samchain/econo-pairs-v1 huggingface dataset:
European banks would also face impairment of their corporate bond holdings under these scenarios, further reducing their profitability and solvency. As already mentioned, the impact would be uneven across economic sectors and geographical areas, and therefore the effects on banks across different countries would also be uneven. A very important point here is that banks’ potential response to the materialisation of risks is not currently modelled in these stress tests, since the aim is to show what would happen precisely in the absence of any such response. In reality, however, banks can be expected to respond to the increase in the probabilities of default associated with the materialisation of physical risks in the event of inaction, which would exacerbate the negative implications for activity in these areas. The possibility of response makes the climate stress test methodology even more complicated, but it is a key element which will have to be incorporated in future. In addition, the ECB is currently conducting bottom-up stress tests in which banks will assess their exposure to climate risks. The exercise began with a questionnaire for banks, the aggregate results of which are due to be published in the summer. At the Banco de España we have also carried out top-down stress tests to assess the resilience of the Spanish banking sector to climate-related transition risks,17 and we are currently carrying out various empirical analyses to approximate the potential impact of the physical risks.

With over half of total trade in Asia being intra-regional trade, and with this proportion still on an increasing trend, economies in the region are becoming increasingly interdependent among themselves, arguably more so than each of them depends on the developed economies in Europe and America. By comparison, the degree of financial integration in Asia is disproportionately low. For example, all of the Asian economies have probably lent more individually to the United States than they have collectively to other Asian economies. 4. Whether we like it or not, we now find ourselves in the unenviable position of holding a substantial part of our savings in the financial liabilities of an economy that does not save, fearing that a diversification of a small part of such holdings might lead to a sharp fall in the value of the rest, thus shooting ourselves in the foot. We also find ourselves somewhat stuck with recycling a large part of our savings through the developed markets back into the region in a much more volatile form, occasionally creating havoc in our monetary and financial systems. 5. We find ourselves - we are told - contributing to the global imbalance by saving too much and spending too little, although those that tell us pay little attention to the fact that we do have typhoons and heavy rains, earthquakes and tsunamis, and we need to ensure that we are able to help ourselves as much as possible in case of need.
There are several measures that have a greater effect on house prices and household borrowing than the policy rate, and at the same time entail lower costs for the real economy. In general, the problem needs to be analysed and specified, for instance, in the form of which market failures or which externalities or which consumer protection inadequacies it entails, to determine what measures can be used to deal with the problem closest to its source and at the lowest cost. The most suitable measure is probably one that is currently under the jurisdiction of another government agency, and not the Riksbank. To avoid the current problems with large differences between the repo rate path and market expectations, the decision-making process should start with forecasts for inflation and resource utilisation conditional on market expectations of interest rates in Sweden and abroad, that is, forecasts for the repo rate and policy rates abroad that are in line with market expectations according to implied forward rates in Sweden and abroad. The Riksbank used to make such forecasts earlier, before forecasts conditional on an own repo rate path were introduced, and the Bank of England and the ECB make such forecasts now. The methods for producing these forecasts may need improvement. The forecasts can then be used as a starting point for assessing whether a repo rate path that deviates from market expectations is necessary to best stabilise inflation and resource utilisation.

Widespread theoretical and empirical research shows that changes in policy rates have little effect on house prices, but a substantial effect on production, jobs and unemployment. A typical conclusion is that, all else being equal, an increase in the policy rate of 1 percentage point reduces house prices by around 1.5 per cent, but at the same time reduces GDP by around one third, that is, about 0.5 per cent. So to reduce house prices by 15 per cent may require raising the repo rate by as much as 10 percentage points. But this would cause GDP  BIS Review 158/2010  3  to fall by around 5 per cent. These estimates are of course uncertain, but nevertheless imply very high real costs in terms of GDP. 2 If house prices and household indebtedness would be regarded as a problem, there are more effective instruments than the policy rate, which also have less negative effects. Some examples are the mortgage ceiling introduced by Finansinspektionen (the Swedish Financial Supervisory Authority), a mortgage tax or limited tax deductions for mortgages, a property tax, a reserve requirement for mortgages, and so on. As a comparison, a higher repo rate functions not only as a tax on mortgages, but also a tax on loans for production, investment and trade. This in turn leads to the large costs to the real economy I mentioned earlier. Are house prices and household indebtedness a problem?
Islamic finance in 2008 and beyond remains positive despite the current challenging global financial environment. The viability and competitiveness of Islamic finance is derived from several factors. It is from its ability to meet the changing demands of the economy, from its cost competitiveness and from being supported by a well developed legal, regulatory and supervisory framework. But more importantly, are the fundamental Shariah requirements of Islamic finance that support its viability and stability. Shariah is the key pillar of Islamic finance from which Islamic finance derives its unique characteristics. The Shariah injunctions require that Islamic financial transactions be accompanied by an underlying productive activity. In Islamic finance, there is always a close link between financial and productive flows. Moreover, under the risk sharing principle  BIS Review 6/2008  1  required, Islamic financial institutions will share the profit or the loss incurred by the entrepreneur. There is an explicit sharing of risk by the financier and the borrower. This arrangement will thus entail the appropriate due diligence and the integrating of the risks associated with the real investment activity into the financial transaction. In this arrangement, the real activity is expected to generate sufficient wealth to compensate for the risks. In contrast, conventional instruments generally separate such risks from the underlying assets. As a result, risk management and wealth creation may, at times, move in different or even opposite directions. Conventional financial instruments also allow for the commoditisation of risks.

