also in periods with high domestic cost inflation.
Here at Norges Bank, the application of this method is not new – the interest rate forecast has been published by the Bank since 2005. The aim is to influence interest rate expectations and thereby contribute to achieving the objectives of monetary policy. 1 The Federal Reserve has published board  1  See speech by Janet L. Yellen, 25 February 2011: “Unconventional Monetary Policy and Central Bank Communications”, http://www.federalreserve.gov/newsevents/speech/yellen20110225a.htm. BIS central bankers’ speeches  1  members’ expectations of when the first key rate increase will take place since January 2012. 2 The second method is known as quantitative easing, or balance sheet policy, and consists of measures to change the composition and size of central bank balance sheets. This use of the balance sheet differs from the usual monetary policy operations in that instruments other than the key rate are used to influence market rates and economic activity. Traditional monetary policy operates through the commercial banking system: it influences the economy because banks let their interest rate conditions in the central bank pass through to their customers. Moreover, liquidity management is used to keep short-term rates close to the key rate. In countries where the key rate is close to zero, this instrument has been exhausted. At the same time, the effect of the key rate may be weaker than normal as many banks are consolidating and are reluctant to engage in lending.

8 An exit from the krone market may be tight when many investors seek to shift out of krone positions at the same time. This can trigger a considerable depreciation of the krone, as experienced in autumn 2008. On the other hand, Norwegian securities can be perceived as safe havens because the associated credit risk is perceived to be low. Experience has also shown that international turbulence can in periods lead to an appreciation of the krone. A krone that is too strong can over time result in inflation that is too low and growth that is too weak. In that case, monetary policy measures will be taken. In Norway, the key policy rate is the relevant instrument. We still have room for manoeuvre in interest rate setting – in both directions. Foreign exchange interventions are not in principle an instrument suited to influencing the krone exchange rate over a longer period. It would only be relevant should the krone exchange rate move significantly out of line with that deemed reasonable in relation to the underlying fundamentals of the Norwegian economy, and should developments at the same time threaten the credibility of the inflation target. In addition, the interest rate weapon must have already been exhausted. Over the past decade, inflation has been low and stable. This shows that monetary policy has functioned effectively. Transparency about the response pattern and key policy rate forecasts reinforce the impact of monetary policy.
On this view, someone who thinks his or her income will be persistently lower from tomorrow would reduce the level of spending today. In the interim – until income actually declines – the saving rate goes up. So the behaviour of the saving rate should tell you something about how consumers expect income to evolve over the future. Expectations of strong income growth lower the saving rate, a more pessimistic view does the opposite. 6  Now we know that, in the real world, there are reasons why consumption doesn’t exactly behave like this . We also know, from our own NMG survey of households, that there are many households who do say they expect EU withdrawal to have a negative impact. Since September last year this biannual survey has included three Brexit-related questions. One asks for your overall opinion – do you think leaving the EU is a good or a bad idea? (One would imagine the responses here are well correlated with what people actually voted in the referendum; consistent with that, the households surveyed in September 2016 were more or less split down the middle on this question.) The second asks about the impact of Brexit on the economy, the third asks how households expect the referendum result to affect their spending. The balances on these last two questions are drawn in Chart 6. They’re divided between those who answered the first question positively, in green – let’s call them the “leavers” – and the “remainers” in red.

Typically, potential output is divided into a contribution from the stock of capital – how much physical capacity there is in the economy – and something called “total factor productivity”, or TFP. The stock of capital is much bigger than the flow of new investment that adds to it, and it therefore evolves relatively slowly. And, while TFP is a catch-all for all sorts of factors, many associate it with relatively slow-moving things like the state of technological knowledge or average educational attainment. On this basis it’s hard to see how the overall rate of potential output growth – and, a fortiori, our estimates of that trend – could change much over any short period of time. Indeed, I think we can go further than this – not only can the view that changes in supply are gradual make sense in principle, I think it’s usually true empirically as well. Over shorter-run cyclical horizons, most movements in economic growth appear driven by demand, not supply. That’s why inflation tends to be higher in upturns than downturns. But that doesn’t mean such short-term hits to productivity are inconceivable. We saw a sharp step down in productivity growth after the financial crisis. And I think there are things involved in Brexit that, once one digs below the macro-economic surface, could potentially do the same. I’m thinking in particular of allocative effects.
But, because it takes some time before changes in Bank Rate affect inflation, it is important that the Monetary Policy Committee look through this short-run volatility and try to understand where inflation might be heading in the medium term. That poses a real challenge. None of us can foresee the future. To assess the likelihood of different possible outcomes for inflation, we examine all the available information – official statistics, business surveys, and reports from around the country, including those from our team in Wales. Then we make a judgement about the outlook for inflation. That judgement cannot be made on the basis that just because certain developments seem to have forecast inflation in the past they will do so again. Such correlations are not stable over time. We have to try to discover the driving forces behind the mosaic comprising all the different pieces of information that we examine each month. To understand what is likely to happen in the economy, we have to behave like the child who cannot stop asking “why?” Why is output growing so steadily? Why did recorded employment fall last quarter? Why are money and credit rising so rapidly? Why have oil prices picked up? And each answer inevitably provokes another question “why?” So setting interest rates is not straightforward. Our job, in fact, is rather like taking part in a “spot the ball” competition.