But a more careful analysis shows that other factors played an important role, such as the rapid growth of new financial instruments, the increasing presence of very active and highly leveraged financial market participants. Moreover, ample market liquidity also reflected an increase in risk appetite and a rise in leverage. And the recent market developments showed that an abrupt and sizeable increase in risk aversion caused an evaporation of liquidity in many markets and a rise in market volatility. Therefore, although financial globalisation can play a role in containing market volatility, it cannot be expected to have a dominant and permanent impact. Impact on financial stability – the financial market turmoil What are the broader potential implications of financial globalisation for the stability of financial systems? How are real and financial shocks likely to propagate across borders and asset classes in a financially integrated world? On the one hand, there is obviously an augmented risk of cross-border contagion of asymmetric shocks to the rest of the world if cross-border asset holding is widespread. On the other hand, this risk has to be weighed against the positive side of the very same coin, which is the benefit gained from an increase in international risk-sharing by means of diversification. The resilience of financial asset prices to negative shocks is improved when the market is more liquid and the investor base more heterogeneous.
The current inflation rate does not therefore provide sufficient information to determine the level at which interest rates should be set now. Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. Two years is thus a reasonable time horizon for achieving the inflation target of 2½ per cent. Using this time horizon, we avoid substantial variations in output and employment. A shorter horizon than two years would result in wider swings in production. Credit developments and developments in equity and property prices influence inflation. With an inflation targeting regime, we take these variables into account to a certain extent when setting interest rates. Equities and dwellings account for a substantial share of household wealth. Higher equity and house prices increase the value of this wealth. The increase in wealth can relatively rapidly result in rising consumption. Several studies indicate that an increase in the value of housing wealth is more likely to lead to higher consumption than a corresponding increase in the value of equity wealth. Higher prices for commercial buildings may be passed on in the form of higher prices for goods and services. Developments in asset prices can thus affect inflation more directly. In Norway, a high proportion of households own their own dwelling. Even when we include securities funds and some insurance claims, Norwegian households’ housing wealth is far higher than their equity wealth.

When we probed survey respondents about their understanding of changes to “prices in general” (the Michigan Survey question), we found that a significant fraction believed we were inquiring about the prices they themselves recently paid – often prices that had increased or decreased markedly, such as those for food or gasoline. This tendency to think more about prominent price changes in one’s own experience is less common among respondents with higher financial literacy. By contrast, when we asked about expectations for the “rate of inflation,” respondents tended to think less about a few salient price changes specific to their own experiences and more about price changes across a broader set of items or about changes in the cost of living – a result that aligns more with economists’ definition of inflation as a sustained increase in the overall price level. Asking about the rate of inflation directly therefore produces answers more consistent with the concept of forward inflation expectations of interest to central banks. Chart 4 plots the time series of median responses from our experimental survey to a “prices in general” question and a rate of inflation question. One can see that the median expectation for the rate of inflation question is less variable. We also find that the dispersion of responses is significantly larger with the “prices in general” question.
14  Øksendal, Lars Fredrik (2008), “Monetary policy under the gold standard – examining the case of Norway, 1893-1914”, Working Paper 2008/14, Norges Bank. 15  See Bjerkholt, Olav and Jan F. Qvigstad (2007): “Introduction to Ragnar Frisch’s 1933 pamphlet Saving and Circulation Regulation”, in Revisita di Storia Economica, Banca d’Italia. 16  See Eitrheim Øyvind., Jan T. Klovland and Jan F. Qvigstad (Eds.) (2004), page 293: “Historical Monetary Statistics for Norway 1819-2003”, Occasional Papers No. 35, Norges Bank, Oslo. 17  However, they were more flexible in September 1931. It only took seven days for Norway to follow the UK’s lead in abandoning the gold standard. 18  There was a consensus on parity policy in the 1920s. See for example Hodne, Fritz and Ola Honningdal Grytten (2002), pages 111-112: Norsk økonomi i det 19. århundre (The Norwegian economy in the 19th century), Fagbokforlaget and Skånland, Hermod (1967) “Det norske kredittmarked siden 1900 (The Norwegian credit market since 1900) Samfunnsøkonomiske studier No. 19, Statistics Norway, Oslo. See also Mykland, Knut (ed.) Cappelens Norgeshistorie, Vol. 13 page 86. 19  For further discussion of parity policy and Norges Bank’s role, see Ecklund, Gunhild J. (2008), pages 46-51 and 67-71: “Creating a new role for an old Central Bank: The Bank of Norway 1945-1954”, Series of Dissertations 2/2008, BI Norwegian School of Management, Oslo. 20  This link to gold was not as strong as when the obligation to redeem in gold applied.

In total, more than 6,000 individuals have been trained under FICS, with about 2,600 of them assessed. We now have more than 300 individuals certified under FICS. Every craft has its master craftsmen. The financial industry is no different. To this end, IBF introduced the Distinguished Financial Industry Certified Professional, or FICP. The Distinguished FICP represents the highest certification standard under FICS: it is bestowed on those in the industry who are the epitome of professional stature, integrity, and achievement. IBF is proud to have added another 15 senior industry veterans to its cadre of Distinguished FICPs in October last year. Over the years, we have developed a growing network of FICS-certified professionals. This is an invaluable resource: a community of professionals whom we can actively tap upon as partners in our learning journey – participating at industry events or in FICS working groups. It has been about five years since FICS was introduced. It is now timely for a review of the FICS Standards. IBF will be working with its group of Lead Providers to re-look the FICS Framework and the Curriculum covered by the current Standards. Please come forward to give us your views. When we met at last year’s Conference, we had indicated that IBF will study the feasibility of introducing “common examinations” for the industry. I am happy to report that IBF has since worked with the industry to roll out the Corporate Banking Common Examination.
Third, firms should be able to demonstrate publicly that their conduct in the FX market is in line with the Code. A key part of the Code is the Statement of Commitment that is found in Annex 3 of the Code. This is a single, common basis by which each market participant can demonstrate that it commits to adhere to the Code2. It will be up to each market participant to decide whether and how to use the Statement. For example, some market participants may choose to publish their Statement on their websites, or provide a copy to counterparties when establishing trading relationships. Thus far, a number of the largest FX market participants have indicated that they will be signing the Statement by May 2018. The industry is also considering the development of public registers, which are essentially repositories where market participants can publish their Statements. Public registers can enhance transparency around the level of adoption of the Code, and can be a means to monitor the success of the Code over time. Feedback from market participants has indicated that there is a demand for public registers. Market participants that have signed the Statement can publicly demonstrate that they have done so on such public registers. Market participants can also use public registers to find out which of their peers or counterparties have signed the Statement.