Which of those explanations can plausibly contribute to explain the remarkable development of credit-to-GDP ratio in Switzerland highlighted before? 4. A plausible explanation for the current Swiss developments  As already hinted at, the review of possible structural drivers of an increase in credit volumes does not seem to provide solid support for arguing in favor of a recent permanent shift in the case of Switzerland. Switzerland has a highly developed financial system. Economic stability, a high wealth level – Swiss households’ stock of financial assets amounted to about 3.5 times GDP in 2011 (Figure 6) – a high savings rate and structurally low interest rates are probable reasons for high credit volumes, possibly even a high credit-to-GDP ratio, in international comparison. It is not clear, however, how one could argue that significant changes in these structural factors are currently at work.9 By contrast, many of the cyclical drivers that we have discussed appear highly plausible in the current circumstances. Specifically, the prolonged current period of ultra-low interest rates feeding into and being reinforced by rising real estate prices, combined with the potential for some of the abovementioned behavioral biases, have a higher explanatory power. These developments bear clear risks for financial stability. Let me go into more detail. We are currently experiencing a prolonged period of low interest rates (Figure 7a). This holds globally as well as in Switzerland; it is one of the key consequences of the financial crisis of  7  Minsky, H.P. (1982)  8  Keynes, J.M.
For similar reasons to the ECB, we moved from twelve to eight meetings per year, and we began publishing a statement every time we met and releasing Minutes, Inflation Reports and Monetary Policy Summaries simultaneously on the logic that one decision should merit only one news event. The MPC now provides much more detailed information on the assumptions that underlie our forecasts and regularly assesses them versus actual outturns. We release our key judgements for the global economy, domestic demand and the pace of demand relative to supply capacity, and we publish paths for variables that we and others can monitor to see whether the forecast is on track. We also now publish annual stock takes of the supply side of the economy and of the forecast errors we have made over the past year. Last year, the MPC introduced layered communication to reach the broadest possible audience. In addition to the Inflation Report we now publish a visual summary, or top layer, which distils the document down to its main messages with a few accompanying diagrams. It is intended for a non-technical audience. Following  5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  the changes, we have seen web traffic to Inflation Report pages increase by a third and research suggests that public understanding has increased by a quarter.4 The biggest innovation in communication has been the introduction of forward guidance as a tool to influence short-term interest rates once policy rates hit the effective lower bound.

13  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  13  Chart 9: Pass through of ECB rate cuts to lending and deposit rates facilitated by TLTRO TLTRO I  TLTRO II  Per cent 5 4 3 2 1 0 -1  2010  2011  2012  2013  Household deposits EONIA ECB main refinancing rate  2014  2015  2016  2017  2018  2019  Loans ECB lending rate ECB deposit facility rate  Source: ECB. To sum up on liquidity and lending facilities, reforms over the crisis leave behind a much more comprehensive backstop to dysfunction in funding markets. Liquidity is available more freely, against a wider range of collateral and in all major currencies. Moreover, through careful calibration targeted lending schemes can lower the effective lower bound on interest rates, unlocking more stimulus. ----------------------------------------------------To return to where I started, the past ten years have spurred tremendous advances in the conduct of monetary policy. In this as in so many other respects, Europe has a rich past. And in part because of that past, it now has the possibility of a bright future. For a perspective on the challenges faced by central banks today I will hand over to Stan Fischer. 14  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  14