3/6  BIS central bankers' speeches  Supporting adherence While the above reasons provide a strong foundation for the Code to succeed, the success of the Code will depend on widespread adherence by market participants. Hence, we should each ask ourselves what we can do to support adherence. There are three key elements in the adherence framework developed by the FXWG, which can support adherence at both the individual firm and industry levels. First, the Code has to be embedded into your practices. Training and education of staff will be particularly important to effectively embed the Code. There are ongoing initiatives at the firm level, and the industry should consider if there are system-level initiatives that could make sense. For example, industry associations could consider developing relevant training content that caters to specific segments of the FX market e.g. buy-side players or corporate treasuries. Second, there should be effective monitoring on how successfully the Code has been embedded. To this end, a number of adherence mechanisms have been developed to facilitate effective monitoring. For example, at the system level, the GFXC will use a broad survey of market participants to monitor adherence and adoption. The survey will take place annually and the first survey will be conducted in 4Q this year, to form the baseline for monitoring progress. At the firm level, we expect that mechanisms will be put in place to monitor how the Code has been embedded within internal practices.
This being said, the exchange rate criterion, which relates to the Exchange Rate Mechanism (ERM II), falls well within the competence of central banks. I, therefore, propose to focus today on the implications of this criterion for the Central Bank of Malta. The implications of the single currency for exchange rate policy Exchange rate policy is determined by the Minister of Finance on the basis of recommendations made by the Central Bank. In practice, this means that the Bank must have a considered view on which exchange rate strategy is appropriate at any particular time. A key task of the Bank in the run-up to EMU, therefore, would be to assess the implications of the exchange rate criterion for the evolution of  1  European Commission, Directorate General Internal Markets. “The Internal Market – Ten Years Without Frontiers”. Brussels, January 2003. 2  Andrew K Rose, “The Effect of Common Currencies in International Trade: A Meta-Analysis”, (draft) University of California, Berkeley, 8 April 2002  3  Attila Csajbok, Agnes Csermely, “Adopting the Euro in Hungary: Expected Costs, Benefits and Timing”, National Bank of Hungary, Occasional Papers 24. BIS Review 8/2003  1  policy. This criterion requires, as a condition for joining EMU, that a country participate in ERM II for at least two years without resorting to a devaluation against the euro.

The NPC has prepared a well-focused action plan after detailed deliberations with all stakeholders and is the apex body for payment system development policies and operations. I understand that India and some other countries too have NPCs. It  BIS Review 79/2007  5  may also be important to set up a secretariat in one of the countries to lead the regional payment initiative. The SPC, as well as the task forces, should establish close links with international organizations such as the WB, IMF, BIS and also with other regional payment groups and developed country central banks for guidance and technical assistance. As I mentioned before, the ACU is the only regional clearing mechanism that exists today among SAARC member countries. It needs a clear reform agenda to mitigate risks involved in that system and ensure safe payment flows among the member countries. Already, a technical committee has been appointed under the Chairmanship of Sri Lanka to look into some elements of modernizing the ACU. The whole of yesterday we debated on some of the short-term measures that need to be introduced to the ACU clearing arrangements in order to avoid any disruptions to cross border flows. That committee too could report its recommendations to the SPC. There may be many other modifications, modernizations and reforms that need to be introduced at national and regional levels which will shape the annual work program of the SAARC regional payment initiative.
For those of you unfamiliar with the expression “Bernanke put,” or more generally, a “central bank put,” this term refers to the concept that a central bank will allow the stock market to rise significantly without tightening monetary policy, but will ease monetary policy whenever there is a stock market “correction.” Given the extent of the drop in the stock market leading up to and following Standard & Poor’s downgrade of U.S. debt, combined with the FOMC’s commitment to hold short-term rates near zero until mid-year 2013, some cynical observers might interpret such a policy action as a “Bernanke put.” My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors. I believe my FOMC colleagues share this view. Connecting the dots Now, how do you connect the dots between Texas’ record of economic growth and my dissenting vote? Despite the fact that Texas has severely limited social services and an education system that faces great challenges, people and businesses have been picking up stakes and moving to Texas in significant numbers over a prolonged period.3 It should be noted that in the last census, Texas gained population and congressional seats, while California’s population growth and congressional representation was static and New York’s was diminished. Jobs have been created for American workers in Texas in several different sectors, not just in the oil and gas and mining sectors.

In the same way as leaning against the wind with the policy rate can be justified by monetary policy reasons, so too can a policy that leans against the wind with regulations. How, then, would this time-varying application of regulations look in practice? One possibility is to raise the capital adequacy requirement, which would raise the interest rate margin and thus the lending rate. Higher capital adequacy would also lead the banks to increase their buffers and thus improve their resilience to loan losses. Another alternative to increase the interest rate margin would be to require a larger proportion of own funds from borrowers by setting a ceiling for leverage – such as, for example, the ceiling recently proposed by Finanzinspektionen – or amortisation requirements. Raising the requirements for own funds will primarily strengthen borrowers’ buffers against falling prices, even if lower indebtedness will also reduce the banks’ risks. In contrast to capital requirements, the regulations on loanto-value and amortisation requirements mean that it will not only become more expensive but also more difficult to raise loans. This latter suggests that such regulations could be analysed in terms of more explicit supply limits. However, today I have decided to discuss loan-tovalue and amortisation requirements in terms of a “shadow interest rate” in order to illustrate the connection between quantitative regulations and monetary policy. Rather than regulations, an economist may be more used to thinking in terms of Pigovian taxes as regards handling negative external effects.